BBH to build new brewery, up output

Firm hopes new brewery in Kyiv will help meet demand

Baltic Beverages Holding, the nation`s trird-largest brewer, has broken ground on a new $50 million brewery in Kyiv.

The new BBH brewery will be the first completely new facility built since the country’s independence, the company said.

Just when exactly the brewery will begin production and how much beer it will be able to pump out, remains an open question. Officials at BBH said the brewing industry has recently become so competitive that knowing the details of the future plant will help competitors adjust plans accordingly. Unconfirmed media reports have put the future plant’s projected capacity at 12 million decaliters, also adding the facility may open next year.

Not many Ukrainian industries can match the brewing business’ rapid development. Halina Korenkova from Ukrpyvo, association of brewers, said that last year, Ukrainians consumed almost 150 million decaliters of beer and that thirst is growing annually.

Even so, industry sources say that the nation’s beer drinkers are being outpaced by consumers elsewhere in Europe and Russia.

The battle for market share among brewers is furious, with Sun Interbrew, Obolon and BBH in the top three positions. Sun Interbrew spokeswoman Larisa Popiy said that big breweries constantly increase their capacities to meet market demands and hold their market share.

Slavutych General Director Petro Peretyatko, who also heads BBH’s business in Ukraine, said the company’s continued sales growth and the nation’s steady increase in consumption made construction of the new brewery necessary.

“In 2001, we were already facing a problem with limited production capacities,” Peretyatko said. “We couldn’t meet consumer demand for our products then, and by the following year, this problem was exacerbated.”

Peretyatko said that Slavutych holds a stronger market position in Kyiv, where it is the second best‑selling beer after Obolon.

“Kyivans love our beer. In 2002, almost half of the beer we produced was sold in Kyiv,” he said. “Because Kyivans appreciate the high quality of Slavutych, the market is worth fighting for.”

The company chose to build the brewery in Kyiv to ease logistical problems. With consumption high in the capital, it made sense to build the brewery nearby, rather than near its other facilities in Lviv, 600 kilometers to the west, or Zaporizhya, 600 kilometers to the southeast.

“Launching the brewery in Kyiv will save BBH money on logistics, first of all, and [the company] will get serious advantage from it,” Sun Interbrew’s Popiy said.

Peretyatko said that $28 million of the initial $50 million investment in the brewery will be raised from the sale of additional stock.

The firm is offering discounted stock to small shareholders at Hr 17 per share, which is half‑off the Hr 34 that larger investors pay.

Peretyatko said the company is looking out for the interests of its small shareowners while also raising funds through the sale of additional stock. He said that after the new brewery goes into production, the firm will channel available cash into servicing its debt and developing production, rather than dividends.

“This is absolutely the civilized way,” Peretyatko said. “I know of few companies in Ukraine that take such care to satisfy the interests of their minor shareholders.”

After BBH purchased the Zaporizhya brewery in 1996, it invested $80 million in the plant over five years, an effort that has enabled the facility to triple its production to 20 million deciliters, annually.

The upgrades included installation of water‑purification equipment. In addition to allowing the brewery to produce better‑tasting beer, the equipment enabled the brewery to acquire the right to brew Carlsberg’s Tuborg beer in 2000.

That same year, the company obtained an exclusive license to manufacture Pepsi, Mirinda and 7‑Up beverages in Ukraine.

“Many factories, including Slavutych, were producing Pepsi beverages in Ukraine,” Peretyatko said. “But after taking our quality and distribution network into account, Pepsi decided to give us the sole right to produce its beverages,” Peretyatko said.

Despite limited production capacity, BBH breweries sold 28 million decaliters of beer in the country, a 27 percent increase over 2001. The Slavutych brewery increased sales by 14 percent to 19.3 million decaliters, and sales of Lvivske soared by 68 percent to 7 million decaliters.

In 2002, BBH increased its hold on the domestic beer market to 21 percent, a 3 percent gain from the year before. BBH exports beer to countries including the United States, Canada and Israel, but export sales aren’t a major concern.

“Our goal is to keep our share on the local market,” Peretyatko said.

BBH is not planning to increase its share in 2003. “Right now, our aim is to hold our present share until the new brewery is ready to go into production,” Peretyatko said.

BBH Holding was created in 1991 by Finland’s Hartwall and Pripps‑Ringnes, a Swedish‑Norwegian firm, to brew beer in the CIS. Later, Carlsberg bought the stake owned by Pripps‑Ringnes and Scottish & Newcastle bought Hartwall’s shares. Today, both companies have an equal interest in BBH.

BBH operates 15 breweries in the CIS and the Baltics, including facilities in Lviv and Zaporizhya, and a malt plant in the Khmelnytsky oblast. The company owns 81 percent of the Slavutych brewery, 99.18 percent of Lviv Brewery and 86 percent in the Slavuta malt plant. The company said it has invested more than $100 million in the development of its facilities in Ukraine since 1996.

Brewers’ Race

Source: Ukrainsky Novyny