Carlsberg in Emerging Markets

Submitted By: Aditya Kaul (44)

Introduction• In 1847, Carlsberg A/S was founded by J.C. Jacobsen in

Copenhagen, Denmark• First foreign brewery was established in Malawi in 1968• In 2007, company had held a portfolio of 75 breweries around

the world and sold approximately 115 million hectoliters of beer in more than 150 countries

• Carlsberg focused on the mature beer markets of Western Europe, the growth markets of Eastern Europe and emerging markets of Asia

• Carlsberg is the fifth-largest brewing company in the world

Continue….• In 2000, Carlsberg gets 50% ownership in Baltic Beverages

Holdings (BBH), by getting merge with Orkla ASA• 2008, Full ownership at BBH• In 2000, Carlsberg did Joint venture with Thai company

Chang Beverages Pte Ltd, which was a leading player in Asian markets for alcoholic beverages

• Carlsberg faced serious loss in time and money by this Joint venture, as they had many disagreements in between

• In 2003, Carlsberg focused on western China and got first mover advantage

Emerging Market Strategy• 3 Different Markets

Western European Eastern European Emerging Asia

Maturing market Fast growing market

World’s largest market in terms of production and consumption (China)

Changes in consumers’ behavior-health consciousness

Strongest position in the region’s main market (Russia)

Low labor cost and cheap raw material

Change in market regulations

Continue….• Company’s Strategies: Focus on value creation, profitable growth by

penetrating foreign markets which geographically divided into 3 regions

•Improved profitability through innovation and streamlining

Western European

•Rapid growth and higher earnings by capturing new market share

Eastern European

•Long-term growth through building-up leading positions

Emerging Asia

Porter’s Five Forces Analysis on the two investigated region –

Russia and China

Carlsberg in Russia Porter five forces analysis on Russian beer market

•Large amount of capital is required to compete against the existing market players, who have already captured the market

Threat of New Entrants (Low)

•Varieties of brand available•Narrowly defined substitute products, e.g. Vodka and alcohol

Threat of Substitutes (High)

•Huge variety of products, five main beer producers in market•Price sensitivity- High elasticity of beer consumption

Bargaining Power of Buyers (Moderate)

•Market force drives the price•Underdeveloped labour unions

Bargaining Power of Suppliers (Low)

•Large players in the industry•Russia banned advertisement of alcohols

Intensity of Rivalry (High)

Carlsberg in ChinaPorter’s five forces analysis on Chinese beer market

•First mover advantage•Regional differences•Many players in southeast part, which might can come to western part

Threat of New Entrants (Moderate)

•Few local beer companies •Low cost to switch

Threat of Substitutes (Moderate)

•Largest market of the world, in terms of production and consumption•Rapidly growing purchasing power•Large variety of alcoholic beverages available

Bargaining Power of Buyers (High)

•Homogeneous raw material – Malt and barley•Low switching cost to other suppliers

Bargaining Power of Suppliers (Low)

•Low concentration of competition•Immensely fragmented, highly regionalized

Intensity of Rivalry (Moderate)

Firm Analysis

SWOT Analysis- RussiaStrengths Weaknesses

• Beer market leader with strong brand image and brand awareness• Strong distribution channel, creates accessibility • Company owned ‘Baltika’, the best selling brand, accounted for 38% of Russian beer market share• Economies of Scales of Production• Effective vertical integration and Cost efficiency

• Difficulties of financing the expansion since the failure of the consolidation, which leads to the increase in company’s debt• Company is unable to secure growth and future

Continue…Opportunities Threats

• One of the fastest growing beer market in the world• Hike in taxes on liquor resulted in the increase of prices of vodka, this will help in increase the consumption of beer by the Russian people• Beer market trend is also booming in the Eastern Europe

• Rapidly consolidation may increase the competition in the industry

SWOT Analysis- China

Strengths Weaknesses

• Untapped market opportunities in western China• Developing market• High growth rate of 8% comparing to US and EU• Large population

• Southeast dominated by other large players• Requires large investments in production• High barriers to entry

Continue…

Opportunities Threats

• Future extension into central and southern regions• Product line expansion• Possibility of introducing new premium products in future

• Consolidation of competitors• Failure in acquiring partners and doing acquisitions•

Market Analysis- Russia• Beer is the second most preferable drink after vodka, it seen as

a healthier alternative by many consumers• Between 2005 to 2007, sale of beer increased to 30%• During 2008, consumption of beer started to decline due to

government plan to cut alcohol consumption• More than 80% of beer market in Russia is dominated by five

key players• In 2007, Carlsberg was the leader in the market with 37.6%

share

Market Analysis- China• China’s beer industry has enjoyed massive growth over past

three decades• More than 200 domestic brands and 100 foreign brands are

competing to gain market share in Chinese market• Big foreign players has merge with domestic major players in

the industry and account for more than 50 percent of market• Low alcohol beer demand is growing in the market

Challenges• How can Carlsberg maintain its position in the saturated and

highly competitive market?

• How Carlsberg A/S could successfully continue to capitalize on its growing engagement in emerging markets?

Recommendations• To maintain current position in the market and expand to

untapped areas, Carlsberg should try to rejuvenate or reposition themselves in global market

• To maintain their current market position in western Europe, they should diversify to health promoting beverages due to new govt. policies and minimize cannibalization

• To maintain position in Russia and grow in other parts of eastern Europe, Carlsberg should acquire and expand more in near by countries of Russia and do product line extension

Continue…• To continue to capitalize on its growing engagement in

emerging markets of China they should promote premium products in urban China and low cost but high quality products in rural China

• They should focus on improving efficiency in production by using economies of scale, implementing new technologies in production and better packaging

• They can establish their own distribution system in China to boost the sale and capture more market, by capturing small vendors also

Continue…• They can conduct market research in emerging markets to

understand the taste & preference of domestic consumers and innovate their product accordingly

• They can segment the market region and income wise of the consumers, as same products cannot be served in different categories

Thank You