S&N plotting revolution in Russian beer

The company is in talks with the local management and with Carlsberg, which jointly owns the Baltika breweries, to begin production of the beer from next year.

S&N currently brews San Miguel in Britain under licence and Baltika is imported. It is likely that it would be brewed at S&N's Manchester brewery.

Tony Froggatt, S&N's chief executive, admitted the plan was under negotiation and that he hoped a deal would emerge shortly. He said: "Baltika has an image - as a Russian beer - that is appealing [to the British drinker]. The UK team is working hard on it, but we will do the right thing by our partners."

Baltika is owned by Baltic Beverages Holding (BBH), a 50-50 joint venture between S&N and Carlsberg, each acquiring half the business in the early part of this decade from its Swedish and Finnish owners.

From a standing start in 1990, it has grown to 10 breweries in Russia - valued at $5.5bn - and a further six in the Commonwealth of Independent States (CIS) countries, including Kazakhstan, one of the fastest-growing economies in the world.

It has been the leading Russian beer brand since 1996 and now has a 36% share of the Russian market, which itself is poised to become the fourth largest in the world - overtaking Germany's, which is in decline as wine and other drinks become more popular.

Baltika is a key driving force for Edinburgh-based S&N, which believes Russia and eastern Europe provide huge opportunities for growth. The Baltika management say that it will topple Heineken as Europe's biggest-selling brand in the next five years.

Baltika is currently second, ahead of Carlsberg, Carling, Amstel, Stella Artois, Kronenbourg and Foster's.

However, it occupies a high placing almost entirely due to sales in its massive home market, and even if it should become the biggest brand in Europe it would remain largely unknown in many parts of the continent.

For S&N and Carlsberg it matters more that the company continues to grow in Russia, which has traditionally been a market for spirits, mainly vodka. As Russia and other eastern European countries develop a taste for beer, the two companies see enormous potential for their revenue stream.

Analysts agree, though they say growth in these territories will be offset by declining sales in S&N's and Carlsberg's core markets in western Europe.

The recent spat between the Russian government and the Shell oil company has prompted reports that Russia is a difficult country in which to do business. But Froggatt said: "The government has treated us fairly. We have no complaints.

"This is a country that is evolving. President Putin has combined a degree of democracy with discipline."

He said the next big growth area would be India, where the company also enjoys a partnership - with the tycoon Vijay Mallya. "I believe India will be the next Russia," said Froggatt.