European brewing giant's CEO on Russia stealing its flagship beer business: 'A very, very sad and unfortunate turn of events'
Danish brewer Carlsberg had a sprawling Russian business until the Kremlin seized its breweries earlier this year. Now, the company says it has had no choice but to “give up” on the operations and cut all ties from it.
“We have taken the full hit of losing the ownership of the Russian business,” Jacob Aarup-Andersen, who took over as Carlsberg’s CEO in September, told Fortune in an interview Tuesday.
Carlsberg’s Russian subsidiary Baltika employed over 8,000 workers across eight breweries comprising a lucrative part of Carlsberg’s business. Like several other conglomerates, it began retreating from Russia following the Ukraine invasion, and had finally announced a seller for Baltika in June. But in a surprise move, Russian authorities seized the operations and installed its own management. Aarup-Andersen told Reuters that Russia had “stolen” the business and that the company didn’t want to help the Kremlin make their takeover look legitimate.
“We are taking the full financial hit in this year’s financial accounts so we can, from next year onwards, move on without Russia on the books, which is [a] very, very sad and unfortunate turn of events,” Aarup-Andersen told Fortune, adding that the impact would be reflected in the company’s full-year results.
The group reported strong revenue growth for the third quarter on Tuesday, although volumes were down 3%. Big drops were especially seen in the European region, but overall revenue increased 5.8% on an organic basis.
“We delivered solid revenue growth in a challenging environment,” the Carlsberg chief said in a statement. “The company has a strong foundation and a healthy financial position.”
The maker of Tuborg beer maintained its full-year profit target of 4% to 7%, while also announcing a DKK 1 billion share buyback program. Carlsberg, like many of its peers, has hiked prices in response to soaring ingredient and production costs which has helped negate the impact of falling volumes due to consumer pullback on spending. The company’s premium beverages have also lifted its growth in the last quarter.
Carlsberg still hopes to end the year strong over the holiday season, as beer is seen as an “affordable luxury,” Aarup-Andersen said, although easing beer sales and sluggish consumer sentiment will continue to hold the business back.
Beers might get more expensive
With high inflation and interest rates, industries continue to grapple with high raw material and production costs—brewers are no exception. It has had the dual effect of helping beer-makers offset a surge in costs while also helping negate the effect of weaker consumer demand.
According to Aarup-Andersen, the trend of price hikes are likely to continue through 2024.
“If we look at the total cost for the company, the total cost of producing beer, we’re seeing that costs continue to go up slightly,” he said on a call. “That also means my expectation is that there will be some level of price increase also in 2024, [but] not to the extent that we’ve seen in 2023.”
Some of the other brewing industry juggernauts have benefited from implementing price increases. Global giant AB InBev, the brewer behind Bud Light, Corona and Stella Artois, announced a 5% total revenue increase to $15.57 billion for the third quarter along with a whopping $1 billion share buyback on Tuesday—a good sign for the company’s shareholders on its ability to meet debt-reduction targets.
The Belgian group said it would stick to its full-year profit forecast even as its U.S. sales continued to lag in the fall out since its marketing campaign featuring transgender influencer Dylan Mulvaney went awry earlier this year, prompting conservative backlash on social media. Higher prices and consumers’ appetite for pricey brews have kept AB InBev’s results strong despite a fall in volumes.
Similarly, the world’s second-largest beer company and the maker of Sol and Tiger beers, Heineken, said it’d maintain its full-year outlook last week, despite economic volatility and slower demand weighing heavily on its business. The Dutch company’s organic volume growth in beers fell 4.2% although revenues for the third-quarter grew 2%, which could be attributed to a combination of higher prices and stronger sales in its expensive lagers.
“Whilst inflation-led pricing is tapering, we observe a slowdown of consumer demand in various markets facing challenging macro-economic conditions,” Heineken CEO Dolf van den Brink said in a statement. “We will stay the course on executing our strategy, remain vigilant on costs and focus on rebalancing our growth”
But the strategy of hiking prices can often be a hit or a miss. For instance, Heineken’s operating profits for the first half of 2023 plunged, as did volumes, because consumers weren’t too thrilled about price increases on their favorite beers.
AB InBev declined to comment to Fortune on future pricing actions, while saying its long-term approach to pricing globally remains unchanged, “to price in-line with local inflation on average across our portfolio.”
