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Like every brewer, Carlsberg, the Danish king of Russia’s beer market, knew this decision was coming. But the government’s action followed exceptionally steep increases in beer tax and strict new restrictions on beer advertisements. Then came the closure of many of the ubiquitous urban kiosks where vendors have sold beer to thirsty Russians day and night since the late Soviet era. Truly, Carlsberg has reason to reflect on the choppiness of business conditions in emerging markets.
It is an exaggeration to say that Carlsberg bet the bank on Russia in 2008 when it joined Heineken in carving up Scottish & Newcastle and, as its share of the spoils, took control of Baltika, Russia’s premium post-communist brewer. Still, there is no escaping the fact that Russia accounts for about 30 per cent of Carlsberg’s operating profit. Russia is an integral part of the group’s sponsorship activities: Baltika is the official beer supplier to the 2014 Winter Olympic Games in Sochi, and Carlsberg also sponsors Russia’s thriving Kontinental ice hockey league.
The big question is how far and how fast the Copenhagen-based brewer needs to expand in different markets, and develop new drinks, in order to compensate for the Russian state’s crackdown on alcohol. Carlsberg deserves congratulations for increasing its Russian market share in the first half of 2013 to 39.2 per cent from 37.9 per cent a year earlier. This is almost three times the share of AB InBev, Carlsberg’s nearest rival. But the more revealing statistic about the Russian beer market is that, according to Carlsberg’s own calculations, it slumped in volume by 7 per cent in the first half – the Danish company estimates two-thirds of the drop was down to the kiosks’ disappearance, and one-third down to faltering consumer sentiment. Only in France, where Carlsberg’s main Kronenbourg brand is struggling and bad weather dragged down sales, were the group’s results as disappointing as in Russia.
Jørgen Buhl Rasmussen, Carlsberg’s chief executive since 2007, looks on the bright side and points out that, in comparison with many European countries, per capita beer consumption in Russia is rather low at about 60 litres a year. Moreover, Russian vodka consumption, though predictably high in a country of fierce weather and still fiercer political customs, is going down. In Mr Rasmussen’s view it is reasonable to assume that beer will gradually become a bigger part of an average Russian’s alcohol intake, a trend that will accelerate as the state cuts back vodka production, healthier lifestyles emerge and people grow used to the idea of buying beer in attractive supermarkets and shops rather than at the window of a pokey old kiosk.
It is an appealing vision, but Carlsberg will know that, since the closing decades of the Tsarist empire, Russia has endured one state-enforced anti-vodka campaign after another. They have rarely ended happily – as I can testify from my years in Moscow during Mikhail Gorbachev’s doomed efforts in the 1980s. Vodka, not to mention illegal home-produced liquor, may not yield to beer just yet.
New types of drink are another way for Carlsberg to lessen its dependence on the stagnant or declining beer markets of western Europe and Russia
Carlsberg is wise to pursue opportunities in other markets, as it has done this year by taking over China’s Chongqing Brewery, chalking up strong sales growth in India and Vietnam, and preparing to re-enter Myanmar now that international sanctions are being lifted on that country. Carlsberg ranked sixth in China’s beer market last year with a 2.6 per cent market share. But the potential for expansion is promising, because Carlsberg – unusually for a foreign brewer – is focusing on western and central provinces, such as Xinjiang, Gansu and Chongqing, where beer consumption is still low.
New types of drink are another way for Carlsberg to lessen its dependence on the stagnant or declining beer markets of western Europe and Russia. Like AB InBev and Heineken, Carlsberg sees good prospects for cider. The global market for the apple-based drink is only one-tenth as big as the beer market, but it is growing fast – not least in the UK, which has the world’s highest per capita consumption. Sales of Carlsberg’s new Somersby brand are roaring ahead.
For the moment, however, Carlsberg’s loyal investors should keep a close eye on alcohol trends in Russia. The company does not have all its bottles in one shopping bag, but it is the Russian ones that weigh heaviest.
Tony Barber is the Financial Times’ Europe editor
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