The just-drinks interview – Nils S. Andersen
Nils S. Andersen has good reason to smile as the spring sunlight pierces through the windows of his office on the 20th floor of Carlsberg's head office in Valby, just outside Copenhagen. Andersen was appointed president and CEO of the brewing giant in 1999, and has overseen something of a turnaround since he took the helm.
Back then, Carlsberg was in something of a quandary. The company only occupied the number one or two spot in a handful of markets worldwide and, by Andersen's own admission, was being left behind as the consolidation of the global beer industry gathered pace. In 2007, Carlsberg, while far from being the world's largest brewer, is the sixth-largest globally and is among the two largest brewers in a dozen markets worldwide.
"The business model we had had run out of steam in the 1990s," Andersen admits. "Global consolidation caught up more speed, which meant that many of our global licensed partners were snapped up by our competitors and Carlsberg's licensed volume was transferred to other international brands. Carlsberg was facing a future of decline."
Andersen decided the only way to safeguard Carlsberg's presence on the world stage was to embark on a spending spree and snap up local brewers. "The decision we had to take was to go aggressively out to buy (into) more markets and secure our route to market. Distribution is key and we had lost too much distribution globally to compete. In our business, you can have the most wonderful brand but if you don't have distribution, it's not going to help you a lot."
Carlsberg did act aggressively in the early part of this decade, acquiring local brewers in fast-growing beer markets like Vietnam, Poland and China. In 2004, the brewer bought the German brewer Holsten in a deal worth EUR523m (US$703m).
And, significantly, Carlsberg benefited from a fruitful partnership with Scottish & Newcastle through their Baltic Beverages Holding (BBH) joint venture. Through BBH, Carlsberg is market leader in Russia, the world's fifth largest beer market by volume. The venture now accounts for a third of Carlsberg's global beer volumes.
Looking at the financials, Carlsberg seems to be in rude health. In 2006, the company reported a 15% jump in operating profit as, notably, sales and earnings rose in Europe, a challenging region for the brewer in recent years. Understandably, Andersen has a lot of conviction in Carlsberg's strategy.
"We have a lot of confidence in it but it's pretty simple the way we're doing things," he says. "We are a middle-sized brewery in a sense and we have limited financial resources so we have to look at the opportunities we have and make priorities. If that leads us to concentrate in a specific region of a big market like China, we will do that. We've also concentrated our investments in the northern and central part of Vietnam; we don't go globally. We're not so big that we need to be everywhere."
Nils S. Andersen
Nevertheless, analysts believe the brewing industry could soon witness a further round of consolidation. The most recent heavyweight deals came in 2005 when Canada's Molson joined forces with US rival Coors Brewing Co., and SABMiller pounced to buy Latin American brewer Bavaria. Late last month, the market buzzed with speculation that Carlsberg was about to table a bid for S&N in tandem with Heineken. In truth, there seemed little substance to the speculation. Andersen agrees that the beer industry will continue to consolidate but insists Carlsberg's share structure means the company could not accommodate a so-called "transformational" deal. In the 19th century, Carlsberg's founder JC Jacobsen created the Carlsberg Foundation to fund Danish research in science and art. Today, the foundation holds a mandatory majority stake in Carlsberg.
Andersen says: "We'll look at further areas of co-operation but we have a foundation; they have a charter that says they need to stay in control of the Carlsberg business and as long as that is the case, there will be no large combination with Carlsberg involved in it."
But has the foundation acted as an irritating brake on Carlsberg's global ambitions? Not so, says Andersen. The Carlsberg board meets representatives from the foundation half a dozen times a year to discuss the company's strategy and, in any case, Andersen is dubious about the merits of size. "It's not about merging the company into something big and just be part of something big; the important thing is what kind of return we can deliver to our shareholders," Andersen says. "I don't think we necessarily have to be the largest brewer in the world to do that. For sure, if we give up the company and sell it, then it will have very limited influence."
Andersen's smile hardens when the conversation turns to the challenges facing the brewer. Like many of its rivals, Carlsberg has found Western Europe tough in recent years thanks to maturing beer markets and, in general, the region's ageing population. Earlier this year, Carlsberg announced plans to sell one of its plants in Italy, and has refused to rule out further disposals or closures. Andersen admitted that trading in Western Europe will "not be a walk in the park" in the months ahead.
However, he is adamant that the brewer will not quit the UK despite its position as the number four brewer in what remains a tough market. Industry watchers cast doubt on whether a stagnant UK beer market - with powerful retailers in both the off- and on-trade - can support four viable, big brewers. Nevertheless, Andersen says Carlsberg will not follow the lead of rival brewer Heineken, which does not have a brewery in the UK and imports its beer from the Netherlands.
"That's a recommendation that we sometimes receive from our competitors via the press or via analysts but it's a pretty dumb suggestion," Andersen says. "We make money; Heineken is losing money. Why would we want to do that? It would probably be better for the other three if we withdrew from the market but I'm sad to say we don't have such plans."
So, what are Carlsberg's plans for the months and years ahead? Andersen points to the brewer's partnership with Vietnam's second-largest brewer Habeco as one of his most satisfying deals of the year so far. In recent months, the company has entered the Indian beer market and set up a business unit to serve markets in south-eastern Europe. In short, it seems Carlsberg's emphasis is on emerging beer markets, the markets of the future.
"We are a very boring company," jokes Andersen after being asked why Carlsberg has shied away from tapping into growing demand for imported beer in more established beer markets like the US and Australia. "It's a matter of priorities. We have lots of activities in China, in Vietnam; we have bought companies in Laos, in Cambodia. You have to make priorities, not just in terms of money because the investment in India, for example, is relatively small, but also in terms of where you dedicate your manpower."
Boring is the last word one would use to describe a brewer moving into some of the most dynamic beer markets on the planet.
Sectors: Beer & cider
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