Okocim struggles to get beer in front of consumers
The company recorded disastrous first-half results and watched its market share erode from 9.7% to a mere 7.7% by June. At the same time, however, competitors such as Żywiec reported rising sales largely due to strong, tightly controlled distribution channels. Analysts said that if Okocim wants to make up its lost ground, the company must reorganize its distribution network to expand its reach and exert more control over the middleman to get its beer in front of consumers.
"The distribution problem is the main reason (Okocim) is not available where it should be," said Marek Karabuła, vice president at Okocim Zakłady Piwowarskie. "Żywiec is everywhere. Unfortunately the customer wants to buy Okocim, but it is not always available in the shop."
In 1997, the company's best year ever, Okocim enjoyed a 9.7% market share. It now stands at 7.7%, based on the volume of sales in the first half of the year, according to investment bank Merrill Lynch. Okocim's sales plunged from zł. 202.1 million ($57.74 million) in the first half of 1998 to zł. 176.9 million ($45.36 million) in the same period this year, with each corresponding month worse than in 1998.
In contrast, national competitor Żywiec's sales soared in the same period, from zł. 268.8 million ($76.8 million) to zł. 341.99 million ($87.69 million), with each respective month's performance better, said Paweł Zach, an analyst at Citibank (Poland). Kompania Piwowarska, Okocim's other national rival which owns the Lech and Tychy breweries, saw January-June volume sales of 2.18 million hectoliters from 1.95 million in the same period last year. At the same time, Kompania Piwowarska's market share rose from 19.3% to 20.9%, the company said.
Overall beer sales were up in the first six months of this year too, to 12.3 million hectoliters from 11.59 million from January to June, said Bolesław Michalski, president at Piwochmiel, a firm that gathers market data for the breweries.
The brewing industry saw a period of consolidation last year. The main movement on that front was the merger between Żywiec and Brewpole, the holding company for Elbrewery (EB), one of the top brewers in Poland. Dutch brewer Heineken owns a 50% plus one share majority in Żywiec. Kompania Piwowarska was also formed last year with the merger of brewers Lech and Tychy, in which South African Breweries (SAB) owns 48% and 45% stakes respectively.
During that time, Danish brewer Carlsberg reiterated its commitment to Okocim, ending speculation that SAB would buy out its 44.98% stake in the Polish brewer. Analysts have ruled out any further acquisitions or alignments among the industry's big players for the time being.
Carlsberg has dug into Okocim's operations, although analysts criticized the foreign investor for not doing enough to help solve the brewer's problems. Stephen Pettyfer, an analyst with Merrill Lynch, said that Carlsberg has not spent any money to redress Okocim's diminished market share. Instead, the Danish brewer has used Okocim to relaunch its own Carlsberg brand in Poland and began a spate of television commercials and press advertisements.
"The biggest question here is what the heck is Carlsberg doing?" Pettyfer said. "Carlsberg needs to commit and take decisive action in turning them round; you'd think (it) would be concerned with the erosion of Okocim."
The only move Carlsberg made on the restructuring front was at the end of last year to clear out Okocim's management board, which was "one of the worst on the Polish market," Zach said. But analysts said the change has had little impact on the company, as Okocim continues to grapple with falling market share and an unruly distribution network.
"(Okocim's) distribution network is not working well and the (new) management team hasn't made much progress in improving the company's distribution effectiveness," said Michał Szymański, investment manager at ING BSK Asset Management.
Okocim has moved to solve some of its production problems by building a new brewery in Krakow, Zach said. The company has experienced difficulties in summers past to meet demand for its beer. The new brewery, however, will not come on line for a few years and does nothing to solve the distribution woes.
Okocim could learn from competitor Żywiec, which is the most active brewer in controlling distribution points, said Bill Carey, CEO of alcohol distributor Central European Distribution Corp. (CEDC). Żywiec controls roughly 22 distributors nationwide that are charged with the specific task of pushing its beer. By contrast, Okocim primarily relies on third-party distributors, Carey said, which sell whichever beers produce the best profit margins and have no specific loyalty to Okocim, he said.
"If you are a retailer, you're interested in the best-selling products and you take the best discount from the best rotating beers," Carey said. Okocim also suffers from the fact that these middlemen slightly hike the price of the beer to make a profit, while Żywiec's beer goes more directly to the consumer. Okocim Zagłoba wholesales for zł. 1.48 a bottle and zł. 1.74 a can, which is slightly cheaper than Żywiec at zł. 1.53 a bottle and zł. 1.78 a can. That price difference, however, shifts to Żywiec's advantage by the time the product actually reaches the consumer.
To solve that problem, Okocim needs to improve its control over distributors by either owning them outright or rewarding them for selling its brand, analysts said. One tact the company may take is to hone in on a few distributors and make them more effective. "The distribution chain is longer than we would like to have it," Okocim's Karabuła said. "We would like to make it more effective."
Owning a distribution network may sound easy, but Carey warns that it is not. "It is very difficult to open your own offices, depots and distribution ... the cost is enormous," he said. Additionally, the company is suffering from price increases, Zach said. While the firm enjoyed the reputation of being a good quality beer that was cheaper than similar brands, it decided to increase prices by approximately 5% at the end of last year. That increase probably contributed to the drop in sales, Zach said.
The question remains as to how breweries' sales have fared this summer. While brewers won't disclose their statistics until September, long, hot summers typically produce better beer sales than otherwise. Since this summer has been one of the hottest on record for several years, analysts expect sales to be sizeable. But whether seasonal good fortune is enough to help Okocim recoup its losses remains to be seen. "If you don't meet your numbers in summer, you don't meet your numbers for the year," Carey said.
"The distribution problem is the main reason (Okocim) is not available where it should be," said Marek Karabuła, vice president at Okocim Zakłady Piwowarskie. "Żywiec is everywhere. Unfortunately the customer wants to buy Okocim, but it is not always available in the shop."
In 1997, the company's best year ever, Okocim enjoyed a 9.7% market share. It now stands at 7.7%, based on the volume of sales in the first half of the year, according to investment bank Merrill Lynch. Okocim's sales plunged from zł. 202.1 million ($57.74 million) in the first half of 1998 to zł. 176.9 million ($45.36 million) in the same period this year, with each corresponding month worse than in 1998.
In contrast, national competitor Żywiec's sales soared in the same period, from zł. 268.8 million ($76.8 million) to zł. 341.99 million ($87.69 million), with each respective month's performance better, said Paweł Zach, an analyst at Citibank (Poland). Kompania Piwowarska, Okocim's other national rival which owns the Lech and Tychy breweries, saw January-June volume sales of 2.18 million hectoliters from 1.95 million in the same period last year. At the same time, Kompania Piwowarska's market share rose from 19.3% to 20.9%, the company said.
Overall beer sales were up in the first six months of this year too, to 12.3 million hectoliters from 11.59 million from January to June, said Bolesław Michalski, president at Piwochmiel, a firm that gathers market data for the breweries.
The brewing industry saw a period of consolidation last year. The main movement on that front was the merger between Żywiec and Brewpole, the holding company for Elbrewery (EB), one of the top brewers in Poland. Dutch brewer Heineken owns a 50% plus one share majority in Żywiec. Kompania Piwowarska was also formed last year with the merger of brewers Lech and Tychy, in which South African Breweries (SAB) owns 48% and 45% stakes respectively.
During that time, Danish brewer Carlsberg reiterated its commitment to Okocim, ending speculation that SAB would buy out its 44.98% stake in the Polish brewer. Analysts have ruled out any further acquisitions or alignments among the industry's big players for the time being.
Carlsberg has dug into Okocim's operations, although analysts criticized the foreign investor for not doing enough to help solve the brewer's problems. Stephen Pettyfer, an analyst with Merrill Lynch, said that Carlsberg has not spent any money to redress Okocim's diminished market share. Instead, the Danish brewer has used Okocim to relaunch its own Carlsberg brand in Poland and began a spate of television commercials and press advertisements.
"The biggest question here is what the heck is Carlsberg doing?" Pettyfer said. "Carlsberg needs to commit and take decisive action in turning them round; you'd think (it) would be concerned with the erosion of Okocim."
The only move Carlsberg made on the restructuring front was at the end of last year to clear out Okocim's management board, which was "one of the worst on the Polish market," Zach said. But analysts said the change has had little impact on the company, as Okocim continues to grapple with falling market share and an unruly distribution network.
"(Okocim's) distribution network is not working well and the (new) management team hasn't made much progress in improving the company's distribution effectiveness," said Michał Szymański, investment manager at ING BSK Asset Management.
Okocim has moved to solve some of its production problems by building a new brewery in Krakow, Zach said. The company has experienced difficulties in summers past to meet demand for its beer. The new brewery, however, will not come on line for a few years and does nothing to solve the distribution woes.
Okocim could learn from competitor Żywiec, which is the most active brewer in controlling distribution points, said Bill Carey, CEO of alcohol distributor Central European Distribution Corp. (CEDC). Żywiec controls roughly 22 distributors nationwide that are charged with the specific task of pushing its beer. By contrast, Okocim primarily relies on third-party distributors, Carey said, which sell whichever beers produce the best profit margins and have no specific loyalty to Okocim, he said.
"If you are a retailer, you're interested in the best-selling products and you take the best discount from the best rotating beers," Carey said. Okocim also suffers from the fact that these middlemen slightly hike the price of the beer to make a profit, while Żywiec's beer goes more directly to the consumer. Okocim Zagłoba wholesales for zł. 1.48 a bottle and zł. 1.74 a can, which is slightly cheaper than Żywiec at zł. 1.53 a bottle and zł. 1.78 a can. That price difference, however, shifts to Żywiec's advantage by the time the product actually reaches the consumer.
To solve that problem, Okocim needs to improve its control over distributors by either owning them outright or rewarding them for selling its brand, analysts said. One tact the company may take is to hone in on a few distributors and make them more effective. "The distribution chain is longer than we would like to have it," Okocim's Karabuła said. "We would like to make it more effective."
Owning a distribution network may sound easy, but Carey warns that it is not. "It is very difficult to open your own offices, depots and distribution ... the cost is enormous," he said. Additionally, the company is suffering from price increases, Zach said. While the firm enjoyed the reputation of being a good quality beer that was cheaper than similar brands, it decided to increase prices by approximately 5% at the end of last year. That increase probably contributed to the drop in sales, Zach said.
The question remains as to how breweries' sales have fared this summer. While brewers won't disclose their statistics until September, long, hot summers typically produce better beer sales than otherwise. Since this summer has been one of the hottest on record for several years, analysts expect sales to be sizeable. But whether seasonal good fortune is enough to help Okocim recoup its losses remains to be seen. "If you don't meet your numbers in summer, you don't meet your numbers for the year," Carey said.
