Baltic sea change
Published:  27 August, 2008

The Baltic region plays a proud role in the history of beer. It is home to many of the great beer styles - including Russian Imperial Stout - but decades of Communism shackled and stifled investment. After the Cold War ended in 1989, many of the surviving brewer ies were bought up by international players who realised there was quick and easy access to fresh pastures.

The Baltic beer markets of Estonia, Latvia and Lithuania are moving into a new phase, according to Danish brewer Carlsberg. Although there ha ve been signs of discounting among cheap, lower-quality beers, growth in volume and value has come from a greater focus on premium brands and cost efficiency. Carlsberg says the trend will be the way forward for a major player with an already strong market share.

This is a U-turn for the three Baltic states because for years their drinking image has been likened to binge-drink ers and alcohol abusers .

The latest Brewers of Europe figures suggest the current average consumption in the more mature Baltic beer markets has reached 73 litres per person - considerably higher than the world's average of 25 litres. The potential for growth is clear, however, given that consumption in the Czech Republic tops 150 litres and in the UK is nearly 100 litres.

== Desire for quality, not quantity ==

The premium beer market is where there has been strong growth in volumes across the countries in recent years - the latest regional figures from Euromonitor show that total sales volumes for all three states rose by 26.5 per cent between 2000 and 2005.

Although Latvia saw the largest increase, with beer sales increasing 35.9 per cent over the five-year period, the Estonian beer market also grew by 33.9 per cent in volume terms, while in Lithuania the figure was 19.4 per cent.

Brewing-wise Estonia is the most sophisticated of the three Baltic states, however, all of its main breweries are foreign owned. Beer consumption is now 81 litres per person with many drinkers switching to more expensive and recognisable brands since the country joined the EU in 2004.

Dating back to 1820 and now wholly-owned by Carlsberg, Saku is the biggest and oldest of Estonia's seven breweries. Since the end of the 19th century, it has been among the leaders in Estonia and now offers more than 10 different brands, foremost of which is Saku Originaal, the country's leading beer brand since 1995, according to market researcher Emor.

Estonia's number-two brand is A Le Coq, owned by the Finnish independent Olvi, and number three is Viru Õlu, owned by another Danish brewery Harboes Bryggeri.

Finland is the largest market for Estonian exports and Cardo Remmel, chief executive of Saku Brewery, says that thanks to Estonia joining the EU his brewery has improved opportunities abroad. "Our objective is to increase our exports and sell more than 2 million litres of Saku Originaal in Finland," he says.

The A Le Coq brewery has close links with the UK. The original Tartu brewery was founded in 1826 but bought in 1913 by a London based company, A Le Coq, which was looking for a brewery in the Russian Empire where it could produce Imperial Stout rather than exporting it from England.

Strong dark stouts are a firm favourite in the region and during the Russian-Japanese War of 1904-05, A Le Coq made generous donations of porter to the Russian military hospitals. As a reward, the company was granted the right to supply the Imperial Court with its beer. Production of the porter stopped some time in the  sixties but was revived again in 1999.

A Le Coq's operating profit grew by 12 per cent year-on-year in the first quarter of 2008. The company says its total sales including beer and soft drinks in the first three months of the year were 28.1 million litres, 2 per cent more than the same period in 2007. The largest rise was in exports, which grew by 49 per cent in the space of a year to exceed e2.56 million (40 million kroons). First quarter results reveal the biggest increase in A Le Coq's sales was in beer, with a rise of 6 per cent - more than 10 million litres sold from January to March.

A Le Coq director Tarmo Noop says the larger-than-expected beer sales are the result of the additional 3.5 per cent market share it gained in the category in 2007.

The company continues to invest in new products, most recently an extra-cold beer, A Le Coq Premium. Noop says the launch of a cold beer was timely, as consumers have been ready for such an innovation for a long time . He adds that you can't stop searching for solutions to keep every new product fresh, which is why giving added value to A Le Coq Premium - the company's best selling beer - is a logical step.

A total of 215 refrigerators and special ice-coated beer taps are being installed in larger stores and bars around Estonia to chill the beer to -2°C - 3-4°C degrees lower than the normal temperature for beer. The company claims chilling premium to below zero gives it a softer flavour, while additional chilling gives it an even lighter taste. Bottles and 50cl cans of premium will also be stocked at -2°C .

== Estonia's on the global beer map ==

There is one group of entrepreneurs that wants to take an Estonian beer and turn it into a world beater. London-based Brand Independence owns the Viru beer brand, brewed under licence at the A Le Coq brewery.

Viru is the name for the north east area of Estonia, but the Independence version has no relation to the beers from the Viru brewery, being based on a beer from the A Le Coq range. The

5 per cent abv brew is sold in a unique octahedral bottle said to be inspired by the churches and towers of Tallinn, the country's capital .

Brand Independence director Paul Baxendale says: "Viru launched in the UK around two years ago and has had significant success in quality venues, such as the Lanesborough Hotel, Coq d'Argent Restaurant and the Soho Hotel.

"Internationally, we had a successful launch in Italy late last year and have just started in Switzerland. Plans are under way for launches in Sweden, Spain and the US in the coming months and there is interest from the Far East. It has also proved to be successful in Mozambique. Viru is probably already one of the biggest-selling beers from the Baltic region and we are committed to making it into a global brand."

== Latvia's consumption swells ==

In Latvia, beer consumption is now 58 litres per person a year, according to Brewers of Europe, and the country has three dominant brewers - the Carlsberg-owned Aldaris, Cesu Alus and Livu Alus, owned by Royal Unibrew - a Danish-based brewery group which also has interests in Lithuania, Poland and the Caribbean.

Aldaris produces more than a dozen different light and dark lager beers based on traditional recipes. This includes the beer that carries the company's name, Aldaris, which is the oldest and most popular beer brand in Latvia.

Within the first two months of this year Cesu Alus sold 7 million litres of beverages on the local market and, in comparison with the first two months of last year, the volume of beer sales has increased by 34 per cent, the company claims.

"We are glad about the successful results in the beginning of the year, but now they are over and all company employees are preparing for the summer season," says chair of the Cesu Alus board Eva Sietinsone.

== New age for Lithuania ==

Historically, brewing in Lithuania dates back to the 11th century, but despite this, it too has proved to be fertile ground for international brewers. Carlsberg, and its ?vyturys-Utenos Alus brand, is the market leader with a strongly defended

market share of around 48 per cent. Company

figures reveal that Carlsberg

itself now accounts for 70

per cent of the international premium beer segment in Lithuania .

Considerable investments have been made in the modernisation and expansion of the ?vyturys production facilities to meet rising demand. And ?vyturys' beers are becoming known around the world - S vyturys Wheat recently winning a space on Tesco supermarket shelves in the UK.

Lithuania's fastest-growing brewery is Kalnapilis and its history dates back to 1902 when it was founded as a private brewery by the name of Bergschlösschen. In 2001, Kalnapilis was acquired by Royal Unibrew after the country's competition authority told Carlsberg it must divest itself of some of its interest in the country. The company also owns Lithuania's Vilniaus Tauras brewery.

Today, according to Royal Unibrew, Kalnapilis is the fastest-growing brewery in Lithuania and holds around a quarter of the beer market in Lithuania.

== Premium trend ==

Given the relatively high level of per capita beer consumption in the Baltic states, particularly Estonia, it is no surprise that no one is predicting the same rate of expansion for the three markets as found elsewhere in central and eastern Europe.

Despite concerns on alcohol misuse, these rapidly expanding economies are likely to provide increasing potential for premium beers.

Euromonitor International forecasts that the premium lager category across the region will have grown by 41 per cent in the five years up to 2010, compared with only 10.7 per cent growth for the standard category and a 12.3 per cent decline for the economy sector. Euromonitor also foresees that innovation in beer will increasingly be tested in the on-trade, while the off-trade is likely to lose its dominance.

Like so many other beer markets in the world, these Baltic states seem destined to become dominated by strong beer brands as younger drinkers become richer and more aspirational.