Competitive Analysis &

Recommendation Report

Kyle McIvor
Anthony Neri
Gavin Branick
Bryan Duong
Braco Lasso

Introduction:
The beer industry around the globe has seen growth in developing countries
such as China and India, two countries in which Carlsberg has significant
presence in. However, developed markets such as North America have
remained stagnant. There has been a major push recently for environmental
sustainability in North America. Carlsberg has the opportunity to significantly
reduce the ecological footprint and improve the value of large brewing
companies to its customers. As the global beer market becomes more
saturated, companies will look towards creating value over volume. Our
proposal is meant to maximize the competitive advantage Carlsberg has in
its Green
Fiber bottle, and to ensure the growth and sustainability of the company as
well as the environment. The following analysis will lay out where Carlsberg
can gain value in the market and expand on its competitive advantage.

Porter’s Five Forces Model: (Appendix A)

There is a low barrier to entry in the brewing industry so Carlsberg faces a
significant threat of new entry in the industry due to low capital requirements in
order to enter the market. Threat of substitution is also significant because of the
various other alcoholic beverage options. (wine, hard liquor, etc.) Bargaining
power of buyers is tricky due to the varying laws between the US and the EU. The
US requires that a distributor of alcohol must sell their product to a
wholesaler, who then sells it to liquor stores. This means that in the US, beer
companies must sell to the wholesaler, regardless of price, making the
bargaining power of buyers high in the US. In the EU they have much more
liberal laws regarding this topic. The buyers have less power in Europe than
the US. Because of this, it has always been a struggle for European beer
makers to penetrate the US market, whereas it is much simpler for US
companies to gain access to the global beer market. The bargaining power of
suppliers on the other hand is relatively low. The product that the suppliers
provide are fairly standard and less differentiated, therefore provides
Carlsberg (and the industry as a whole) with low switching costs. Where the
suppliers do have power is in the fact that there aren’t really substitutes for
the ingredients used to make beer. The industry that Carlsberg competes in
is a very important customer for the suppliers, so they are forced to keep
pricing reasonable. The Rivalry among existing competitors is high. Around the world
there are only a few major beer companies. These companies constantly
engage in competitive actions to gain better position and potentially become
market leaders. Fixed cost is also high in this industry, so companies push to
full capacity in order to get the most out of their equipment. This also means
that Carlsberg and their competitors are forced to reduce their pricing when
demand falls, showing a strong rivalry among existing competitors.
Functional Analysis (Appendix C):
Carlsberg Group utilizes their marketing strategy focused on sustainability
and their SAIL ‘22 policy to appeal to environmentally-conscious consumers.
Carlsberg has priorities to reach zero water waste, zero carbon footprint,
zero irresponsible drinking, and zero accidents culture. Carlsberg uses an
integrated supply chain system that allows them to master functional
processes including the logistics, production, and manufacturing aspects.
Carlsberg has the ability to reach a wide range of customers from their
variety in alcoholic beverages. Financially, Carlsberg has found ways to
increase profits through innovation and values. These include their forward
looking purpose of leaving the planet in better shape than they found it, and
their mission statement, “brewing for a better today and tomorrow.” CEO of
Carlsberg, Cees ‘t Hart, was hired to improve the overall financial standing of
the company; he accomplished this feat through sustainable priorities and
the emergence of the Green Fiber Bottle. Employee engagement is also
essential to Carlsberg’s culture as the company as a whole must have the
shared belief that the focus is in striving to perfect beer instead of
immediate monetary gain. The group works towards projects like the Green
Fiber bottle which requires employees to attend workshops and watch films
about the importance of environmentally-friendly business practices. The
Carlsberg Group has used each business segment in ways that not only
benefit the company as a whole, but also the environment and well-being of
society which aligns with their company purpose and goals.

Recommendation: We recommend the Carlsberg Group to acquire ecoXpac

and license the rights of the Green Fiber Bottle to large U.S. brewing
companies.

Analysis:
In order for Carlsberg to fulfill this recommendation, there will need to be
continued investment into the research and development of the Green Fiber
Bottle through the ecoXpac team. Packaging is Carlsberg’s biggest
environmental impact throughout their entire process, so trimming that
down with the sustainable Green Fiber Bottle will help Carlsberg reduce their
impact on the environment. While prototypes of the Green Fiber Bottle have
been floated around, a consumer-ready product is yet to be completed.
There will need to be a consolidated focus from Carlsberg and the ecoXpac
acquired team in order to develop the Green Fiber Bottle to fit the shelf life
standards that are present for existing products. Currently the shelf life of a
bottle of beer is around 9 months, while the Green Fiber Bottle currently
lasts about 4-6 months. It should be emphasized that the rollout of the Green
Fiber Bottle will not occur until it is a viable alternative to traditional
packaging. This project is designed to entice the consumer preference of
sustainability. Carlsberg has a chance here to set the bar for the industry
when it comes to sustainability.

Formulation:
The acquisition of ecoXpac will provide Carlsberg Group with the ability to
perfect the Green Fiber Bottle technology and mass produce it. which we
then propose they license the innovation to a large U.S. brewing company.
This proposal emphasizes the sustainability priorities of Carlsberg and also
gives them a larger platform to show that they truly are working to create a
more sustainable and environmentally friendly product. The ecoXpac
technology that Carlsberg purchases directly aligns with their goal of keeping
the planet clean and putting environmental sustainability first. This
recommendation will cost Carlsberg Group $10 million to acquire ecoXpac
and will have a $100 million total implementation cost. The Green Fiber
Bottle technology will take an estimated 3-4 years to truly perfect and mass
produce. This will give the Carlsberg Group time to build relationships and
express their business plan and objectives with large brewing companies.
Continued expansion into the United States, the world’s second largest beer
market, will allow the Carlsberg Group to use their sustainable innovation on
a larger scale and for a greater societal purpose when licensing the rights of
the Green Fiber Bottle to U.S. brewing companies. When a large American
brewing company has the Green Fiber Bottle technology, Carlsberg benefits
by receiving a 3% royalty fee on each biodegradable bottle sold. This royalty
fee will help increase total revenue and serves as the monetary reward for
Carlsberg’s great environmentally friendly innovation. This recommendation
truly coincides with Carlsberg’s priority of “brewing for a better today and
tomorrow” by reducing negative environmental impact and showing other
companies the sustainable innovation breakthrough.

Implementation:
We propose that Carlsberg Group starts by acquiring ecoXpac for $10 million
USD. From there, Carlsberg can work cohesively with the ecoXpac team to
perfect the Green Fiber Bottle. We estimate that once the proposal is
approved by the Board, this development process will take 3 years to
produce a consumer ready product. Once the Green Fiber Bottle is ready for
use, we will begin selling licensing rights to US beer companies for the use of
the Carlsberg Green Fiber Bottle. We will also be rolling out the Green Fiber
Bottle for our own beers around the globe. We anticipate the percentage of
Green Fiber Bottles compared to regular bottles to be relatively small in the
beginning. With such a drastic change to the packaging, customers may not
like the feel or look of it. It might even affect the taste of the beer. Because
of this concern, the Green Fiber Bottle will be a limited production project
until it can gain traction within the market. We anticipate we will be able to
recuperate our purchase of ecoXpac within the first year of licensing the
product to other brewers, with an anticipated revenue of $15 million USD in
year 1 of the rollout (year 4 of overall project). This revenue from licensing
will come through a 3% royalty fee on revenues from the Green Fiber Bottle
used by the US companies. This proposal is focused around sustainability so
if at some point in the distant future, another beer company ends up
developing their own sustainable bottle, Carlsberg will be happy to have
supported the basic scientific research for the benefit of society.

Appendix C: Functional Analysis

Marketing ● Advertising efforts focus around “brewing for a better
today and tomorrow”. Emphasize their goals to create
a better future and planet for everyone.
● Over 140 brands in their beer portfolio. The variety
shows they can support a wide customer base.
● Carlsberg focuses on sustainability with the creation
of their Together Towards Zero Program to reduce
waste.
Operations ● Established in more than 150 markets including
Denmark, China, and the United Kingdom.
● Beer brands are exported to more than 100 countries
worldwide. Western Europe has 47% share of group
volume, Asia has 29% share of group volume, and
Eastern Europe has a 24% share of group volume.
● Utilize brand reputation and loyalty to dominate
European beer market.
Finance ● Net Profit of $4.857 billion DKK in 2016, up from -
$2.582 billion DKK in 2015.
● Due to an increase in invested capital from 2015 to
 2016, total assets grew from 124,901 billion DKK to
126,906 billion DKK.
● Free cash flow rose from 7,522 billion DKK to 8,616
billion DKK in the time span of 2015-2016.
Human ● “Nordic Way” management style that centers on a
Resources team-based performance culture.
○ Triple A concept (alignment, accountability, and
action among staff).
● Roughly 42,000 employees spanning more than 35
countries.
● Appointed a new head of human resources in
September 2012 that better understands economics
of foreign markets and how people best work
together.

PESTEL Framework for Carlsberg:

Political - Governmental Regulation (EU)
- Excise tax at federal and state level within EU

Economical - Stable global economy

Sociocultural - As global standard of living increases, demand for

higher priced beer will increase

Technological - Developments in packaging technology could

provide competitive advantages

Ecological -increased consumer sensitivity to pollution →

demand for increased sustainability

Legal - European Commission's laws on alcohol

VRIO Assessment
With Carlsberg being an environmentally sustainable leader in the brewing
industry, manufacturing a green fiber bottle to replace aluminum or glass
bottles would add tremendous value to the company. The SWOT analysis
shows that Carlsberg has some great opportunities to grow as a company
while making a positive impact on its environmental footprint. Since
Carlsberg is doing financially well, they are able to perform more research
for creating an environmentally friendly bottle.
Resource/ Valuable Rare Imitable Organized
Capabilities

Brand Loyalty YES YES NO YES

Sustainability YES YES YES YES

International YES NO YES YES

Presence

Customer YES YES YES YES

Service

SWOT Analysis Diagram

Strength Weakness

● Brand Loyalty ● Very little expansion into North

● Sustainability America
● Finances ● Reliance on glass and
● Variety of brands aluminum bottles
● “Nordic Way” management
style

Opportunities Threats

● No other brewing companies ● Other brewing companies

have produced an ● Substitutes to beer
environmentally friendly bottle
● More Expansion into North
America
Appendix A: Porter’s Five Forces
DuPont Analysis:
Based on the calculations shown below, relative to the major US competitors,
Carlsberg is outperforming the market with a 9.05% return on equity. This
number suggests that Carlsberg is giving their investors more for their
dollars than the major US companies. Carlsberg’s return on sales is also
ahead of its US counterparts, emphasizing that it remains an industry
frontrunner.

Based on the DuPont analysis and comparison between Carlsberg and some
of its largest U.S. counterparts, it’s apparent that Carlsberg is in a strong
position to make significant impacts in the marketplace. Superior return on
equity and asset turnover ratios proves it’s running a successful business in
the European industry. With revenues nearing $7 billion in 2018, Carlsberg
could be a strong force entering the U.S. market. However, Anheuser-Busch
currently dominates the world’s second largest beer market with yearly
revenues over $50 billion. When considering this, as well as our Five Forces
analysis, we believe implementing our Green Fiber bottle in the U.S. market
via licensing deals would be the best strategy for bringing a positive impact
to the U.S. marketplace, and for the growth of Carlsberg over the next 5-10
years.

Return on Equity = Net Income (After Tax) / Equity

Return on Sales = Net Income (AT) / Sales
Asset Turnover = Sales / Assets
Leverage = Assets / Equity

*MolsonCoors numbers are so heavily inflated because it made a major acquisition in 2016, so for analysis
purposes, it’s better to compare their 2015 numbers instead.
References:

Carlsberg Group. 2016 Annual Report. Copenhagen, Denmark: Carlsberg

Group, 2017. PDF

Carlsberg Group. 2016 Sustainability Report. Copenhagen, Denmark:

Carlsberg Group, 2017. PDF

Markets, Research and. “Analyzing the $500 Billion Global Beer Industry
2019.” PR Newswire: Press Release Distribution, Targeting, Monitoring and
Marketing, 11 Sept. 2019

"Pestel Analysis Economic Factors That Affect To Beer Industry Business

Essay." UKEssays.com. 11 2018. All Answers Ltd. 12 2019

Spiess, DJ. “How the Three-Tiered Beer Distribution System Works.”

Fermentarium, 14 June 2016.