Industry Trend Analysis - Green Shoots For Carlsberg's Premium & Non-Alcoholic Offerings - OCT 2017

BMI View: Premiumisation, craft and non-alcoholic beer have buoyed Carlsberg's revenues in its H1 2017 results. This was in the face of declining volume consumption of beer and other alcoholic beverages across its three regions; Western Europe, Eastern Europe and Asia. Continuing to support its premium, craft and non-alcoholic beer brands will be critical to Carlsberg improving its price/volume mix as it looks to support revenue growth amid changing consumer preferences.

Danish brewer Carlsberg has reported that its net revenue increased by 2% to DKK31.6bn (GBP3.6bn) in the first half of the 2017 year ending 30 June. The company also reported significantly improved margins, with net profit up by 23% to DKK2.3bn (GBP281.5mn) in H117. The company noted that the stronger performance was mostly driven by positive growth in Q117, while its second quarter results suffered from unfavourable comparisons to the previous year, when the European Championships were taking place which resulted in a boost in consumption.

The improvement in revenues and profits comes despite Carlsberg continuing to see declines in consumption of beer (in volume terms). This is an issue for the whole global brewing industry and one which requires Carlsberg and its rivals to turn to other avenues to support revenue growth. For H117, Carlsberg recorded total volume, beer plus other beverages, down by 3.7% compared to the last year, from 70mn hectoliters (hl) to 67.4mn hl. Beer is the main driver of this decline, with volumes down 4% from 59.1mn hl to 56.7mn hl over the same period.

Volume Decline A Global Challenge
H117 Reported Volume Growth (%)
Source: Carlsberg, BMI

The declining beer volumes trend is mostly playing out in developed regions of the world, however, there are signs that this is no longer limited to just developed states. In H117 on a reported basis, Carlsberg saw declines in total volumes across its three reporting units of Western Europe, Eastern Europe and Asia. It is possible to focus on individual challenges such as the Russian ban on 1.5-liter plastic bottles at the start of 2017, which negatively impacted Carlsberg's share in the market, however, the general shift in consumer preferences throughout the world has been away from low cost, high quantity beer towards lower volume intake but higher quality beer.

We note a number of areas that are supporting revenue growth for Carlsberg in this difficult period of global decline; premiumisation, craft and non-alcoholic beers. While Carlsberg did post revenue growth for the H117 period, it recorded a fall of 0.9% in Q217, suggesting that a broad recovery is tenuous at this point in time. Improving the price/volume mix is an important step in the right direction, however, and Carlsberg appears to be gaining traction with some of its premium brands such as Tuborg, 1664 and Baltika. For example, the company reported growth in its premium proposition in the Nordics, France and the UK.

Elsewhere, its partnership with Brooklyn Brewery has given Carlsberg a strong foothold in the craft beer market and has expanded the brand's presence beyond the US. In July 2017, Carlsberg acquired UK-based London Fields Brewery to expand its craft portfolio and has also launched a new craft brand in Hong Kong called HK YAU and has plans for a microbrewery in Lithuania. Carlsberg Craft & Specialty beers saw volume growth of 25% in H117.

Slow Growth Era Ahead For Beer
Beer, litres mn, % y-o-y
f = forecast. Source: BMI

Finally, another revenue growth stream is non-alcoholic beer, which has changed its imagine over the past few years to become a viable alternative to alcoholic beers. This is an area we have touted as being important for brewers to enter ( see ' Untapped Non-Alcoholic Beer Market Set For Strong Growth', May 3 2016). Carlsberg reported volumes of non-alcoholic beer were up 13% in Western Europe, due to strengthening demand for Carlsberg 0.0%, Tuborg Super Light and Carlsberg Nordic Hvede. Pushing these brands we believe will help offset Carlsberg's decline in volumes with higher revenues, but a long-term recovery will be a challenge as the global beer industry shows signs of slower growth overall.