TEAM EASY ON

BREWtal Growth Carlsberg’s growth initiative for 2022

th 13 of February, 2019 Consulting | 1 Introduction Successfully completed “Funding The Journey” Accelerating growth by rolling out local experience stores and promote non-alcoholic

STATE OF THE BREW TAP(PING) INTO THE FUTURE BREWTAL GROWTH

Needs to accelerate growth through a two- Carlsberg has succesfully completed ”Funding mDKK pronged strategy that will allow Carlsberg to The Journey” through the Sail’22 Strategy respond to key changes in consumer demands.

.. and is now looking for ways of differentiating in Roll out local experience stores all-over Europe, order to grow revenue thereby getting closer to millennial consumers

Focus should however be towards on-trade and Accelerate sales of non-alcoholic brands by high-value channels sponsoring key sports events and athletes

Open Experience Stores called 1847™ Accelerate non-alcoholic brands

Open up 31 experience sites across Western Competitors gaining strong presence within Europe non-alcoholic alternatives across EU 1 Focus on national and regional craft Therefor - exploit increasing health trend 2 Full control of customer experience around Increase awareness of regional non-alcoholic Carlsberg portfolio products beers through major sport events and athletes

Case material Consulting | 2 Insights Stagnation in core markets Changing consumer preferences towards non-alcoholic alternatives, wine & spirits and specialty beers are currently limiting Carlsberg's growth opportunities

Carlsbergs volume growth in Western Europe has stagnated.. ... due to ‘’ category becoming less relevant in the region

39 39 39 40 40 6%

4% Growth % Wine 2% Beer volume Growth % 0% Billion liters Spirits -2% Growth % -4% Beer 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Microbreweries are growing as consumer demands change...... and non-alcoholic alternatives are increasing in popularity

Highly fragmented industry with a few big players and a lot of smaller 16% of German consumers drink alcohol-free beer on a Microbreweries used to be frequent basis # of microbreweries: niche, however category is Year 2008 → 2000 growing as consumer Year 2017 → 7000 preferences change towards more quality, local brew and Q3 in 2018, Western Europe saw a 58% growth premiumization increase in sales of non-alcoholic beer Carlsberg: 29% increase in volume and revenue growth in 2017 from craft and specialty

Case material, Statista and Forbes.com Consulting | 3 Insights Shift in demand due to Millennials Major reason is that millennials are demanding more regionality, quality and whom are very open-minded in terms of trying new beers and are therefor not particularly loyal towards brands

45% drink craft beer out of home at least once a week!” Millennials in Europe say... “64% say they drink more craft beer than 2 years ago” “66% drink craft beer for the taste”

How are millennials making their purchasing decisions?

High focus on Limited production Swedish sustainable and superior taste Oliver Organic malt, pale 100% ingredients 75% and others production • 27 yrs old • Cares about local brew Is the and sustainability Distinct and Is the beer company Is it organic? different taste BUY! local brew? Yes Yes sustainable? Yes Oliver has become tired of normal ‘lager’ ? and has heard about the Nya Carnegies “Hingstin Eko Stout” from Sweden

In order to capture the millennial craft beer trend, Carlsberg must leverage local presence and existing craft beer portfolio

DSM – the craft revolution is brewing, Carlsberg.com Consulting | 4 Insights Carlsberg can leverage existing capabilities in roll-out Carlsberg therefor needs to turn these challenges into opportunities by leveraging some of its already existing key capabilities

A deep pocket of finances

After two year of cost cutting, Carlsberg is well positioned to engage in large investments to drive future growth and add value to the group Strong product portfolio in non-alcoholic beer Experience from operating Jacobsen restaurants

Carlsberg already offers 57 different non- In house experiences with running physical bars/ stores alcoholic beers within its portfolio for the Jacobsen

Similar in taste and feel to traditional pale lager Capabilities can be leveraged brews, such as the K1664 Blanc in France while toward other business units others are less traditional with various flavors added, such as the Utenos Radler 0, a hugely popular grapefruit flavoured beverage in Lithuania. Carlsberg enjoys great capabilities across multiple sections and customer touchpoints that be utilize to facilitate future growth Global Demand Space Model Frontrunner w/ sustainability & transparency

Insights on consumer behavior about when “Giving back to society has been in the DNA of the they drink what and why they do it. ever since our founder J.C. Jacobsen established the back in 1876.” Behavioral segmentation tool based on consumer research studies in over 40 - FLEMMING BESENBACHER - countries, gathering data from over 130,000 Chairman of Carlsberg Group and Carlsberg Foundation. consumers.

Case material, Carlsberg.com Consulting | 5 Insights A two-fold strategy will deliver both strategic fit and impact Assessment shows that Carlsberg should focus on a two-pronged strategy entailing local experience bars and event/athlete sponsorships

Several solutions have been assessed on feasibility and impact… …showing that two solutions will be supporting the growth strategy

4 1 CarlsConnect – the app Rolling out experience- • Not feasible with conglomerate status and no oriented craft bars considerable financial impact

2 5 GastroBeer Leverage health trend • Simple and feasible, yet lacking significant customer and push alcohol-free experience and profound impact brands 3 Personalized bottle labels impact 1 CarlsConnect • A fun experience-oriented gimmick, however lacking App universe with 2 impact. Can be utilized as side-kick in craft bars rewards, codes, GastroBeer Craft line for culinary Financial Financial personalization etc. experiences across Europe 4 3 Experience-oriented craft bars Personalized bottle and glass labels at bars • Carlsberg has key capabilities and can drive differentiation ”Freds Brew”, ‘Fabis Favorite”, ”Mighty Magnus” etc through unique experience with large uplifting impact 5 Accelerate alco-free brands • Accomodates growing customer trend and allows Feasibility & Strategic Fit Carlsberg to directly interact with customers

Sources: Team Easy On analysis; Case material Consulting | 6 1847™ Crafted 1847 Crafted Takeaway Opportunities lie within micro-brewing and expanding sales channels with unique local-based experience bars

Key consumer trends on the craft beer scene… ”Winning in on-trade has always been about superior customer experience for the customer and the consumer” - Cees’t Hart

• Expected CAGR of 11% for 1847™ concept will reshape how Carlsberg can European craft consumption over win the customer-experience game in three ways: the next couple of years 1 • Through the 1847™ experience bars, Carlsberg will • Under-30s driving the revolution differentiate itself and exploit the on-trade market even • Sustainability, sophistication, taste further by leveraging a customer centric value proposition and local brew are in high demand • Low brand loyalty ” - Local, sophisticated, original and experience-driven -

…will be catered through 1847 experience bars 2 • It enables Carlsberg to take full control of a customer centric and loyalty-improving arena Focus on local and regional brews and furthermore leverage local pride • Furthermore allows Carlsberg to get direct touchpoints with its customers and cater to local wants and needs Customized labels to cater sophistication and personalization 3 • Leverage first-mover advantage to create significant Beer tastings, BrewMaster* tour, dining brand customer loyalty in low-loyalty sphere experiences and more • Utilize intelligence from direct customer interaction and ‘1847’ feedback

Sources: DSM Report 2018; Case material; Team analysis Consulting | 7 Notes: *BrewMaster is a professional brewer enlightening customers on crafts 1847™ Crafted A customer journey shows key ‘Moments of Truth’ By catering to the specific demands within the experience bars, Carlsberg can raise brand awareness around regional craft beers within their portfolio and drive future cross sales 3 5 1 Lock in Gamification increases willingness to learn Decides to try 1847 out Pierre learns how complex the process of The three producing beer actually Pierre visits a cafe a enjoys a beer Furthermore, Pierre decides to is and what an artform week after. He Name: Pierre Brew tasting platter Pierre hears visit 1847™ craft it is based on recognizes the beers guided by a from the Age: 27 years old bar in central Paris Carlsberg portfolio on the list as from BrewMaster BrewMaster straight after work products 1847™ and decides Profession: Teacher that you can try with two close to order this instead to ”Brew Your 4 Preferred liquour: Wine friends of usual wine 2 Own Beer” Tries some of the lesser known beer Recognize delicacy of making good beer

Gamification Offerings must Ensure Pierre Foster and Moments of increases drive unique drops by in the Taste is king facilitate uplift Truth knowledge on experience and first place cross-sales beer meet demands

Expected customer profile The overall concept can be extended by…

Female, 24% 1 Dining 2 Concerts 3 Product events Dining experiences with Concerts – upcoming stars Niche-product events to local and tailored craft supported by the drive loyalty and leverage Male, beer offering Carlsberg Foundation word of mouth effects 76% Sophisticated Urban

Sources: Team Easy On Analysis; Case Material Consulting | 8 1847™ Crafted Successful role-out has to be well managed After successful pilot-test in the Nordics, Carlsberg will be capable of entering physical store space across Europeand execute a successful roll out

Carlsberg needs to drive visits to 1847 spaces through digital campaigns to Role out of 1847™ experience spaces over 2,5 years time…. launch the initiative

Current followers: 30k 31 European cities Competitor : 174k followers Other portfolio Brands 2019 Start with Nordics, then expand into rest of 2020 Europe Astra – 53k followers Must increase SoMe presence to reach 2021 Cost per store: Kronenbourg1664 – millennials 11 mil. € 3.3k followers initial investment

Anticipated visitors: 10.5 mil/ year Why SoMe? Goal: reach millennials How? Influencers with lifestyle Young people are more influenced by So-Me 1 image and qualified than older generations knowledge …will have to be carefully managed within the organisation Influencers behavior on So-Me is Can effectively generate Key actions: replacing existing expert systems brand awareness and 2 influence purchase 1 Create new 1847™ division within Carlsberg group decisions

What values to communicate? Clear link between the 2 Develop concept for first experience space and use same model for subsequent role-outs ambassadors’ life and Local heritage of local brand 3 habits; and the value of experience stores 3 Implement staff training programs to ensure that all new and old employees understand the Specialty experience Premium product market that they work in

Euromonitor Consulting | 9 Sponsorship 1847™ Crafted Greater focus on non-alcoholic segment Sponsoring key sports events and sports stars with alcohol-free beer brands will tap into the increasing health trend

Consumers are increasingly turning to non-alcoholic alternatives

250 % YoY volume growth globally 200 150 5 100 “Changing consumer 50 0 0 patterns, lifestyle and 2012 2013 2014 2015 2016 health awareness are major -5 factors propelling non- alcoholic beer demand.” non/ low alcohol beer total beer

Absolute Volume Growth (million liters)

Carlsberg should leverage its long time experience in sponsoring soccer and other sports to expand into other sporting events to aggressively market non-alcoholic beer

How? Decisive factors

Promotion, sampling and exposure Over 22,000 racing events Presence held in Europe per year Create cross-selling effects Emotion Already have strong capabilities Goal Opportunity to contact key Fulfillment in sponsoring efforts that can be target group on-site expanded towards sporting events Getting people to talked about non- of needs throughout Europe alcoholic beer and trying it

Carlsberg already has strong portfolio of non-alcoholic beers but has to engage in more extensive marketing efforts to stay on par with its competitors

Euromonitor Consulting | 10 Sponsorship Sponsored events can be utilized as key promotions Selecting large and exposed events is key in driving an impactful growth from sports sponsorships

What is the value proposition fit for combining Through marketing effort at key sporting events throughout Europe, Carlsberg is able to achieve wide reach non-alcoholic beer with sporting events? and get in touch with specific target group for non-alcoholic beer

Properties of non-alcoholic beer

• Ideal for regeneration after sport Sponsored Running event Carlsberg Nordic • Mineral-rich electrolyte drink Vasaloppet cross-country skiing • Suitable for a balanced sports diet Marathon Audience: 150,000 visitors • Free of fat and cholesterol Two promotional Target group: on-site fans • Calorie-reduced Attendance: 5000 runners streams Target group: amateur/ hobby athletes Frequency: once a year 1. Sampling for hobby athletes competing Carlsberg’s non-alcoholic beers offer not themselves only a “second best” alternative but have beneficial traits for athletic people Local Running-Club 2. Sponsoring Tour de France Aim: creating a community professional Key target group: Fans and TV Audience: Carlsberg should utilize this and tap even Incorporated with 1847 experience places events to get stronger into the growing segment through 12 million roadside exposure specific marketing 3.5 billion on TV Already successful concept Mikkelller running club 12,000 members Proof of Concept High exposure globally Erdinger Alcoholfree has seen growth due to marketing the brand towards sports

Euromonitor/ Erdinger Consulting | 11 Implementation By end of 2022, Carlsberg should be fully rolled out with strategy Our analysis has identified 3 MWB’s, Carlsberg must focus on to realize the full potential of the new strategy

2019A 2020E 2021E 2022E

Period Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Find prime locations 1 in 5 big cities Sign lease and start renovating stores

1847 1

Market concept stores and prepare opening Start selling products to customers and host events with guest as well as BYOB 3 Scale to rest of Western Europe and Core markets to capture full benefits comp. from increased brand awareness and tapping into microbrewery trend Initiative timeline Start prel. contact with Copenhagen Marathon.

2 Hire FTE’s and begin creating marketing

Negotiate contract with Sponsor CPH Marathon 2

Prepare marketing materials and goods

Develop relationship Host several sponsorships and possibly expand to more sports events for with partner athletes

First two stores renovated and open Secure contracted sponsorship with Copenhagen Marathon Win in test markets and prepare expansion It is imperative for Carlsberg to act fast. Once contract is aligned, Carlsberg can begin looking into Before committing fully, Carlsberg must test the Must Win Battles 1 Especially given how competitive the market 2 creating and finalizing marketing campaign to create successful 3 strategy out in 5 well selected countries to is, Carlsberg must have first 2 store by start awareness of health benefits coming from alcohol free product minimize risk of overcommitting too early. 2020. line. Sources: Team Easy On Analysis Consulting | 12 Financials Carlsberg can reach growth target by 2022 with strategy Given a successful launch, Carlsberg will be able to obtain their growth targets of 5% by 2022 with a full year growth of 5.4% Y-o-Y

1 2 3 Revenue forecast reveals required growth rate is obtained Scenario analysis and key performance metrics Key drivers

Operating profit Operating profit EBIT - % Revenue drivers Revenue impact forecasted to 2022 forecasted to 9,557 Brand awareness causing uplift in DKK in millions 2022 9,329 9,173 8,876 8,748 8,921 base sales DKK in millions Base growth Sales from 1847 stores 10mm customers in total in 1847 Sales uplift from brand awareness ~5.4% stores avg. spend of €25. 14.6% 14.9% 13.8% 13.7% 13.5% 13.4% Incr. base sales Revenue growth rate 71,439 -170 bps uplift 1847 Stores 67,791 Driven by higher SG&A costs 2017A 2018A 2019E 2020E 2021E 2022E Based on avg. capital size of 65,122 1.5mm in EU and 31 stores in 63,332 2022. 75% consume alcohol and Scenario analysis 15% of these visit store from 5% ~2.9% in 2020. 5mm customers visit 2 Incr. revenue from times/ year(1). 1847 stores 5.4% Uplift in base sale 4.1% 2% 5.4% 7% Increased awareness will drive Revenue growth Revenue growth Revenue growth customers towards Carlsberg brands in on-trade locations. Case study(2) Worst Expected Best shows uplift of 20% from flagship. Assumed 9% in 2022 in forecast to be conservative. Global beer market Base market share share for Carlsberg Incr. market share Market growth 2018 = DKK 510bn Achieving growth target (5%) in 2022 2022 = DKK 537bn 1.80% 1.3% CAGR until 2022(#). 1.61% Driven primarily by 3 factors being 0.19% Assuming Carlsberg portfolio will grow in line with market. Growth split 1 Underlying market growth +19 bps between on- and off-trade assumed 2 Growth from 1847 stores 1.61% 1.61% Driven by stealing market to be constant 3 Growth from uplift from awareness 1 2 3 Total share from primary competitors 2018A 2022E Sources: 1) EC Europa, 2) IE University, 3) Case Material, Team Easy On Analysis, Consulting | 13 Financials Carlsberg can finance the initiatives through their excellent Cash Flow Furthermore, Carlsberg’s financial capabilities allows it to self finance the initiatives and there is no need to raise any external capital

Cost analysis of reveals a total investment cost of DKK 3,219bn over 3Y span Carlsbergs extraordinary financial capabilities allows to self finance the strategy

Number of stores built each year 2% 50% Min. 2019 2020 2021 2022 Payout Cash 2 8 10 11 Ratio Balance Investment in each store 1 Capex: DKK 99mm pr. Store opening (1) Opex: DKK 61.5mm pr. Store / yearly(2) Opex cost incl.: Rent (11%), Salaries(6%), Marketing (80%) Net Cash Flow forecast DKK in millions 1847 stores Scale efficiency and practical knowledge Slightly decreasing Opex as knowledge is learned in opening and scale is reached through each store

Investment in sponsorship events Marketing: €5mm pr. Event directly contributing to (3) 2 the brand awareness of Non-alcoholic beers Beer grants for Copenhagen Marathon 12k participants in Copenhagen Marathon 2018 – Sponsorship assumed 24k beers at DKK 2 COGS = DKK 48k(4) Expected positive No need for LFCF of DKK external financing Total cost for both initiatives over 3Y period 102mm cumulative – strategy can be from ‘19 – ‘22 self financed amounts to DKK 3,219bn

Sources: 1) SF Curbed, 2) Nordstrom 10-K 3) Investopedia, 3) CPH Marathon website, Team Easy On analysis, Case materials Consulting | 14 Notes: 1) Based on Apple capex for flagship store adj. 50% down to reflect Carlsberg realistic cost, 2) Nordstrom operating expenses adj. 80% to Carlsberg size Summary Risks Six key risks have been identified and associated mitigation strategies have been set up

Number Risk Mitigation impact Highest Bars do not generate Expand in-store branding uplift from cross sales to drive awareness 1 1 Critical risk line People lack interest in Aggressive marketing, 2 experience craft bars promotions, revisit events

Leverage first-mover ad- Competitor replication 2 3 vantage and push more

Impact 4 3 Can’t make sponsorships Scale down and target 4 with major sport events smaller, local events 6

5 On-trade customers (bars) Communicate intention 5 will be unhappy with craft bar and cross-selling benefits

People prefer other non- Expand R&D to refine impact Lowest 6 alcoholic beer taste and product

Lowest Highest probability Probability probability LOW RISK MEDIUM RISK HIGH RISK

The risks are not severe and can me mitigated Consulting | 15 Sources: Team Easy On Analysis