Russia: Sun Interbrew starts to build its first plant outside Irkutsk

Sun Interbrew, Russia's second largest brewery, has officially confirmed its intentions to build its first plant outside Irkutsk, Russia’s daily, Kommersant, communicated on December 27. Until now, the company has bought all of its plants. Analysts note that the beer marketing Russia is reaching a new stage of development. All available assets have been bought up by the large holdings and now the have to build all of their new capacity.

Sun Interbrew's plans were announced yesterday by first deputy head of the administration of Irkutsk Region Yury Paranichev. He said that Sun Interbrew president Joseph Strella sent a letter to Irkutsk Region Governor Alexander Tishanin expressing the company's desire to launch its own production there. Construction is to begin in 2006 in the city of Angara, 40 km. from Irkutsk. Investment is to come to €70 million and production capacity will be 40 million dal. Construction is to be completed at the end of 2007. Sun Interbrew has confirmed that information. Sun Interbrew's interest in eastern Russia has long been known. Its easternmost facility is now in Omsk. To encompass he entire country, the holding needs at least two more enterprises, one in Siberia and one in the Russian Far East.

Analysts say that the building of a new plant in Siberia points to the failure of negotiations between the holding and Krasny Vostok brewery. Those negotiations were never officially announced, but they were well known on the market. “Only BBH, the market leader, has announced that it has stopped buying up assets,” said Uralsib analyst Marat Ibragimov. “All the other foreign holdings are in a constant search for production capacity.” The two remaining independent breweries are thought to be asking too much for their businesses. Unofficial information has it that the owners of Krasny Vostok wanted $1 billion for it, and Ochakovo is going for approximately the same amount. For comparison, the Dutch brewery Heineken bought the PIT brewery, which occupies a comparable share of the Russian market with Krasny Vostok and Ochakovo, for $560 million. Heineken bought six Russian breweries in 2006, and Sun Interbrew bought Tinkoff. Its decision to build a plant indicates a new expansion strategy. Efes and SABMiller, two other major brewers in Russia, are also discussing new construction of production facilities.

“The decision to build a plant weakens the negotiating position of the Krasny Vostok and Ochakovo companies and strengthens that of the holdings,” commented Ibragimov. “Now the remaining independent players should understand that they have to lower their price. Otherwise they will simply miss the boat.”

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