Big brewer aims high in a land of plenty

China tar­geted for wide sales drive by Carls­berg with a close eye on mar­ket

China Daily (Hong Kong) - - BUSINESS / COMPANIES - By WANG ZHUOQIONG wangzhuo­qiong@chi­nadaily.com.cn STEPHEN MAHER

When Chi­nese peo­ple drink beer, very few of them drink in liters. They pre­fer to or­der it in small vol­umes. In a typ­i­cal sce­nario: When four Chi­nese peo­ple go out to dine they buy four bot­tles of beer.

There is a trend of down­siz­ing beer bot­tles among lo­cal brew­eries, said Stephen Maher, chief ex­ec­u­tive of­fi­cer of Carls­berg China, there­fore down­siz­ing beer con­sump­tion and slow­ing down the growth of the in­dus­try.

Lo­cal beer brew­eries that want to raise their prof­itabil­ity but are re­sis­tant to in­crease the price are mak­ing their bot­tles smaller. In or­der to avoid price growth, they have been launch­ing a more pre­mium beer but down­siz­ing the bot­tle, ac­cord­ing to the Aus­tralian ex­ec­u­tive.

As a re­sult the buyer tries to drink a bet­ter qual­ity beer but less of it, said Maher, sit­ting in a con­fer­ence room wear­ing a black T- shirt sport­ing the logo of one of his brands, Tuborg, which tar­gets young mu­sic fans.

“There­fore by down­siz­ing bot­tles, it’s down­siz­ing con­sump­tion,” he said. “That’s re­ally driv­ing the slow­down in the growth.”

Carls­berg has brought in prod­ucts that are more pre­mium that en­able them to in­vest back in the busi­ness. If peo­ple want to buy a can, they buy a big­ger can of 500 ml, said Maher.

“If we can trade the con­sumers up to a 330 to a 500ml tin, we ba­si­cally in­crease the con­sump­tion by al­most 50 per­cent,” said Maher, who has worked for Col­gatePal­mo­live Co and Proc­ter & Gam­ble Co in emerg­ing and de­vel­oped mar­kets prior to tak­ing the po­si­tion at Carls­berg in 2010.

Last year, Carls­berg’s beer vol­umes in China grew 4 per­cent, largely driven by the strong per­for­mance of their in­ter­na­tional brands and the ex­panded dis­tri­bu­tion of both Carls­berg and Tuborg lagers.

Tuborg, is po­si­tioned in China as an in­ter­na­tional brand with a Chi­nese taste. It is lighter and about half the al­co­hol strength than that in Europe. Launched last April, Maher said it took them two years to get this prod­uct right for the China mar­ket. It sold rapidly in the coun­try. In the first three months of this year, the com­pany has al­ready out­sold the en­tire vol­ume of last year.

By the end of this year, Tuborg will grow four times that of a year ago.The in­ter­na­tional band Carls­berg will grow close to 20 per­cent by the end of this year, be­cause it’s a much big­ger busi­ness.

Se­cret of suc­cess

In the beer busi­ness in China, if you want to get it right, you have to get the Chi­nese din­ing right, un­der­stand it. That is the se­cret of suc­cess in the Chi­nese mar­ket ac­cord­ing to the CEO of the Dan­ish brew­ery.

Un­like very many de­vel­oped mar­kets such as Europe and Amer­ica where it is com­mon to drink at home with friends, in China most Chi­nese peo­ple wouldn’t in­vite their friends home.

“As peo­ple move to cities, with their in­come in­creas­ing, they go out din­ing more — and that’s the oc­ca­sion most Chi­nese like to have a beer,” he said.

Of Carls­berg’s ma­jor brands, about 40 per­cent are sold dur­ing Chi­nese meals, 30 per­cent at con­ve­nience stores and mini mar­kets and fewer than 5 per­cent of sales are from big for­eign-owned supermarkets such as Car­refour SA and Wal-Mart Stores Inc, he said.

The dif­fer­ent con­sump­tion be­hav­ior has also af­fected Carls­berg’s mar­ket­ing strate­gies. “In a din­ing en­vi­ron­ment, it’s more about how we make beer rel­e­vant for that type of oc­ca­sion, with big glasses or other ma­te­rial,” said Maher. While “in the su­per­mar­ket, it’s more about how to drive con­sump­tion, so we may have six packs or the 500ml in 3 packs”, he said.

Since 2002, the Dan­ish brew­ery has con­sol­i­dated its pres­ence in West China and has con­tin­u­ally ex­panded. In March, Carls­berg of­fered to buy a stake in Chongqing Brew­ery Co, tar­get­ing po­ten­tially up to 60 per­cent of the shares but so far gain­ing 30 per­cent.

Pre­mium Level

Carls­berg con­sid­ers West China to be a sleep­ing gi­ant, much more prof­itable than East China, where com­pe­ti­tion is fierce and costs are higher, said the CEO.

In ad­di­tion brands in western re­gions are old and the or­ga­ni­za­tion could do with some Western man­agers, he said. Just from lo­cal con­sump­tion, Carls­berg’s pro­duc­tiv­ity has im­proved 25 per­cent since 2010.

Carls­berg now has 7 per­cent of the coun­try’s beer mar­ket and is ex­pected to ri­val other in­dus­try lead­ers through the ac­qui­si­tion of sec­ond-tier lo­cal brew­eries.

The Chi­nese beer in­dus­try is con­sol­i­dat­ing at a rapid pace and is dom­i­nated by three do­mes­tic brew­eries: China Re­sources Snow Brew­ery, Ts­ing­tao Brew­ery and Yan­jing Brew­ery, as well as three for­eign brands — An­heuser- Busch InBev, SABMiller Plc and Carls­berg.

An­heuser- Busch InBev has con­trolled lo­cal brands in­clud­ing Harbin, Zhu­jiang and Sedrin. Ts­ing­tao has 60 brew­eries in 19 lo­ca­tions. With 80 brew­eries and a 21 per­cent mar­ket share, the largest beer man­u­fac­turer by pro­duc­tion vol­ume is China Re­sources Snow Brew­eries, which is a joint ven­ture be­tween China Re­sources En­ter­prises Ltd and the world’s sec­ond- largest brew­ery SABMiller. Yan­jing Brew­ery is fo­cused on a lo­cal strat­egy and has a 12 per­cent mar­ket share.

Un­like other ma­jor beer brew­eries, Carls­berg pays at­ten­tion to nur­tur­ing lo­cal brands. “We be­lieve that peo­ple in Xin­jiang will want to drink national brands such as Carls­berg and Tuborg, but they are also go­ing to drink a lo­cal beer,” Maher said.

Lo­cal brands and national brands are not in con­flict, he added, be­cause the same drinker may like dif­fer­ent things on dif­fer­ent oc­ca­sions.

For ex­am­ple, if some­one goes to a KTV, they will prob­a­bly want to drink a more pre­mium, a more fa­mous brand such as Tuborg or Carls­berg. But when they go for a meal, or they go to the night mar­kets, they prob­a­bly want Wusu, a lo­cal brand, he said.

“One key pil­lar to driv­ing busi­ness growth is to un­der­stand the con­sumer at the time they drink beer and find out how we can cre­ate more oc­ca­sions that are rel­e­vant to them to drink beer,” he said.

“Our busi­ness model is to take strong, pow­er­ful brands, make them all prof­itable, im­prove the qual­ity, im­prove the ex­pe­ri­ence and en­cour­age them to move up to a more pre­mium level,” he added.

Vi­sion

Maher is con­fi­dent about the mar­ket po­ten­tial in the coun­try, where op­por­tu­ni­ties are cre­ated by the rel­a­tively low drink­ing of beer in the coun­try at an an­nual vol­ume of about 33 liters per head, low com­pared with that in Europe, in Amer­ica and in Aus­tralia.

The govern­ment is con­tin­u­ously driv­ing ur­ban­iza­tion that leads to in­creas­ing city pop­u­la­tions and the higher in­comes will pro­pel the con­sump­tion, he said.

With a port­fo­lio of more than 20 brands sold in China, in­clud­ing Carls­berg, Tuborg, and Kro­nen­bourg 1664, the CEO has vowed to make the com­pany top of the in­dus­try in the coun­try in the next decade, pro­duc­ing cur­rently un­der 30 mil­lion hec­to­liters but be­tween 100 and 200 in 10 years. A hec­to­liter is 100 liters. As the world’s largest beer mar­ket, China has main­tained rapid growth in drink­ing the bev­er­age.

The brew­ery is ex­pected to launch a cou­ple of new prod­ucts and con­tinue to drive the lo­cal brands, as well as to ex­pand their in­ter­na­tional brands Tuborg and Carls­berg, Maher said.

If Carls­berg China is able to achieve its growth am­bi­tions through Carls­berg and Tuborg, they will have the po­ten­tial to be­come the No 3 and No 4 global brands in the beer in­dus­try.

For Carls­berg in­ter­na­tion­ally, China ranks sec­ond in the world in terms of vol­ume. In three years, it is ex­pected to be the big­gest.

“China plays a sig­nif­i­cant role for Carls­berg be­cause it en­hances its global rep­u­ta­tion,” said Maher. “It’s go­ing to be big­gest vol­ume growth, big­gest profit growth in the fu­ture.”

PRO­VIDED TO CHINA DAILY

Carls­berg’s prod­ucts avail­able in large packs at retailers in China.

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