The competitors in Romanian beer market

One aspect of the market is the trends (discussed in the previous article) and the other is the performance and efficiency of the competitors, since innovation cannot exist within reactive companies suffocated by survival struggle.

The main competitors are:

Ursus Breweries, owned by SABMiller group
Heineken Romania
URBB, owned by Carlsberg
Bergenbier, owned by Molson Coors

Overview

The easiest way to start is to take a look at competitors' revenues:

What is striking from the beginning is the evolution of Heineken in 08-11. It is incredible how they managed a very strong growth on an even stronger downward market trend. The 2001 increase of Heineken is due to the acquisition of Miercurea Ciuc and Constanta breweries.

Update: In 2012 the consumption grew due to the European Football Championship and good weather. The growth was assimilated exclusively by Heineken and Ursus while URBB and Bergenbier experienced negative growth.

Ursus was clearly the champion in the boom period, being more aggressive, and it is probably their success in those years that established a culture that make them struggle stabilizing the revenues even in 2011.

In post-boom years Heineken, the lowest growth in 2004-2006, managed to win really big chunks of the market year on year, managing a revenue market share of 36% in 2011 from 28% in 2008 growing steady by 3ppt per year. In 2012 Heineken managed a growth of 13% in revenues in a slightly growing market. It seems that they found their rhythm and have a very solid foundation for the future.

Update: Ursus seen the biggest increase since 2008, and first positive numbers since 2009, even higher than Heineken.

Operational efficiency

The decrease of profitability in 2009 is understandable since few could’ve predicted the drastic fiscal change and decrease in purchasing power. 2010 and 2011, quite stable years in terms of consumption, should’ve brought an increase in profitability based on a quick reaction to market conditions.

Heineken again is the champion, in terms of profitability and especially in terms of trend. Ursus, the biggest company, seems to be a lot more rigid and quite slow in reaction. In 2011 while all competitors limited their losses dramatically (or increased profits), Ursus seen only a slight improvement.

Update: Higher revenues of Ursus helped in decreasing the loss, but did not bring any profits still. URBB recorded a loss in 2012 after the slight profit in 2011 while Bergenbier seen a major drop in profitability.

2004-2006 are the years when Heineken lost its market superiority and at the same time the years when it has seen a decrease of fixed assets, in contradiction with market’s trend. I would assume that in those years the company was quite conservative with its spending and this might have just created a policy of discretionary spending that allowed Ursus to overtake Heineken but also led to the financial success of 2007 – 2011. In line with this assumption is the fixed assets turnover ratio.

Update: Even though Ursus continued its streamlining process and Heineken slightly increased its assets, Ursus’ assets are still much higher than Heineken’s, while revenues are relatively close.

Heineken is again leading the pack and has a much better trend than its competitors. Bergenbier’s sudden drop might be related to a re-evaluation of assets.

The average ratio across Heineken and Anheuser-Busch groups is around 2.5 and Heineken grew from 1.44 in 2009 to 2.07 in 2011 while Ursus seen a slight increase in 2010 and URBB and Bergenbier are in 2011 still under 2009 value.

In 2010, Jan Derck van Karnebeek, the Managing Director of Heineken Romania at that time, said: “This [2009] performance shows that our long term strategy to focus on the market share gives results, even in the context of a financially and economically difficult year, such as 2010. The permanent investments in our brands, and the focus on the basic assets of the company allowed us to achieve these results. Moreover, we improved our ability to generate cash by careful reviewing of our investments, by cost management programs and working capital management”.

Update: Heineken improved further this metric, reaching 2.32, very close to that 2.5 standard. Thanks to higher revenues on a downward trend of fixed assets, Ursus seen in 2012 its biggest improvement in recent years.

The employees of the Miercurea Ciuc and Constanta breweries (acquired by Heineken in 2000) appear in the official data only in 2001. Since then, Heineken decreased constantly the number on employees.

The fact that Heineken had a more conservative policy than Ursus in 2008 can be seen also here. Ursus increased its number of employees by 9% in 2008 and Heineken only by 1%. However, in the following year Heineken continued to grow, by 7% while Ursus got smaller by 2%. In this respect Ursus managed to react quicker, but, looking at the trend in the following years, not quick enough. In 2010 the number of employees decreased by 4% and in 2011 by 12%. However, Heineken did grow in 2009 in terms of revenues so the growth in number of employees did bring them a decrease in revenues per employee.

Update: 2012 was good news for employees. It seems that the lay-offs have stopped and there was even a slight increase in number of employees across competitors, except URBB.

The bigger the company, the bigger the complexity and this translates into lower revenues per employee. The trend however is very encouraging for Heineken and Ursus, closing the gap to URBB’s level. Bergenbier had a very tough time in 2009 and 2010 reacting very slowly (3% decrease in no of employees in 2009 and 1% increase in 2010) and only in 2011 started to get back on track with a 20% decrease.

Update: After last year’s improvement, URBB and Bergenbier experienced a lost in productivity while the bigger companies seem to have found an efficient working framework that brought continuous improvements in the past 3 years. Heineken become the most productive company while Ursus closed the gap to second place.

Heineken has twice the number of super-premium brands compared to Ursus or URBB and the same number of economic or mainstream brands. Bergenbier on the other hand has just 2 super-premium brands, just as much as economic brands.

There is a strong correlation between positioning and EBIT in 2009-2011. Also it seems that dependency on lower values segments led to a stronger negative trend of revenues.

In 2009-2010 about 75% of the market was represented by the economy and mainstream segments. The sharp decrease in purchasing power hit the brewers quite hard. In the same economic context Heineken introduced premium and super-premium international brands on the market. When everybody is struggling with balancing the drop in revenues, the decrease of marketing budgets and closing down factories, this must be seen as a very bold move, but I think it was at the same time just the type of the strategic move that defines a proactive company that does not just ride the trend but creates opportunities. This is seen across KPIs: Heineken thrived against the market trend due to its exemplary operational efficiency and proactive marketing strategy.

Update: Ursus’ positive revenue growth is due entirely to 2012, while Heineken had an increase in every year since 2005. Having this in mind and seeing how Ursus’ revenues are following the overall consumption it is safe to say that they are a more rooted company in the Romanian market catering for everybody’s taste, while Heineken is the more innovative company that chooses growth segments and creates loyalty. While having a relative solid foundation, URBB seems to have lost a big chunk of the targeted segments and it is going to struggle to keep its revenues under the attack of Ursus and Heineken. Bergenbiers’ results put them in a strong position for either rebranding either another sale. It would be a really bad time to sell, but unlike URBB, their star brand is a local brand that can easily be attached to any other big corporation. I don’t particularly believe that a big corporation is the right buyer now, but in 5 to 7 years after it goes through an extensive transformation by a private equity firm that can put them back in a market leader contender position as they were 5-6 years ago.