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Interview
"Introducing A Good-Tasting Beer With Low Alcohol Content Is High On Our Agenda"
Flemming Besenbacher, chairman of Danish brewery Carlsberg, talks about the global beer market and his company’s plans to launch a separate beer for women
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It all began when Jacob Jacobsen set up a small brewery in the name of his son, Carl, near Copenhagen in 1847. What came to life as a small experiment has today turned into the most sought-after light beer brand across the globe. Ironically, following a bitter fallout, the father entrusted control of the empire to the trustees of the Carlsberg Foundation. Today, Flemming Besenbacher chairs the supervisory board of the Danish company. In an interaction with Outlook Business, the 63-year-old talks about why innovative products and new geographies will be the mainstay of Carlsberg’s growth in the coming years.

As the world’s fourth-largest brewing company, what is your outlook on the global environment?

There is no doubt that we are competing in a complex world with an increasing degree of uncertainty. You have to constantly be prepared for change and also prepare for the unexpected. At Carlsberg, we are focused on doing better in markets where we are No. 1, 2 or 3. Though we own international brands such as Carlsberg and Tuborg, a majority of the beer brands that we sell are local, whether it is in Russia, China or India. In short, we run a business that, on one hand, is global and, on the other, is intensely local. Of western Europe, eastern Europe and Asia, the three regions that we operate in, the beer market in eastern Europe has been in decline for the past couple of years. So, when things are going tough, one way to grow and gain further market share is by innovating and introducing new products.

Russia is a big market for Carlsberg but slow growth and a political crisis has played spoilsport. What is your assessment of the situation?

We are not politicians and do not want to comment on geopolitical issues. We are focused on innovating and doing our business better. We have ten breweries in Russia and three in Ukraine. So, our focus is to stay on course and run our operations smoothly. By the way, we are still making money in Russia.

Given the global consolidation spree among brewers, is there a business case for Carlsberg to look at playing a bigger role by either buying or merging with global players?

Back in 2000, Carlsberg was facing a tough time as the board and the management failed to adequately focus on globalisation. But between 2000 and 2007, Carlsberg managed a slew of joint ventures and buyouts, including Scottish & Newcastle. If you look at the company’s footprint today, it is vastly different from what it was in 2000. As the world’s fourth-largest brewer, we have to ensure that we create value for our shareholders and focus on profitable businesses.

But there is no denying that the beer industry is increasingly getting consolidated. Back in 2000, the four largest brewers were sitting on around 22% of the volume and around 25% of the profit pool. Today, the same number control 55% of the volume and 60% of the profit pool. Will Carlsberg participate in further M&As? I really don’t know. We will, however, look at every opportunity on a case-to-case basis. If we come across a business like the Chinese brewery in which we saw potential over a five- to ten-year timeframe, we will be willing.

Would that also be the case in India?

I think our Indian operations are doing pretty well. Despite being a late entrant, we have managed to build a very promising business in the country and I would praise the local team for doing such a good job in such a short span of time. In fact, Tuborg is doing quite well across different regional markets in India. Carlsberg’s business model has always been to enter as a minority partner and gradually become a majority partner and then put in all its competencies in making beer and managing breweries. This approach has served us well in India and China.

We will invest further in India, where we have been opening one brewery a year for the past seven years. Right now, we are focused on organic growth but if there is an opportunity to enter a new state by getting into a joint venture with a partner there, we will do it. But it is important to find the right partner who shares the same core values as Carlsberg. Having said that, we do have a great partnership running in India.

Of late, China has been grappling with growth issues. Does that make India a critical market for Carlsberg?

It is true that the growth rate has been declining for the past couple of years, but the Chinese business is still very interesting and we have recently acquired the Chongqing Brewery as well. We have a strong presence in western China and are now moving east. We are in the middle of an integration process after having recently increased our stake in a local brewery. We need to realise that India and China are very different countries with different market dynamics at play. As I mentioned before, the business case for Carlsberg is to stay strong in countries where it is No 1, 2 or 3, and that applies to India as well.

Why has Carlsberg stayed clear of Latin American and African markets?

Africa is already to a high degree consolidated between Diageo, Heineken and SABMiller. Similarly, Latin America is also a highly consolidated market. We will look around the world but the things we are buying right now are in Asia.

How is Carlsberg keeping in sync with changing consumer preferences?

First of all, we try to promote our iconic brands. For example, Tuborg has been doing really well in India and China. The brand is associated with having fun, meeting friends, listening to music and so forth. Currently, we are focusing on innovating a non-alcoholic beer for people who do not like to consume alcohol. It’s not only about innovating with drinks but also coming up with new ways to do business, be it through sustainability initiatives such as creating biodegradable bottles or through our digital marketing efforts. Today, you have to not only innovate constantly but also make a strong business case every time you do it.

 
 
"Today, you have to not only innovate constantly but also make a strong business case each time"
 
 
For example, take the case of Davos. I have been at business lunches here where only wine is served. If I get a glass of wine at lunchtime, I will fall asleep in the afternoon. But if I could get a non-alcoholic beer, I could still go for a business lunch or drive my car. That is fantastic. Many female consumers — for example, my daughter, who is pregnant right now — cannot drink alcohol; they might like to try a non-alcoholic beer. Some of our consumers are Muslims, for whom we are developing a zero-alcohol beer. In a country like Spain, 40% of the beer consumed is non-alcoholic. So, introducing a good-tasting beer with low alcohol content is high on our agenda as we have the technology to produce it. In Denmark, we introduced two new non-alcoholic beers called Nordic last year. Also, beer is a natural product, made from barley, yeast and water; I think it is a fantastic product. Another thing on our agenda is developing a slightly costlier premium beer to be consumed during dinner.

So will premium offerings be a key growth driver?

Absolutely. Not just in eastern or western Europe, premiumisation is generating smaller volumes in Asia as well. In Denmark, we have a brand called Jacobsen (named after Carlsberg founder JC Jacobsen), which is an excellent beer, and I must admit I have had many dinner parties where I have actually been served Jacobsen beer. It goes very well with fish, meat and soup.

Is Carlsberg looking at an entirely new segment of beer for women?

Women around the world don’t like beer because it is too bitter and they venture into stronger alcoholic drinks instead. But I believe that this is not a healthy option for them and it would be much better for us to develop a beer that they might like. One product that we launched in recent years is a cider product called Somersby, primarily targeted at female consumers. We have also been innovating with new beer types in Russia and Asia. We have produced a brand called Eve, which more or less tastes like champagne. Again, we have to realise that many of these initiatives have to be developed to suit local conditions. Our innovation is not just restricted to creating a beer for women. We recently bought a small start-up company that is working on a technology to develop a new soft drink. It’s still in a pilot stage and we will have to see how it can be scaled up. My guess is that it could take another three to four years.

You spoke about making sustainable products. Will it be economical to produce biodegradable bottles?

We have just unveiled a prototype. This is a three-year project, where we will develop the concept even further over time. But we don’t expect to have all our bottles turn biodegradable in two to three years. It is akin to a biotech company, where the development of a drug may take 20 years.

I think the concept we have introduced here looks very promising. Now, we have to prove the concept and see how we can scale it up. We have to see who can produce the bottles in a cost-effective manner and where they should be produced. Should it be manufactured in Denmark, India or in China? But the first three years will really be invested in concept testing and so forth, and then developing the business model.

What are the challenges and opportunities you foresee for Carlsberg in the coming years?

Given the rapid pace of change in the marketplace, we need to have the right people taking the right decisions. We need to have leadership in Carlsberg who can constantly think out of the box, try to be open, learn from business schools, learn from universities, learn to integrate IT in whatever we do. It is no longer going to be the old way of doing business where you had one CEO telling the organisation what to do. That is not how you can do business today.

Have you created that enabling environment at Carlsberg?

I don’t think we have any problems developing new leaders in-house. However, we are putting in a lot of effort into leadership development right now. Also, educating our people all the way down to the brewers is becoming more and more important.

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