Carlsberg, the way forward

By S. Ashwiinie

Carlsberg Brewery (M) Bhd’s managing director Soren Ravn is on his last leg in Malaysia, and is headed for the role of head honcho of Carlsberg’s Greater China operations.

The affable Dane who helmed Malaysian and Singaporean operations for the past three years, was previously based in Hong Kong and China. In China Carlsberg Brewery’s 51 percent parent Carlsberg AS owns a staggering 40 breweries.

He leaves after setting the stage for a showdown with rival Guinness Anchor Bhd (GAB), which overtook Carlsberg Brewery as the largest brewer in June 2006, and has since gained ground to control 58 percent market share.

With his departure Ravn leaves Henrik Juel Andersen, regional chief executive officer, Carlsberg Indochina Ltd to helm Carlsberg Brewery through this challenging time.

In a very frank interview with KiniBiz, Ravn shared some of his plans for Carlsberg Brewery and what lies in store for the company.

Here are excerpts of the interview.

Q. How long have you been here in Malaysia, and where were you prior to this posting?

My first job when I came out here (to Asia) in 2006 was to get a little bit of structure into our 40 breweries in China, implement some of Carlsberg’s management models, technical upgrade, people upgrade, branding strategies and etc.

The managing director role in Malaysia is a big role… It’s also a listed company so we attract attention from the media, stock market, shareholders.

We have some subsidiaries and investment outside Malaysia. We own Luen Heng in Malaysia. We own 25 percent of Carlsberg in Sri Lanka.

Three years have gone fast and I’ve learnt a lot.

Q. So you have the number one selling beer in Malaysia but are the number two brewer…is that accurate?

Across all beers in Malaysia, Carlsberg (green label) is the number one beer based on sales.

Trade data clearly puts Carlsberg (green label) as the number one but we have to be cautious about what we say. Our assessment is that Carlsberg (green label) is number one and we have grown after three years.

When you talk about the beer market, unfortunately we are only number two, so when you take our competitor— all their brands versus all our brands— we probably have around 42 percent to 43 percent of the market, and they have more or less the rest.

We have the number one brand but we are only number two and our strategy now is to keep the number one position, and we have particular strategies for that— music, parties, football and all the stuff we are doing, and then we use all the other brands to give consumers what they want which is basically variety.

Actually just having the number one brand is a great strategy.

Q. Your strategy right now is you brew brands like Asahi which produce higher margins?

We started to import exciting beers when we acquired a company called Luen Heng (F&B Sdn Bhd), back in 2008. They already had the rights to be the sole distributor of Hoegaarden, Budweiser and etc…so immediately we got the variety that could connect us with consumers and we had something (more) to talk about (other than just Carlsberg).

We wanted more variety so we contacted Asahi in Japan. Basically we told them that in Malaysia there are just two big brewers and we can see that your brand (Asahi) has an appeal… they can’t produce here, they do not have the distribution facilities, so we asked why don’t we do a long term partnership, where we do all the work…. we produce, we distribute, we market, we sell and everything for you, and we pay you a percentage, sort of a royalty fee and we grow together.

We had a long negotiation, the Japanese are very concerned about the brand and quality. They visited the brewery I think six times before we signed the agreement.

And it has been a tremendous success. We produce many varieties now, and we match our competitor on the locally produced premium segment.

Q. You do not own Asahi? (Carlsberg AS parent of Carlsberg Brewery has some 307  brands under its belt)

No…We don’t but it’s becoming more of a global partnership between Carlsberg and Asahi saying if one of us is strong in one country and the other is not so, we’ll explore options together to see if the stronger one can distribute or even produce there. This model started in Russia where Carlsberg was very strong and Asahi was weak, so Carlsberg produced and distributed for Asahi.

Q. You have about 307 brands under Carlsberg AS, why not bring in your own brands…why opt for Asahi ?

Many of the brands are local brands… For example in China there are 40 breweries, when you acquire a brewery it already has strong local brands and premium brands.

But outside the (operating) region that particular local brand may not have a strong following. These brands may not be able to sell outside. Only strong premium brands have the ability to travel outside.

In our case, whenever headquarters wants something tested we would test it with Luen Heng.

Luen Heng will get a feedback, and if it grows we look at moving it from Luen Heng to Carlsberg (Brewery), put more money into marketing and produce it here.

Q. So are you game to brew other new brands?

The process would always start with Luen Heng then through Carlsberg (Brewery). Much safer to run it as an import for a while, once we are sure demand is there and price wise it can be carried, then we decide.

Q. So are there any new brands you are thinking of brewing?

The ones we think that can take off, (shift) to local production… sometime in the future.

Q. Among all your brands, which brand in your opinion requires the most marketing attention and why?

The newest one… because it’s like a baby, it needs the most attention, to build up and grow up and on the other hand I will also say Carlsberg (green label), when you have a number one brand that has a big chunk in a big segment, you may think that the segment may be shrinking and the premium segment will be increasing in the years to come.

So in a shrinking segment, you need to make sure everything you do, you do it right. And you also have to think about your cost of doing business, to know how much you can afford to invest in a brand in a shrinking segment— you have to do things a lot better to drive growth.

Q. A shrinking segment? What do you mean by that?

Basically when you are in a mature beer market…like in Malaysia and especially here where we have high taxes— prices from economy to mainstream to premium—it’s not a big difference because all of them have to pay almost the same amount of excise duties.

So you have relatively small price gaps….Drinks are traded up and down, one time with friends a person may drink Hoergaarden and at home while watching a football match the same consumer may drink Skol. Consumers do that, they don’t buy a mainstream beer but they buy a premium one to suit the occasion or a not so premium one when at home.

This means the premium segment will grow.

However, we cannot give up on that (mainstream) segment, it’s quite hard because it is our bread and butter, and this is where we have the number one brand which is in the mainstream segment.

So it’s a good place to be, as long as we keep our market share of the mainstream it is good enough and as long as we can gain share in the premium.

Q. But now it’s no longer just beer versus beer competition right? People are more affluent, drinking wine and single malt whisky etc?

It’s basically higher growth rates coming from a much smaller base. Like what we have in the premium segment.

But Luen Heng is handling that, they are selling whisky, tequila, gin, a wide range of wines from different countries, and ciders.

(Luen Heng carries Jose Cuervo tequila, Whyte & MacKay whisky and Jagermeister to name a few, and has a whole host of wines under its umbrella)

Our competitive edge is we can match locally produced premium beers, we have the number one beer—-and we have a unique setup that our competitors don’t have, we don’t only talk about beers, but also talk about a wide range of other brands…It’s good to have Luen Heng.

Q. Is this a unique arrangement with Luen Heng? Does your parent Carlsberg (AS) deal in liquor or wines?

There are exceptions around the world. When you acquire breweries in China or India, many of these could also be in the liquor businesses. Carlsberg (AS)’s energy is to drive beer.

In Malaysia everyone agreed to first import beers from Luen Heng as a side effect to that it’s nice to have other categories that now show good growth potential.

Q. As for strategy by your parent, are you going to use Carlsberg Brewery for your regional growth? Is regional growth going to be spearheaded by Carlsberg Brewery?

Yes and No. In Asia, in terms of a strategic perspective, we have a very sustainable business in Malaysia and Singapore. This combines well with our other matured beer markets Cambodia, Nepal, Sri Lanka and Hong Kong.

We provide a lot of cash and investment that Carlsberg globally can invest. Beer is a matured market.

Q. How are you coping with Malaysia having the second highest tax rate in the world?

You know…. when you go to a shop you order a bowl of noodles for RM5, and then you order a Carlsberg…it’s RM15. I don’t know anywhere in the world where the beer costs three times more than the meal itself.

Q. How does it work? Do you negotiate with the government on the tax rates?

You cannot negotiate but we are being heard… They (the Government) have been listening to the industry, getting feedback from the industry.

The Malaysian government has been open in asking for relevant improvements in the industry. They do consult experts on the industry and do look at other countries, look at other models.

Q. Do you think the coming general election will have any effect on Carlsberg Brewery?

I would not make any comment on that. I have a positive view on Malaysia’s future, and I’m sure whatever government is in power (will) work for the future of Malaysia.

Q. Where do you see Carlsberg Brewery in say five years?

We will continue to grow, it will not come easy the market growth  (will) be flattish, hopefully a little bit of growth.

I think we can take more market share as we are getting into the premium segment with a much better position for growth… (We need) much more exposure, we have to have better marketing, we have to be tighter on how we run the brewery. We can bring in good revenue growth and good profit growth.

Yesterday: Carlsberg banks on premium segment to battle Guinness