Strategic analysis of Carlsberg

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Strategic analysis of Carlsberg

With the use of product development strategies, how can Carlsberg regain positive revenue development on the Western European market?

Written by:

Morten Søndergaard Graversen Student number: 110969

Examiner:

Lars Abel

Pages: 64 Characters: 131091

Customer & Commercial Development, CAND.MERC.CCD Copenhagen Business School

Copenhagen School of Entrepreneurship 15^th September 2021

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Abstract

The aim of this paper is to investigate the issues of Carlsberg by implementing a qualitative approach with the framework tools of a strategic analysis in order to recommend two proposals of action for Carlsberg to regain positive revenue growth. The qualitative methodology consists of a primarily explanatory, constructive viewpoint gathering primary data from a semi- structured interview and a focus group interview. The secondary data is obtained through various academic articles, theories, frameworks, books, and reports.

Carlsberg’s internal and external situations were investigated utilizing appropriate frameworks that facilitated the analysis. Within the internal analysis, Porter’s Value Chain, Aaker’s Brand Equity, and the Competitive Advantage Theory functioned as diagnostic tools used by the researcher to comprehend the inner situation of the company. Within the external analysis, Porter’s Five Forces and the PESTEL model contributed as strategic components to understand the macro-environmental factors that have an impact on Carlsberg.

The study of Carlsberg, its industry, and its external environment discovered why the company has suffered from revenue decline. Despite the obvious of the global pandemic crisis, the conclusion from the findings were that the company’s identity and values does not live up to the expectations from the modern, political consumers. The insights also proved how the company is starting to lose relevance to the younger generation due to their brand image.

Established upon the strategic analysis, proposals of actions were suggested to implement to regain positive revenue growth on the Western European market. The first recommendation suggested Carlsberg to introduce a low-calorie beer with a high amount of alcohol percentage, meeting the demands of a healthier beer in terms of calorie amount. The second recommendation suggested the company to introduce a 100 % organic beer containing vitamin D, a higher amount of protein and a biodegradable packaging. By launching such a product with focus on health nutrients and a sustainable bottling, the company will create higher awareness on their corporate identity.

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Carlsberg was founded in 1847 in Valby by the brewer J.C Jacobsen. He had a strong passion for science and beer, and with those competencies he founded what is now considered to be the third biggest brewery in the world (Carlsberg , 2020 ). When J.C Jacobsen passed away, the vast majority of the company has been owned by the Carlsberg foundation (Carlsberg , 2021 ). The Carlsberg Foundation owns around 30 % of the shares in Carlsberg Group and regulates approximately 75 % of the voting power in the company. The foundation is primarily focused on social and societal activities, which gives the company a humanitarian edge.

Carlsberg Group’s biggest brand is the beer Carlsberg, which is named after J.C’s son Carl.

Furthermore, some of the other biggest brands includes Kronenbourg Blanc, Tuborg, Bltika, Grimbergen, Somerby and many others (Carlsberg , 2020 ) .

Today, the elephant gate by the old famous brewery in Valby has become a national treasure as well as the National Historic Museum on Frederiksborg Castle and the New Carlsberg Glyptotek. The two museums have been funded by the Carlsberg Foundation (Carlsberg , 2021 ).

Since 1847, the company has become a large, international organization with more than 42.000 employees worldwide as well as one of the largest companies in Denmark.

1.2 Problem background

Nonetheless, 2020 was a challenging year for Carlsberg, primarily negatively impacted by the COVID19. The company had to prove its resilience, while its on-trade customers (restaurants, bars, festivals etc.) were closed. The company based its strategies on protecting the cash and profit that were operating, while preparing for better times (Carlsberg , 2020 ). The company did what private households are during in crisis times too. Protecting their operating cash, while cutting down expenses and ensuring their own health. Nevertheless, ss a direct result of the on- trade customers not being able to make any orders, Carlsberg’s revenue declined 8,4 % during 2020 (Carlsberg , 2020 ).

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6 1.2.1 Research question

Above revenue decline led to the following problem formulation:

With the use of product development strategies, how can Carlsberg regain positive revenue development on the Western European market?

The research question will be resolved through an in-depth analysis of Carlsberg’s external as well as internal situation. The analysis will follow the outline below:

1. What is the internal situation surrounding Carlsberg’s innovation initiatives?

2. Which external factors will be of utmost importance for Carlsberg’s future product development strategies?

3. Discussions and recommendations

Carlsberg suffered an 8,4 % revenue decline from 2019 to 2020, which will be the core issue this paper will be structured around to solve (Carlsberg , 2020 ).

The first chapter is describing the company, its strengths, but more importantly its challenges that needs to be solved quantified through the research question. In the first chapter, delimitations to this report will be outlined too.

The second chapter aims to give the reader a comprehensive understanding of the company and the industry it is competing in.

The third, fourth and fifth chapter intends to analyze the internal situation of Carlsberg. This analysis will be aided by the Porters Value Chain, Aaker’s Brand Equity, and the Competitive Advantage theory.

The sixth- and seven-chapters main purposes are to examinate the external environment of Carlsberg with the use of Porter’s Five Forces and the PESTEL framework.

The 8th chapter is a complete analysis, weighing the analyzed findings in a comprehensive SWOT analysis.

The ninth chapter is a strategic discussion, where suggestions to answer the research question will be presented based on the gathered data, findings, and analyses.

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7 The 10th chapter will be evaluating potential implication, and more importantly reflect on new directions for future studies.

The 11th chapter is a conclusion on the entire paper, its findings, and results and how they were acquired.

1.3 Delimitations

Carlsberg’s main revenue driver area is Western Europe, that represents 54 % of the company’s total revenue (Carlsberg , 2020 ). As this paper focuses on product development, it has been chosen to focus primarily on implementing innovative ideas in this area. As the cultural, socio- economic, and political dimensions are so different across the world, product development ideas can necessarily not be implemented with the same success rate in different continents.

Therefore, it has been chosen to focus on Carlsberg’s main customers, namely the Western European people (Carlsberg , 2021 ). By narrowing it down to this target segment, the researcher will be able to draw assumptions on the segment based on gathered data with more precision, if assumptions were to be made on a global scale.

Another aspect of narrowing it down to Western Europe is that different innovations are needed in different regions and continents. Hence, by having a global focus, no innovations would truly be a relevant and attractive implementation plan for Carlsberg. Hence, it has been concluded to laser focus on the most important region and use the findings and results to come up with a tailored and specific product development strategy.

1.4 Theories and models applied

The following section pursues to deliver an overview of the theories, models and frameworks utilized in this paper as means to analyze above research question. Furthermore, it will provide a guideline for the form of the analysis. As it is a strategic analysis, it is necessary to analyze both the internal as well as external analysis in order to provide strategic recommendations based on the analyses. The internal analysis will shed light on Carlsberg’s strengths and weaknesses, whereas the external analysis will focus on the company’s opportunities and threats. Based on the overall analysis of the company, product development strategies will be presented to answer the research question. As a direct consequence of that, models, frameworks

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8 and theories have been specifically chosen as tools to shed light on potential product development ideas. The internal analysis has been chosen to be analyzed first, as the paper will be following an inside-out approach in terms of the analysis structure.

Internal models applied

1.4.1 Porters Value Chain Analysis

Porter’s Value Chain Analysis has been chosen to facilitate the deeper understanding of Carlsberg’s internal situation (Porter, 1985). The value chain analysis gives a comprehensive overview and insight of a company’s internal situation and value chain from inbound logistics to service. It brings valuable insights to a firm’s infrastructure, employee management, technological processes, and procurement as support activities (Hollensen, 2004). Within the primary activities, the value chain analysis provides knowledge to the in- and outbound logistics, daily operations as well as marketing, sales, and service. On the last step of the model is the margin arrow that correlates to the profit margin the company makes out of the activities of its value chain. This margin is related to the company’s ability to articulate correctly all activities in the value chain (Porter, 1985). The value chain analysis is therefore a comprehensive study of the key activities in the company that creates the product. Therefore, the core activities of the company must be researched deeply in order to spot which areas that brings the most value, and where the core strengths as well as weaknesses are, so they can be utilized further or improved.

1.4.2 Brand Equity

A brand Equity model will be analyzed in this paper in order to spot the projected profits and revenue of their products as you see where to improve your brand (Moore & Lewitt, 1982). By implementing this framework, it becomes more visual to where the most revenue is generated, and where the future potential is the biggest, as you are able to improve the overall brand image of a company (Aaker D. , Building strong brands, 2010). Brand equity is considered one of the most fundamental part of building a brand that is preferred in the consumers eyes. According to Aaker, that is one of the core principals of fundamental brand equity theories. The brand

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9 equity is also seen as the sum of your brand identity, brand associations, brand image, brand awareness and brand loyalty (Aaker D., Building strong brands, 2010). Thus, product development strategies can be introduced based on the findings from this analysis in regards to where to improve the brand.

The brand equity theory model has proven its worth to companies due to the dynamics of it. It has its good reputation from visualizing how stable the cash flow is now, and what is the projected cash flow situation in the future (Aaker & Mcloughlin, 2015). If the projections are bright, the company will have more resources to invest in potential product development strategies. The name ‘brand’ was first set into the business world many years ago, when cattle’s were “branded” to see whom, they would belong to (Aaker D. A., Measuring Brand Equity across Products and Markets, 1996). It has later become a much more complex and intangible, as it is a sum of many things. Among those things are packaging, goodwill, customers, visual layout, customer service level, reputation, history and the way the company is communicating and relating with its customers (Søndersted-Olsen, 2007). This paper will mainly focus on Carlsberg as a brand in a global context with a different local focus in each region. As there is a huge difference on Asian and Western European customers, this paper will, for making it more specific and relevant, primarily focus on the Western European customers and how to improve brand equity for them.

1.4.3 Competitive advantages of Carlsberg’s Innovation Strategy

Innovations today does not necessarily have to be radical in order to change the structure of industries (Downes & Nunes, 2013). It can also be incremental innovations, which has its core purpose at making small adjustments and improvements to companies existing products, either to the technical or the service part. Thus, the products life cycle expands

(Varadarajan, 2009). Hence, both types of innovations will be analyzed for Carlsberg in order to find potential innovation ideas.

Carlsberg has introduced many new products and brands, hence entered, and created new markets. Most commonly, market leadership is created through a “radical innovation, which is then extended through continuous and gradual innovation” (Venohr & Meyer, 2007). Carlsberg

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10 has a strong R&D department, that continuously search for new product and innovation ideas to penetrate new markets and further dominate others.

Innovation drivers are used to utilize competitive advantages, and it differentiates between internal and external forces. For large enterprises, either the market or their internal capabilities are key drivers for their innovation development. Innovation drivers are demonstrated in a framework in the Hermann Simon’s book “Hidden champions”, which aimed to illustrate companies’ where their core innovation drivers came from. It was sketched out with three different options for innovation, namely 1) Technological capabilities, 2) Market or 3) A combination of both. It was investigated in Simons’ book, that 82 % of companies are using innovation drivers from only either 1 or 2, whereas 18 % of companies were using both internal and external forces to stem innovation.

External models applied

1.4.5 Porter’s Five Forces

Porter (1985) developed the five main forces impacting all industries. The framework has gained respect and been used for centuries (Porter, 1985). The five different forces define the level of competition in the industry, and has been used to identity the attractiveness and potential profit for companies in the specific niche. The five different forces are:

1) Buyer Power 2) Entry Barriers 3) Degree of Rivalry 4) Threat of Substitutes 5) Supplier Power

The buyer power regards to price sensitivity, buyers’ incentives, volumes, brand identity, product differentiation, bargaining leverage as well as available substitutes. The buyer power impacts the industry’s attractiveness immensely and will be analyzed in detail (Fletcher, 2014).

The entry barriers involve how easy it is to enter the industry. It therefore directly impacts the level of competition. It includes the components of cost advantage principles, learning curve cycles, access to inputs, economies of scale, brand identity, and availabilities to supplies and proprietary products.

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11 The degree of rivalry is the level of competition in the industry. It directly involves the industry concentration, industry growth rate, intermittent overcapacity, exit barriers, corporate stakes, switching costs and product differences.

The threat of substitutes involves the switching costs, buyer degree of substitute and and trade- off substitutes. It impacts how customers can switch to competitors and the importance of price differentiation.

Supplier power regards to the significance of volume of goods, effect of inputs on cost, supplier strength, switching costs of companies in the industry, existence of substitute threats and the price relative to total amount of industry purchases. It entails how suppliers have a big influence on industry’s profitability and attractiveness (Perez-Cueto, 2018 ).

1.4.6 PESTEL Analysis

The PESTEL analysis is used as an examination tool to understand which outside or macro factors influencing the company (Aguillar, 1964). It is used to give a comprehensive understanding of the outside environment surrounding the company. Hence, Carlsberg may use the framework to investigate which important outside challenges that must be taken into consideration and acted upon (Yüksel, 2012). The framework is based on which political, economic, technological, social, statutory and environmental aspects crucial for a company’s growth directions (Yüksel, 2012). Especially the social factor will provide comprehensive insights into answering the problem formulation. The reasoning for that is, that social factor analysis will provide the researcher with deeper understanding of Carlsberg’s’ consumers, how they think, behave and act as new food and beverage trends can be spotted in this analysis. To provide further understanding on the topic, Anthony Giddens theories on the modern society, and how our choices and habits defines our identity will be analyzed in combination to the PESTEL (Giddens, 1996). By doing so, the researcher will be able to tailor more specific and relevant business proposals in terms of product development strategies synchronized with latest consumer behavior and trends. Anthony Giddens book “Modernitet og selvidentitet” from 1996 describes how in the late modern society individuals are changing habits and traditions as a way of self-realizing themselves and find their identity (Giddens, 1996). Giddens investigates how individuals in this period are becoming more self-centered, and seeks for self- realization and most importantly, self-development (Giddens, 1996). Hence, this theory will

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12 contribute to the PESTEL, as it will bring a deeper knowledge of the modern, political consumer.

1.4.7 SWOT

Above analysis will be summed up in a comprehensive SWOT analysis, that will provide an overview of the analyzed findings in the paper. A SWOT brings value to a paper in terms of providing a clear composition, and a form of a COST/BENEFIT structure as positive as well as negative aspects can be weighed against each other in a visual way. The SWOT will highlight and outline the most essential elements of Carlsberg’s’ strengths, weaknesses, threats and opportunities.

1.5 Methodology

This paper is following the research onion as a foundation. The research onion emphasizes the

‘peeling’ off each layer, one layer at a time to reveal the methodological framework (Saunders, Lewis & Thornhill, 2003). Therefore, this section will introduce the reader to the methodology chosen for the paper and discuss the core elements used in the paper (Appendix 1).

1.5.1 First Layer: Philosophy of research

Layer one is known as the philosophy of research. This section will describe how the researcher has chosen to apply the research philosophy in the paper. The research is based on social constructivism of Berger and Luckmann (2003), which reveals that society is built by the subjective truth of each individual and their opinion (Berger & Luckmann, 2003). Hence, all individuals perceive their own perception of reality, and therefore each reality is perceived by peoples’ reality, actions, and social context (Saunders, Lewis & Thornhill, 2003). In this paper, the social constructivism is seen how the researcher investigates Carlsberg’s challenges as being constructed socially by each individual and dynamically created (Berger & Luckmann, 2003). This methodology will therefore help bring a comprehensive understanding of the societal perception of reality Carlsberg is situated in. In order to fully investigate Carlsberg major threats, the paper will analyze consumer behavior of their preferred target customers (Benton & Craib, 2011). Hence, the data collection process will be utilized through interviews

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13 as semi structured, secondary data as well as focus group interviews, where target consumers will be analyzed.

1.5.2 Second Layer: Research Approach

The next layer is known as the research approach layer and it refers to the inductive as well as the deductive reasoning (Saunders, Lewis, & Thornhill, 2003). The relationship between inductive and deductive reasoning relates to the core correlation between gathered data, both secondary and primary, in combination with applied theory in the paper. The used data collection methods, namely semi-structured and focus group interviews have been used to gather primary data on relevant questions regarding Carlsberg. It is important to conduct the interviews with a social constructivism perspective, as the researcher must be openminded to everyone’s perception of reality. Therefore, the primary data collection method is strongly related to the inductive reasoning, where a open, collaborative and understanding mindset is important to gather relevant information. The focus group interview is primarily inductive, as the researcher is open for the focus group to let its group dynamics move the direction into a different direction. Both the focus group and semi-structured interview will follow the 7 interview steps as a guideline to conduct meaningful and valuable interviews (Kvale &

Brinkmann, 2009).

The deductive reasoning is utilized in regard to the design of a theoretical framework that will help answer the research question. Therefore, a theoretical strategy lays as the foundation and groundwork for the analytical approach (Heldbjerg, 1997). Lastly, as a part of the theoretical strategy, the PESTEL and SWOT are used as comprehensive analyses in the end of the analysis section to compare, bring overview and gather the analysis.

Consequently, this research is a combined merge of both the inductive and deductive reasoning as the best strategy to solve the research question.

1.5.3 Third Layer: Research Strategies

The third layer evolves around research strategies, and how they are being implemented and used to understand the framework. This framework is a single-case study, as it has one focus;

analyze the globally known beer company, Carlsberg. Consequently, Carlsberg is the one and

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14 only company being researched in the paper. Therefore, this paper has its core purpose on discovering the meaning behind the revenue decline and aims to answer it with business proposals built on the findings from the analysis.

1.5.4 Fourth Layer: Time Horizons

When looking at the time horizon, this paper is a single case-study with a cross-sectional approach. That means that it provides a current and now picture of Carlsberg’s strategic position. It is a foundation based on several elements derived from the analysis. The paper was made within a time frame of approximately six months, giving the research around three months’ time to conduct interviews. Hence, further research can be made where a larger data collection process can be initiated to further enhance the probability of each outcome.

1.5.5 Data collection methods

The data collection process is the fifth layer, and it correlates to the data gathering process of the paper. The paper is qualitative research, wherefore the company is analyzed in the context of answering the research question. It is with focus on product development as a growth tool to change the negative growth numbers of the company.

Regarding primary data, the researcher has had one semi-structured interviews with Jeppe Nielsen, a Senior Product Manager from Carlsberg. He was able to gather insightful knowledge on the different products of the company and which were trendy, selling a lot or where in growth or decline. It provided extreme value as to coming up with product development proposals (Brinkmann & Eriksen , 2005).

Furthermore, a focus group interview was conducted with five consumers of Carlsberg. It was deducted to bring actual and truthful feedback of the company, to truly see what consumers though of Carlsberg as a company, but more importantly the different brands of the company.

By asking consumers, the researchers will know the preferences of taste, packaging, bottling, identities, and corporate culture needed to breakthrough to target customers. All interviews have had a core focus on Kvale’s interviewguide (Brinkmann & Eriksen , 2005). The interview guide provided a great structure and guideline with its 7 rules for the researcher to focus on receiving insights from the interviewees. Both the semi-structured interview and focus group

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15 interview were built on Kvales’ semi-structured interview ideologies (Brinkmann & Eriksen , 2005). They contained open-ended questions, also correlating to the social constructivism perspective, giving the interviewees a chance to express their subjective truth and bring value to the table. The pre-written set of open-ended questions is therefore answered with no external bias or pressure in the semi-structured interview, as there were no other people to influence the people being interviewed. Nonetheless, the focus group interview provided great initial understanding to the topic, whereas the semi-structured interview were more objective, nonetheless still subjective to some degree.

1.5.6 Secondary data

Secondary data is a combination of both quantitative as well as qualitative data and is a description of explanatory ways to do so (Saunders, Lewis & Thornhill, 2003). It is a focus group interview, which therefore works around the “why” questions as a tool to deliver a fully understandable and deep meaning when answering the research question. It is a way to collect and gather data derived by external parties, such as school documents, academic articles, books, scientific publishes etc. An example of this is Carlsberg’s annual statements, which has provided key elements to the paper. The use of external, secondary data provides the researcher with a larger quantity of sample sizes from researchers having a longer time to analyze. Hence, it provides great support to the primary data obtained in the paper, and in a combination will be able to deliver a sharp, data-oriented, and scientific paper with relevant business proposals.

1.5.7 critics of sources

As previously mentioned, this paper is correlating to the constructivism perspective. Therefore, the research appreciates and understands the fact that biases will always be made when collecting qualitative date (Kvale & Brinkmann, 2009). Hence, to avoid too much bias, this paper will seek objectivity without presuming to ensure validity. The data gathered will be gathered through various ways, namely internally, externally, primary as well as secondary to ensure a comprehensive understanding of the company. As a means for that to happen, the adequacy in the paper is mostly in the primary data where interviewees are giving their primary, direct information comprehended by the researcher. The data collected is not completely representative, as due to limited time and resources, a sample size of 1000+ people were not

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16 able to be obtained. Nonetheless, the main focus of the primary data, in particular the focus group interview was to gather directions of the research and pure tendencies rather than factual objective conclusions (Kvale & Brinkmann, 2009). Hence, the reliability, trustworthiness and adequacy of the paper is guaranteed through the wide options of data gathering processes to prevent the research from becoming one-sided or too subjective.

1.6 Literature Review

A throughout literature review has been analyzed prior to writing this paper. The following section aims to declare what academic articles, books, theories, and relevant data gathering has been used to support the credibility and theoretical foundation of the paper. Hence, theories mentioned here will not be presented in depth, instead they will be mentioned to provide an image of how they have helped in the process of writing the paper.

Secondary data has been gathered extensively in this paper. Secondary data is often used to describe phenomena and to obtain knowledge (Saunders, Lewis & Thornhill, 2003). The secondary data used is primarily from academic articles, already existing interviews, Carlsberg’s annual reports and Business Reviews. There will be a greater proportion of secondary data compared to primary data, as it has been evaluated as providing a deeper understanding of both external as well as the internal situation of Carlsberg. There will be used both qualitative as well as quantitative data. The quantitative data will benefit from providing, objective, truthful and neutral understanding to topics invested (Olsen & Pedersen, 1999).

Contrary, the qualitative data gathering will provide subjective opinions, direct perceptions of reality from individuals which can bring biased, yet interesting understanding from among others consumers point of view (Kvale & Brinkmann, 2009).

Michael Porter has contributed extensively to this paper with his theories. Among them is the competitive strategy (1980), which is based on the business perspective of academic learning.

Porter is also included in the paper from his Value Chain Analysis and his 5 forces external framework.

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2. company and industry description

Carlsberg is a Danish alcoholic and non-alcoholic beer and beverage producer and seller with its headquarters in Copenhagen. It was founded on November 10, 1847, by Jacob Christian Jacobsen, and the exportation of Carlsberg's beer goods begun in 1869, and its international developing began in 1970 with the creation of a brewery in Malawi. Carlsberg's direct rivals are the known brands Heineken, Anheuser-Busch InBev, and ABI Sab group (Carlsberg , 2020 ). Carlsberg is considered today one of the world's top worldwide brewery groups, having a diverse portfolio of known beer and beverage brands. Carlsberg was once seen as a smaller beer brand with a limited corporate presence, but it has expanded to become the 4th largest beer corporation through the acquisition of many lesser companies over the last two decades (Carlsberg , 2020 ). According to Carlsberg’s annual report. (2021), Carlsberg's primary markets are Europe, Russia, China, and India due to the increasing demand for beer in these regions (Carlsberg, 2021). With a volume of over 185 billion liters of beer, the worldwide beer industry is predicted at roughly 510 million Euros. The company’s global reach is however extraordinary, where they hold a strong position in Asia and in particular India, China, Malaysia, Vietnam, and Laos (Carlsberg , 2020 ).

Carlsberg’s mission is to “become an important actor on the markets we choose to compete on.

There has to be a balance in our presence in mature markets and emerging ones” (Carlsberg , 2021 ). The company’s mission is to become the quickest growing beer brand in the world.

The principles are created around the idea of “strengthen the core” and aims to deliver profit for its shareholders. In order to ensure a continuously overall acknowledged beer taste, the company merged with the company Tuborg in 1969, and has from then bought up international beer brands as an expansion strategy in order to expand internationally (Carlsberg , 2021 ).

Globally, AB InBev is the market leader with a market share of 20,2 % followed by SABMiller with 9,2 % and Heineken with 8,9 %. Carlsberg has internationally a market share of 7 %. In terms of volume of sales, the two main competitors are Heineken and SABMiller (Carlsberg, 2021).

Carlsberg has a wide brand portfolio and has from its existence introduced a wide range of brands to capture market shares. Among some of its international brands, Tuborg and Grimbergen have been the most profitable in Western Europe. The product development at

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18 Carlsberg has been one if its main driver to the continuously revenue growth. Nonetheless, in recent years the revenue has plummeted and within the last year, declined slightly. Despite the company’s Sail’22 strategy that was based as a lean- and effective strategy plan to ensure growth numbers, on the top- and bottom line (Carlsberg , 2021 ). The strategy included aspects focused on improving the company’s processes. Among them was an ambition to reduce inventory costs, improve the warehouse logistics and to become more cost effective (Carlsberg , 2020 ). The company has partially succeeded with that, but not entirely. Therefore, this research paper is highly important for Carlsberg on its path to change their negatively revenue path.

Analysis strategy

The main elements of the internal situation of the company will be thoroughly investigated. By doing so, a clear overview of the company’s strengths and weaknesses will be showcased, illustrating which elements are the main drivers of the company’s innovation processes. By focusing on the internal situation, important aspects of improvement may be discovered resulting in better future processes, thus products. The external analysis will provide the researcher with a comprehensive understanding of the company’s threats and opportunities. As an addition to that, there may be severe threats or profitable opportunities in relation to product development that may be utilized, which will provide Carlsberg with a practical and relevant business proposal regarding that subject. From conducting the focus group interview with the analyzed main consumers, several main topics were discussed. These tendencies will be discussed in the paper as “taste”, “branding” and “ethical business”. The three discoveries from the focus group interview along with the several semi-structured interviews works as a prerequisite to analyze the vital components. The chosen models used are a tool to deeply understand and solve the research question. The models contain a combination of the primary and secondary data gathered and is a way to quantify the data into sub conclusions. The focus group interview was a eye-opener for the researcher, as it provided primary feedback to the perception of the Carlsberg brand and the products, the company sells. As the inductive reasoning is looking at data with a subjective, open mindset, the researcher was able to bring the interview into the direction he seeked through the explanatory mindset.

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19 The internal and external analysis will be summed up in a comprehensive SWOT analysis to weight the sub conclusions towards each other. The SWOT is built to evaluate many different findings into a clearer conclusion. The deep knowledge obtained in the analysis of both the external as well as internal situation will thus lay the fundamental groundwork for the business proposals suggested regarding product development. If the business suggestions are to implement, hopefully they will lead to a positive revenue development and hereby answering the research question.

Internal analysis

The first part of the main analysis will analyze the internal situation of the company. That means that the researcher will analyze the internal environment, business processes and activities that happens within the company, and therefore in fully control within Carlsberg.

3. Porter’s Value Chain Analysis

Porter’s Value Chain analysis has its key mission on illustrating which business activities that provides the most value for its customers (Porter, 1985). Therefore, this model is extremely important, as the researcher will get insights into elements that could potentially improve the product development processes. The industry’s value chain can be a good tool to understand a competitive advantage.

3.1 Inbound Logistics

Inbound logistics is considered as the most critical part of a production company. Therefore, this subject must be analyzed deeply, as Carlsberg is a production company brewing beers and ciders. Therefore, this part consists of the wheat and other food materials Carlsberg’s brewery facility receives from local farmers (Deloitte, 2015). The local wheat, yeast, barley and hops will be stored at the brewery’s facilities when it is being delivered. One of the most important things at this stage is to ensure the high quality of the product, as a high-quality product standard is vital for a production company (Carlsberg, 2021). Also, with nowadays focus from social media on sustainability, ethical working environments, and labor care, it is important that Carlsberg ensures a high company standard in the production phase. News is being spread

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20 faster than ever, and production companies are in great risk of getting into scandals if they are not following ethical standards or their product does not live up to customers’ expectations. As stated by Carlsberg, the company is extremely focused on delivering high quality products and in the process providing fair work environments to their employees. Because of that, Carlsberg is strict in terms of their suppliers’ standards they need to live up to. This involves aspects as farming sustainability, maintaining high quality products and with a focus om limiting the use of water and the exposure of greenhouse emissions gasses (Euromonitor, 2017).

The beer brewery industry has been in the center of negative attention in terms of the use of water. For brewing one beer, you must use 6 liters of waters. And with Carlsberg brewing several tons of beers every single day, this number rises disturbingly hour by hour. Hence, Carlsberg has a negative effect on the environment. Even more so, as they also ship their beers throughout the whole world, and often as trucks as their transportation means. Carlsberg stated in their annual report that one of their main goals for the future is to lower their greenhouse emissions level by the time of 2030. Carlsberg pledges to cut their carbon footprint with their suppliers with a 30 % reduction in their footprint by 2030 (Carlsberg , 2021 ). Carlsberg own most of its value chain, and has operational control over its agricultural production, transport logistics and retail refrigeration. Furthermore, the company has initiated new packaging solutions, as the packaging relates to 40 % of the company’s footprint. This type of packing is made from sustainably sourced wood fiber. Even more important, the change of the packaging resonates better with the target customers in Western Europe, as they are very health and sustainable oriented (Ecovia intelligence , 2017). Hence, it improves the company’s brand.

As Carlsberg leaves a very negative greenhouse emission level, they must work hard with the suppliers of the beer ingredients to improve this. Both for the benefit of the world, but also on a branding level of the company (Deloitte, 2015).

3.2 Operations

The beer production in Carlsberg happens in several phases. In the appendix, the several aspects of the beer production process are visualized. From the company receives their product until its produced, the process goes through fourteen steps (appendix 4). The company has a clear aim on improving the process, in terms of time and resources spend, according to the

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21 Sail’22 strategy (Carlsberg, 2021). The company’s full energy consumption is unfortunately really high, as beer production and brewery use a lot of water in its production. The company has high ambitions to improve their greenhouse emission level according to its Business Standardization Report (Carlsberg, 2021).

Above all, the company is seeking to develop a competitive product. This will be implemented in the future through a continuous development of the supply chain. One of the prioritized ways to do so, is to present a leaner production process to lower the costs and reduce the amount of greenhouse emissions generated from its facilities. Overall, the past 3 years the production costs have been increased to a level not satisfying for the company due to the currency effects from Russia.

3.3 Outgoing logistics

The outgoing logistics consists of the packaging of the produced products ready for delivery.

Carlsberg delivers to different types of customers, which demands different types of packaging materials and delivery time in regards to the specific customer. Carlsberg distribution channels are located into two main segments: ON-trade and OFF-trade (Carlsberg, 2021). ON-trade involves bars, pubs and restaurants. OFF-trade involves liquor stores, supermarkets, 7-eleven and gas stations. The logistic has been an important aspect to improve in terms of cost efficiency and a lean structure. It has been done through an alternative way of transporting with focus on using less fuel and better storage improving the overall delivery process. Carlsberg has in 2020 developed a software app used by its ON and OFF-trade customers to lower administration costs. Furthermore, it improves the flexibility, lowers the time used and overall improves the customer experience (Carlsberg, 2021).

3.4 Marketing

Carlsberg has been one of the alcohol companies worldwide who has used marketing and commercials in the most immense ways. In many countries outside Western Europe is it illegal to make TV-commercials, wherefore alternative ways are implemented in local markets. These are known as “masked commercials”, who has its aim on improving sales, which are also used in Western Europe, and in particular Denmark. Those commercials could be the use of merchandise in local bars and restaurants such as hats, glasses, shirts, stickers etc. (Aaker D. ,

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22 Managing brand equity: Capitalizing on the value of a brand name, 1991). These initiatives gives more knowledge and appearance to the brand, and is part of their brand recognition strategy. Carlsberg is trying to implement the knowledge to its customers to “drink responsibly” which the company has received a lot of credit for during the last couple of years (Deloitte, 2015). This is a standard implemented in the Sail’22 strategy and is described under the Marketing Communications Policy. The company wishes to communicate with several stakeholders, hence developed several goals to ensure a high quality, standards to continuously having a strong brand within the industry. The company wishes to further dominate and be aggressive in terms of marketing to expand and take over more market shares. The company is well known for its TV commercials that has a global reach. There was a well-done Danish TV commercial with the famous Danish actor Mads Mikkelsen. The commercial is estimated to have been seen worldwide more than 50 million times, which makes it to the third most seen TV commercial of all time (Carlsberg, 2021). Carlsberg has stated in former annual reports, that the company intends to introduce new TV campaigns equivalent to the quality and timeline of the famous Mads Mikkelsen TV commercial.

3.5 Sales

Carlsberg has a wide range of sales employees worldwide both ON- and OFF- trade. The company is selling their beers in over 100 countries and having sales offices in 32 countries (Carlsberg, 2021). Throughout the last years, the company has decreased their sales costs as a reaction to the COVID crisis to cut expenses. Regardless of the cut in sales expense in regard to salaries, the company has declared that they intend to increase the costs when the COVID crisis is looking to stop. To intensify their sales initiatives, the company has developed an internal sales software program for sales managers to control and support the sales assistants globally. It is a way to streamline, guide and observe from a broader perspective on the sales day to day basis (Carlsberg, 2021). This software tool has been costly, which can be seen in the expenses related to sales and administration, but the company is expecting the investment to pay off in 2026.

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3.6 Support activities

The support activities for Carlsberg involves technological development, HR management, firm infrastructure, and procurement. The most major support activities will be analyzed here, which has been chosen to be technology development and human resource activities. These areas have been chosen as the most relevant points for Carlsberg to further improve and focus on. If the company wishes to understand and react to the change of consumer habits, the company must adjust to the technological development. For a production company like Carlsberg, the technological development can be seen as how new products, trends, food- and beverage consumption behavior is changing as society changes.

3.7 Sub conclusion to Porters Value Chain Analysis

There is a even larger risk in the future that the company is not sustainable. The beer production itself just from use of the water is very draining to the environment. Furthermore, the transportation of the products, the packaging and the bottling also has a severe negative carbon emission footprint. Nonetheless, the company is highly focused on reducing their negative impact.

Contrary, as Carlsberg’s has full control over most of its value chain, they have the possibility to adapt to new consumer trends rapidly (Deloitte, 2015). They have a resourceful R&D team and state-of-the-art production and innovation facilities. This, together with an extremely skilled marketing department creates competitive advantage for Carlsberg. Carlsberg is selling beer, which a large population of worlds societies consider unhealthy. Others claim that a few beers a week does not have a negative impact of individuals health, more likely it is the contrary. Nonetheless, Carlsberg needs to constantly focus on their product development to adjust to new trends and fit the needs of the future consumers (Carlsberg, 2021). It could be beneficial for Carlsberg to improve their social media marketing, as this is where the next generation of consumers are at.

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24 4. Brand equity

As mentioned, brand equity is the sum of the overall brand value of a company (Aaker D. A., Measuring Brand Equity across Products and Markets, 1996). It is seen as a fundamental and critical part for companies to let the consumers choose them over their competitors. Creating a strong brand is a complex, long, expensive, and difficult process. It is difficult to master, yet completely essential if a company has expectations to become a global consumer brand.

The first to be analyzed within Carlsberg’s overall brand is brand identity.

4.1 Brand Identity

A brand identity is a company’s image in the eyes of the consumers (Aaker, Measuring Brand Equity Across Markets, 1996). The brand’s identity, or the core foundation as called in the industry, is a internal process of trying to visualize the corporate identity, and make the consumers understand and resonate with that. Carlsberg is trying to be seen as a local, healthy, and sustainable beer brand. Nonetheless, as heard in the focus group interview, many of the interviewees though the opposite. One of the interviewees even said: “I really think the company has a bad brand. It is so obvious they only care about shareholder’s profit. I really prefer smaller brands like Mikkeller that are truly local and organically brewed:” (J, Focus Group interview, 2021). It is of course a focus group interview, wherefore it is extremely subjective with the lowest sample size possible. Nonetheless, focus group interviews are powerful at creating insights about what target consumers thinks about brands (Aaker D. A., Managing Brand Equity: Capitalizing on the value of a brand name , 1991). And after that statement, more were to come: “I really wish Carlsberg would try something more local. I think young people in the future will only buy from brands they can identify with. And people can only identity with brands that are actually trying to save the planet.” (E, focus group interview, 2021)

The initiative of Carlsberg becoming a more sustainable brand is backed up by their annual report. It clearly states that the company aims to becoming carbon emission footprint neutral by the end of 2050. Therefore, the focus group interviewees were critical, even though Carlsberg is trying to change their brand identity whilst trying to save the planet. The big

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25 question is rather or not Carlsberg should be held accountable for only attempting to deliver that goal within the end of 2050.

4.2 Brand associations

Brand associations are seen as the personal traits of a company. It is the characteristics, the three things you would say if you had to describe a company with only three words. Aaker describes how a brand is recognized into which aspect people are associating it with. Meaning, it comes to the degree to which a specific product or service is being fully recognized in a product portfolio (Aaker, Managing Brand Equity, 1991). As heard in the focus group, there are several assumptions and characteristics related to Carlsberg. This analysis is primarily focused around how to change the perceptions of the consumers, not to change the actual doings of the company (Aaker & Mcloughlin, 2015). It is therefore more of a marketing paper, rather than a paper aiming on improving the company’s sustainability infrastructure. Carlsberg wants, as seen in the Annual Report, to be seen as a local, sustainable, fair priced company with consumer favorite brands. Carlsberg has been trying to analyze how they are being perceived in the eyes of consumers, and in Denmark it was not entirely positive. It was estimated that around 44 % of Danish consumers were not entirely happy with the taste of the beers, the company was producing. Also, they believed it was pricy in terms of taste and quality. Nonetheless, in other European countries, the company seem to have a better brand association. There has been a new type of consumers better known as “political consumers”.

This type of consumers is preferring brands they can resonate and identity with. As seen in the focus group interview, the interviewees had a large focus on how brands were producing their products, and how they were seen (Deloitte, 2015). It was mentioned how you are becoming like the brand you purchase from. J talked about how If you buy something organic from Irma compared to low-budget food from Netto, there is a clear definition and stereotype of what kind of person that makes you (J, focus group interview, 2021). Therefore, it is crucial and essential for Carlsberg’s future that they can change the perception of consumers to make them appear more local, organic, sustainable and with a focus on producing good quality beer to its customers (Aaker D. , Building strong brands, 2010).

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26 4.3 Brand image

A brand image is seen and known as the perceived value a brand has in the eyes of consumers (Søndersted-Olsen, 2007). Hence, the following section aims to discover, analyze, and discuss how Carlsberg brand is seen in the eyes of the consumers. It is vital that there is a coherency between the perceptual gap of how Carlsberg sees themselves, and how they are seen in the eyes of consumers. The focus group interview conducted was a qualitative, indicative, and biased data gathering process showing tendencies and millennial consumer preferences (Kvale

& Brinkmann, 2009).

It was naturally not an objective truth with a quantifiable sample size. Nonetheless, it truly revealed insights on how the company is appearing in the eyes of consumers. It is best described in the following quote from the focus group interview:

“Carlsberg is for me a big conglomerate. I am not fully sure how big they are, but I just know that millennials don’t like those big, greedy brands anymore. I like drinking a Tuborg though, but Carlsberg for sure needs to up their game!” (K, Focus group interview, 2021).

Another tendency becoming very visual in the focus group interview was the sustainability perspective. It seemed to the interviewees, that they were not exactly pleased with how the company was doing their sustainability procedures. All the interviewees were a bit disappointed, that despite the size of the company, they were not able to deliver more focus on the issue and having a less negative carbon emission footprint (Aaker D. A., Managing Brand Equity: Capitalizing on the value of a brand name , 1991). Therefore, the millennials in the focus group argued that the company would be overtaken by competitors within the following years if they were not able to set them aside as a more local, organic and sustainability produced brewery. That task seems a bit more difficult to achieve in real life, as they are one of the biggest companies in Denmark and one of the largest breweries worldwide (Aaker D. , Building strong brands, 2010). They will need to battle to achieve such a brand image, and it may appear to become too difficult. Nonetheless, that was what the millennials in the focus group suggested.

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27 4.4 Brand Loyalty

A high brand loyalty has become one of the most essential parts of creating a global brand today. Nonetheless, it is often neglected by corporations when they are doing their go-to- market strategies. Carlsberg’s products are everywhere from inexpensive to expensive, depending on the brand, and depending on which region they are selling in. There is, nonetheless, other major players globally, that also owns large shares of the market. It is important for Carlsberg to stay ahead of them by achieving a high brand loyalty for their products. It can be concluded that they have this in Denmark, as it is the biggest and most well- known beer brand in Denmark (Aaker D. A., Managing Brand Equity: Capitalizing on the value of a brand name , 1991). However, as the competition in the supermarket’s shelves are fiercely, Carlsberg needs to stay ahead of its game and deliver value by creating great beers easily accessible to their consumers. As Carlsberg are selling products known as everyday goods due to the price of them, the company is unfortunately battling in a very price sensitive business. As it is price sensitive, the company has difficulties in achieving brand loyalty.

As millennials are focusing more and more on sustainable goods, if Carlsberg were to follow up on those preferences, they would be able to achieve a higher purchase power in the eyes of consumers (Euromonitor International , 2015). Also, millennials are becoming older, wherefore they are expected to have a higher income, making them more price insensitive, which could indicate that the beer industry in the future would become less price sensitive.

Right now, one of the ways Carlsberg is achieving brand loyalty from their customers, is how they are doing a lot of events to entertain and amuse their customers. For example, when the famous Danish “Julebryg” comes out in the wintertime, most of Carlsberg’s staff is out in Christmas clothes creating parties with customers around the whole Denmark. That is a way, including all the festivals they attend as sponsors, to achieve brand loyalty. Both now, as well in the future (Jenkins H. , 2006).

A way to improve the brand loyalty even more is to engage with consumers. Many brands nowadays are creating giveaways and competitions, where they ask the consumers what kind of flavor, they want the company to produce in the next badge. By doing so, Carlsberg would listen to its consumers, and the consumers would feel listened to. That could really improve their overall brand loyalty. That has been done by other companies with great success in the future. An example of that is Lays chips that introduced the “Do Us A Flavor” campaign, where

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28 millions of consumers sent in their request for the next Lays flavor. It created an enormous engagement, that Lays would never have anticipated in their wildest dreams. It would be beyond relevant for Carlsberg to implement a strategy like that.

4.5 Brand awareness

Brand awareness is perhaps the most important brand factor for companies, if they want to be in front of their competition. Brand awareness is seen as “The ability of a potential buyer to recognize or recall that a brand is a member of a certain product category” (Aaker, Managing Brand Equity, 1991). Aaker describes how brands needs to stay in top of their competitors by knowing consumers have four different states of them, which is known as: “Top of mind, brand recall, brand recognition and unaware of brand.” Naturally, the top of mind is the most preferable one and the one Carlsberg should seek to achieve. Aaker says that if you have the top-of-mind state, consumers will always go for your brand compared to your competitors (Aaker & Mcloughlin, 2015). It is naturally important for a company like Carlsberg to know that, and therefore create awareness around their brand and product as that kind of recognition would help the company becoming in the top-of-mind state for the consumers.

Naturally, Carlsberg is one of the biggest companies, especially within the beer industry, in the world. Therefore, the issue cannot be awareness, as everyone knows about them. The question is if you can have too much awareness?

When asked about what the interviewees thought about, when the interviewee mentioned the beer industry, the first thing that popped up in mind for one of the interviewees were

“Carlsberg”. This clearly indicates how the company has an extreme brand awareness. Instead, the company may need to bring focus and awareness around their health, sustainability and CSR initiatives trying to improve their overall brand equity. Awareness can be a dangerous threat, and it can be your sweetest weapon. It is up to a company to creative the awareness into your friend, by making people talk nicely about your brand. An improved brand awareness would enhance trust and connection with the next generation of consumers. If that is to happen, Carlsberg would change their negative revenue growth.

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4.6 Sub conclusion to Carlsberg’s brand equity

It is a known fact that beer consumption requires a low involvement, as it is not costly. Instead, it is more of an impulse purchase, meaning that the product has an extreme margin of price sensitivity. In the Western European market, consumers are very price focused, and sees price as one of the essential factors when purchasing everyday goods. Hence, it becomes neccesary for a company to have a strong brand equity, especially in the everyday goods industry, where competitors are stacking up against one another on the shelf in the stores (Aaker & Mcloughlin, 2015). Therefore, having a strong brand equity requires a company to have an identity consumer wants to associate themselves with, positive associations, a reputable image, high loyalty preferences towards the given brand and a top of mind awareness mindset, so the consumer chooses your brand and not your competitors (Aaker D. A., Managing Brand Equity:

Capitalizing on the value of a brand name , 1991). If Carlsberg were to excel in all those categories, they would be able to change their negative revenue growth. Carlsberg also has sincere ambitions on becoming a more local, sustainable, ecological, and healthy brand, thus improving their brand equity.

As stated in the analysis, today’s consumers are known as political consumers. This means that they seek to resonate and identify with the brands they consume. They literally become what they eat. It was known from the focus group interview, that you also put stereotypes of people, based on their consumption preferences (Aaker D. A., Measuring Brand Equity across Products and Markets, 1996). These types of consumers are extremely focused on consuming daily everyday goods, that reflects their personality, values, jobs, and social life. Hence, this type of consumer is very focused on sustainability, animal welfare, health etc. The work for Carlsberg is therefore to close the gap between modern consumer’s needs, and what Carlsberg is currently communicating. As seen in the focus group interview, a lot of the interviewees did not see Carlsberg as a sustainable, local, and healthy brand. It was obvious in the interview, that people saw the company as a large, global corporation with zero focus on sustainability and being local in the market. Therefore, this perceptual gap seems to play a large role for the company, if they wish to remain relevant for the modern and future consumers. They need to communicate a larger focus than just shareholders profit to stay relevant, and for the future consumers to be able to identify with them (Aaker D. , Building strong brands, 2010).

Nonetheless, major opportunities arise from the brand equity analysis too. Carlsberg naturally

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30 has an extreme level of brand awareness, which can be utilized further for the company to change their brand image to become more local, sustainable, and ecological (Ecovia intelligence , 2017). They already have a large audience size and platform where they can rapidly communicate messages out to consumers. Also, their initiative involving removing plastic from their 6-bottles packaging also impacted the company’s image in a positive way.

As the future consumers are getting higher incomes, it is a good idea for Carlsberg to continuously do such initiatives, as it may be costly, but it will improve their overall brand equity (Deloitte, 2015).

There is overall a huge focus on Carlsberg in the world, but especially in Western Europe and Denmark. Therefore, the potential of this is immense. If Carlsberg truly listens to the preferences of the consumers, they will be able to remain relevant and improve their brand equity, hereby changing their negative revenue growth into positive.

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31 5. Competitive strategy

Carlsberg's competitive strategy was to create value by entering overseas markets, which were divided into three categories: East- and West Europe and Asia. More precisely, the approach in West Europe was to increase the company’s value through innovation and product development. They planned to retain and expand their market position with use of new advertisement initiatives as well as a focus on the product's value (Carlsberg , 2021 ).

Carlsberg's plan for the Eastern Europe region was to capture additional market share and achieve quick growth and higher earnings. Through investments, optimization, and a focus on premium categories, they expect to improve and develop their position in this region (Carlsberg , 2021 ). Finally, in the Asian market, the objective was to create market positions to achieve long-term growth. Their purpose was to improve their sales efforts and boost their position through acquisitions. Carlsberg's strategy in these three markets has to do with their product specialization focus. This is needed because large number of products and the realization that each region's target market is different (Carlsberg , 2020 ).

Carlsberg's target market in Western China is people over the age of the majority in the wealthy groups. When compared to other parts of China, this audience is looking for high-quality beer options and is less prices sensitive. Carlsberg has a greater position in the Russian market, controlling the Baltika brand and commanding a 38 percent market share in 2020 (Carlsberg , 2020 ). Carlsberg's target market in this country is much broader. However, it can be defined as people of all ages and financial levels who are over the legal age of majority. Carlsberg is also focusing on the premium category, which is paying attention to high-quality beer at a higher price. The availability of a diverse range of brands in the markets they serve is one of the factors that add value to various client segments. Carlsberg's competitive advantage in geographic areas such as West and East Europe is the market leader position of its best-selling brands, which makes them one of the world's largest beer production companies (Carlsberg, 2021). As a result of this market leader position, they can sustain economies of scale in many of the countries in which they control. Carlsberg's dominance in Europe has helped them maintain their competitive advantage by acting as a structural barrier to new competitors, as indicated by their annual beer sales of around 60 million hectoliters. However, they have a strong position in the Western region, with a market cap of 55-60%, making Carlsberg the

"only multinational brewery holding a leading position in that region." Their competitive

Strategic analysis of Carlsberg