Carlsberg, Russia’s biggest brewer, is filling some bottles with less beer and making others smaller in the country as it seeks to limit price increases amid political upheaval, its chief executive officer said.
The measures mean “we don’t have to increase prices as much, because then we can keep the same price points but lower volumes a little,” Carlsberg CEO Joergen Buhl Rasmussen said in a telephone interview yesterday, after the Danish brewer cut its full-year outlook because of a shrinking market in Russia.
The initiative, which applies to 50 per cent of Carlsberg’s Russian volume, is one of a series of steps the Tuborg maker is taking to stabilize its business in Russia, where it’s facing food inflation and high taxes. Other measures the company is taking to bolster sales include introducing new products such as Seth & Riley’s Garage, an alcoholic lemon drink, and sponsoring a hockey league.
Carlsberg, which gets more than a third of selling volume from Russia, yesterday forecast a high single-digit percentage decline in the country’s beer market this year, less than its previous prediction for a mid single-digit drop.
The shares fell 3.6 per cent to 520 Danish kroner at the close of trading in Copenhagen, paring a drop of as much as 6.9 per cent. Competitor Heineken gained 8.3 per cent to €57.31 in Amsterdam for the biggest advance since October 2008 after the Dutch company posted first-half earnings that topped estimates and said profitability would improve.
Declining Share
Carlsberg spokesman Jim Daniell declined to give more details of the move to reduce the quantity of beer per bottle beyond that it is a “small amount” of liquid. While the company’s market share in Russia fell 1.2 percentage points to 37.4 per cent by volume in the first half of this year, the decline by value was “considerably less,” the company said.
The move will reduce Carlsberg’s volume market share by 0.8 percentage point this year, the CEO said.
“Short-term, reducing the size of beer bottles does give them a boost, but it’s not the answer,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London.
The Russian market shrank as much as 7 per cent in the first half of the year by volume, Carlsberg said. After government measures to reduce drinking weighed on sales for the last five years, brewers are now contending with consumer pessimism brought about by the recent political tensions between Russia and its western trading partners.
Reduced Forecasts
Carlsberg reaffirmed its commitment to the country, saying it continues to invest in its brands there and to maintain its presence. In the first half, the company started selling Seth & Riley’s Garage in Russia. The beverage is Carlsberg’s first global brand for so-called hard drinks.
“Innovation is key in a market like Russia,” Rasmussen said.
Carlsberg said yesterday that operating profit on a so-called organic basis will rise at a low- to mid-single-digit pace for the year, less than its previous guidance for high-single digit percentage growth. It also forecast steeper drops in reported operating profit and net income than previously indicated.
Bloomberg News edited by ESM
