Its a right Russian headache for Carlsberg

It's a right Russian headache for Carlsberg

The struggles go on for Carlsberg who, in its half-year results yesterday, indicated that things in Russia – where it is market leader – look set to get worse before they get better.

I would suggest, however, that the situation looks even worse for Carlsberg's Baltic Beverages Holdings division and its Baltika beer brand. The way I read it, Russia will never again be the bountiful hunting ground it once was for BBH.

In his post-results conference call yesterday, CEO Jørgen Buhl Rasmussen conceded that Carlsberg will do the same in Russia as its international competitors have done in recent years: “We are considering brewery closures,” he said, leading the company down the same path as Anheuser-Busch InBev embarked on in 2012 and Anadolu Efes took late last year.

This move suggests that the good times are over for Carlsberg and BBH in Russia, and here's why.

Two years ago, I travelled to Russia to interview the CEO of BBH, Isaac Sheps. One area we discussed was the question of brewing capacity in the country: With declining per-capita consumption levels, did Carlsberg really need to have ten breweries running at only 72% of capacity in 2011?

Sheps explained that things were different in Russia.

“We have higher capacity than we are using and, even with the growth that we predict, our capacity will still be higher,” Sheps told me at the time. “But, the non-efficiency of over-capacity in Russia is compensated for by the logistic costs from the huge distances in Russia. We'd rather have over-capacity in a brewery than bring goods 9,000km from another brewery: That would cost us more.

”The cost of non-utilisation is the cost of not covering your depreciation. Empty tanks don't use energy.”

Sure, they don't use energy, but it looks like those empty tanks are expected to stay empty for long enough to not need them any more.

Carlsberg's hope, then – like its competitors – must be that Russian consumers look to premiumise their beer choices. Should this be the case, Carlsberg will do well to reduce its Russian footprint and plump for more nimble footwear going forward.