St. Pete Celebrates Its Frothy Success Stories

ST. PETERSBURG -- It is called "liquid bread," and over 200 million liters of it are sold annually here f making St. Petersburg the beer capital of Russia.


But as the city showed its pride this month with a festival in honor of its most successful hometown business, it celebrated a beer industry that has changed dramatically in just the past year. There are now new brewers and new brands; more foreign financing and more foreign competitors; brands succeeding by cutting prices and aiming low, and brands spending on advertising and aiming high.


Nationally, the beer market will grow by as much as 30 percent this year, according to the Renaissance Capital investment company. But St. Petersburg's five major breweries are together leaving this national growth rate behind: Their combined production volume has doubled in the first quarter of 2000 compared to the same period in 1999.


The Cinderella story is the successful bid for the low end of the market f those who choose their beer based on price, not prestige f made by Stepan Razin, the only of the city's five big brewers that lacks foreign capital.


Stepan Razin is now first in volume sales in St. Petersburg, having shouldered aside traditional giant Baltika. A half-liter bottle of Baltika costs about 8 rubles, but the price of Stepan Razin's flagships f Petrovskoye and Admiralteyskoye f is about 7 rubles.


"Price is the most important criterion for most Russian consumers," said Kirill Burdei, manager of the market research company O+K, explaining Stepan Razin's success.


That is the conventional wisdom driving another major new marketing trend: plastic bottles.


Moscow's Ochakovo factory, which was the first to introduce the 1.5-liter plastic bottle last year, immediately grabbed a 1.5 percent share of the competitive St. Petersburg market.


Baltika quickly countered with Medovoye, a brand only sold in plastic bottles and introduced in August 1999, and soon Medovoye had a whopping 10 percent of the market. This summer, Bravo International f the St. Petersburg company founded with Icelandic capital and known in the market for its canned cocktails f followed with its own plastic bottle, Oblomov.


"Plastic is the most promising development in increasing sales," said Sergei Isayev, director of the market research company SNITs. According to Isayev, Baltika held on to much of its 1999 market share almost entirely thanks to its move into the plastic bottle.


But low price is not the only route to success. Another strategy f one common in the beer-soaked West f is to shell out for advertising and marketing.


That this works in Russia was demonstrated by Bravo's highly successful launch of its first beer on the market, Bochkaryov. Largely thanks to an aggressive advertising campaign, the Bochkaryov brand has in a single year snapped up 11 percent of the local market and about 1 percent of the national market.


Others who have seen growth led by advertising campaigns include the Kaluga-based South African Breweries, which has been pushing its new premium brand Zolotaya Bochka, and Turkish brewery Efes, which completed construction of a new production facility in Moscow last year and which hit St. Petersburg with its Stary Melnik brand.


Both Zolotaya Bochka and Stary Melnik have aimed for the premium beer drinker, and they have also wrested away 4 percent of the local market.


The Turkish-South African invasion is not a catastrophe for local producers, however: The SNITs research company reports local producers accounted for 91 percent of local beer sales last year.


The Belgian group SUN Interbrew, which has five facilities across the country, including St. Petersburg-based Bavaria Breweries, is yet another strong presence.


Although Bavaria's production in St. Petersburg has grown significantly in recent years, it remains the smallest of the local producers. But thanks to further investment by the SUN group, Bavaria's output grew by roughly three times during the last year.


But despite the market's ups and downs, Baltika remains the brewery to beat. The 660 million liters of beer it produced last year makes it the largest brewery in Eastern Europe or Russia.


And Baltika General Director Taimuraz Bolloyev says by the spring of 2001, two recently purchased production lines will come on line f and will have received more than $60 million in investment this year f for a total of 1.3 billion liters of Baltika.


If so, and provided Russia will soak up all of that beer, the Baltika group could then have roughly a quarter of the national market. Renaissance Capital has estimated that last year the total value of Baltika's shares f which are not traded on public exchanges f rose by 450 percent.