The Secret Of Heavy Beer: Carlsberg Equilibrium

Since 2003, Carlsberg's management has experienced frequent changes, but it has little initiative to speak to the outside world.

Until May this year. Carlsberg holdings Chongqing beer (600132. SH) first quarter report and 2020 annual report were exposed. The total assets, operating revenue and sales volume of Chongqing beer, which contains all the high-quality assets of Carlsberg in China, are three times of the volume before restructuring.

Last year, Chongqing beer achieved a sales volume of 2.42 million kiloliters, an increase of 3% compared with that in 2019 (after Restatement: according to the accounting standards, enterprises need to restate the consolidated statements according to the scope of consolidation after reorganization, so as to have comparability). The company realized 10.9 billion yuan of operating revenue and 1.07 billion yuan of net profit attributable to shareholders of listed companies, respectively, 7% and 3% higher than that in 2019 (restated).

Under the background that the overall sales volume of domestic beer enterprises fell by 7% last year, Chongqing beer has become the only listed company with "three growth" in sales volume, revenue and net profit.

In the first quarter of this year, Chongqing beer continued its growth momentum. From January to March, the company's beer sales volume was 710000 kiloliters, an increase of 53% over the same period of the previous year (after restatement). The operating income and net profit attributable to shareholders of the listed company were 3.2 billion yuan and 295 million yuan, respectively, up 57% and 111% compared with the same period of last year (after restatement).

"The secret to our success is simple: keep doing it and do it bigger." Recently, Lee Chee Kong, director and President of Chongqing beer, said in an interview with 21st century economic reporter, "we will not suddenly change direction."

Before being appointed president of Chongqing Brewery at the end of last year, Li Zhigang initially served as the director of Chongqing beer in 2019. The Malaysian has many years of management experience in Asia Pacific and China, and is familiar with Carlsberg's culture and rules of conduct. After coming to Carlsberg group from several FMCG companies, he has been president of Carlsberg China since 2018. Since July 2019, he has also served as the vice chairman of several beer enterprises under Carlsberg's shareholding system, such as Lanzhou Huanghe Jianiang Beer Co., Ltd., Qinghai Huanghe Jianiang Beer Co., Ltd., and chairman of Guangzhou Carlsberg Consulting Management Co., Ltd.

"Since last year, beer sales in our big cities, emerging channels and main battlefields have grown evenly." Li Zhigang said that enterprise development is a "Golden Triangle" strategy. Sales and revenue are important, but for Carlsberg, gross profit and profit margin are also very important.

In the eyes of well-known beer expert Fang Gang, Carlsberg is not easy to make mistakes. Equilibrium is exactly one of the characteristics of triangles.

Plant closure and construction

Carlsberg is a listed beer company which started to close down earlier in China.

In 2014, the production and sales volume of China's beer industry began to decline. In 2015, Carlsberg turned on the shut down button and cut off the source of loss completely.

Seven subsidiary companies of Chongqing beer, including Qijiang branch of Chongqing Jianiang Beer Co., Ltd., Liuzhou Shancheng Beer Co., Ltd., Chongqing beer Anhui Jiuhuashan Co., Ltd., Yongchuan branch, Qianjiang branch, Chongqing Beer Group Liupanshui Beer Co., Ltd., and Chongqing beer Anhui Bozhou Co., Ltd., were shut down or transferred. Chongqing beer also transferred 70% equity of Chongqing beer Ningbo Daliangshan Co., Ltd., and also sold 60% equity of Gansu Jinshan beer raw material Co., Ltd. and more than 4.5 million yuan of creditor's rights.

After shutting down many loss making factories of Chongqing beer, Carlsberg also reduced expenses by repeatedly withdrawing asset impairment and cost saving.

Now, Carlsberg has restarted the building switch.

In February, Chongqing Brewery announced that Chongqing Jianiang Beer Co., Ltd. (hereinafter referred to as Jianiang company), which is controlled by Chongqing beer, intends to establish a wholly-owned Carlsberg beer (Jiangsu) Co., Ltd. Jianiang company plans to invest 121 million yuan in Yancheng to purchase land, plant and equipment, and build a beer production line with an annual output of 130000 kiloliters to fill the capacity gap in the eastern region.

After the closure of Chongqing Brewery, the domestic beer industry has started a wave of closure. Qingdao beer (600600. SH) and China Resources beer (00291. HK) have unloaded the burden of redundant staff and overcapacity. What is Carlsberg's consideration when building a factory against the current situation?

In an interview with 21st century economic reporter, Li Zhigang said Carlsberg is reviewing changes in demand and production capacity every year. Now Chongqing beer is back in Yancheng, because the demand is there. The capacity of Chongqing beer in Tianmu Lake factory has been relatively saturated.

When capacity is not in emerging markets, Carlsberg chooses to build or buy, he said. If the existing small factories are not strong in operation capacity and efficiency, Carlsberg will consider closing and optimizing“ We continuously improve efficiency and optimize the way to form an effective capacity structure to meet market demand. Therefore, there are both possibilities of closing or building. " Li Zhigang said.

Will Carlsberg follow suit when there are factories with a capacity of more than one million tons in the industry? Li Zhigang said that if the demand is concentrated, large factories are more suitable; If the demand is scattered in different places, it depends on the development of local factories, rather than blindly copying or imitating.

In Carlsberg's view, efficiency improvement is not only the "opening" and "closing" of the factory, but also depends on the improvement of staff efficiency.

Every month, Chongqing beer reviews how many man hours it took to produce a 100 liter beer, Li said. To improve efficiency, there are many aspects involved, such as the improvement of product structure, personnel skills and equipment. Recently, both Dali and Yibin factories of Chongqing beer have to go up the can line.

Raw materials rising and high end

This year, at a performance presentation meeting for analysts, chief executive officer of Budweiser Asia Pacific (01876. HK) confirmed that Budweiser's price hike had become the focus of whether raw material rise caused beer price rise.

Is the price increase of imported barley, glass, carton and other raw materials transmitted to the products, so as to speed up the process of high-end beer? In this year's strategic objectives, Chongqing beer also clearly put forward that high-end has become the main line of industry competition.

But in Li Zhigang's view, the rise in raw materials and high-end products are not necessarily linked.

"The rising price of raw materials seems to be a trend, and the company will face a lot of pressure next year. But we are still negotiating on the price of raw materials for next year, and we have not finalized the budget. We have to wait until the end of the year. " Li Zhigang responded that from the perspective of direction, first of all, Chongqing beer will consider improving its operation ability and efficiency to offset part of the impact of price increase. The second step is to improve the product structure, and the third step is to consider the price increase, and it depends on the overall market trend of beer and the impact of consumption capacity on the product.

"We will negotiate with the supplier before we make a decision." He said.

For high-end, he has his own logic.

"At present, the industry does not have a standard definition of high-end in terms of price. Enterprises define it by themselves." Li Zhigang said that the high-end products mainly promoted by heavy beer are high-end products? Not exactly. In his opinion, first of all, the market price of Chongqing beer increased from 6 yuan to 8 yuan, Chongqing Yue beer was sold from 8 yuan to 10 yuan, and Wusu Beer was sold from 10 yuan to 12 yuan in Xinjiang.

"Overall high-end is a very good process. Consumers have the need to drink better wine. " He believes that if every price segment of beer is moving up, the process of high-end beer industry will be very long.

"Second, only look at high-end products. In China, Carlsberg defines the products with a price of more than 10 yuan as high-grade wine. The sales volume of high-end liquor accounts for 15% of the domestic market. The high-end liquor of Chongqing beer accounts for about 17% of its total sales volume, and the foreign price segment accounts for 30% - 40% of the total sales volume. So we have a long way to go. " Li Zhigang said.

For high-end, not only rely on high-end products, but also pay attention to how mainstream wine becomes high-end, which itself is a kind of balance.

Local and international brands

At the end of last year, Carlsberg put all its domestic high-quality beer assets into the listed companies in accordance with the promise given to the Chongqing municipal government. Chongqing beer has formed a combination of local strong brands and international high-end brands. International high-end brands include Carlsberg, Lebao, 1664, Greenberg, Brooklyn, etc., while local strong brands include Chongqing, Shancheng, Wusu, Xixia, Dali, Fenghuaxueyue, Tianmu Lake, etc.

Li Zhigang recalled that Carlsberg didn't have a big brand matrix when purchasing Chongqing beer. At that time, Chongqing beer mainly owned "Chongqing" and "mountain city" trademarks, and now there are 12 local and international brands.

If there are more brands, will you hit your right hand with your left hand?

"Great changes have taken place in the development direction and mode of different brands. We mainly look at which brand consumers prefer to have higher viscosity. These are the researches that consumers make every year when they push new products. Consumer research is our direction. " Li Zhigang said, why is Chongqing brand bigger than mountain city? After all, Chongqing is a place name“ Mountain city is also trying to upgrade its structure and grow, but Chongqing is running faster. " He said.

"The development of brands is complementary, not competitive, and does not erode each other." Li Zhigang explained that, like the "balancing technique" of closing factories to build factories and developing high-end products, Carlsberg has chosen "all-round development" in the face of a brand in hand. Wusu represents capable, hard core, unyielding and unyielding heart, while romantic and snowy moon represents tenderness, poetic flavor and distance. Different consumption scenarios and positioning make the brand dislocation competition.

Last year, the strong growth of local brands represented by Wusu directly led to Chongqing beer becoming the only listed beer company with year-on-year sales growth“ It's not because we have made Wusu and 1664 that other brands are not developing well. On the contrary, if Wusu is sold well, other products of Chongqing beer can be sold through the same channel. " Li Zhigang said with a smile.

"Carlsberg will not use price war more to seize the market. For example, 1664 rarely buy one get one free. Consumers have high viscosity and low price sensitivity. Therefore, how to make the brand more transparent and resonate with consumers is the most important thing. " Li Zhigang said that enterprise development is a "Golden Triangle" strategy. It's not Carlsberg that loses money to make sales.

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