Top brewers continue to battle for market share
Although the domestic beer market has been dominated for years by two major players Grupa Zywiec and Kompania Piwowarska the battle for the Polish beer drinker is far from over.
In 1999, the Zywiec group, controlled by Dutch Heineken, lost 1.8% of its market share, which correspondingly decreased to 36.7%, said Rafal Wiatr, an analyst at Citibrokerage and Salomon Smith Barney. At the same time, Zywiec's main competitor, Kompania Piwowarska, majority-owned by South African Breweries, increased its market share from 19.9% in 1998 to 22.7% in 1999, he said.
Another important player, Okocim, has also seen its market share diminish from 8.3% in 1998 to 7.2% in 1999, Wiatr said. This could interest other players, especially regional breweries, to fight for a piece of the growing market, which is expected to increase by 5% this year. With 38 million possible consumers and a relatively low beer consumption level, even a small market share gain could be worth the effort.
Brau Union, an Austrian-based brewery currently aggressively entering the market, is one of the potential competitors. At the beginning of this year, the company bought Van Pur, a Rzeszow-based brewery with a 2.3% market share and net revenue from beer sales of zl. 89.5 million ($22.8 million) in 1999. Brau Union also recently acquired 25% of the Bydgoszcz-based brewery Kujawiak, and has been negotiating for control of Browary Warszawskie Krolewskie. All these are not random acquisitions, but part of a broader investment plan, the company said. "Within the next few years, our aim is to acquire a market share at the level of 10%," said Susanne Weichselbaum, spokeswoman for Brau Union.
But the planned 10% market share isn't enough to frighten the big guys. "The market is divided between two players," Wiatr said. In 1999, Grupa Zywiec sold 8.5 million and Kompania Piwowarska 5.1 million hectoliters of beer. "There's a a high probability that for the next five to six years they will remain the big players," Wiatr said. He added that after that their dominance would likely decrease, to the benefit of smaller regional breweries. The potential of Czech and German brewers is also high, said Michal Szymanski, investment manager at ING BSK.
Not only could external competition prove threatening to the industry giants, but they may also soon face internal problems. Although in 1999 the Zywiec brand posted a net profit of zl. 124 million ($31.2 million), the entire group's net profit was not quite so rosy at zl. 82.6 million ($20.8 million). What seems to have affected the overall results is the poor financial standing of subsidiary Elbrewery, although its exact figures have not been disclosed. Elbrewery has a "substantial" outstanding debt that is affecting its results, said Krzysztof Rut, spokesman at Grupa Zywiec.
Analysts give other reasons. "At the moment when (Elbrewery) purchased EB, it was at the top of its popularity," Szymanski said. The competition was quickly at its heels and EB started becoming less popular. "They (Zywiec) have bought a brewery whose brand has been dying," Wiatr said. Zywiec isn't giving up on the EB brand, though, and has plans for improving the situation of the whole group. "We need some time before we will be able to take advantage of the economies of scale," Rut said.
Life hasn't been any easier for Okocim. "The market in Poland is difficult. Okocim is the proof, because despite their well-known brand, they have difficulties," ING BSK's Szymanski said. For the last couple of years, Okocim has seen its market share sink even though it has strong name recognition and a reputation for quality. Okocim's 1999 revenue from beer sales was zl. 356 million ($91.3 million), vs. zl. 363 million ($103 million) in 1998. Moreover, during the same period, Okocim's net profit decreased from zl. 40.8 million ($9 million) in 1998 to zl. 21.8 million ($4.8 million) in 1999.
The cause of the decline is unclear. Analysts blame Okocim, citing its lack of a clear policy. "For the last two years, the brewery hasn't taken a decision on what role they want to have on this market," Szymanski said. "There are three options: regional, present in all of Poland or a partial solution in between."
Wlodzimierz Czausow, Okocim's spokesman, disagreed with the assessment. "We are a brewery present throughout Poland," he said. To gain a greater countrywide presence, Okocim would have to increase its production, Szymanski said. "If your competitors run forward, and you don't move from your position, you can't expect to win the race," he said. What the brewery will decide to do remains uncertain. Okocim representatives declined to comment on their development plans, which could be announced once Marcin Pirog takes over as Okocim's new president this month.
