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Competitive Analysis & Two-Firm Comparison Paper Carlsberg Group | Sapporo Holdings Brandon Altman Professor Geraldine Wu International Studies Program: Europe Spring 2019 Word Count: 2393 – Excluding Titles 2 Table of Contents Part 1: Industry Analysis Pg. 3 Part 2: Firm Analysis Pg. 6 Part 3: Location Matters Pg. 9 References Pg. 12 ___________ Competitive Analysis & Two-Firm Comparison Paper 3 Part 1 Industry Analysis ______________________________________________________________________________ Competitive Analysis & Two-Firm Comparison Paper 4 Nature of Danish Beer Industry: The Danish beer market has proven to be an extremely attractive industry, as evidenced by the shocking increase in beer-firm numbers over the past two decades. According to Draft Mag, “at the end of the 20th century, Denmark had around a dozen breweries to its name, most conspicuously Carlsberg, one of the world’s largest brewers of industrial lager. A decade into the 21st century, the nation boasted almost 150 breweries.” This microbrewery boom brought in a large variety of craft beers that have tended to do especially well given that “the notoriously unstable Danish weather [caused] an increase in sales of craft beer due to people being driven away from the beaches and into bars or their own homes, where the consumption of craft and specialty beers is higher” (Euromonitor). On a competitive level, Denmark is a somewhat difficult market to compete in on a large scale. As stated by Euromonitor, “beer in Denmark continued to be highly consolidated with the two leading players, Carlsberg Denmark and Royal Unibrew, accounting for three quarters of total volume sales in 2017. The success of the leading players can partly be attributed to a high level of brand recognition and loyalty amongst Danish consumers, as well as strong distribution networks and ongoing marketing campaigns.” This consolidation proves tough to new entrants, who in addition to establishing their own brand name, are forced to invest in control of distribution, marketing of products, and establishment of supplier and production relations. Main Factors Affecting Competitive Dynamics in the Industry | Key Success Factors One can argue that an increase in the product offering available is a signal of greater competition, though others will argue that it is a sign of lower barriers to entry. Brewers of Europe stated in a report regarding the contribution made by beer to the European economy that “there has been a general decline in beer consumption over time… [with] companies responding by introducing new products which respond to consumer demand particularly for more craft or niche beers.” These craft or niche beers cover a number of price points to match varying consumer demand, and additionally diversify offerings of products to match different tastes. In order to stay alive in the heavily diversified market, brands are forced to invest in research to discover efficiencies within manufacturing and supply chain management. Brand success can be determined through regional success, and brand recognition or loyalty in a market where there are such a large number of options. Five Forces Analysis Bargaining Power of Suppliers According to Carlsberg Group, a high risk for 2018 was the industry consolidation of customers and suppliers. The group stated that “consolidation among customers and suppliers also leads to increased dependency, pricing pressure and the risk of margin pressure.” It appears that Carlsberg makes continuous efforts to develop alternative sourcing solutions in an attempt to decrease reliance on their current supplier partnerships. Given that the largest brand in Denmark faces these concerns, the bargaining power of suppliers must be high. Bargaining Power of Buyers In a market with ever-changing tastes, bargaining power of buyers is high, especially in the Danish market. In order to appease the varying tastes of consumers and customers, Carlsberg and other Danish beer brands have been forced to release a diversified offering of products to match different interests. Companies like Carlsberg Group have a number of different brands under their arsenal in order to cover a variety of price points to match consumer demand. Competitive Analysis & Two-Firm Comparison Paper 5 Threat of Substitutes The rise of microbreweries has proven to be a major cause for concern for top Danish beer brands. IBIS World states that “There is a high level of competition from external sources, particularly manufacturers of other alcoholic beverages such as wine and spirits. Manufacturers of these substitute beverages compete for generally the same base of consumers as beer manufacturers. Some major beer manufacturers have diversified their corporate holdings to include wine and spirits to leverage economies of scope and to capture a wider demographic of alcohol consumers.” Threat of New Entrants | Strengths/Weaknesses of Major Competitors The Danish beer market has seen its fair share of new entrants over the past decade, especially in the craft beer sector. Therefore, on the smaller scale of breweries, the threat is high. However, because the craft/niche market is so fragmented within itself, larger brands don’t see the individual new entrant as a threat, and rather the trend of entrants as a threat. The top three beer manufacturers in Denmark are Carlsberg, Royal Unibrew, and Harboes Bryggeri. Consistent between all of the brands is a wide portfolio of products, with offerings of traditional beers and also a variety of craft beers. Industry Rivalry The Danish beer market, as stated, consists of a wide variety of brands, with not much consumer loyalty beyond the largest brands. Because of this, “competitive behaviors occur most often through marketing and brand promotion where the amount of price competition is limited” (IBIS World). The largest brands like Carlsberg or Royal Unibrew are likely to acquire the top competing niche brands in an attempt to gain more market share. Economics of industry IBIS World explains the impact of Eastern European demand as follows: “Demand from Eastern Europe has exhibited little growth over the past five years, hurting brewers such as Carlsberg that depend heavily on the region for brand exposure.” Carlsberg in addition to other Danish beer brands addressed this by expanding into other regions. Carlsberg described their economic risks as follows in their 2017 annual report: “Adverse economic conditions may result in reduced consumer demand and a higher degree of price sensitivity on the part of consumers, while major social or political changes may disrupt sales and operations. Political and economic instability may lead to adverse exchange rate fluctuations, increased credit risk, insolvency of suppliers, goodwill impairment, operational restrictions and possibly nationalization of assets.” With the rise of the far right in Denmark, some could argue that a number of these risks are rather close to reality, generating danger for the beer manufacturing market. ______________________________________________________________________________ Competitive Analysis & Two-Firm Comparison Paper 6 Part 2 Firm Analysis ______________________________________________________________________________ Competitive Analysis & Two-Firm Comparison Paper 7 Carlsberg SWOT Analysis Strengths Carlsberg Group is the largest beer manufacturer in Denmark, and captures 3.9% of global market share (IBIS World). The group is well diversified, with a well-established house of brands that each have their own loyal followings. Due to this variety of brands in their arsenal, Carlsberg Group is also able to offer a large variety of types of beer, at different price points corresponding to different demand markets. Further, the brand is extremely international, with market presence in over 100 countries. In 2017, Carlsberg brought in over 61.8bn DKK in revenue, or nearly $9.5bn US. With such substantial income, the group has the flexibility to invest heavily in marketing, equipment, and acquisitions. The group recognizes the value of marketing communication and invested 9.7% of their net revenue in it during 2017. These marketing activities are comprised of sales campaigns, sponsorships, advertising and in-store displays. Carlsberg is the brand sponsor of Liverpool Football Club and has gained a collective following of thousands of viewers across their social media channels. Weaknesses As Carlsberg is an international brand, their products are subject to factors that are outside of their control. In 2017, Carlsberg faced a decrease in volume sold, due to “the PET downsizing in Russia and bad summer weather in parts of Western Europe.” Further, the brand is subject to foreign exchange movements and the prices of raw materials could potentially be negatively affected. Carlsberg has listed their largest risks in 2018 as the following: commodity & foreign exchange impact, industry consolidation, partnerships, and political & economic instability. Other than their flagship brands (Carlsberg and Tuborg), Carlsberg Group’s niche brands don’t have much international recognition (Marketing 91). These smaller brands are where the Group stands to make their most substantial gains in growth, but are also their most risky; if the Group does not invest properly, the smaller brands can become cash dumps with no substantial returns, or could even result in losses. Opportunities Carlsberg has recognized the importance of a strong base of local brands, and in 2017 made an attempt to accomplish this through investment

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