Under the terms of the deal with Diageo, Heineken will take over the importation the Guinness stout and Kilkenny Irish beer brands into Russia from 1 July. But more importantly, the Dutch brewer will also begin local production of the famous black beer at its brewery in St Petersburg, a move which will bring down the cost of the beer and, the company hopes, increase its popularity.
"Imported Guinness in bottles already has a strong following in Russia," said Heineken's Russian spokesperson, Anna Meleshina. "We believe that there is significant potential for this kind of dark beer in Russia, and there is an obvious advantage to be gained by being the first to begin local production."
Producing the beer in Russia - using ingredients imported from Ireland - will allow Guinness to be sold at a retail price more in line with other premium beer brands, the company said, opening up the market for potential new customers. Guinness Foreign Extra Stout will be produced and sold in 0.5 litre cans and 0.5 litre bottles for sale through the retail trade, although on-trade customers will continue to be supplied with imported Guinness from Ireland.
The beer, which has been sold in just a handful of Russian cities, will also benefit from access to Heineken's nationwide distribution network, allowing it to be rolled out across the country for the first time.
"Porter [another dark beer type] is already popular with many Russian consumers, and with the success of imported Guinness in cities such as St Peterbsurg, we believe the time is right to begin a nationwide rollout of the brand," said Meleshina.
The brand will be supported by a major marketing campaign, but Meleshina said that Heineken was not targeting any particular age group. "People of every age enjoy drinking beer, including stout, so why should we focus on one age group," she said.
Russia has been one of the major success stories for global brewers in recent years, with sales continuing to show steady growth. Volumes reached around 80 million hectolitres, some 7 per cent higher than in 2003.
Chinese growth, German consolidation
The deal with Diageo was just one of several announcements last week by Heineken. In another fast-growing beer market, China, the group is negotiating a possible takeover of the Kingway Brewery group, in which it already owns a 21 per cent stake through its Heineken Asia Pacific Breweries China joint venture.
Heineken's spokesperson Veronique Schyns stressed that the talks were still in the early stages, and that there was no guarantee of a deal being reached, but said that any acquisition in China would be in line with the company's strategy of building a strong regional base. As in Russia, the company is looking for operations with strong local brands with a view to building a platform for its premium international brands, Heineken and Tiger, the flagship beer of Singapore-based partner Fraser & Neave.
A regional approach has also driven Heineken's development in Germany, where the company has just acquired a 91 per cent stake in the Würzburger Hofbräu brewery. The company will be acquired by Kulmbacher Brauerei, a subsidiary of Brau Holding International (the joint-venture between Heineken and Schörghuber), for €34 million.
Schyns said that the takeover would strengthen Heineken's position in the south of Germany by adding more premium regional brands to the group's portfolio. Würzburger Hofbräu owns two breweries, in Würzburg and in Poppenhausen, and is the main brewer in the northern Bavaria region of Franconia with sales of 360,000 hectolitres.
The group's brand portfolio includes the leading Würzburger Hofbräu brand as well as Werner Bräu, Lohrer Bier and Wächtersbacher.
Change of focus?
The moves in Russia, China and Germany reflect a shift in focus for Heineken, which has concentrated its expansion efforts on smaller markets such as Egypt, Lebanon, Costa Rica and Kazakhstan in recent years as its major international rivals have slogged it out in the larger emerging markets.
Apart from a handful of relatively minor investments such as the 20 per cent stake in Kingway, Heineken seemed largely content to concentrate on building up strong positions in these smaller markets. But the end of 2004 saw a clear change of heart with the acquisitions in Russia and the creation of a new joint venture with F&N to invest in mainland China - perhaps an understanding that the company which calls itself 'the most international of brewers' was in danger of falling behind fast-moving rivals such as InBev in the bigger emerging markets.
It still remains to be seen whether the company has left it too late to gain a major position in China - where InBev has bought itself into contention with market leaders SABMiller and Anheuser-Busch - and the while there is still plenty of room for further consolidation in Germany, it is a market in recession and hardly likely to prove a major source of growth in the future.
Russia perhaps holds greater opportunities for Heineken, although the move into stout is a risky one with the Russian market dominated by economy and standard lager brands.
Although Heineken is a relative newcomer on the Russian market - buying Bravo International in St Petersburg in 2002 and last year adding a further three breweries through the takeovers of Central Brewing Company (CEBCO) and Sobol - the company is now the number three player on the Russian market with a share of 8.6 per cent.
Like its two major rivals (Baltika, owned by Scottish & Newcastle and Carlsberg, and Sun Interbrew owned by InBev) Heineken has primarily focused on developing strong local brands as a base to build sales of international premium brands.
According to Euromonitor, premium beer sales are seen as growing by around 49 per cent by 2009 as Russian consumers become not only more affluent but also more adventurous in their beer-drinking tastes, but the question is whether Guinness can successfully bridge the gap with lager to tap into this growth.
Stout accounts for around 1 per cent of total Russian beer sales, according to Euromonitor, and although it is forecast to grow by around 7.7 per cent by 2009, the market will remain small, at around 1 per cent of total beer sales.