Beer in Romania Market Analysis

5/14/2012

Table of contents

I.

Market capacity 4 4 6 7 7 7 9 9 10 10 11

I.1. Particular case II. Market evolution II.1. Particular case III. Market structure III.1. Particular case IV. Product/Service supply IV.1. Exports IV.2. Particular case V. Prices and tariffs VI. Conclusions Bibliography

Market Analysis Beer on the Romanian Market

1. Market capacity
the number of potential consumers/users in 2011 (potential market) effective consumers/users in 2011 (effective market) Our target market is the country market, comprising men aged 18-50 years, with the average income between 200 and 500 RON. Beer addresses to a large segment of consumers. Any lover of beer over 18 who appreciates tradition and authentic values will appreciate the quality beers. The beer market covers: Absolute Nonconsumers - that will never buy beer, they have a fairly low percentage, around 9%. This category includes persons who are forbidden to drink alcohol or to smoke (eg. on religious grounds). Relative Nonconsumers - who would consume the product, but for some reason they dont do it: either lack of money or that they do not know the taste of beer (eg. children). The percentage is around 13%. Effective Consumers - people who drink beer. According to the Brewers Association Statistics 78.67% of the total population consume beer. The biggest consumers of beer are young people under age 30 and people over 60 years. sales volume and sales value for the product/service by geographical regions / administrative-territorial divisions / development regions in 2011 structure of the sales volume and value in 2011, by territorial areas and interpretation of the situation

The unstable economic environment in 2011 resulted in a decrease of the beer market by 3.5% over the previous year, reaching a total volume of 17 million hectoliters. In the last two years the beer market declined by 16% compared to 2008, the year when the beer sales volume reached a maximum quota of 20.2 million hectoliters. Beer consumption per capital in 2011 recorded a value of 78 liters, continuing the descending trend started in 2009 and proving the fact that the economic situation has affected consumers and their consumption habits. The Members of Brewers of Romania Association Bergenbier, Heineken Romania, Romaqua Group, United Romanian Breweries and Ursus Breweries despite the difficult situation, have invested 51 million euros last year and the contribution to the state budget through various taxes 3

(excise, VAT, personal taxes and social insurance contributions) has reached 270 million euros, up by 7 million euros compared with 2009. Beer is a national industry, the most recent statistics showing that 99% of beer consumption in Romania is covered by domestic production, said Jan Derck van Karnebeek, president of the Brewers of Romania Association. At this point the five companies members of the Brewers of Romania Association reached a total volume of 15.3 million hectoliters, with 4.4% less compared to 2010, and offer a total of over 4100 jobs in the 10 beer factories located in several cities all over the country. The beer industry generates a total number of 96 400 employees, in its factories and also in related sectors such as hospitality, retail, suppliers, and distributors. Consumers preferences in terms of packaging were kept constant: PET holds a percentage of 49.3%, 31.7% the glass bottle; the can is 16% and 3% the beer on draught. Although the beer industry in 2011 faced a series of changes due to the economic recession, strongly affecting the level of investment and labor, and also the closure of some breweries, we want that through our sustained efforts to maintain stability and also the recovery of this sector with a mainly local production., said Constantin Bratu, General Manager of the Brewers of Romania Association.

I.1. Particular case

Timisoreana has 4 plants at Cluj, Timisoara, Buzau and Brasov. Each of the four cities where they have factories has their own distribution system and focuses on areas in the immediate vicinity. Beer consumption is higher in the cities with factories, and the brand loyalty is also higher there because people feel the beer as being local and not national. At the end of March this year, Timisoreana sales reached 2.8 million hectoliters, compared to 2.2 million, as realized in fiscal year 2010-2011. Calculating the annual average price of a liter of beer in 2010, Timisoreana shelf achieved sales of around 220 million euros. At the same time, Timisoreana had a 15% market share, according to representatives of Ursus Breweries. This means that in the last year, Timisoara has won more than 3% of the market.

2. Market evolution
the following indicator will be taken into consideration: the average variation rhythm of the sales value of the product(service) during the period 2007-2010; to determine it use the following formula:

Y n- the sales volume in the year 2010; Y 1- the sales volume in 2007;
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Y n R = n 1 1 *100 , where: Y 1

n - the number of years taken into consideration In 2010 we have a volume of 17 million hectoliters sold so this means that aproximately 850,000,000 bottles were sold. In 2011 we have a volume of 20.2 million hectoliters sold so this means that aproximately 1,010,000,000 bottles were sold. Calculations: 1,010,000,000 divided by 850,000,000 is 1.1882 n-1 is 3 years one = 2 years square root of 1.1882 = 1.09 1.09 1 = 0.09 0.09 * 100 = 9 % the evolution trend of the analyzed market The Romanian beer consumption decreased with about 11% during the first semester of this year compared to the same period from last year, the entire beer sector register ing a volume of about 8 million. Members of Brewers of Romania Bergenbier, Heineken Romania, Romaqua Group, United Romanian Breweries and Ursus Breweries sold 7,4 mil hl of beer in the first semester of 2011, which means a decrease of about 11% compared to the first six months of 2010, when the beer sells reached the level of 8,3 mil hl of beer. how can be explained the evolution of the market in the year 2011 over the previous year General economic crisis has affected also the beer market in Romania and led to changes in habits of Romanians, some of them coming less whichever city and choosing home consumption option. The Romanians have continued this year to have a conservative consumer behavior, perspective and deepen of the economic downturn putting more pressure on personal budgets. However, it is certain that Romanians love beer, while producers in Romania have shown so far that they have made substantial efforts by strong investments and contributions to the state budget to maintain the beer sector at high standards and to meet consumer demands as well , Mr. Jan Derck van Karnebeek, President of Brewers of Romania said. in 2011 over 2010, the product(service) market have developed crossed, both extensively and intensively. Beer, when responsibly consumed is compatible with a balanced and healthy lifestyle and is enjoyed in a responsible way by the vast majority of consumers. Beer marketing is directed only at those above the legal purchasing age and is carried out with sufficient regard so as not to encourage excessive or irresponsible consumption. The provisions of these Rules on Commercial Communications for Beer are the basis for the assessment of actual activities pertaining to commercial communications. This allows the brewing industry to develop commercial communications for beer in a creative manner and in line with brand values such as: drinking as a pleasurable personal or social experience; drinking as a social activity, and responsible consumption as a source of enjoyment and relaxation; responsible consumption as part of a healthy lifestyle for vast majority of consumers; drinking should done with moderation;

To maintain consumer confidence, it is in the interest of the brewing industry to ensure that its commercial communications are properly regulated, so that they are seen to be legal, decent, honest, truthful and socially acceptable.

II.2. Particular case

In 2007 we have 0.78 million euros turnover and a price per bottle of 2,5 RON ( 0.61 euro) so this means that aproximately 1,278,688 bottles were sold. In 2010 we have 0.91 million euros turnover and a price per bottle of 2,59 RON ( 0.64 euro) so this means that aproximately 1,421,875 bottles were sold. Calculations: 1,421,875 divided by 1,278,688 is 1.11197 n-1 is 4 years one = 3 years third order root of 1.11197 = 1.038 1.038 1 = 0.038 0.038 * 100 = 3.8 % Ursus Breweries and GMP managed to win in 2010 the Grand Effie Awards trophy with the theme The story goes on ". All results have exceeded what the management wanted; the sales were exceeded by 35% and brand image with more than 90%. These shows, especially in 2009s economic context, that it is important that the brand remains true to its market position, to be constantly in communication and to provide value to its consumers. The beer market has fallen sharply in 2009, and the trend among competitors was to invest more, especially in the media and packaging. Timioreana remained constant in this statement and relied on the power of the story and value to consumers. Their story is credible, consistent and very relevant. The strategy to build long term brand value in people's lives works out extremelly well if you have the patience to reap the rewards. 6

The essence of Timioreana has remained the same over the years; the success has come from consistency and a job well done. Brand performance is given by the performance of all teams, all people who have done a good job and were part of a team over time, be it the people of Ursus Breweries, or all agencies that have put shoulders to the building of this success.

III.

Market structure

Main customer segments of the product/service market and characteristics of the buying and consumption behavior: "Beer is a national industry, the most recent statistics showing that 99% of beer consumption in Romania is covered by domestic production," said Association President "Brewers of Romania", Jan van Karnebeek Derck. Beer consumption per inhabitant in 2011 had a value of 78 liters, continuing a descending trend begun in 2010, "illustrating that the economic situation has affected consumers and consumer habits. Segmenting consumer markets: - Geographic segmentation: the companies operate in all regions in Romania. - Demographic segmentation: men are consuming more beer because they associate it with football. - Psychographic segmentation: people with regular incomes and lifestyles prefer beer. - Behavioral segmentation: both people who tend to focus on one product at a time and persons who are easily influenced by mass-media buy beer. Consumers surveyed provide details about taste, color, consistency, transparency or foam. Surprises occur in blind tests when the majority cannot identify their favorite brand after the features that have previously been described in great detail with the label in front. The conclusion is obvious: beer brands are emotional. In essence, beer is a popular and relatively cheap. We want what's best at the lowest price possible. However, we pay for the brand that resonates with us.

III.1. Particular case

Ursus Breweries relied on the strategy of always being where their consumers are, of knowing which their passions are and how to meet them. And so Timisoreana Celebrations were invented, celebrating, year after year, home brewing tradition from Romanians, in a festival like no other, and Timisoreana Romanian Cup, through which Timisoreana leads the tradition of football competitions that unites both big and small teams. When concerning packaging preferences, Romanians preferred a glass bottle as packaging, considering the fact that Timisoreana is very much present in the hospitality segment, unlike its direct competitor that is distributed more in a plastic bottle.

IV.

Product/service supply
The main suppliers (producers and distributors) of the product on the analyzed market Marketing channels for the product: types of channels

share of each type of channel in the overall sales volume and value
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Starting this year, two new members have joined the Brewers of Romania Association, which opens the representativeness activities to manufacturers of malt and hops. Thus, Soufflet Malt Romania and Association of Hops Producers from Romania will support our efforts to promote the beer culture in Romania, to educate consumers about responsible consumption of beer and to inform about the benefits of this beverage made from natural ingredients. These two raw material producers operate their activities in Romania in nine factories and farms and mobilize a total number of 134 employees, contributing annually to the state budget with over two million euros. Brewers of Romania Association was established in 2004 and represents the beer producers from Romania, both locally and internationally. The current members are five of the largest beer producers in Romania, and starting from 2011 the producers of hops and malt, the raw material required for all beer, have joined the Brewers of Romania Association. The family of beverages generally referred to as "beer" has been brewed for centuries. Beers are obtained by the yeast fermentation of malted cereal grains, to which hops and water have been added. Brewing has evolved from a cottage craft into a modern industry where large breweries export their beers worldwide. On a per capita basis, Germans consume the most beer at about 40 gallons per person per year. Beer drinkers in the U.S. rank fourteenth in the world, with American breweries producing approximately 156,900 million barrels of beer a year. The suppliers are those who provide resources necessary to carry normal business activity. For Romanian beer raw material suppliers are mainly farmers who grow corn, barley, hops needed in brewing. People with low incomes or low education have a higher propensity to purchase in stores and kiosks, while those with high income and high education rather buy from supermarkets, hypermarkets / cash & carry and convenience stores. But most people buy beer in pubs, discos and terraces (especially in warm weather). It also notes that most loyal buyers are men, women rarely personal buying beer. Given the fact that the target market is the population of Romania, people aged between 18-50 years, the distribution will be done using all the possible arthritis but especially in bars, terraces and supermarket sites, places most often frequented by young. The stories often illustrate a simple truth, an idea, a principle, belief, creating a powerful effect on people. Aware of this, marketers have begun to use increasingly more stories in marketing strategies. Narrative Marketing has become a powerful tool, able to create an emotional bond between the company and customers and at the same time able to educate them about the use of that product or service that the company provides. However to create an effective marketing story is a difficult task. The story must be attractive, yet able to disclose the identity of the company, its purpose, extent and manner in which the company will treat customers. The best stories are those that start with a simple idea and are built over time. Although beer is not a traditional Romanian drink, beer advertising currently witnesses the biggest media investments on the market. With the increase in standards of living, Romanians have become more demanding consumers and thus the market had to meet more sophisticated needs. The development and realization of the brand building strategies are a key competition and a competitive advantage. Therefore, in order to launch the brands on the market, the development of the 8

trade marketing capacities in the organization becomes a priority. The sales force has to be trained in order to observe and approached in the proper way the customers from they are serving. The company works with the distributor's sales force. They will be responsible for taking the order for all the locations and the manufacturer will only deal with the locations defined as brand building opportunities.

IV.1. Exports
The following indicators will be taken into consideration: total volume of exports for the product(service) in 2010 dynamics of exports during the period 2007-2010 major 3 export markets for the product (service) in 2010 Romania is the sixth largest beer producer in Europe. Our country exports beer especially towards countries where Romanians have emigrated such as: Italy, Spain, USA and Australia. It seems that Romanians leave the country, but they take with them their beer culture. Romanians are known as being large beer consumers. Although the costs related to the export of the beer are pretty high, thanks to its quality, Romanian workers from abroad are willing to pay more for this beer. In 2009, the imports of beer have dropped. In parallel, the exports have risen and as a result the two indicators have become equal. Due to the fact that Romanians prefer beer which is produced locally, the percentage of imports has dropped under 1% out of the total sales volume compared to the 2,5% registered in the previous year. This means that over 99% of the beer consumed is made in Romania. Despite this fact, the quantity imported has risen from 170 000 hectoliters in 2008 to 500 000 hectoliters in 2009 accordingly to Jan Derck van Karnebeeks declaration (19 May 2010), the president of the Berarii Romaniei Association. However, the results of the Ernst & Young study showed in 2009 that although our country produced large quantities of beer, it was still on the last but one exporter country in Europe. The leading countries were Holland and Belgium which export over 60% of their production.

IV.2. Particular case

SAB Miller is one of the largest beer producers in the world, participating in the production and distribution in over 60 countries on six continents. Timisoreana, the most sold beer brand in terms of value, is being exported all over Europe. Exports have been growing constantly since 2007, but the sales volume hasnt grown in a constant manner all these years. Timisoreana has registered in 2008 a growth of 2% in sales in Europe. This is not a good news if we notice that in 2007(april-september) there was a growth of 12% in exports in the same region. In Russia, a market which was considered to have a high potential, exports had to diminish due to a drop in sales of 4%. The Czech Republic, another country where SABMiller exports beer and which has been considered from 2007 until the present to be the country with the most beer consumers registered a drop of 5% in sales. Still, the growth engine of the beer producer giant is Romania. Along with Romania, there is Poland. Both these countries have a positive rhythm of about 4% in sales each quarter.

V. Prices and tariffs

The following indicators will be taken into consideration: the average selling price in 2010; The price is an accessible one because the targeted people are those with a modest income. For example, Timisoreana premium 0,5 liters costs in average 2,5 RON; PET 1 liter costs 3,3 RON; PET 2 liters costs 6 RON. the interval of variation of the average selling price, minimal and maximal price in 2010; The minimum price for a dose of beer 0,5 l was of 2,28 RON and the maximum one was 2,59 RON. The average price for the most sold beer, PET 2 l, in 2010 lies between 5,3 RON and 6 RON. average price dynamics during 2007-2010 in comparable prices However there has been a more than significant change of price in the interval 2007-2010. The causes were on the one hand the price of the raw material- the hop- which has tripled during this period of time and, on the other hand, the excises . As a consequence the price of beer has increased.

VI.

Conclusions

In our opinion, the giant beer producers have overcome major issues such as the huge growth in the raw materials price and excises. They managed to establish the right price after facing changes both in demand and cost. The objective was obviously to maximize profits on the long run by maintaining if not raising sales volumes. However, despite the fact that the beer market has fallen sharply in 2008 due to the economic crisis, thanks to their marketing strategy (proximity to customers) they managed to register a growth in sales volumes. Beer producers have developed a beer culture which weighs more than any expensive advertisment made by other alcoholic drinks producers. Consumers are always reminded of the importance of beer in their life through campaigns such as Romanii iubesc Berea, Serbarile Timisorenei and so on so forth. Romania is definitely a good market for beer because this product satisfies the need of the average citizen with a low income and in a party mood.

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