Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Department of Economics
Author:
Bachelor Thesis
Anne Mette Lund Madsen
Gina Helland Hauge
Advisor:
Valdemar Smith
The International Beer Industry –
Opportunities for Carlsberg
The Aarhus School of Business
2009
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Abstract
In this thesis there has been an evaluation of the strategy followed by Carlsberg in the Western and
Northern European beer market and the objective was to find out if their current strategy is the right
one for the company. This market was chosen because it is stagnating and challenging for
Carlsberg, especially due to the financial instability in the world markets. When investigating this,
there have been used internal and external analyses. Due to Carlsberg’s current strategy concerning
growth and expansion, merger theory has been taken into account as well. The Western and
Northern European market is a market where Carlsberg faces great challenges and it is therefore
important for them to maintain market share. One objective in Carlsberg’s strategy is to lower their
debt and increase the cash flow in order to stabilize their share price and ensure investors that
Carlsberg is a favourable investment. This seems suitable in the current market. It also creates
opportunities for the future where Carlsberg can be able to pursue their long-term strategy of
growth and expansion through mergers and acquisitions. In the long-run, Carlsberg have many
opportunities, however, there are some obstacles for achieving their goals, such as their ownership
relations and their large debt. Their current debt will eventually be lowered if they choose to do this,
but the ownership relations are more binding and cannot be dissolved easily. The investigation and
research that has been conducted shows that Carlsberg should follow their current strategy on the
Western and Northern European market. Carlsberg’s future depends on how they manage to utilise
their opportunities as well as maintain or increase market share.
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Table of contents
1. Introduction ................................................................................................................................................... 1
1.1 Problem statement ................................................................................................................................... 1
1.2 Delimitations ........................................................................................................................................... 2
1.3 Evaluation of sources .............................................................................................................................. 2
1.4 Outline of the paper ................................................................................................................................. 2
2. The international beer industry ...................................................................................................................... 3
3. The creation of Carlsberg .............................................................................................................................. 4
3.1 Historical background ............................................................................................................................. 4
3.2 The company today ................................................................................................................................. 5
3.3 Carlsberg’s current strategy ..................................................................................................................... 6
4. Merger theory ................................................................................................................................................ 7
4.1 Vertical mergers ...................................................................................................................................... 7
4.2 Horizontal mergers .................................................................................................................................. 8
4.3 Effect on stock price ................................................................................................................................ 9
4.4 Horizontal boundaries ........................................................................................................................... 10
4.5 Oligopoly models .................................................................................................................................. 11
5. Game theory and price setting in the beer industry ..................................................................................... 13
6. External Analysis......................................................................................................................................... 15
6.1 Carlsberg’s main competitors ................................................................................................................ 16
6.1.1 Heineken ......................................................................................................................................... 16
6.1.2 Anheuser-Busch InBev ................................................................................................................... 16
6.1.3 SABMiller ...................................................................................................................................... 16
6.2 PESTEL analysis ................................................................................................................................... 17
6.2.1 Political ........................................................................................................................................... 17
6.2.2 Economic ........................................................................................................................................ 18
6.2.3 Social .............................................................................................................................................. 19
6.2.4 Technological ................................................................................................................................. 21
6.2.5 Environmental ................................................................................................................................ 21
6.2.6 Legal ............................................................................................................................................... 22
6.3 Porter’s 5 forces ..................................................................................................................................... 23
6.3.1 Bargaining power of suppliers ........................................................................................................ 23
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
6.3.2 Bargaining power of buyers ........................................................................................................... 24
6.3.3 Threat of new entrants .................................................................................................................... 25
6.3.4 Threat of substitutes........................................................................................................................ 25
6.3.5 Industry rivalry ............................................................................................................................... 25
6.4 Summary of external analysis................................................................................................................ 26
7. Internal analysis ........................................................................................................................................... 27
7.1 Seven elements of resource-based sustainable competitive advantage ................................................. 27
7.1.1 Prior or acquired resources ............................................................................................................. 27
7.1.2 Innovative capabilities .................................................................................................................... 28
7.1.3 Being truly competitive .................................................................................................................. 29
7.1.4 Substitutability ................................................................................................................................ 29
7.1.5 Appropriability ............................................................................................................................... 30
7.1.6 Durability ........................................................................................................................................ 30
7.1.7 Imitability ....................................................................................................................................... 30
7.2 Summary of internal analysis ................................................................................................................ 31
8. SWOT analysis ............................................................................................................................................ 31
8.1 Strengths ................................................................................................................................................ 32
8.2 Weaknesses............................................................................................................................................ 33
8.3 Opportunities ......................................................................................................................................... 33
8.4 Threats ................................................................................................................................................... 35
9. Future prospects........................................................................................................................................... 36
10. Conclusion ................................................................................................................................................. 39
Bibliography .................................................................................................................................................... 42
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
1. Introduction
The world today is changing very rapidly. Opportunities arise and disappear instantly and it is
therefore important for modern companies to follow suit and seize the opportunities present for
them at the time. In this context the strategy of a company becomes relevant. Companies develop
strategies to ensure that the employees know what to achieve and are working towards the same
goals. As the speed of changes and information increase in the world, it becomes important for a
company to be able to react fast and adapt their strategy. This is one of the reasons why we have
chosen to write about the strategy of a company.
In our choice of company to analyse we considered several large Danish companies that are
successful and well known in most parts of the world. We considered Lego, Vestas and Arla as
well, but we found that Carlsberg was the most interesting company due to different factors such as
their ownership relations and their capability to grow through mergers and acquisitions.
Additionally, we found that Carlsberg was a firm of a certain size and with relatively reliable and
easily accessible information. For example, they provide the public and stakeholders with company
information on their webpage and a great deal of text and articles have been published on the
company’s dealings during the years. Carlsberg is part of the Danish society and it is one of the
country’s most exposed brands internationally (Falk-Sørensen 2009).
Carlsberg is a company with several interesting opportunities in the world market and they are
facing some interesting years ahead. Therefore we think it is vital for them to have the right
strategic approach to the different markets and that they face the challenges ahead.
In the assignment we will focus on the strategy in the Western European market as the market is
stagnating and therefore challenging for Carlsberg. This is one of the largest markets for Carlsberg.
It is important that they maintain their position in the market since this is a market with a high level
of competition. All of the large international players are in this market, which makes it a difficult
market for Carlsberg.
1.1 Problem statement
By the use of strategic analyses, an evaluation of the strategy followed by Carlsberg in the Western
European beer market will be conducted to investigate if their current strategy is the right strategy
1
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
for the company. This will in addition to external and internal analysis include theory regarding
mergers and acquisitions. To get a complete picture of Carlsberg’s opportunities, the strategy for the
entire organisation will be taken into consideration when concluding on the findings.
1.2 Delimitations
Carlsberg has a wide range of products from non-alcoholic drinks like sodas and Ramlösa to
alcoholic drinks like cider and a wide variety of beer (Carlsberg Danmark- Produkter). In this
assignment the focus will be on the Western European beer market with a view of the beer market
as a whole. This assignment will therefore not contain any information or analysis e.g. of licensing
agreements with Coca Cola or thorough analysis of markets such as the growing Russian or Asian
markets. Any financial results will contain results from beer sales only. Information for the analysis
will not go back more than 5 years as we would like to focus on the present and the future of the
company.
1.3 Evaluation of sources
For information on Carlsberg and other breweries that are mentioned in this assignment, we have
chosen to use the company websites and articles published on the companies. The majority of
numbers are from the annual reports from the companies as we believe these numbers are the most
reliable. We have used databases recognised by educational institutions, e.g. Science Direct and
ELIN. We have also used newspaper articles from recognised national and international
newspapers, as well as material from books on strategy and economics that are being used in the
lectures at ASB.
1.4 Outline of the paper
This paper has been written in close collaboration by the two authors and we are both accountable
for all the content of the paper. We start out by introducing the industry and Carlsberg as a company
as well as their strategy. As Carlsberg’s strategy is concerned with growth and expansion to a large
extent, we will go through merger theory and the application on Carlsberg. We will also look briefly
into game theory to obtain knowledge about the beer industry inter-relations and to consider how
Carlsberg determine their prices. We will move on to the external and the internal analyses of
Carlsberg, where we go through the PESTEL analysis, Porter’s five forces and the seven elements
of resource-based sustainable competitive advantage. We will summarize the internal and external
analysis in a SWOT-analysis as this show the main points and learning from the different analysis.
We will look at the future prospects of Carlsberg in the Western European market and finally we
2
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
are going to conclude on our findings in this assignment and try to advise on the future strategy of
Carlsberg, based on the knowledge we have obtained through working with the company.
2. The international beer industry
Beer is regularly enjoyed by people around the world and there is a long history of brewing in the
world, it is said to date back to almost 5000 years ago in China. It was also an important food item
in the Imperial Egypt of the Pharaohs (Fosters Group- history of beer). Today, beer is the most
consumed alcoholic beverage in the world, and it is the most popular drink, next after tea and water
(Nelson 2005:1). The main ingredients in beer are water, grain, with barley being the most common
type, hops and yeast (Professors's house). Additionally, all beer can be classified as either a lager or
an ale. Whether the beer is an ale or lager is defined by the type of yeast used in the brew and the
temperature at which fermentation takes place (Foster’s Group- about beer).
Beer has been an integral part of society for centuries in many European cultures and it is of major
societal, economic and cultural importance in the European Union. Production and consumption
patterns differ widely from one country or region to another, particularly when looking at the
different kinds of beer (Brewers of Europe).
There has been a constant decline in beer consumption patterns in Western Europe and North
America since the second part of the 1990’s, but there has been a strong increase in consumption in
the growing and emerging markets like Russia and China (Larimo, Marinov & Marinova 2006).
However, the global beer market overall is growing, and according to research, by 2012 the market
is forecasted to have a value of $446.4 billion which is an increase of 11.2% since 2007. Europe is
the leading region in the beer market, with a 49.5% share of the markets value (Research and
Markets).
In the 1990’s Anheuser Busch was the market leader in the world. However, there have been a
number of acquisitions, mergers, strategic alliances and joint venture formations among the major
players in the industry. The largest brewer in the world, Inbev, was created in 2004 after a merger
of Brazilian Ambev and Belgian Interbrew (Larimo, Marinov & Marinova 2006). Anheuser-Busch
acquired Inbev in 2008 and the company is now named Anheuser-Busch Inbev and is now by far
the largest brewery in the industry (Bowers 2008).
3
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
3. The creation of Carlsberg
3.1 Historical background
J.C. Jacobsen is considered the founder of Carlsberg. In 1847 he founded the brewery in Valby just
outside Copenhagen and to this day this is still where they have their headquarters. The first beer
was introduced to the market on November 10th 1847. Since then Carlsberg has grown substantially
and has become one of the world largest breweries. In 1876 the Carlsberg Foundation was created
to manage Carlsberg’s Laboratory and to support culture, art and social sciences in Denmark. J.C.
Jacobsen left his brewery Old Carlsberg to the Carlsberg Foundation, and after his death in 1887 the
Foundation took ownership of the company. In 1902 the Foundation was given ownership of New
Carlsberg, which Carl Jacobsen, the son of J.C. Jacobsen, had established in 1882.
In 1903, Carlsberg joined forces with Tuborg and established an agreement saying that the two
breweries would be working closely together, but still remain as two independent companies. The
agreement stated that they were to collaborate on investments as well as share the profit from sales.
They also agreed on merger possibilities in the future. In 1906 the Old Carlsberg and the New
Carlsberg joined forces and became what is now known as Carlsberg Breweries (Carlsberg GroupHistory), (Carlsberg Group- Carlsberg Foundation). In 1970 Carlsberg and Tuborg merged under
the name of De Forenede Bryggerier A/S, but in 1987 the company changed the name to the current
name of Carlsberg A/S (Carlsberg Group- History).
Until recently the Carlsberg Foundation was obligated to hold at least 51 % of both the share capital
and the votes of the company. In 2008, Carlsberg changed the basis of the foundation by allowing
them to own as little as 25 % of the share capital but still retain 51 % of the votes. This provided a
capital gain for the Foundation, which made it possible for Carlsberg as a whole to make
acquisitions (Lassen, Hansen 2008).
In April 2008, Carlsberg together with Heineken acquired Scottish & Newcastle (S&N), the largest
British Brewery. This made them the 4th largest brewery in the world and gave them 100 %
ownership of Baltic Beverage Holding, BBH, which is the biggest operator on the Russian beer
market. BBH was originally a 50/50 joint venture between Carlsberg and S&N (Carlsberg’s annual
report 2008:34).
4
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
3.2 The company today
Carlsberg is today owned by 20.000 private and institutional investors and is listed on the OMX
Nordic Exchange Copenhagen A/S (Carlsberg Group- Carlsberg at a glance). Carlsberg had an
operating profit of 7.979 billion DKK in 2008 and the annual beer sales amounted to 109.3 million
hectolitres. Carlsberg’s total world market share amounts to approximately 5 % (Carlsberg’s annual
report 2008:6, 72).
Today the Carlsberg Group is operating in a variety of different markets around the world. Their
primary markets of concern are Western and Eastern Europe, Russia and Asia, with Western Europe
being the mature market, while the other markets are in the emerging and growth stages. In Russia,
Carlsberg is a strong market leader and there is a positive growth in this region, which leads to
opportunities in the future. The Asian market is an emerging market and a more difficult market
because they do not have the same traditions when it comes to beer consumption as in Europe. The
Asian market is a more risky market as it is difficult to predict if the trend will continue or die out.
On the Western and Northern European market, Carlsberg is positioned as the second largest
brewery and they are leading in several of the individual countries in the region (Carlsberg’s annual
report 2008:15).
47 % of Carlsberg’s total beer volume is sold on the Western and Northern European market and 43
% on the Eastern European market. The remaining 10 % is being sold on the Asian market
(Carlsberg’s annual report 2008:1-3).
Carlsberg has a portfolio that consists of more than 500 brands, and four of them are among the ten
biggest brands in Europe (Carlsberg’s annual report 2008:8, 18). The company has a wide variety of
products including soda, mineral water, chocolate milk, beer, ciders, juice, smoothies etc (Carlsberg
Danmark- Produkter). This means they are much diversified, however, their primary sales come
from the sale of beer and soda. Several of the products in Carlsberg’s portfolio are products that
they distribute after agreements with manufacturers such as Coca Cola and Cocio. Our focus will be
on the beer sales of Carlsberg and not on the whole product portfolio.
Carlsberg competes on the market of beverages with many different companies selling beer as well
as other beverages. Their main competitors in the international beer market are Heineken, Anheuser
Busch InBev and Sab Miller. In the Nordic countries, the competitors consists more of small
breweries such as Royal Unibrew and Hancock in Denmark and Hansa in Norway, while in the rest
5
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
of Western Europe they compete mostly with the large international players. This is consistent with
the fact that Carlsberg is marketed as a premium beer outside the Nordic countries. In the Nordic
countries Carlsberg is considered to be more of a mainstream beer. Here Carlsberg wishes to
increase the share of premium beer in their portfolio (Carlsberg’s annual report 2008:30)
On the Western European market Carlsberg is competing on brand, quality, marketing and
innovation (Carlsberg’s annual report 2008:10). As the Western European market is stagnating, it is
important to strengthen their position in the market through dynamic marketing, constant
innovation, positioning of products and continued efficiency, to remain competitive.
Carlsberg has implemented an Excellence program in Western Europe starting from 2003. This
program is meant to increase the focus on costs and increase efficiency. This has meant that
Carlsberg has been looking at their divisions and breweries and has shut down the ones that were
not necessary (Christensen, Otkjær 2008). The program has looked at areas such as production,
procurement, logistics and administration. An objective of the program is to create growth and gain
market share on the European market (Bjerrum 2008), (Carlsberg Group- Excellence Programmes)
3.3 Carlsberg’s current strategy
Today the overall strategy for the Carlsberg Group is expansion and to become significant in the
markets they are in, whereas the company subdivision in Western Europe wants to create value and
increase efficiency. This should be done through strengthening their brands, being innovative and
expanding their portfolio. Efficiency can be improved through the implementation of the Excellence
program and network optimization. Due to the expansion strategy, Carlsberg is keeping an eye out
for small breweries to acquire or merge with, since this might help them gain market share or
provide them with a key position in that particular market. After the takeover of S&N, Carlsberg
has full ownership over BBH which gives them a strong position in the Eastern European market
(Carlsberg’s annual report 2008:15). Even though expansion through acquisition and mergers is an
important strategy for Carlsberg, they will not be able to make large investments in these activities
in the near future as they have a large debt after the acquisition of 50 % of S&N (Carlsberg GroupStrategy).
6
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
4. Merger theory
In this section we want to look into what motives firms have to merge and also look into what kind
of mergers that are relevant for Carlsberg in relation to their strategy. There are three different kinds
of mergers; horizontal, vertical and conglomerate mergers (Martin 1994:258). We will not be
examining conglomerate mergers as we do not find them relevant for Carlsberg at this time.
There are a number of motives that might play a role in merger activity. What is considered the
most general motive is that the purchasing firm considers the acquisition to be a profitable
investment. Mergers are often also thought of as an alternative form of investment. Firms will make
acquisitions when it is the most profitable means of enhancing capacity, obtaining new knowledge
or skills, entering new product or geographical areas, or reallocating assets into the control of the
most effective managers or owners. Another view of decisions to merge is that it is a part of a
broader strategic plan aimed at positioning the firm to achieve some long term goals (Pautler 2003).
In Carlsberg’s case it is part of their strategy to expand so in their case it is obviously a part of a
strategic plan to grow and become larger.
4.1 Vertical mergers
Vertical mergers are mergers in the vertical channel. A firm can choose to make or buy in different
stages of the channel (Besanko et al. 2004:138). A vertical merger would therefore be between e.g.
a supplier and a manufacturer or a manufacturer and a wholesaler. Some companies control all the
activities in their value chain, while others control very little and buy in a lot of services and parts.
One of the reasons why firms merge vertically could be that they want exclusive rights to the
supplies, distribution channel etc. or that the firms have some synergies they will be able to utilize.
(Besanko et al. 2004:109-110,151)
In relation to this, Carlsberg can consider integrating forwards or backwards. Their supplies consist
primarily of raw materials and packaging, bottles and cans. Raw materials are supplied by many
and are bought at a market price which is kept down by strong competition. This will not be easier,
cheaper or more efficient to produce internally than to buy it. Raw materials are not differentiated
products that Carlsberg wants exclusive rights to either. In relation to the supplies of bottles there
are only some suppliers. Carlsberg have the possibility to switch between suppliers to get a good
price, but the suppliers also need to have capacity to cover all of Carlsberg’s needs and demands.
Carlsberg might be able to integrate backwards in the supply chain and buy up the suppliers of these
7
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
products. In these years though, Carlsberg is selling out the parts of the business that are not related
to their core business of producing beer, so they will probably not be inclined to acquire completely
new areas of business (Carlsberg’s annual report 2008:30)
Forward integration in the supply chain seems rather unrealistic as well. Carlsberg has no clear
incentive to start running supermarkets, shops or bars. They have a complete and excellent
distribution network and cover wide areas of sales. If forward integration was an issue Carlsberg
might have luck with setting up stands in front of concerts and other events, where people have to
stand in line to get in. For Carlsberg to start selling their beer in selected stores will probably not be
a success. Beer as a product is not a high priced product that people will go far to purchase. Beer is
a product you buy in a supermarket along with the rest of your daily groceries. Carlsberg enjoy
good profits from having a great distribution network and being present in most supermarkets, bars,
pubs and restaurants.
4.2 Horizontal mergers
Horizontal mergers are performed between companies in the same industry at the same horizontal
level. This could be a merger between 2 manufacturers or 2 wholesalers. The key reasons for
horizontal mergers are to gain market share, increase market power and efficiency and utilise
synergies between the firms (Martin 1994:261). Among these synergies we find economies of scale
and scope, and acquiring complementary strengths such as innovative or marketing capabilities. As
this assignment is mainly concerned with horizontal mergers we will be looking deeper into the
reasons for horizontal mergers.
Market power seems to be a primary motivator for mergers. The possibilities of market power
effects are greatest in the case of horizontal mergers (Pautler 2003). Carlsberg has merged
horizontally several times and we can see that the effect on market power and market share have
been positive. The company has gone from being the 6th largest company in the world to being the
4th largest in just a year and their sales volume has increased with 33 % on a world basis
(Carlsberg’s annual report 2008:6).
Efficiency is increased when merging horizontally as fixed costs of administration can now be
spread over a larger output. This will happen if firms are able to take advantage of any available
economies of multi-plant operations (Martin 1994:266). Efficiency can be increased by increasing
output and reducing production costs. Merging firms can also acquire new products and new
8
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
technologies. Carlsberg has merged and acquired companies several times. These events have
increased the product portfolio of Carlsberg and have given inputs regarding innovation and new
product development.
Synergistic effects may be realised in relation to two merging firms, if either firm is in possession of
some excess resources or capacity that the other firm may be able to utilise (Martin 1994:266). For
synergistic effects to be created, the firms must have some complementary resources. This could
include one of the firms acquiring innovative or marketing capabilities from the other firm, if they
find it unique and beneficial. If the companies operate in different geographical markets the merger
might provide an easy access to new markets. The synergistic effects can include economies of
scale and scope. Economies of scale exist if the firm achieves unit cost savings as it increases the
production of a given good (Besanko et al. 2004:74). For Carlsberg, this can be achieved by buying
large batches of raw materials and supplies as well as producing large batches. The unit price for the
materials and supplies will be lower and the production costs will decrease by spreading fixed costs
over a larger batch.
Studies have shown that mergers often come in waves. However, there are more explanations as to
why mergers take place, than reasons for why they come in waves (Gugler, Mueller & Yurtoglu
2005:1). According to Gorton, Kahl and Rosen, merger waves can be attributed to the fear of being
driven out of the market or being taken over. If two firms in a market merge, other firms might start
to acquire each other as a defensive strategy and to survive in the market. By buying other firms
they believe they will be less likely to be taken over themselves (Gorton, Kahl & Rosen 2005).
However, Carlsberg is not in a position where they have to be thinking about this, since the
ownership of the company does not make it possible for other companies to acquire Carlsberg. Due
to the Carlsberg Foundation and their number of shares and votes, Carlsberg cannot be taken over,
unless the company have to file for bankruptcy.
4.3 Effect on stock price
When the market discovers that companies consider a merger there is an effect on stock price. For
the target firm there will almost always be an increase in the stock price. The increase happens
before the possible merger and it is due to expectations of better future opportunities and a better
management of the resources of the company. Evidence has shown that the acquiring firm will not
benefit as much as the target firm in relation to stock price increases. In some cases the stock price
of the acquirer even fall in the event of an acquisition (Pautler 2003). This might not seem logical as
9
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
one would think the acquirer would expect an increase in stock price as well to gain from the
acquisition. It seems that the acquiring firm gains in different areas than the stock price. They might
have the opportunities to enter new markets, increase prices of existing products and obtain new
knowledge and technologies.
Generally there are a lot of different studies showing different effects of merger on stock price and
profit for the acquiring firm. Some show positive and some show negative effects but most of them
are uncertain and insignificant. The effect depends on the industry composition and how the firms
manage to benefit from the merger.
From stock price charts we see that Carlsberg’s net income increased significantly after the
acquisition of S&N. The net income increased to 1.42 billion DKK in the second quarter of 2008
from 1.04 billion DKK the year before. Analysts had only expected an increase to 1.28 billion DKK
and it seems that Carlsberg has been able to benefit from the acquisition (Bhatia 2008).
These numbers of income were numbers from before the financial crisis hit Europe and therefore
the best option we have of examining the effects of the acquisition. The financial crisis has
obviously affected the stock prices and net income of most companies, among these Carlsberg, that
went from having a stock price of 550.53 DKK on the 16th of May 2008 for a Carlsberg B share to
151 DKK on the 20th of November. Due to the instability and uncertainty in the financial markets, it
would make no sense to do an analysis from the numbers of today (Carlsberg Group- Share price).
4.4 Horizontal boundaries
Within most industries there will exist an ideal size of a company. This size is determined by the
horizontal boundaries of the firm. The horizontal boundaries identify the quantities and varieties of
products and services that are produced. They differ markedly across industries and across the firms
within them (Besanko et al. 2004:72). At some point, economies of scale turns into diseconomies of
scale and the synergistic effects become less dominant than the disadvantages. Firms will realise
that it is hard to manage firms that are too big and too differentiated. For companies in the modern
world, it is a recurring task to evaluate the size and width of the company to try and find the optimal
size and composition.
When looking at the international beer industry, it seems that this industry is composed of several
large international players as well as small microbreweries, which seems to function well in their
areas of expertise. The small suppliers produce locally and their products are being sold in local
10
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
stores and supermarkets whereas the larger companies operate in the world market and supply to
almost all outlets. The large players see opportunities in the small breweries as it can help them
create a good position in the local markets, and the industry is therefore filled with mergers and
takeovers.
Carlsberg is today one of the large international players, but by far not the largest. As mentioned
earlier, in 2008 the largest brewery in the world Inbev acquired one of the other international
players, Anheuser-Busch and today this is the largest brewery in the world (Bowers 2008).
Although it has only been 6 months since the acquisition, it seems as if it has been a success. Based
on this we believe Carlsberg has continued opportunities to grow and expand. In this industry it
seems firms should remain small and concentrate on local markets or become giant firms to
compete on the world arena. Additionally, it also seems that the medium sized firms without any
further potential to grow are taken over by the large firms. Carlsberg should aspire towards growing
and keeping pace with its competitors.
On the other hand, Carlsberg need to be aware of and consider their limitations in the current
market. The financial crisis has limited most companies in the world and the beer industry is no
exception. The world’s largest player, Anheuser-Busch Inbev is currently selling out its non-core
activities and breweries in markets, where they do not see prospects and wish to establish
themselves now (Kragballe 2009). This is done in order to bring down their large debt of $45 billion
and focus on their main markets (Neal 2009). Even though Anheuser-Busch InBev is currently
selling divisions such as Beck’s in Germany, Carlsberg has dropped out of the race. Carlsberg’s
chairman of the board Povl Krogsgaard-Larsen explains that Carlsberg considers the purchase price
of 5-7 billion DKK as being too large for Carlsberg in the present situation. He further explains that
Carlsberg do not wish to invest in the current year, due to the large debt and the financial market as
a whole (Kragballe 2009).
4.5 Oligopoly models
The beer industry is an oligopolistic industry. What characterises an oligopolistic market is that
only a few firms account for most or all of total production (Pindyck, Rubinfeld 2005:441). In the
beer industry, Anheuser-Busch InBev, Heineken, SabMiller and Carlsberg produces most of the
volume in the industry, while there are a lot of small players as well, particularly in the local
markets. An oligopolistic market usually has high barriers to entry and therefore few new entrants
(Pindyck, Rubinfeld 2005:441). To start up a brewery, a lot of capital will be required to buy plant,
11
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
machinery etc. Besides this, know-how of the business and how to brew is an important part of
brewing.
When evaluating Carlsberg’s products, it is clear that Carlsberg competes on price and not on
quantity. This is on the basis of a consideration of Carlsberg’s products in a supermarket. A
supermarket would not try to sell Carlsberg’s products at any price just to sell out, but would
consistently demand a relatively high price for the products. This is because Carlsberg is a quality
product, but it is also because beer is not an easily perishable good. Easily perishable goods tend to
become cheaper the closer they come to the expiration date. Therefore, we believe the Bertrand
model is more relevant for Carlsberg than the Cournot model. In the Cournot model, each firm
decides simultaneously how much to produce and the price is set according to the total output of all
firms (Pindyck, Rubinfeld 2005:443).
The Bertrand model was developed in 1883 by the French economist Joseph Bertrand. The Bertrand
model applies to firms that produce homogeneous goods. All firms treat the price of its competitors
as fixed and they decide simultaneous which price to charge for their product. Thus the firms
choose prices instead of quantities (Pindyck, Rubinfeld 2005:449).When the products are
homogeneous, a single firm will not be able to raise the price of their product without losing market
share. On the contrary, if the products are differentiated, the firm can raise the price somewhat
above the average level without losing all sales. The more differentiated the product is, the less
market share the firm will lose (Martin 1994:264).
According to the market power hypothesis, after two companies in an industry have merged
horizontally, they will enjoy increased market power and they will automatically charge higher
prices for their products regardless of the prices charged by other firms. This will shift demand
towards the other firms’ products, and they will in turn charge higher prices as well to maximize
profit. In a price-setting market, firms that merge always enjoy an increase in profit and market
power after the merger. (Martin 1994:265), (Pautler 2003)
In April 2008, Carlsberg and Heineken announced the upcoming takeover of S&N. Since the partial
takeover, Carlsberg’s sales has increased by 33 % in volume and one can assume that it has
increased market share in some key markets such as France, Russia and Eastern Europe. Partly due
to the acquisition of Anheuser-Busch by InBev and partly due to the partial acquisition of S&N,
Carlsberg has advanced from being the 6th largest brewery in the world to the 4th largest at the end
12
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
of 2008. Efficiency gains and cost savings have been incurred due to close down of old, worn down
breweries that did not bring enough value to the company and the production. The acquisition was
therefore contributing with better plants that added value.
5. Game theory and price setting in the beer industry
We have chosen to consider game theory in this assignment as it would be interesting to see how
Carlsberg determine the price of their products and how they interact with their competitors. In this
section we consider Carlsberg’s premium beer products as this is how they market themselves in
Western and Northern Europe (Carlsberg’s annual report 2008:19). The beer industry in this section
is considered as the premium beer market. Game theory can explain how markets evolve and
operate and it is particularly interesting to see what happens when oligopolistic firms must set and
adjust prices strategically over time (Pindyck, Rubinfeld 2005:473).
Game theory became known in 1994, when John F. Nash Jr., John C. Harsanyi and Reinhard Selten
were awarded the Nobel Prize in the field for their pioneering analysis of equilibria in the theory of
non-cooperative games (Nobel Prize). It all began in 1944, when John von Neumann and Oskar
Morgenstern published their book “Theory of Games and Economic Behavior”. Their work
provided a systematic way to understand the behavior of players in situations, where their fortunes
are inter-dependent (Brandenburger, Nalebuff 1995).
A game is any situation in which players make strategic decisions. Such a game includes firms
competing with each other by setting prices, as is the case with Carlsberg in the beer industry
(Pindyck, Rubinfeld 2005:473). An important objective of game theory is to determine the optimal
strategy for each player. The optimal strategy will be the one that maximizes expected payoff,
which in Carlsberg’s situation would be profit (Pindyck, Rubinfeld 2005:474). The main thought of
game theory is allocentrism, the importance of focusing on others. It is important to put yourself in
the shoes of others and actively shaping the game you play (Brandenburger, Nalebuff 1995).
In game theory there are two economic games that firms can play; cooperative or noncooperative.
Players can negotiate binding contracts that allow them to plan joint strategies in a cooperative
game. As for a noncooperative game, negotiation and enforcement of binding contracts are not
possible. Since the firms do not have an agreement on the price of the products, they have to take
each other’s behaviour into account when setting prices independently (Pindyck, Rubinfeld
2005:474). A firm has to consider the price setting carefully, as a low price might set off a price war
13
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
in the industry. On the other hand a firm can set a high price and the competitors might undercut the
price. This will result in lower sales and lost profit for a period of time (Pindyck, Rubinfeld
2005:484).
Carlsberg is part of a noncooperative game, where they try to set prices to maximize their own
profit. It could be beneficial for the players in the industry to agree on setting a high fixed price to
increase the total profit of the industry. This kind of agreement is illegal though, and the firms are
forced to participate in the noncooperative game (EU Business).
There are several different kinds of noncooperative games, including sequential games and repeated
games. We assume that Carlsberg is part of a repeated game, where firms take action and receive
payoffs over and over again (Pindyck, Rubinfeld 2005:484). A repeated game can take very
different forms depending on the period of time it is played.
If the game is in a finite period, the players will try to charge a high price until the last month. As
they know their competitors think the same way, they will want to be the first to charge a lower
price and gain market share and sales. Therefore, the result will be that every player charges a low
price every month in the fear of losing market share (Pindyck, Rubinfeld 2005:485).
There are also infinitely repeated games where price is set month after month, forever. In this case it
will make no sense to undercut the prices of their competitors. If the company knows when the
game is finished, they will try to finish with the best market position. They can achieve this by any
means necessary as they know the action will never be retaliated. In an infinitely repeated game,
this way of playing and undercutting your competitors will result in a price war. Because the game
is infinitely repeated, the cumulative loss of profit that results must outweigh any short-term gain
that accrued during the first month of undercutting. Hence to undercut in an infinitely repeated
game is not rational (Pindyck, Rubinfeld 2005:484-485).
According to this theory, one can argue that Carlsberg is following an infinitely repeated game.
This is based on the fact that the beer industry is an ongoing and stable industry that has existed for
centuries. This industry does not seem to have an imminent end. Furthermore it seems without
knowing for sure, that the price level of the beer industry is stable, meaning the companies are not
dumping prices to undercut their competitors. As mentioned earlier, Carlsberg competes on price
but will not sell out their products at any price. The competition in the beer industry is a different
kind of competition. Although price is an important factor, quality, consumer awareness and
14
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
product variety are also important when consumers choose their products. It is important to
differentiate oneself from the rest of the companies in the industry. As part of their strategy in
Western and Northern Europe, Carlsberg wishes to premiumise their portfolio so they might be able
to charge a higher price for the products in the long run (Carlsberg’s annual report 2008:20).
In this industry and for Carlsberg in particular, it seems that the optimal strategy is to set prices at a
stable level, neither too high nor too low. It is important to maintain market share in the long run
and not lose position in the market. For Carlsberg this is particularly relevant in the Western and
Northern European market, where there are many competitors for a stagnating market (Carlsberg’s
annual report 2008:14). The importance of setting the price at a stable level and maintaining market
share is due to the infinity of the game, which makes the companies decide their strategic path. The
strategic path can be altered due to an unexpected event. If, for some reason, the beer industry was
predicted to come to an end and the game would become finite, the strategic decision would be
completely different and the industry and the price setting would change. As this is not the case
though, the companies in the industry will engage in fair competition. We consider this to be one of
the reasons why Carlsberg focus on innovation and continually premiumising their beer products
(Carlsberg’s annual report 2008:20).
6. External Analysis
In a strategic analysis of a firm it is important to look at the external as well as the internal factors
affecting the company and its markets. Strategists say that an understanding of the competitive
environment is an essential element of the development of corporate strategy. Most organisations
compete against each other hence a study of the environment will provide information on the nature
of competition. Additionally, most organisations will discover opportunities that they can explore
and threats that need to be looked into. Finally networks and other linkages can be discovered and
they can strengthen an organisation in the environment. There will always be a certain risk and
degree of uncertainty as to how accurate the strategy can be on the basis of acquired information
about the environment. Hence, it is difficult to predict the future (Lynch 2006:78-79).
We start by examining the external factors. There are several different angles to writing such an
analysis. We have chosen to use the models PESTEL and Porter’s 5 forces for the external analysis
as well as to take an overall look at the main competitors in the external environment for Carlsberg.
The financial results stated in this section are not directly comparable as every firm and country has
15
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
different ways of stating the terms of profit. The results are not used for the analysis, but are more
an indicator of the size of the companies and therefore, it does not affect the analysis.
6.1 Carlsberg’s main competitors
6.1.1 Heineken
Heineken is the largest brewery and distributor on the European market and it is one of the world’s
leading breweries in terms of sales volume and profitability (Heineken International- Company
strategy profile). Their portfolio includes approximately 170 brands of beer and cider including
Heineken beer, Tiger, Foster’s, Strongbow and Newcastle brown ale (Heineken InternationalAbout Heineken). Their main markets are Western Europe, Central and Eastern Europe, Americas,
Africa, Middle East and Asian Pacific (Heineken's Annual Report 2008:20). This shows that they
are one of the most globally exposed breweries in the world. Their yearly volume of sales for 2008
was 125.8 million hectolitres and their net profits amounted to €209 million in 2008 (Heinken’s
Annual Report 2008:2-3).
6.1.2 Anheuser-Busch InBev
American brewery, Anheuser Busch and Belgian brewery InBev officially joined forces in July
2008, becoming the largest brewer in the world, and took the name Anheuser-Busch InBev. The
company manages a portfolio of more than 300 brands that includes Budweiser, Stella Artois and
Becks. Their main markets of operation are North America, Latin America, Western Europe,
Central & Eastern Europe, and Asia Pacific (Ab InBev- profile). The combined sales volume for
2008 is 285 million hectoliters and their operating profit before non-recurring items was €4.022
billion (Annual report Anheuser-Busch Inbev 2008:4, 56).
6.1.3 SABMiller
South African company SABMiller plc is one of the world’s largest brewers with a portfolio that
includes more than 200 brands, including Grolsch, Miller Genuine Draft and Peroni Nastro
Azzurro. SABMiller is also one of the world’s largest bottlers of Coca Cola products (SABMillerOverview). The company operates in Europe, North America, Latin America, Asia and Africa
(SABMiller- Where we operate). Total volume of beer sold was 239 million hectoliters and an
operating profit before exceptional items of $3.560 billion (SABMiller Annual Report 2008:1, 62).
16
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
6.2 PESTEL analysis
The purpose of making a PESTEL analysis is to look at the external environment of an
organisation. PESTEL is an analysis of the Political, Socio-cultural, Economic, Technological,
Environmental and Legal aspects of the environment. A PESTEL analysis can act as a checklist to
show if you have considered the key aspects. In a PESTEL you should not state all the different
aspects affecting the company but the main ones. This makes you think of different aspects and
prioritise them according to relevance (Lynch 2006:84). In this analysis we take a look at these
important factors and how they are affecting the future for the Carlsberg Group.
6.2.1 Political
The political aspect of the PESTEL analysis is concerned with political factors affecting the
company and the industry they are in. In relation to Carlsberg the political factors are important
when looking at areas such as the legal drinking age in different countries, hours of the day where
shops are allowed to sell alcohol and the smoking ban in restaurants, pubs and bars.
In Denmark the legal age for buying alcohol is 16 years and in Norway the legal age for buying and
drinking alcohol with a level of alcohol less than 22% is 18 years, while buying alcohol with an
alcohol level of more than 22% is 20 years of age (Kristeligt Dagblad 2008), (Lovdata 1989). These
rules and regulations are very different between countries. Some countries such as Denmark are
much more liberal when it comes to rules regarding alcohol consumption and purchase of alcohol
than other less liberal countries. This is one of the things that can affect Carlsberg immensely. The
rules can be changed by the different countries at any time. If Denmark were to change the legal
drinking age from 16 years to 18 years, it would have an enormous effect on the sales of Carlsberg
(Kristeligt Dagblad 2008). In France they have recently passed a law to increase the legal drinking
age from 16 years to 18 years to try and stop wild parties with high alcohol consumption in schools
(Ullerup 2009).
Not only the legal age for buying alcohol has an effect on Carlsberg’s sales, the same can be said
about availability and the price of the products. Were the products to be sold in selected stores only
selling alcohol and at high prices like in Norway and Sweden, this could be a catastrophe for
Carlsberg’s volume sales.
One of the reasons why Carlsberg is considered a mainstream beer in Denmark is that it is available
everywhere and it is cheaper than many other types of beer, but it still has a good taste. This makes
17
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
it perfect for young people. In Denmark the competition is more on price then on quality. Carlsberg
is therefore forced to keep prices relatively low. In recent years prices of Carlsberg beer have been
raised in an attempt to change the image of Carlsberg in Denmark from a mainstream beer to a
premium beer. This has made consumption of Carlsberg decrease and with the financial crisis the
Danish market has been one of the markets suffering from a decrease in sales (Carlsberg’s annual
report 2008:6).
Many people go to bars and pubs to enjoy alcohol, often with a cigarette or two. In recent years
several governments in Europe have passed laws on bans of smoking in public bars, restaurants etc.
This has an impact on Carlsberg’s sales as smokers will choose not to go to public places to have
beer. They will have their beer at home in private or they will go to a bar, but stay only shortly
because they do not want to go outside every time they want to have a cigarette. During the last year
France, Germany and the United Kingdom have passed laws on smoking bans in bars (Carlsberg’s
annual report 2008:33)
6.2.2 Economic
The economic factors are important aspects for Carlsberg, especially in the current environment
with the financial crisis and economic downturn in the world. Carlsberg’s operations in most of
Western Europe are not affected by the exchange rate fluctuation as the Danish krone, DKK is more
or less fixed against the Euro (Finansministeriet). This means that either way Carlsberg will incur
less risk when dealing with the European countries which have Euro as their currency. However,
the fluctuations are significant on other markets around the world. The British and the Russian
markets are among the most important in this connection. The GBP and the RUB have experienced
a decrease in value compared to the DKK. The Russian RUB has been devaluated several times
during the last 8 months. These fluctuations have meant that the money earned on these markets
have lost some value when being changed into DKK (Carlsberg’s annual report 2008:12).
The acquisition of 50 % of S&N has burdened Carlsberg’s economy with a significant debt.
Carlsberg has decided to pay back the debt faster than was originally intended due to the financial
crisis. This is done to ensure the investors that it is worth holding shares in Carlsberg and this might
also raise the share price, which has suffered considerably in the wake of the financial crisis
(Pedersen 2009), (Nymark 2009).
18
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Carlsberg has an advantage of economies of scale due to their size. This is also relevant in relation
to future merger possibilities. Due to the size of their production, Carlsberg will be able to buy large
quantities of resources and raw material at a relatively low cost pr. unit. They will be able to
produce large quantities of products, and reduce the production cost pr. unit. This gives Carlsberg a
large operating profit, which enables them to compete with the other international players in the
market and ensures their future prospects.
Due to the financial crisis there can be some changes in disposable income and therefore in
consumption for the private consumer. The development can go both ways. When having less
disposable income, one can assume that people will usually use less money on goods that they do
not necessarily need, this includes beer, wine etc. On the other hand, the economic crisis may
change the consumption pattern from more expensive beverages such as champagne and wine to
cheaper beverages such as beer. This can work to the advantage of Carlsberg. In general, we assume
Carlsberg to be considered as a premium beer in most Western European countries. The company is
thus likely to experience difficulties and declining sales in these countries due to the financial crisis.
In the Nordic countries especially, the sales of beer is seasonal and most beers are being consumed
during the summer months. In recent years, the Nordic countries have had some summers with bad
weather. This has affected beer sales as consumers have chosen not to attend as many outdoor
activities and festivals where it is popular to consume beer.
Carlsberg have a risk in the area of prices on raw material. The market prices of the materials that
they need to make beer, like water, barley etc. can rise and fall and this is something Carlsberg
cannot control. This is not a great risk at the moment due to the financial crisis but it is a factor they
have to be aware of. They also have some dependency on their suppliers of cans, bottles and
packaging, as there are only a few different suppliers which can make the products Carlsberg need,
and have the sufficient capacity (Carlsberg’s annual report 2008:55).
6.2.3 Social
On the social aspects of the environment, Carlsberg is involved in events of social character all over
the world. They sponsor concerts, football teams and championships (Carlsberg’s annual report
2008:21). This is done to market themselves as a company that is involved in the local as well as
international events and to connect with consumers on a more local level. This is one of the ways
Carlsberg creates consumer awareness in the different countries (Carlsberg’s annual report
19
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
2008:43). Because they have such a strong brand they are easily recognised all over Europe.
Carlsberg has a way of getting sponsorships agreements that works in their best interest due to their
well known brand and their position on the European market. (Carlsberg’s annual report 2008:19)
Carlsberg is known for its consistency in quality and taste, as was originally the intention of J.C.
Jacobsen when he wrote on the building of Old Carlsberg;
"Ved Driften af Bryggeriet Gamle Carlsberg skal det være det stadige Formaal uden Hensyn til en
Öieblikkelig Fordel at udvikle Fabrikationen til den störst mulige Fuldkommenhed. Saaledes at
dette Bryggeri og dets Produkt altid kan staae som et Mönster og ved sit Exempel virke til, at
Ölbryggeriet her i Landet holdes paa et höit og hæderligt Standpunkt" (Nørregård-Nielsen 2002).
This statement is a clear indication of Carlsberg’s goals and objectives. J.C. Jacobsen was very
conscious about the need to provide consistently good quality to the consumers. They therefore
enjoy high consumer confidence and a good reputation and consumers will expect a high quality
beer.
Demographic changes are happening all over the world, but especially in Western Europe the
population is getting older on average (Beder 2008). This shift from a large generation of young
people to a large proportion of older people has changes the consumption behaviour. Older people
are more likely to drink wine or super-premium beer, such as 1664, Jacobsen, and Grimbergen than
mainstream beer. This might have affected and will still be a possible effect for future sales.
On the other hand, the younger generation choose to become parents later than the previous
generations. The average age of couples having their first child has increased considerably over the
years (Nyt fra Danmarks Statistik, 2003). One can assume that young people today are interested in
education and creating a life and career for themselves before having children. This also includes
going more out to cafés, restaurants and clubs where alcohol is enjoyed. A lot of young people also
enjoy the freedom of youth and do not want to be tied up. This prolongs the years of acting as
young person and this is likely to work to Carlsberg’s advantage.
In a social context there are a lot of health related issues, such as abuse of alcohol and under aged
drinking. Carlsberg is a member of Bryggeriforeningen, an industry organization that works to
promote a responsible drinking culture (Carlsberg Danmark- Sundhed). This organisation has
decided that alcohol should have a label stating the units in the product (Dilling 2009). The
20
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
government has made a recommendation on how many units it is responsible to drink during a
week.
Nowadays people are concerned with healthy eating and exercising. Staying healthy is an important
issue of our time. Carlsberg is aware of this trend and it cannot be ignored. Several kinds of light
beer have been introduced to the consumers by Carlsberg, both in types of a lower alcohol level and
beer with fewer calories, but with the same level of alcohol as regular beer (Bjerrum 2008). These
products have been marketed to men first and foremost, as it is not only women who are concerned
with staying healthy. This can relate to the fact that men drink more beer than women, especially
when socialising with their friends, and they want to keep drinking, but not gain weight. That is
why light beer can be considered a healthier alternative.
When Carlsberg consider a merger with other firms, the social aspect of the situation should be
taken into consideration. In accordance with Qiu and Zhou, mergers should be encouraged when
demand uncertainty is large and competition is intense. A merger in this environment will increase
information sharing regarding new and unknown markets. This scenario is socially desirable and
can increase global welfare via increased consumer surplus. On the other hand, output coordination
will decrease competition and thus reduce global welfare (Qiu, Zhou 2006).
6.2.4 Technological
Carlsberg strives to be innovative and launch new or improved products regularly. They have a
relatively large research centre which employees 150 people. Here they do microbiological and
biotechnological research to develop new beer types and new ways of producing beer (Carlsberg
Group- Carlsberg Research Center). This is a key area of Carlsberg in their survival in the Western
European market, and they spend a lot of time and resources in this area.
Carlsberg is a public company now and obviously they have a well established and informative
company website, where the public can get all the necessary information about the company
including financial statements, annual reports and general information about the products and the
company goals.
6.2.5 Environmental
Over the past years there has been an increasing trend among consumers to buy organic products
and organic beer is no exception. Carlsberg sells organic beer and the sales of organic beer have
increased the last year according to Carlsberg’s annual report from 2008. Due to the financial crisis
21
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
and the fact that organic beer is more expensive, the growth might not be as large the next year, but
it is definitely a product they should keep in their portfolio.
On the environmental front, Carlsberg is very active. They have a recycling system for all their
bottles and cans in the Nordic countries, and in Denmark they are the majority shareholder in the
company that has created the recycling system for the Danish supermarkets (Kronborg 2003).
Additionally, Carlsberg has an ambitious environmental policy and every other year they publish an
environmental report (Carlsberg Group- Environmental Affairs).
6.2.6 Legal
EU and national law on mergers and acquisitions, and on competition as a whole, can also affect
Carlsberg and their possibilities in the market. The Danish government and the EU have to accept a
merger for it to come true. They make sure that the company will not be too large and rule out all
other competition in the market. If the merger results in too high a market share for the merging
companies in a particular market, the merger will not be accepted and the parties cannot merge.
Depending on the market share and the annual turnover of the firms considering a merger, the
ruling will be done in their respective countries or by the European Court of Justice (Kent
2008:301, 308). According to article 82 of the European Competition law, it is not prohibited to
dominate a market, only to abuse the dominant position. A company can be dominant in a market as
long as there is still effective competition (Kent 2008:301). This is also the case in Danish law
according to §11, stk. 2 of dansk konkurrence lovgivning (Konkurrencestyrelsen 2005).
Dominance in the market was the reason why a merger between Carlsberg and Albani did not take
place. Carlsberg wanted to buy the majority of shares in Albani, but was refused to do it, as their
market position in the Danish market would become too strong. Konkurrence styrelsen in Denmark
came to the conclusion that if Carlsberg acquired Albani this new company would exclude all
effective competition in the market (Konkurrencestyrelsen 2000), (Skaaning 2000).
When merging the antitrust regulators consider the markets of concern for the merging companies
as well. This can be seen from the merger between Anheuser-Busch and Inbev in the summer of
2008. These companies had significant positions in the world market prior to the merger, but as the
positions were primarily in different markets, they were allowed to merge. As the firms were
operating in different markets, no particular market would become more dominated because of the
merger.
22
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
In relation to mergers, anti-trust regulation can have an effect on stock price. Eckbo rejects the
market power hypothesis mentioned earlier. He believes that the increase in the rival’s stock price
upon an announcement of mergers is due to the fact that firms within an industry can become more
efficient through consolidation. If anti-trust complaints are announced, the stock price of the rival
company will not be affected. The decrease in potential efficiency is offset by the merging plans not
taking place (Pautler 2003).
Due to government rules passed in 1995 in the Nordic countries, supermarkets and kiosks were not
allowed to sell alcohol after a certain hour of the day. This rule could possibly affect Carlsberg
sales, but most likely it did not because the public was aware of it. People knew at what time of the
day they should buy alcohol so this did not seem to affect any kind of sales. In Denmark the rule
was changed back in 2005 so it is now possible to buy alcohol 24 hours a day (Elmeland, Villumsen
2007).
One factor that can affect Carlsberg’s sales is the tax on alcohol. This is a factor that exists in all
countries to some extent. If the tax on alcohol is increased significantly it is likely to affect the sales
of alcohol in that country. This can be by lowering the consumption or by changing the patterns of
consumption.
6.3 Porter’s 5 forces
This model was made by Michal Porter, a professor at Harvard Business School. He identifies 5
basic forces in connection with the organization. We have chosen to use this model because we
want to examine the forces influencing the organization and these results can be used to develop the
competitive advantages of the organization which can provide them with a margin to their rival
companies (Lynch 2006:93). The model has been subject to some criticism with regards to the
model being too static, whereas the competitive environment is changing constantly, but it still
provides an overview of the external environment (Lynch 2006:98).
6.3.1 Bargaining power of suppliers
Beer consists of a few key ingredients which are hops, water, barley and yeast (Professor’s house).
These ingredients are acquired from outside suppliers and are therefore a subject of concern in
connection with the bargaining power of suppliers. We consider these ingredients to be basic goods
that Carlsberg can acquire from several suppliers. Since there are so many available suppliers, the
price of the beer ingredients follows the prices set by the market. This makes the bargaining power
23
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
of the suppliers small and indifferent. Carlsberg do not have to worry about lack of available raw
material for the beer production, nor do they risk paying unfairly high prices. Changing suppliers
does not seem to be a problem if they are offering the same goods at a better price.
Besides this Carlsberg purchases their packaging, bottles and cans from outside the company. The
companies supplying these materials have more bargaining power than suppliers of raw materials.
This is due to the fact that there are fewer suppliers of the products therefore Carlsberg is more
dependent on the suppliers. However, Carlsberg is trying not to be dependent on one single supplier
of any essential product (Carlsberg’s annual report 2008:53). Being dependent on one supplier can
have a negative effect as they might have to pay higher prices for their supplies than they would if
they had offers from different suppliers. It would be in Carlsberg’s interest if there were several
firms who wanted to supply to them. Obviously one of Carlsberg’s obstacles in getting more
suppliers is the fact that the suppliers need to be able to supply in large quantities. This means that
new potential suppliers need to possess a large capacity in their production system and be reliable in
their deliverance.
6.3.2 Bargaining power of buyers
When looking at the buyer’s bargaining power we assume the buyers to be supermarkets, bars,
restaurants etc. buying directly from Carlsberg, as we find it very unlikely for consumers to buy
directly from Carlsberg.
We consider the supermarkets in Denmark to have very little bargaining power as many beer
products seem to be a basic product for consumers. If supermarkets do not sell Carlsberg,
consumers will probably go to another store where they will do all their other shopping as well,
which does not work in favour of the supermarkets not selling Carlsberg’s products. Therefore the
supermarkets are forced to carry the products in order to keep their customers.
As Carlsberg’s presence on the rest of the European market is not as strong as it is on the Danish
market, supermarket chains in the rest of Europe have more bargaining power as consumers are less
likely to demand Carlsberg to be present in the stores. Carlsberg is marketed in the rest of Europe as
a premium beer brand and it will therefore be more present in bars, pubs and restaurants compared
to supermarkets. This means that the beer is not a basic product as it is in Denmark, where they
have a lot of mainstream beers. Bars will only have bargaining power if a chain of several bars
agree on not carrying Carlsberg. The presence in the bars is essential, as this is more or less the only
24
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
place the beer is sold. It would be catastrophic for Carlsberg to become unpopular among the
buyers.
6.3.3 Threat of new entrants
When entering the beer production market, the entry barriers are relatively high and a lot of capital
is required to get started in the industry. Capital is required to purchase plant, equipment and
machinery and your product needs to be marketed for it to sell. This requires a heavy capital
investment from the start that can take years to regain.
Besides this you will need connections in the industry and a well established distribution network
for your products to be delivered. This is very time consuming and it might also be a long process
when you want to build a good relationship with your customers. There are already many well
known and established beer brands and one can assume that consumers tend to buy products that are
made by a brewery that they are familiar with. When Carlsberg launched their new apple cider,
Somersby, it was instantly a hit, but one can wonder if it would have been as popular if it was not
made by a well known brewery. Establishing a good and reliable brand is not done instantly, but
over time so Carlsberg need not fear competition from entirely new players in the near future.
6.3.4 Threat of substitutes
We consider substitute products in this industry to be other alcoholic beverages such as wine and
other alcoholic drinks. In recent years, there have been different types of alcoholic beverages
introduced to the market and the variety of products has increased. This is probably the largest
threat for Carlsberg and a threat they should be aware of in the future. It seems that the company
has already discovered the competition and this is probably why they launched Somersby apple
ciders last year and why they have launched a pear cider this year (Carlsberg’s annual report 2008:
42). One can assume that all the new ways of keeping yourself informed nowadays, has created a
faster change in trends. Therefore market research and innovation as well as trying to diversify their
product portfolio have become more and more important, all in all with the objective of keeping
their customers satisfied.
6.3.5 Industry rivalry
In relation to the competition on the European market, Heineken must be considered the most direct
competitor. The competition in the European market is fierce though, and the big beer companies
like Anheuser-Busch Inbev and SabMiller want to sell to the European consumers, since they
25
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
consider this an important market. There are also quite a few local competitors around Europe and
as the European market is mature and stagnating, if not declining, this means a lot of competition
for Carlsberg (Carlsberg’s annual report 2008:15). Keeping up with trends is important. Thus,
Carlsberg have to follow the development in the market and invest heavily in advertisement and
marketing campaigns to maintain their market shares around Europe, as this is one of the most
essential markets for Carlsberg.
6.4 Summary of external analysis
When summing up these two analyses, we focus on the factors in the external environment that will
have an impact on Carlsberg in the future.
In the PESTEL analysis we found that the economical and the social factors are the ones that will be
significant in the near future for Carlsberg. The economical factors are mostly relevant due to the
financial crisis as this causes an unstable environment. It causes the exchange rate to fluctuate
severely and may even lead to devaluation. On top of this, private consumers are likely to spend
less money on luxury products which Carlsberg’s super-premium beer is considered to be outside
the Nordic countries. This can be because of fear of losing their jobs or general uncertainty. The
unemployment rate is currently increasing causing some families to operate with less disposable
income. This will affect the entire consumption of the family and they will focus on buying only
necessary goods for their daily lives.
The social factor “sponsorships” is important. Carlsberg have a strong brand, but it is still vital for
them to raise consumer awareness and to be associated with something positive and fun. Their
active involvement in events, such as the European Championship 2008 shows people that they are
creative and that they want to create an experience around their products. In the stagnating Western
European market it is essential for them to show their presence and to maintain their position in the
market and if possible try to gain market share. Innovation and research and development, are
important ingredients as well. This will give them a margin towards the competitors and ensure the
future of the company.
In the analysis of Porter’s 5 forces we found that the factors of the threat of substitute products and
the extent of competitive rivalry were the most relevant for Carlsberg to be aware of. In relation to
the threat of substitute products, there are a lot of other alcoholic beverages available to the
26
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
consumers and the preferences are changing rapidly with the increased selection. The financial
crisis may also affect the preferences of the consumers.
The extent of the competitive rivalry in the Western European market is intense. There are a lot of
international players with well known brands. In the Nordic countries a lot of small players are also
in the market and at least in Denmark they are to a large extent competing on price, whereas in the
rest of Western Europe they are competing on quality as well as price.
7. Internal analysis
When doing a strategic analysis of a company it is relevant to consider the internal factors affecting
the competitiveness of the company. The resources are the means by which the organisation
generates value and by which one organisation distinguishes itself from others. The three resources
of the organisation are human, financial and operations (Lynch 2006:189). It is important to identify
the key resources of a company and discover which of these can provide an advantage over the
competitors. It is not only important which aspects the company is good at, but also where they are
the best in the industry compared to the competing firms. To be the best in the industry is to
differentiate oneself from the crowd and gain a competitive advantage. In this section we have
chosen to focus our analysis on the model of the seven elements of resource-based sustainable
competitive advantage.
7.1 Seven elements of resource-based sustainable competitive advantage
The resource-based view stresses the importance of the individual resources of the organization in
delivering the competitive advantage of the organization. Different strategists have looked into the
advantages that an individual organization might have to obtain competitive advantage and all agree
on the importance of individual company resources within an industry. All these views measure up
to the seven elements (Lynch 2006:216). We wish to look at Carlsberg’s internal resources and see
if they are competitive and bring value to the company.
7.1.1 Prior or acquired resources
Carlsberg already possess strengths and resources that they can utilize in their daily functioning.
The Carlsberg brand is a strong foundation on which the company can create more value. This is
one of the Carlsberg’s key objectives (Carlsberg Group- Strategy). Through the Carlsberg brand the
company obtains recognition in the international market as well as at local events. This alongside
27
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
the good reputation of quality and consistency will make marketing and promotion of Carlsberg’s
new and existing products easier and more effective. Customers know the brand and therefore know
what to expect and what they will get.
Carlsberg have been in the beer industry since 1847, and have over the years built a substantial
know-how of the industry and the beer production processes (Carlsberg Group- History). This is a
clear advantage compared to newer breweries. Through the years Carlsberg has also developed a
strong industry connection, meaning that they have built lasting distribution channels and
sponsorship agreements, which provides priceless advertising and promotion for the brand. Having
a brand that is recognised all around the world is considered to be extremely important and
Carlsberg should be satisfied with the fact that they have managed to create something that is
unique.
Carlsberg have been part of several mergers through time and most recently in relation to S&N.
They have been successful with the companies that they have merged with and acquired, because
they are suitable for their business in relation to new markets they can enter, and they have the right
size. Carlsberg have shown that they can integrate the new companies into the group and take
advantage of their full potential. This has been done by being able to utilize the economies of scale
and scope. They have been able to make different companies with different company cultures work
together and create a new common culture for the new company. This can be a quite difficult task
due to cultural boundaries such as country culture and language barriers.
Carlsberg have a wide variety of products in their portfolio. This can be an advantage for them as
they can provide both soda and beer to the customers. In Denmark, the bars, restaurants, kiosks etc.
can get everything from one supplier and therefore one can assume that Carlsberg is more likely to
be chosen than suppliers who cannot provide both. Their portfolio is more likely to reach out to a
wider selection of customers.
7.1.2 Innovative capabilities
Carlsberg is all about innovation and has its own research centre and laboratory. They introduce a
lot of new and different products and try to be ahead with the new trends. Over the last years,
environmental issues have been in focus in the society and people are concerned with purchasing
organic products. Carlsberg sells organic beer which in 2008 had an increase in sales (Carlsberg’s
annual report 2008:46). This shows that it is important for Carlsberg to follow consumer trends, as
28
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
they can actually profit from it. On the Western European market the innovative capabilities are part
of their strategy for surviving and competing in the market, because of the stagnating market
conditions. Since there is no growth in the market at this time, it is important for the company to
maintain the position and market share that they have gained. They have an innovative way of
thinking in connection with their Excellence programs and the policies for their employees to
become part of and be knowledgeable of the organization. The excellence program provides them
with new ways of considering and monitoring their expenses (Carlsberg Group- Excellence
Programmes). This is also important to ensure a consistent cash flow to the company, which can
help them reduce their debt faster.
7.1.3 Being truly competitive
To be truly competitive means having some resources or abilities which are unique and difficult to
copy. Two of the factors that make Carlsberg unique in the Nordic countries and England are their
well established network and well known brand. In the Nordic countries, Carlsberg has a unique
position as the number one market leader. Although the Carlsberg name is not on all the products,
the company still owns the breweries that make these products (Carlsberg’s annual report 2008:28)
The marketing of Carlsberg has created great opportunities and advantages for them and made the
brand known. Through their sponsorships of football teams like Liverpool and FC København, they
have increased consumer awareness (Carlsberg Group- pressemeddelelse). They have been able to
sell the brand very effectively and made sure that people remember the brand. The label that exists
today has existed for more than a century in its current form. It was designed in 1904 and there have
only been some minor alterations of the label (Carlsberg Group- History). The main structure and
shape have remained the same through time. This has created a history for the brand and has made
it easily recognisable.
7.1.4 Substitutability
Carlsberg’s brand and ownership are unique features of the company and cannot be substituted,
which makes them sustainable competitive advantages for the company. Carlsberg is not wholly
owned by private and public investors outside the company. The Carlsberg foundation holds 51 %
of the votes in the company (Carlsberg’s annual report 2008:59). This makes Carlsberg less
vulnerable to takeover attempts from competitors, but it is also an obstacle for Carlsberg when
wanting to take over other companies as they cannot freely issue new shares regardless of the
Carlsberg Foundation. Carlsberg also possesses a capability to implement and exploit their
29
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
excellence program and their distribution network in most markets. Most of Carlsberg’s other
capabilities and resources are important for the company, but at the same time they are fairly easy
for other companies to substitute, these include quality, knowledge about the industry, innovation
and merger capabilities.
7.1.5 Appropriability
In general, Carlsberg use their resources wisely and they have resources which provide competitive
advantage. Their acquisition of S&N with Heineken was a smart move, and they used their
resources to their full capacity. They obtained the full ownership of BBH in the process and this
was one of their goals. Carlsberg have been successful in the introduction of their new cider
product, Somersby, which was launched in early spring 2008 (Carlsberg’s annual report 200:42).
There have been some failures in their attempt to be innovative and be on the forefront of the
market development. This includes introducing a new type of bottle to the Danish market which did
not fit with consumer preferences and the introduction of beers that turned out to be unsuccessful
and had to be withdrawn from the market (Politiken 2007).
7.1.6 Durability
The brand, distribution channels and quality of Carlsberg are very durable resources as long as they
keep protecting and caring for them. A resource such as reputation can make Carlsberg vulnerable
because bad publicity can damage the company severely. If a product does not succeed in the
market or if the company experiences an error in production that they have not discovered, the
company will be criticized in the media and by the public. The durability of the ownership of
Carlsberg is very solid, if the organization wants it to be. If it is in the interest of the company to
maintain the ownership in its current state it cannot be jeopardized. Most of their resources are
durable in the long term.
7.1.7 Imitability
Most of the resources possessed by Carlsberg are very hard to imitate, e.g. the company culture,
where the employees are very committed and enthusiastic. Their brand is also hard to copy as it will
require a lot of time, effort and money. Some of the resources that could be imitated in the long run
would be the distribution network and their way of marketing their products, although these are
difficult to imitate. A lot of time is spent on creating the relationship with the football clubs,
customers and consumers which can be difficult for other companies to imitate. All the physical
30
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
settings such as plant, machinery, capital etc. can be imitated by a capital intensive company. The
human resources, the know-how and knowledge in the company are unique and not easily acquired.
7.2 Summary of internal analysis
Summing up these factors we see that Carlsberg is in possession of some long lasting and important
resources within the company. Obviously their brand is an important asset, which is hard to copy.
Carlsberg has always been concerned with delivering the highest quality products and this also
makes it important for the company to be innovative on a continuous basis. High quality and a wide
product variety ensure that they have products for every occasion and reach their customers at all
times. Carlsberg find it important to market their products, both new and existing, to maintain their
market share, especially in the Western European market. One of the things that make Carlsberg
unique compared to their competitors is their ownership structure. This ownership works to
Carlsberg’s advantage because a takeover is unrealistic if they keep their debt within reasonable
limits. However, it limits their possibilities for acquiring more businesses.
Many of the key resources of Carlsberg are hard to imitate and substitute. On top of this they are
durable in the future for Carlsberg. Carlsberg is competent in operating in the industry and knows
how to utilise their resources in the best way possible. It is a company with much experience and
knowledge which is being used wisely.
8. SWOT analysis
The purpose of doing a SWOT analysis is to look at the strengths and weaknesses present internally
in the organisation, coupled with the opportunities and threats that the organisation faces externally
(Lynch, 2006:450). As we have already analysed the internal and external factors in connection
with Carlsberg, we want to link them together and find the factors that can influence the future of
Carlsberg in both the internal and external perspective.
Applying this for Carlsberg as a company, we want to find out if the company is as strong and well
positioned as it looks from the outside, or if it has internal weaknesses that can be looked at as a
disadvantage. It will be interesting to look at the opportunities for Carlsberg and how they can
approach the future and the changes in the market.
31
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
8.1 Strengths
We find several strengths in Carlsberg as a company. They have a strong, durable and well known
brand which they utilise to create international and recognised sponsorships which connects them
with the local consumers. It is important for Carlsberg in Western and Northern Europe to make
sure the consumers request their beer in particular, as consumer awareness is important for the
company’s position in the market. This is one of the reasons they advertise as much as they do.
Their commercials try to show that their high quality beer should be associated with good and fun
times. They have managed to position themselves as a strong player in their core markets, Western
& Northern Europe, Eastern Europe and Asia. Carlsberg is available in restaurants, supermarkets or
pubs, if not all, in the markets where they operate with both their mainstream and premium beer.
This shows that they have a good and efficient distribution channel as well as good deals with the
distributors and that they are available. The company has a wide portfolio of beer which is suitable
for both the younger and elder generation.
Carlsberg is in possession of some very durable resources, which they manage to utilise in the
optimal way. Most of the resources are hard to imitate and substitute. These resources include their
brand and quality of the beer. This is something that they are extremely concerned about and they
use time and resources on exposing the brand.
Carlsberg is trying to improve efficiency and lowering costs through the Operational excellence
program. This was also one of the reasons why the company in April 2006, announced the set up of
a new accounting department for the whole Carlsberg Group in Poland. The accounting departments
from the different Western European countries were moved to Poland from 2006 through 2008
(Carlsberg’s annual report 2007:23).
We assume that Carlsberg is financially stable. In 2008 they had a net cash flow of 743 million
DKK (Carlsberg’s annual report 2008:77). Regardless, Carlsberg has decided to try and reduce their
debt faster than was originally intended. This is done to protect their position in the market and
show that they are a solid and stable organisation. The turbulence in the financial markets can also
be considered an important factor for why they feel the need to secure their assets and assure their
investors that the company is a safe investment. The current ownership relations with the Carlsberg
Foundation owning 51 % of the voted and 25 % of the share capital, does not put Carlsberg in any
danger. Takeovers are not something they should fear as long as they keep their debt at a reasonable
level.
32
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
8.2 Weaknesses
When looking at Carlsberg there are some obvious weaknesses as well. As mentioned earlier the
Carlsberg Foundation can be considered a weakness in relation to future opportunities for expansion
and acquisition. Seeing as Carlsberg has recently acquired parts of S&N it is not an option to make
such a big purchase in the near future. The Foundation is an obstacle in the strategy for Carlsberg to
grow through mergers as they do not have the sufficient capital required for them to buy 51 % of
the shares of the new division created by the merger. The debt of Carlsberg is another weakness,
which is an obstacle in terms of investments in growth. In the near future Carlsberg intends to pay
off some of the debt and will then again be able to make large investments. The debt poses some
risk for the company and has recently affected the stock price of the company.
8.3 Opportunities
Carlsberg’s strategy is still concerned with growth and expansion. They have the possibility to
become larger, enter new markets and grow in their existing ones. Obviously expansion can be done
by takeovers and mergers, particularly of small, local companies that they can use to their
advantage in their existing markets. However, they cannot go out and invest as they please. They
have to evaluate every option carefully and choose the ones they find most valuable to the
company.
Carlsberg is now in the market for alcoholic beverages with products such as Somersby cider and
EVE beer in addition to regular beer. EVE is a beer that is mainly targeted towards women and
comes in two variants with different fruit flavours and it is only sold in Switzerland and Germany.
Carlsberg sees this product as a product with great potential (Carlsberg’s annual report 2008:45).
Carlsberg has recently launched a new variant of Somersby cider and we have yet to see if this will
be a success. Since EVE and Somersby have been such a great success, Carlsberg should try to be
innovative and find new products aimed towards different groups e.g. women.
Innovation can also be used to design new packaging and new bottles, which can increase the
interests in the products. The current packaging and bottles have been the same for a long time.
However Carlsberg have previously tried to make new bottles, but this was not a success (Kronborg
2008). So it depends on how they look at consumer preferences and if the consumers will stay loyal
after a change of packaging.
33
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
In relation to new products from Carlsberg they have developed the organic beer Jacobsen extra
pilsner. Carlsberg also reports that the sale of organic beer has increased in 2008 (Carlsberg’s
annual report 2008:46). Organic products have become more and more popular and the consumers
are concerned with the environment as well as additives. This is a development that is likely to
continue in the future and Carlsberg has to keep an eye out for this and always know what the
consumers want.
Carlsberg should consider a product mix which means mixing different products and sell them in a
package together. By offering for example a package of six different products at a certain price, like
mainstream beer, premium beer and cider, the consumers can get different products at a lower price
than by buying all six products separately. Hopefully this will familiarise the consumers with more
products than they already know and increase the knowledge of Carlsberg’s product portfolio.
When it comes to the Scandinavian countries, one might hope that the consumers will like the
premium beer and buy it on other occasions, and not in a package. This can increase sales of
premium beer in the Scandinavian countries, and make the Scandinavian population more familiar
with it.
It is important for such a global and large brewery as Carlsberg to know what their consumers
prefer. When looking outside the Western and Northern European market, Russian consumers
especially the “nouveau riche”, might want exclusive beer, something that is not a common good
for everyone. They are interested in luxury goods and want something unique such as the superpremium beer Carlsberg can supply. Carlsberg could also consider making bottles that would fit the
preferences of this market to make sure that it fits the consumers.
After the acquisition of part of S&N, Carlsberg acquired full ownership of BBH (Carlsberg’s annual
report 2008:34). This strengthened their position in this market and we consider this as one of
Carlsberg’s strengths as this is an important growing market. The Eastern European market is a very
vulnerable market at the moment for Carlsberg, as the exchange rate fluctuations and the
devaluation of the RUB has decreased the earnings of Carlsberg considerably. However this market
has great prospects and potential due to the large populations and the upper class of the societies.
Carlsberg is already present on the Asian market, but it is still an emerging market with plenty of
opportunities. The beer culture in Asia is not the same as the one that exist in Europe and the Asian
population does not consume as much alcohol in general and especially not beer, as the Western
34
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
population. This is partly due to their culture and religion. Carlsberg currently sells 10 % of their
volume of beer on the Asian market and with the fast growing Asian economy this is a market with
potential to grow (Carlsberg’s annual report 2008:3). Carlsberg is facing a large task in being
innovative and finding out, which products the Asian population want and in this market it would
be smart to look at the local competitors and find out the key to their success. They have to
familiarise themselves with consumer preferences and make products that the consumers will like
and buy.
8.4 Threats
One of the most serious threats that Carlsberg face in the market today is the stagnation in the
Western and Northern European market. As Carlsberg does not operate in a wide variety of
markets, it is vital for them to maintain their position in this market. The Western and Northern
European market is the market where Carlsberg has the highest revenue, but it is also the market
where they have the highest costs. This means that Carlsberg needs to set high prices on their
products to cover all their expenses in this market. The Western and Northern European market is
not as profitable on the operating profit before special items as e.g. the Eastern European market.
However the Western and Northern European market is still vital for Carlsberg as it is an
established and less risky market (Carlsberg’s annual report 2008:84).
The unstable world economy cannot be ignored and it has already had a great effect on Carlsberg in
terms of fluctuating exchange rates. This is mostly seen in relation to the British and the Russian
markets, where Carlsberg has suffered losses on sales. This is a factor that Carlsberg cannot change
or affect. They just have to keep supplying to their markets and try to reduce internal costs to
increase the profit margin of the products.
Increases in the unemployment rate and insecurity among the consumers have affected the sales of
premium beer. Consumers are more likely to replace their premium beer with more mainstream
beer, which is cheaper. Carlsberg could use this as an opportunity to promote and increase sales of
their mainstream beer.
In the Western and Northern European market there is intense competition. Carlsberg’s largest
competitor in this market is Heineken, but there are also several local players that have a good
position in the local communities. There are also other international players as this market is the
35
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
market where all the large breweries are present. Carlsberg has a good position in this market as
they are the second largest supplier here.
As parts of the world are becoming more health conscious, people might choose to substitute beer
for alcoholic products they find healthier. However this is a threat that has become an opportunity
for Carlsberg as they have launched a light beer with fewer calories. This creates the opportunity to
increase profits by selling both types of beer. By broadening the portfolio the company will be able
to target a larger group of segments.
In relation to the health consciousness, several countries have passed laws on non-smoking in bars
and restaurants. This will possibly affect the consumption of beer in these places, as people will
spend less time there.
9. Future prospects
From our general analysis of Carlsberg as an organisation and the environment surrounding
Carlsberg, we wish to consider the future prospects for Carlsberg. There are several ways to go and
measures that they can take. Although there are many opportunities for Carlsberg, there are also
many obstacles that have to be taken into consideration in the future.
There are many opportunities for Carlsberg in the future when it comes to new products and ways
of operating. However, the current financial turbulence in the world might make it more challenging
for Carlsberg to operate in the usual manner. The financial crisis has made it harder to borrow
money needed for acquisitions and has made the stock market and the public more insecure. People
invest less money in stocks and spend less money, as they are insecure about the future. This is
important to take into consideration, when looking at Carlsberg’s future opportunities.
Carlsberg has to pay attention to a stagnating Western and Northern European market and make
sure that they maintain their position. This market accounts for approximately half of their sales
volume and it is the least risky market that Carlsberg operates in. It is essential for Carlsberg to
maintain their position here, as this makes them able to finance operations in new markets. Their
largest competitor in this market is Heineken who is the number one distributor in this market.
The company has to consider if they want to launch some of their existing products to new
countries in existing markets. Products such as EVE and Somersby Cider have been successful in
countries where they have been introduced and therefore it would be a good idea to look at the
36
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
possibilities for these products. Consumers become more and more concerned about organic
products, and Carlsberg could consider producing a mainstream organic beer to show that they are
also concerned with the environment. This could be a supplement to their premium organic beer,
Jacobsen.
What should also be taken into consideration is if these products should be introduced now or when
the economy has become more stable and consumption has returned to normal. It would not be a
good idea to spend a lot of time and resources on launching new products, if people are not ready
for them. Carlsberg has to be sure to a certain extent that the product will be successful, otherwise
the launch and marketing of this product would be considered a waste of time and money and the
opportunity in that market will be lost. Innovation is still important no matter when they want to
launch the product. They can innovate now and decide to launch the product when they see
opportunities to benefit from the market.
Carlsberg has acquired a strong position in the Russian market. They are the largest brewery with a
market share of 38 % and approximately half their sales volume is in this market (Carlsberg’s
annual report 2008:34). The two closest competitors in this market are InBev, who before the
merger with Anheuser-Busch, had a market share of 17 % and Heineken with a market share of 14
% (Kragballe 2009). This is likely to give Carlsberg an advantage to earn more market share. The
company should take full advantage of this market and not be afraid of introducing new products.
Their large market share in Russia, and the fact that consumers know the company well, will make
it easier to break through with a new product.
However, due to the devaluation of the RUB Carlsberg does not earn as much in DKK as they used
to from the Russian market, even though sales has not changed significantly. The exchange rate
fluctuations are a threat to Carlsberg’s earnings and are impossible to affect or change. On the other
hand, if the exchange rate stabilises on a level that can work to Carlsberg’s advantage, they will
have a great position in the market and earn substantial profit. One of the risks in the Russian
market in these financially demanding times is that the Russian people will change their
consumption back to vodka and abandon the beer market, as vodka is far cheaper pr. litre. This
would be fatal for Carlsberg in the long run, as this is a very large market for them and they have
invested a lot of resources there.
37
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Currently, Carlsberg only sell 10 % of their total volume on the Asian market and this market is
therefore not the most important market for Carlsberg (Carlsberg’s Annual Report 2008:3). Even
so, it is important that they observe this market carefully and keep up with their competitors. The
Asian population does not have a tradition for drinking beer and the Asian market is therefore not
the most obvious market to try to penetrate. However, the Asian people are becoming more and
more Western in their behaviour and habits and there is a possibility that beer sales will increase.
This market can be characterised as an emerging market and it is yet to be seen if the Asian
population will embrace the trend.
Further expansions and growth are possibilities that Carlsberg can take advantage of in the future.
This could include expansions in Asia if the beer trend catches on, or an expansion in their existing
markets to secure their position in these markets. Growth and expansion is a key strategy for
Carlsberg, but as things are now it is not an option in the near future. The way their ownership is
structured limits them from fulfilling their strategy to the full extent, and from expanding as they
wish. On the other hand, Carlsberg, as the smallest of the four largest breweries, would in theory be
the company most at risk of being taken over. This is not a risk they need to consider as the
ownership structure of the company protects them from takeovers.
Although a vertical merger backwards may not seem obvious for Carlsberg, this could be an option
and it would give them more control backwards in their supply chain. Merging with a manufacturer
of bottles, cans and packaging could give them exclusive rights to these supplies and could decrease
costs. According to Carlsberg’s annual report 2008, we see that Carlsberg wishes to have several
suppliers in each category. It is difficult to tell if they have several suppliers of bottles, cans and
packaging currently though. It would most likely only be advantageous to merge vertically, if there
is only one supplier. In the case of more suppliers, the suppliers will compete on price and
Carlsberg will get a low price on the goods and they will not be able to obtain exclusive rights. It
seems that it will not make sense to merge vertically if more suppliers are involved.
38
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
10. Conclusion
Much has happened for Carlsberg during the last year in terms of growth and development of the
company. It seems that they have been successful in their strategy to grow and expand. With the
growth of the company and the changes in the environment, both in terms of competitors and the
current financial situation, it is vital for Carlsberg to be able to adapt and develop a strategy that
enable them to perform well in the market.
We have been looking at the strategy for the Western and Northern European market which we
consider to be one of Carlsberg’s core markets. This is a market where Carlsberg faces great
challenges as the market does not seem to have any further potential to grow. Thus, it is important
for Carlsberg to maintain their position in the market. Their current strategy in this market is
concerned with increasing efficiency and value creation. This seems suitable for this market in the
current situation, since it is rather difficult to obtain further market share. It is therefore important to
utilise their current position and brands to the full extent. Innovation and improving current
products are also effective ways of maintaining customer’s interest in the products.
It has been an objective for Carlsberg to increase efficiency in the Western and Northern European
market for several years. This is important as the market is stagnating, but it has become even more
important with the current financial crisis and their large debt. In the short run, it seems important
that Carlsberg tries to increase their cash flow and reduce their debt as much as possible, to ensure
that they are perceived as a good investment for both current and potential shareholders. This is also
vital for Carlsberg to reach their strategic objective of further growth and expansions.
In the long-term, we think Carlsberg should try to use their strong and profitable position in their
current markets to grow and introduce new products to the markets. In a couple of years, the
financial market is likely to become more stable and consumers are more likely to buy premium
beer products than today and this is an opportunity that Carlsberg can take advantage of. Innovation
has always been important for Carlsberg and now that time and preferences change faster than ever,
this is an ability that can help them maintain their position in the market.
Carlsberg is in possession of numerous products, although not all are present throughout
Carlsberg’s markets. Carlsberg have the opportunity to introduce their current products to their
existing markets, where these products are not present. This way Carlsberg can utilise all their
present products and markets to a full extent.
39
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
One of Carlsberg’s key objectives during the last years has been growth through expansion. This
could be done through mergers and acquisitions. Merging horizontally has shown to be successful
for Carlsberg therefore this could be a way to grow in the future. Merging vertically is also an
option for Carlsberg, although there are limited ways of accomplishing this. Although Carlsberg is a
large brewery group, there is still large potential for further growth without the company becoming
too large.
However, since the partial acquisition of S&N, Carlsberg has obtained a large debt and their
possibilities for merging in the near future are rather limited. A prerequisite for future growth
through mergers and acquisitions will be for Carlsberg to lower their debt and create more financial
stability within the company.
Another obstacle for Carlsberg when considering future mergers is their ownership relations. This
limits the size of the financial investment possible for Carlsberg, since the Carlsberg Foundation is
required to own at least 25 % of the share capital and 51 % of the votes in the company. In this
connection, Carlsberg need to consider, if their ownership relations work to their benefit or if they
should consider dissolving it.
In our opinion, the Carlsberg Foundation should continue to have ownership of Carlsberg and make
their influence show. The Carlsberg Foundation can prevent Carlsberg from being acquired and
therefore it provides the company with some kind of security. As Carlsberg is the smallest of the
four largest breweries, they are the ones most exposed to takeovers. They have a good position in
the markets where they operate and their brands are internationally known. This makes them
attractive for their competitors when it comes to merging. We believe the Foundation is of outmost
importance, if Carlsberg wants to continue existing in its current form.
To sum up, we believe that Carlsberg should maintain their strategy for Western and Northern
Europe in the current situation as this seems suitable. It is a risky market, but still a key market
where the company is well established. Expansion should not be considered until the financial
environment has stabilised. This part of their strategy should therefore be considered more in the
long run.
It will also be interesting to see how Carlsberg’s other markets develop. The Russian and Eastern
European markets have great potential and continue to grow, while the Asian market is still an
emerging one. Although it is an important market, the Russian market is risky for Carlsberg due to
40
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
the financial instability of the world, but the future will show if the large investments in BBH has
been a success for Carlsberg. After all, one cannot really predict how it will develop in the future.
41
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Bibliography
“Carlsberg Group Annual Report 2008".
"EU regulators call time on Dutch beer cartel"2007, April 18-last update [Homepage of
EUbusiness Ltd], [Online]. Available: http://www.eubusiness.com/Competition/beer-cartel.09
[2009, April 15].
"About Beer"2006, [Homepage of Foster's Group], [Online]. Available:
http://www.fosters.com.au/enjoy/beer/about_beer.htm [2009, April 14].
"LBK nr 785 af 8. august 2005 om konkurrenceloven- Historisk" 2005 .
"Ældre mødre" 2003, Nyt fra Danmarks Statistik.
"Lov om omsetning av alkoholholdig drikk m.v (alkoholloven), 1989", [Homepage of
Lovdata),[Online]. Available: http://www.lovdata.no/all/hl-19890602027.html;http://www.lovdata.no/all/tl-19890602-027-001.html#1-5 [2009, April 16].
"About Heineken- Profile", [Homepage of Heineken International], [Online]. Available:
http://www.heinekeninternational.com/companystrategyprofile.aspx [2009, April 15].
"About Heineken- The world's most international brewer", [Homepage of Heineken International],
[Online]. Available: http://www.heinekeninternational.com/aboutheineken.aspx [2009, April
15] .
"Anheuser-Busch InBev Company Profile", Available: http://www.abinbev.com/go/about_abinbev/our_company/ab_inbev_company_profile.cfm [2009, April 15] .
"Beer: Global Industry Guide", Available:
http://www.researchandmarkets.com/reports/53577/beer_global_industry_guide.htm [2009,
April 15] .
"Carlsberg at a glance",[Homepage of Carlsberg Group]. Available:
http://www.carlsberggroup.com/Company/Strategy/Pages/Facts.aspx [2009, April 26].
"Carlsberg forlænger kontrakt med Liverpool FC",pressemeddelelse [Homepage of Carlsberg
Group]. Available:
http://www.carlsberggroup.com/SiteCollectionDocuments/Misc/PR22_DK_26062007.pdf [2009,
April 27]
"Carlsberg Foundation",[Homepage of Carlsberg Group]. Available:
http://www.carlsberggroup.com/Company/Foundations/Pages/Default.aspx [2009, February
10].
42
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
"Carlsberg Research Center",[Homepage of Carlsberg Group]. Available:
http://www.carlsberggroup.com/Company/Research/Pages/CarlsbergResearchCenter.aspx
[2009, April 15].
"Carlsberg's Strategy", [Homepage of Carlsberg Group],[Online]. Available:
http://www.carlsberggroup.com/Company/Strategy/Pages/default.aspx [2009, February 10] .
"Environmental Affairs", [Homepage of Carlsberg Group],[Online]. Available:
http://www.carlsberggroup.com/Company/CSR/EnvironmentalAffairs/Pages/Default.aspx
[2009, April 16].
"ERM II",[Homepage of Finansministeriet],[Online]. Available:
http://www.fm.dk/Arbejdsomraader/Internationalt%20samarbejde/EUs%20okonomiskpolitiske%20samarbejde/ERM%202.aspx [2009, March 11].
"Excellence programmes", [Homepage of Carlsberg Group],[Online]. Available:
http://www.carlsberggroup.com/Company/Strategy/Pages/ExcellenceProgrammes.aspx [2009,
March 14].
"Ingredients in Beer". Available: http://www.professorshouse.com/food-beverage/wine-andspirits/ingredients-in-beer.aspx [2009, April 14].
"Responsible Commercial Communications Guidelines for the Brewing Industry"l. Available:
http://www.brewersofeurope.org/docs/publications/guidelines.pdf [2009, April 14].
"SABMiller-About us-where we operate", [Homepage of SABMiller],[Online]. Available:
http://www.sabmiller.com/index.asp?pageid=19 [2009, March 11].
"SABMiller-About us-Who we are-Overview",[Homepage of SABMiller] [Online]. Available:
http://www.sabmiller.com/index.asp?pageid=180 [2009, March 11].
"Share Graph CARL B", [Homepage of Carlsberg Group],[Online]. Available:
http://www.carlsberggroup.com/Investor/Shares/Shareprice/Pages/SharepriceB.aspx [2009,
March 13].
"Sundhed", [Homepage of Carlsberg Danmark],[Online]. Available:
http://www.carlsbergdanmark.dk/omos/CSR/Sundhed/Pages/default.aspx [2009, April 15].
"The Carlsberg History", [Homepage of Carlsberg Group],[Online]. Available:
http://www.carlsberggroup.com/Company/Timeline/Pages/History.aspx [2009, March 14].
"The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1994". Available:
http://nobelprize.org/nobel_prizes/economics/laureates/1994/ [2009, April 1].
Anheuser-Busch InBev, "Annual Report 2008", AB InBev.
Beder, C. 2008, "Virksomheder ignorerer aldersbombe", Jyllands-Posten.
43
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Besanko, D., Dranove, D., Shanley, M. & Schaefer, S. 2004, "Economics of Strategy", 3rd edition
edn, John Wiley & Sons, Inc.
Bhatia, M. 2008, August 5-last update, "Carlsberg Jumps in Copenhagen on Profit Rise, Outlook
(Update 2)". Available:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4zY9SuQuWu8 [2009, March
14] .
Bjerrum, V.D. 2008, "Carlsberg: Sådan får vi flere øl over disken", Berlingske Tidende
Bjerrum, V.D. 2008, "Kalorielette Carlsberg-øl på trapperne", Berlingske Tidende
Bowers, S. 2008, "World's biggest brewer revives € 6.3 bn rights issue", Guardian News and Media
Limited.
Brandenburger, A.M. & Nalebuff, B.J. 1995, ""The Right Game: Use Game Theory to Shape
Strategy"", vol. 73, no. 4, pp. 57.
Carlsberg Danmark , "Produkter" [Homepage of Carlsberg Danmark], [Online]. Available:
http://www.carlsbergdanmark.dk/Produkter/Pages/Default.aspx [2009, April 20].
Christensen, J.R. & Otkjær, T. 2008, "Han skal trylle gæld til guld", Berlingske Tidende.
Dilling, Søren 2009, "Nu skal alle øl vise genstande", Politiken
Elmeland, K. & Villumsen, S. 2007, "Udviklingen i danskernes holdninger til alkoholforbrug og
alkoholpolitiske spørgsmål", Nordisk Alkohol- & Narkotikatidskrift, vol. 24
Falk-Sørensen, P. 2009, "Øl - bunden under kulturen", Jyllands-Posten.
Fosters Group 2006, "History of Beer" [Homepage of Fosters Group Limited], [Online]. Available:
http://www.fosters.com.au/enjoy/beer/history_of_beer.htm [2009, April 14].
Gorton, G., Kahl, M. & Rosen, R. 2005, "Eat or Be Eaten: A Theory of Mergers and Merger
Waves".
Gugler, K., Mueller, D.C. & Yurtoglu, B.B. 2005,"The Determinants of Merger Waves".
"Heineken NV Annual Report 2008", Heineken NV.
Kent, P. 2008, "Law of the European Union", Pearson Education Limited.
Konkurrencestyrelsen 2000, August 18-last update, "Carlsberg overtager Albani". Available:
http://www.ks.dk/index.php?id=22083 [2009, March 11].
Kragballe, S. 2009, "Carlsbergchef: Hvilken krise?", Jyllands-Posten.
Kragballe, S. 2009, "Carlsberg ud af opkøbsræset", Jyllands-Posten.
44
Gina Helland Hauge
Anne Mette Lund Madsen
Bachelor thesis
Spring 2009
Kristeligt Dagblad 2008, "Ekspert: Aldersgrænse for alkohol virker".
Kronborg, M. 2003, "Carlsberg dominererDansk Retursystem", ErhversBladet
Kronborg, M. 2008, "Flopflasker ridser Carlsbergs image", Berlingske Tidende.
Larimo, J., Marinov, M. & Marinova, S. 2006, ""The Central and Eastern European brewing
industry since 1990"", vol. 108, no. 5, pp. 371.
Lassen, L.H. & Hansen, J.C. 2008, "Carlsberg klar til gigantisk aktieudvidelse", Berlingske
Tidende.
Lynch, R. 2006, "Corporate Strategy", 4th edition edn, Pearson Education Limited.
Martin, S. 1994, "Industrial Economics: economic analysis and public policy", Prentice-Hall Inc.
Neal, M. 2009, "Cost-cutting crucial at Anheuser-Busch Inbev", The Wall Street Journal.
Nelson, M. 2005, "The barbarian's beverage: a history of beer in ancient Europe", Illustrated edn,
Routledge.
Nørregård-Nielsen, H.E. 2002, , "Ny Carlsbergfondet ved hundredåret for dets opprettelse".
Available: http://www.ny-carlsbergfondet.dk/historie.asp [2009, April 22] .
Nymark, J. 2009, "Analytiker: Klogt af Carlsberg at sænke gælden", Børsen.
Pautler, P.A. 2003, ""Evidence on mergers and acquisitions"", Antitrust Bulletin, vol. 48, no. 1, pp.
119.
Pedersen, T. 2009, "Carlsbergs gæld falder hurtigere end ventet", Børsen.
Pindyck, R.S. & Rubinfeld, D.L. 2005, "Microeconomics", 6th edn, Pearson Prentice Hall.
Politiken 2007,“Carlsberg dropper blå og hvid Tuborg”
Qiu, L.D. & Zhou, W. 2006, ""International mergers: Incentives and welfare"", Journal of
International Economics, vol. 68, no. 1, pp. 38-58.
"SABMiller plc Annual Report 2008".
Skaaning, K. 2000, "Konkurrencestyrelsen afslører våben i kampen om ølmarked", Erhvervsbladet.
Ullerup, J. 2009, "Frankrig forbyder alkohol til unge", Jyllands Posten.
45