Efes Russia: How operations react to regulations

“Regulations is what happens to you while you are busy improving your bottom line” – When the market got hit by the adverse effects of regulations, optimizing your operations usually turns out to be your plan A.

Anadolu Efes is the 6th largest beer producer and seller in Europe and 11th in the world. Starting its operations in Turkey in 1969, the company managed to establish itself as the leading domestic brand in 80s. Enjoying a 71% market share as of 2015, Efes brand name is almost a generic trademark, synonymous with beer in most of Turkish people’s minds [1].

Anadolu Efes currently has operations in 10 countries and production in 6 countries with its 15 breweries, 6 maltries and 1 hops processing facility. With its 40+ brands, 8000+ employees and 70+ exportation countries listed, Efes defines the key element in their business model as “exceling at quality and operational performance while respecting the sustainable priorities”. However, the regulatory and political conditions in Turkey and Russia (two biggest markets) do not quite reinforce their business model in line with their expectations. Key authorities in the industry often argue that Efes picked up the two most difficult and unfavorable markets in brewing industry. Market statistics and sales figures prove them right [1] [2].

Russian beer market and Efes Rus

Russian beer market volume has shrinked by 7-8% in 2014, and the results from the first quarter of 2015 is not bright as well: 9% volume decline compared to same period last year. This decline trend is neither surprising nor new to the players. They suffer an average 5-6% annual volume decline since 2010 [3]. Volume decline in the market is mostly as a result of stricter regulations targeted to beer industry with the aim of preventing alcoholism. The policies that hit the beer market at most are as follows [4] [5]:

  • Excise tax increase
  • Ban on beer sales in kiosks and market stalls (no impulse purchases)
  • Ban on beer sales after 10 PM
  • Ban on public advertisement
  • Ban on drinking beer in public places
  • Ban on selling in 2.5+ liters bottles

Efes RUS, having built a strategic partnership with SAB Miller in 2012, is currently the second player in the market with a share of 14%. They started their operations in 1997 and used to have a very bright outlook going forward. However, they also experience severe volume declines (in parallel or a few digits less than the market) in past 5 years, which is directly translated into a poor financial performance, creating a huge cost pressure [6].

Efes RUS focused on their production, distribution and operational efficiencies to turn around the situation.

Efes Rus operational measures

  • Brewery closures – capacity utilization: In response to a total volume decline of 15-20% in the market, Efes RUS decided to close down two breweries: Moscow and Rostov in Q1 of 2014. Conducting a very detailed study for capacity utilizations and production costs in each brewery, the company announced that the capacity utilization rate decreased to on average 60% and picked the two breweries considering relative utilization, production costs and distribution network proximity. Beer volume shifted to other 6 breweries across the country and capacity utilizations significantly increased [6] [7].

efes moskova


  • Distribution network optimization: Given the geographical conditions in Russia and the high share of rural areas in the country, having the right distributors is the key to be the winner company in the market. Efes RUS improved their distribution and retail partner network and negotiated better trade marketing terms. Overall focus was to promote the new premium-focused strategy and to reduce the costs [8].
  • Improving transportation efficiency: Effectiveness of the transportation network is ensured by a new technological system that promotes “automated planning process, tracking data, and improved visibility into transportation costs” [9].
  • Improving procurement costs: Better terms with suppliers is negotiated and synergy opportunities explored.

Results and going forward

  • Efes RUS managed to be the only multinational company that increases its market share both in terms of value and volume in 2014 (from 13% to 14%) [6].
  • Cost reduction programs worked very well and there has been a smooth transition in brewery closures, the required volume is successfully transferred to other breweries.
  • Efes RUS achieved and outperformed their targets in 1H 2015.
  • Premium portfolio demonstrated a higher growth with the achieved value generation across supply chain [10].

Although above mentioned results suggest that their new operational strategy worked out, neither the market outlook nor the financial performance is very promising for Efes RUS yet and it is too early to claim that they are the clear winner. Market is expected to shrink even more in the upcoming years. In addition to that, political tension between Russia and Turkey is growing up. Thus, Efes RUS might need to further investigate operational improvements as a reaction with the aim of better managing its financial performance.



[1] http://www.anadoluefes.com/anadoluefes/aboutanadolugroup
[2] http://www.brewersguardian.com/brewing-features/international/1847.html
[4] http://www.reuters.com/article/russia-beer-regulations idUSL6N0V823Q20150129#006OftEqyZmezvTK.97
[5] Euromonitor Beer in Russia country report: http://www.euromonitor.com/beer-in-russia/report
[6] Anadolu Efes Annual Report, 2014
[7] http://www.hurriyet.com.tr/anadolu-efes-rusyadaki-tesisi-kapatiyor-25114452
[8] Anadolu Efes 1H2014 Investor Presentation
[9] https://newsroom.accenture.com/subjects/process-innovation-performance/accenture-helps-efes-rus-improve-transportation-efficiency-through-new-technology-solution.htm
[10] Anadolu Efes 1H2015 Investor Presentation – http://www.anadoluefes.com/dosya/ozeldurumaciklamalari_in/20150710180136gf.pdf



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Student comments on Efes Russia: How operations react to regulations

  1. Thanks for the interesting post.
    Some food companies in the US, especially soft drink producers, may face similarly punitive regulations on the sale of their products. It looks like Efes has been relatively successful in managing the regulations, despite a decline in overall sales they improved market share. It will be interesting to see what other strategies Efes employs and whether their approach can be applied to soda producers.

  2. That’s a very interesting piece Yigit!
    Mainly due to two reasons:
    – First of all, it provides a good perspective to understand corporations outside the US and Europe, and to internalize their problems and how they respond to it in a global economy.
    – Next, it’s very useful to see that companies do not only revisit their operating models when they change their business models, but they also need to align their operating models when external factors (i.e. regulations, customer demographics, competition) change as well.

  3. Hi Yigit,

    Thank you for the interesting post. The decline in the traditional beer industry is something which has happened across Europe as a result of the rise in craft beer. Is this trend likely to further threaten Efes’ position in both Russia and Turkey? Would you know of key steps they are undertaking to limit the potential impact?

    The distribution point is very interesting, notably considering the size of Russia. Is Efes’ strategy of focusing on premium products a way for them to focus on more urban consumers and therefore limit their need for a large distribution network?

    As a final point, do you have any information on the impact of currency fluctuations on Efes’ operations? Considering its focus on Eastern European markets, I would imagine this is a significant issue for them. They could hedge but that strategy also has its limits. I wonder whether they are considering expanding to more stable markets or whether they will continue to focus on their core markets.

    Thank you for the post!

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