Global beer giant SABMiller Plc, based in London, is now the world second largest brewer and along with Heineken NV dominates most of the markets, but not Russia, where SABMiller is number 8. Now the company, which manufactures Castle and Pilsner Urquell beers, is to fill the missing piece of its strategic plans in eastern and central Europe. Russia is the world's fifth largest market and one of its fastest-growing beer markets.

"Russia is very much a white space for us and we would look at acquisitions. We are alive to opportunities at the right price," SABMiller's Europe managing director Alan Clark said on September 18 at its European headquarters in Hungary. Europe is becoming increasingly important for SABMiller. If this summer's acquisition of Italy's Peroni had been included in its last results for the year to March 2003 the continent pipped South Africa beer and Miller to be its biggest profit earner. "We have the ambition to be number one or number two in all the markets where we operate," Clark said.

The brewer first moved into eastern Europe in 1993 and leads in the Czech Republic with nearly half the beer market, and is number two to Heineken in Poland, Slovakia, Hungary, Romania. This gives SABMiller a 17 % share of eastern Europe compared with Heineken's 18 %. Excluding Russia, then Heineken leads with 37 % against SABMiller's 35 %. The Dutch brewer leapfrogged SABMiller in eastern Europe after buying BBAG for 1.9 billion euros ($2.15 billion) this year, according to Reuters.

Eastern Europe is a fast-growing beer market with recent volume growth of 4-5 % per annum, excluding Russia, Clark says. This compares with a flat market in Britain and a U.S. market growing at around just 1% per annum. SABMiller moved into Russia in 1999 building a new brewery at Kaluga some 120 kilometres south-west of Moscow, where it brews some local beers and also its premium brands such as Pilsner Urquell and Miller Genuine Draft.

The Russian market is set to consolidate into fewer hands and SABMiller Chief Executive Graham Mackay has stressed he is alive to opportunities and funding would not be a constraint. Analysts says Russian beer market volume is set to grow at around 8-9 % this year. It is dominated by Baltic Beverage Holding (BBH), jointly owned by Scottish and Newcastle Plc and Carlsberg A/S with a 32.8 % share followed by a 11.6 % share at Sun Interbrew, a unit of Belgium's Interbrew. Among the local players Ochakovo has a 8.3 % share and Krasny Vostok 7.1 %, while Heineken's Bravo follows with 4.1 % in fifth position. SABMiller trails in eighth place with a 1.9 % share behind other local players Anadolu Efes and Stepan Razin.

Analysts say SABMiller, Heineken and Interbrew would like to raise their Russian beer market shares to compete more successfully against BBH, and Ochakovo and Krasny Vostok would come under the most scrutiny due to their size.

They add Ochakovo is the most appealing as it has size and a significant presence in Moscow. Merrill Lynch has estimated it could cost EUR 405 million. Krasny Vostok would be less attractive due to its regional spread.

Clark said the Hungary, Poland and Czech economies look increasingly robust as they head towards European Union membership in May 2004.

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