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Marketing Programme And Environment Of Carlsberg In Uk Marketing Essay

Paper Type: Free Essay Subject: Marketing
Wordcount: 3763 words Published: 1st Jan 2015

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The UK alcoholic beverages industry continues to represent an important component of the food and drinks manufacturing sector. According to provisional data published by the ONS in the Annual Business Inquiry, the sector accounted for approximately 14% of total food and beverage gross value added at current basic prices.

Gross Value Added (GVA) for the UK alcoholic drinks industry, was estimated at £2.7bn last year, equal to approximately 0.3% of total GVA.

Carlsberg:

Carlsberg is a leading word company, whose primary activity is the production, sale and distribution of beer and soft drinks, as well as related activities. It is a part of Carlsberg Group, which is the world’s fourth largest brewery group. The Group is characterised by a high degree of diversity of brands, markets, and cultures and includes also among others: Royal Scandinavia A/S, Combio A/S, Ejendomsaktieselskabet Tuborg and others. Total revenues of the group reach the level of 48,603 millions of DKK. The Carlsberg Group strategy embraces the three regions in which they have chosen to compete: Northern & Western Europe, Eastern Europe.

Carlsberg’s activities are focused on markets where the Group has the strength and the right products to secure a leading position. Due to the variation of the markets, the contribution to growth, earnings and development within the Group differs, both at present and in the longer-term projections.

Against this background, the Group has defined its ambition: to be the fastest growing global beer company measured in terms of average organic growth in net sales and growth in operating profit over a three year period.

In countries where Carlsberg has no breweries, the Group sells its products through exports and licensing agreements. They aim to establish and develop strong market positions for their international premium brands through dynamic partnerships with licensing, export and duty-free partners around the world.

The Carlsberg beer portfolio includes more than 500 brands. They vary significantly in volume, price, target audience and geographic penetration. The brand portfolio includes the well-known international premium brands Carlsberg, Tuborg, Baltika and Kronenbourg 1664, and strong local brands such as Ringnes (Norway), Feldschlösschen (Switzerland), Lav (Serbia) and Wusu (Western China).

The strength of the Group’s brand portfolio is highlighted by the fact that Baltika, Carlsberg and Tuborg are among the six biggest brands in Europe, with Baltika ranked as number one. Their French brand, Kronenbourg, holds a tenth position in Europe.

Position of Carlsberg in UK Alcoholic Beverage Industry:

The UK beer market is in long term decline producing a very challenging trading environment. On average 3% less beer is being drunk each year with growth areas in the drinks sector mainly restricted to the wine sector. However, Carlsberg UK continue to perform well and continue to deliver increasing market share in the take home market and the On Trade.

The main competitors are Heineken, AB-InBev and SABMiller. Carlsberg is listed on the Danish stock exchange and the principal shareholder is Carlsberg Fonden with a stake of 30%.

1. Macro environment of alcoholic beverages industry in UK

1.1 PEST Analysis

The PEST model can provide a good insight into the macro environment of UK alcoholic beverages industry. This model considers the political, economic, social and technological environment of the industry and analyzes how it affects Carlsberg.

Marketing, Competitive Law, Tax and Expenses are the most important factors among political affairs which can affect Carlsberg.

1.1.1 Law Related and Political relationship

There are two grounds on which the excise tax on beer can be justified; first one is as a fund source for the concerned government. Simultaneously, because of health issues, excise taxes are increased. Taxes were increased year by year since 2003 and in 2008, taxes were increased two times. (O’Hara, 2004, 625-653)

There are number of countries like Norway whose law commands against marketing from beer and alcohol.

In the recent years, there is increase in focus and demand for care of environment. The environmental strategy adopted by Carlsberg keeps the Group in the one of the best positions due to energy consumption and efficiency of water.

Due to enormous size, the competition law in the beer market can influence Carlsberg and can force the national governments across the globe to prohibit Carlsberg to practice monopolies. Subsequently, it can hit the Carlsberg growth in the future.

1.1.2 Economic factors

Business cycles characterize the world economic market and which are of great importance for the beer industry and Carlsberg. The recovery period and increase in the disposable income is positive for the regions in which Carlsberg operate. Higher burden of tax is another economic factor in the Western and Northern region.

1.1.3 Social relationships

Europe and Asia are the two regions in which Carlsberg primarily operates and these regions have different alcohol consumption pattern and different cultures. The statistics suggests that there is a strong market for alcoholic beverage; 76% of the people reply that they drink alcoholic beverages, as per the survey. (Aaker, 1991)

In Western and Northern Europe, beer consumption has decreased and it has increased in Eastern Europe.

Carlsberg has responded well to the varied global society in terms of integration, beer consumption and culture. The Carlsberg group has an innovative corporate social responsibility (CSR) strategy which focuses on five factors i.e. Efficiency, Step change innovation, people, commercial execution and winning behaviours.

1.1.4 Technological factors

Brewing has to be innovated as it is important for to the logistics, costs, brewing process, consumer preferences and environment. Jacobsen lager beer is the recent innovative product from Carlsberg. Though cereal- and malt- based beverages are the core competencies of Carlsberg, they have expanded to new horizon to meet needs of health and women.

IT function has been outsourced to IBM which help Carlsberg integrate and adapt easily particularly in the newer markets.

Macro factors in the PEST analysis

To conclude, it can be said that Carlsberg has been successful in increasing share in the growing beer market in the recent year and throughout the financial crisis. And this was possible because of a great strategy by Carlsberg and they are strong positioned according to PEST analysis.

1.2 Structural analysis of the industry

The following Porter’s five forces takes account of the industry analysis to decide upon the competition in a given industry:

Competition in the industry

Supplier`s negotiation power

Competition from substitute products

Threats by new competitors

Buyers negotiation power

And these forces act in different way in the three geographical operating regions of Carlsberg i.e. Eastern Europe, Northern- and Western Europe.

1.2.1 Customer`s negotiation power

Northern- and Western Europe: In this market, there are very few breweries like Carlsberg, Heineken and AB InBev and many distributors. (Staelin, 1994, 159-72)

Of Carlsberg`s markets, the end consumers have the significant negotiation power in this region because of intense competition.

Eastern Europe: 84.3% of the beer volume is produced by the ten largest breweries in this region. The negotiation power is little among distributors because the consumption is purely distributed towards Baltika.

1.2.2 Potential threat form substitute products

Wine, spirits, cider and other alcoholic beverages are the products which in the highest degree can be substituted with beer. Beer is supposed to be cultural rooted because of the different consumption pattern between countries and regions. The national government’s focus on health and the indicators in the industry by these trends is another point by threats for substitute products.

1.2.3 Suppliers negotiation power

The suppliers of raw material and suppliers of packaging are the main suppliers of Carlsberg. Because there are abundant suppliers of the raw materials in all of Carlsberg`s operating regions, the suppliers have got very little negotiation power.

1.2.4 The potential threat of new entrants

If new brewers want to establish production facilities and distribution networks together, they need to pay high costs because of the size of the industry. A large amount of investment in brewing is required for a potential new entrant in this industry and to gain economies of scale in the competitive industry of brewing; large sales and profits need to be achieved.

1.2.5 Competition in the industry

In the Western and Northern, the competition intensity is high but in Eastern European region, the intensity of competition is medium.

1.3 SWOT and conclusion of the strategic analysis

SWOT Analysis:

1.3.1. Strength

Brand Quality

In comparison to smaller competitors, Carlsberg has stronger position

In Eastern Europe, Carlsberg has strong operating performance

Economies of scale

Leadership position in Alcoholic beverage market

Carlsberg can adapt to new environmental policies because of its capabilities.

Innovation in product

Opportunities

In Eastern European countries and Russia, Baltika has a great potential and possibilities for further growth. (Ostroff, 2004, 629-634)

Economies of scale and liquidity can provide greater advantage to Carlsberg.

Premium segment can witness growth for Carlsberg.

1.3.3 Weaknesses

Large base of their total cost

In Latin America and Northern America, Carlsberg has very weak presence

Carlsberg is mainly exposed to the European beer market

Threats

Uncertainty of the business cycles in the global economy

On a short term basis, Carlsberg can face large losses because of the RUB exchange. (Sudhir et al, 2010, 444-457)

Beer consumption is declining in Decline in beer consumption in the Western- and Northern-European region

The industry can consolidate because of large competitors

To conclude, the SWOT analysis suggests that there is a strong beer portfolio of Carlsberg and simultaneously beverages are being renewed by them in accordance to the changing society needs. In several countries, Carlsberg and its products are leaders in market in several countries which makes the mapping of non- financial drivers of Carlsberg leading to stronger expectations to their growth potential in the future.

2. Current Market Policy of Carlsberg

The Danish brewer, Carlsberg, ranks fourth among the producers of beer in Europe. The main strength of Carlsberg lies in the home market where it has a market share of 76%.(Heerde et al, 2008, 1036-1054)

Carlsberg has a wide product portfolio which includes the brands such as;

Carlsberg Ice Beer;

Carlsberg Export;

Elephant Beer;

Carlsberg Lager;

Carlsberg Special Brew;

For many years, strategy of Carlsberg has been oriented globally. Special importance is given towards the development of the brands and their promotion.

2.1 Product

Carlsberg provides a wide range of beers and among them are Carlsberg Export (a strong lager) and Elephant Beer. The most distributed lager in UK, Carlsberg Lager, is its principle brand.

Product Range of Carlsberg UK:

Carlsberg Pilsner

Baltika no. 7

Holsten

Carlsberg Export

Carlsberg Special Brew

Tetley’s Original

Tetley’s Smoothflow

Birra Poretti

Tuborg Green

2.2 Price

While monitoring the costs, Carlsberg tries to keep the minimum prices and raises the prices if and only if forced to do that. Individual retailers are granted liberty to apply the necessary margin.

The beer recently introduced by Scandinavia costs 357 times more than the Carlsberg’s lager brand; thus emphasising that Carlsberg aims to provide the customer quality product with minimum price. (Hankinson et al, 1997, 239-264)

2.3 Distribution

The huge proportion of Carlsberg beer is produced in Denmark from which 29% is exported. In the respective market, the company focuses on producing locally. To achieve this, it goes for mergers and acquisitions, such as the formation of Carlsberg Tetley in the UK.

Carlsberg is focusing on the continual adaptation of distribution and production systems owing to the increasing share of the supermarkets in the beer market.

The products of Carlsberg are distributed through outlets. It can be proved by the fact that Carlsberg lager is available in one in five on-trade establishments. The billboards of Carlsberg always features a lorry which emphasis on the importance of distribution.

2.4 Promotion

The promotional strategy of Carlsberg aims at establishing one brand image around the world. To be consistent with this idea, Carlsberg goes for lorry in its advertisement.

The logo “Probably the best lager in the world” is advertised throughout its promotional activities. This establishes its image in a worldwide basis. Sponsorship is an integral part of it promotional activities. Examples include: Liverpool Football Club, Euro ’96, athletics, rugby club events and music festivals. These promotional activities mainly target the younger people interested in sports.

The tagline “Probably the best beer in the world” was created in 1973 for the UK market by Saatchi and Saatchi. From 1980s onwards, it began to appear in company’s corporate Ads. (McCreanor et al, 2004) The voice for the Ads was given by actor Orson Welles. When Orson Welles became too expensive to be hired, the Canadian born voice over artist Bill Mitchell was used.

Carlsberg also went featuring in the film Ice-Cold in Alex. This was kind of promotional strategy as it just placed itself in the movie so that people get to know about it while watching the movie. “Worth waiting for” was also adopted from the movie.

Sponsorships: Carlsberg Breweries were linked directly with customers through sports sponsorship. It gave chance to customers to share their passions.

Football and Carlsberg are something which has been helping people forget differences, getting friends together and giving something to cheer about. From past four decades, Carlsberg has been providing sponsorships ranging from Liverpool FC to the English and Irish national teams. It also sponsored 1990 World Cup and European championship.

Carlsberg is an active sponsor of alpine skiing, lending its name to events such as the Ski World Cup and the 2003 FIS Alpine World Ski Championships in St. Moritz, Switzerland.

3. Expanding Market

When decided to become the major player on the UK alcoholic beverages market, Carlsberg applied mixed control mode. Carlsberg decided to control two breweries namely, Kasztelan Bosman and Piast Brewery. Kasztelan Bosman was controlled through the acquisition of the 99, 77% and 99, 39% of the initial capital of respective companies from Bitburger. The second brewery, Piast Brewery was controlled by gaining 81% of Dutch holding company, Dyland BV, the owner of 98% of the Piast stock. Later, Carlsberg control was increased to 100% of Dyland shares. (Baghestani, 1991, 671-81)

Acquiring Piast gave Carlsberg a direct access to Lower Silesia region which is characterized by the strong beer culture and high consumption of beer. The marketing and sale function of Piast were centralized in group headquarter. In order to avoid complicated negotiations with public authorities and Lobur Unions, Carlsberg went for secong round of privatization.

Following its competitors, Carlsberg also developed its market position through acquisitions and mergers. Unlike Tyskie beer, Carlsberg did not have the spectacular success, although Okocim brand did grow fast. This growth was not sufficient enough to regain its market position from late 90’s. Market share of 5.3 percent from acquiring Bosman and Kasztelan breweries, market share of 3.2 percent by acquiring Piast brewery, combined with Carlsberg Okocim’c share of 6.4 percent gave a total market share of 15%.(Casswell, 2004, 339-359)

These acquisitions enabled Carlsberg to gain critical mass in the market thus helping it in efficient national distribution and sales force. This also helped Carlsberg to introduce a new brand strategy positioning by promoting Carlsberg as the international premium beer. Restructuring measures were taken to build strong position of Carlsberg group. Some measures were:

Reduction of the local brands and focus on selected strong brands.

Reduction of management costs, achieved through centralization of sale and marketing functions,

Restructuring of the group breweries was conducted in three main areas:

Compatibility of manufacturing plant and technology

Product portfolio

Distribution system

Conducted restructuring and completed modernization of breweries allowed for significant cost reduction and thus to became profitable company.

Development of Carlsberg group allowed also to significantly increasing the presence of Carlsberg brand. It was achieved due to new pricing strategy and price of the Carlsberg beer, significantly more expensive in previous year was brought to the level of local brands, becoming their strong competitor. Also current advertising campaign of the group is focused on two brands, Carlsberg and Karmi.

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Driven by Carlsberg’s ambition to improve efficiency, several structural initiatives were carried out in 2009. The Norwegian Arendal brewery was sold, the Finnish Pori brewery was closed, the German Braunschweig brewery with its fighter brand activities was divested, Carlsberg entered into distribution cooperation with the Nordmann Group in Germany and it was decided to close the Leeds brewery in 2011. (Krishnamurthi et al, 1999, 267-76)

Carlsberg also signed two Memoranda of Understanding with the aim of increasing its shareholdings in the Habeco and Hué breweries in Vietnam. In addition to these efforts a number of projects were continued and initiated with the aim of improving governance, driving best practice, growing revenue and ultimately improving efficiency. Major projects included: establishment of a global procurement organisation, strengthened shared services, centralised IT organisation, expansion of value management toolbox, establishment of on-trade programmes based on consumer insights across regions, and a new integrated people performance assessment and organisational succession-planning process.

Business development

Organic Group beer volumes have declined by 4%. Including acquisitions beer volumes increased by 6% to 116.0m hl. (Heerde et al, 2008, 1036-1054) Although there were signs of improvements in some Northern & Western European markets at the end of the year, underlying beer volumes continued to decline in the region. In Eastern Europe, volumes grew slightly. This growth was solely due to the Russian stock building ahead of the excise duty increase on 1 January 2010. Net revenue declined by 1% to DKK 59,382m driven by flat organic growth (consisting of total volume -4% and price/mix +4%), currency impact -7% and acquisition impact 6%.

Organic net revenue growth was 3%. The continued focus on portfolio and value management coupled with pricing and strong sales execution were the key drivers behind the price/ mix effect of 4%. The positive mix in Northern & Western Europe was offset by the negative mix in Eastern Europe resulting from a shift in channel and packaging mix, also from a marginal shift between brands. The negative currency effect was mainly driven by weaker Eastern European currencies.

The Group has maintained a focused marketing spend supporting our key brands and activities. The share of voice in 2009 was on a level with 2008 despite lower brand marketing costs. The lower brand marketing costs were primarily driven by media deflation, lower media activity overall and the EURO 2008 sponsorship impacting 2008. (Majumdar et al, 2007, 179-95)

Strong organic profit growth was achieved despite the volume decline. This is largely attributable to the Group’s thorough planning for and execution during the year. The efficiency improvements consisting of both long-term projects and accelerated efficiency programmes were a key driver of the organic operating profit growth. Also, value management initiatives driving net revenue per hl, the synergies from the S&N acquisition and favourable raw material costs in Eastern Europe all contributed positively. The efficiency improvements were necessary due to the challenging market conditions and although some cost reductions were linked to volume, it is Carlsberg’s expectation that a significant part of the cost base reduction is sustainable as it has predominantly been driven by structural and process changes.

Eastern Europe generated organic operating profit growth of 38%, and the region was a key contributor to the Group’s strong performance. (Winer et al, 1995) This growth was achieved despite very challenging markets. Northern & Western Europe delivered 6% organic operating profit growth.

Operating cash flow grew by 74% to DKK 13.6bn (DKK 7.8bn in 2008) and free cash flow increased substantially to DKK 10.5bn. The intense focus throughout the Group on improving cash flow was very successful, especially within working capital management. Also, capital expenditures, cash charges for taxes and interest costs were markedly reduced and profits improved. (Draganska et al, 2007, 460-72)

Although capital expenditures have been reduced, the Group has continued to invest in markets with capacity constraints and long-term growth opportunities.

 

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