Russian alcohol abuse curbs dent Carlsberg

Russian government attempts to curb alcohol abuse, including limiting the size of plastic beer bottles, hit sales of Danish brewer Carlsberg and pushed its profit in 2017 well below the expectations of analysts.

Carlsberg has struggled in Russia, its main eastern European market, since it took control of the country’s largest beer brand, Baltika, in 2008 due to a weak economy as well as advertising restrictions and tax hikes designed to curb drinking.

Russia provides about a fifth of Carlsberg’s sales. The new law limiting bottle sizes to no more than 1.5 litres was introduced in mid-2016 and the company warned investors in February 2017 of the likely impact on beer sales.

“Our Russian volumes and market share were severely impacted by the … downsizing,” Carlsberg CE Cees ’t Hart told journalists on Wednesday.

Carlsberg’s shares were trading 4.7% lower at 707.20 Danish krone ($117.26) in latemorning trading, the lowest level since mid-October and on track for the worst-performing trading day in 18 months.

Carlsberg, the world’s thirdlargest brewer, said that beer volumes grew in all markets in 2017 except in Russia, where volumes fell 14% and the company’s market share fell to 31.9% from 34.6% between January and November.

Russians are among the world’s biggest drinkers of alcohol, but government measures such as restrictions on sales and tougher penalties for drunkdriving are nudging them towards healthier lifestyles.

Analysts said that the Soccer World Cup, which will be hosted by Russia in June and July, could help the brewer. Russian Deputy Prime Minister Vitaly Mutko said in January that the sale of beer would be allowed at stadiums and fan zones.

“While the market remains competitive due to local brewers taking share, Carlsberg should, in theory, benefit from the Fifa World Cup in 2018,” analysts at Liberum said.

Carlsberg’s CEO said he expected “flattish” growth in an unpredictable Russian beer market and did not want to speculate on the impact of the World Cup. He said he did not want to engage in a price war in Russia but he intended to halt the decline in market share.

While competitors have cut prices in Russia, Carlsberg has, as part of its strategy to focus on premium beers, increased prices in the past two years.