Carlsberg to Focus on Premium Beer in Russia as Volume Declines

Carlsberg A/S (CARLA), the owner of Russia’s biggest brewer, said it will place an increasing emphasis on selling higher-priced beers in the country to compensate for weakening volume there.

The company also wants to step up sales of brews distributed under license as it seeks to boost profitability, Chief Executive Officer Joergen Buhl Rasmussen said at a meeting with reporters and investors today in St. Petersburg.

Carlsberg, based in Copenhagen, gets about 39 percent of its profit from its eastern Europe unit, primarily Russia, where the government is raising taxes and increasing regulation around beer. Rasmussen said in August that he expected the country’s beer market to be “flattish” this year.

Carlsberg is targeting an operating margin at its eastern Europe unit of 26 percent to 29 percent in the medium term, it said in a presentation today. It reported profitability on the same basis in the first half of 16 percent after stepping up its promotional spending ahead of advertising bans in Russia.

Premium beers represented 27.6 percent of the market at the end of June, up 0.9 percentage points from the first quarter, according to Isaac Sheps, president of Carlsberg’s Baltika Brewery unit. The Russian beer market grew 2 percent during the first half, showing “positive signs,” said Sheps, who took control of the unit on Dec. 1 last year. He was previously head of the U.K. division and replaced Anton Artemiev at Baltika.

Carlsberg had 37.8 percent of the Russian market in August, according to the presentation. It owns 10 breweries in Russia, including in St. Petersburg.

Younger Population

Sales in Russia may be boosted by a growing younger population and increased consumer spending, the company said. It expects the beer market to grow by value this year and next after declining in 2009. Per-capita consumption is also anticipated to stabilize this year after declining.

A ban on sales from kiosks, or non-stationary outlets, that’s due to come into effect in Russia next year could cause short-term sales disruption, the company said. Still, no long- term volume loss is expected as consumers seek other ways of buying beer. As many as 35 percent of such outlets have already closed ahead of the 2013 deadline, Carlsberg said.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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