Heineken counts on stout growth after Guinness deal

Dutch brewer Heineken is to begin licensed production of the Guinness stout brand in Russia under the terms of a deal with Britain's Diageo group announced last week - a clear sign of its continuing intention to grow its share of the world's fifth-largest beer market, writes Chris Jones.

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. But for Heineken 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.