‘Win-win’ pick: Carlsberg Malaysia commits to premiumisation to defend profit margins

31-Aug-2022 - Last updated on 31-Aug-2022 at 02:19 GMT

Carlsberg Malaysia has identified premiumisation as a crucial strategy for the firm to continue achieving profitable growth. ©Carlsberg

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Brewery giant Carlsberg Malaysia has identified premiumisation as a crucial strategy for the firm to continue achieving profitable growth, even as the firm battles continued inflationary pressures, rising costs and consumer sentiment about price hikes

Carlsberg Malaysia recently announced its H1FY2022 financial results, reporting a healthy 74.3% growth year-on-year in net profits to RM180.5mn (US$40.3mn) and 29.4% growth in revenue to RM1.2bn (US$269mn); alongside even more exemplary Q2FY2022 results of 139.5% year-on-year growth in profit to RM88.9mn (US$19.9mn) and 64.4% revenue growth to RM574.2mn (US$128.3mn).

That said, this was in comparison to the enormous hit that Carlsberg took from the COVID-19 pandemic in Malaysia last year where it was forced to suspend operations for 75 days between May and August 2021.

Despite the sharp rebound it has seen, the firm remains cautious about the future citing supply chain disruptions, rising commodity prices, the Ukraine-Russia crisis and inflation – and as a result moved to raise its product prices in the second half of the year, affecting most of its major portfolio items including beer, stout and cider.

“It is currently still too early to see the impacts if the price hike as this has only been in place since July 1 2022 so we don’t yet have the full picture,” Carlsberg Malaysia Managing Director Stefano Clini said at a press event announcing the H1FY2022 results.

“But we are definitely being very careful about this, as we know that people are not going to stop drinking [even if they cannot afford legitimate products] so raising the prices too high could instead drive them to illicit liqor instead.

“So we really need to keep a balance and must not get too greedy, as [we already saw an increase of contraband] during the COVID-19 pandemic and this is still an area of concern and attention for us [so] we do not want to increase prices too much and drive them there.”

This year also saw a rebound for Carlsberg’s mainstream beer products with a 32% growth as opposed to continuous downturns over the past few years, but the star seller for the firm remained its premium category which achieved a further 41% growth in addition to continuous growth even throughout the pandemic.

“Premiumisation is always going to be a crucial strategy to Carlsberg for growth,” Clini told FoodNavigator-Asia after announcing the financial results.

“One of the main reasons for this is because we can clearly see that this strategy is a definite win-win for both us and our consumers – the consumer gets more innovative drinks and experiences to try and enjoy, and we get to sustain and increase our margins.

“The fact that the premium category is continuing to grow after all this time clearly shows that this strategy is right and it is working, and we have various examples to show for this such as Connors stout which was launched last year and has already become our top performer both on and off trade.”

Carlsberg’s premium product portfolio also includes multiple other well-known brands such as 1664 Kronenbourg Blanc, Somersby and Asahi, all of which the firm has launched new innovations for including a rosé flavour for Kronenbourg and a Passionfruit Orange flavour as well as a 0.0 version for Somersby.

“The continued inflation is another reason we are definitely going to continue the premiumisation focus – over the past few years we have defied the odds to show consistent growth in this category, and can see that consumers are polarised between getting both discounts and affordable luxury, so we are going to continue this strategy even amidst this inflation,” Clini added.

Further price hikes?

Clini also vowed that Carlsberg Malaysia is prepared to defend its margins ‘at all costs’, prompting further concerns about more price hikes on the way, which the firm’s Chief Financial Officer Vivian Gun clarified.

“Carlsberg has many levers by which we can defend our margins and profits, not just price increases,” she said.

“We had to adjust prices this year [due to rising input costs], but we also do have hedging in place for the required commodities to mitigate too much further fluctuation, and there are also activities to optimize the choices made along the supply chain [to prevent more price adjustments for consumers].

“Other levers include revenue management, discount optimisation and the like – so Carlsberg really isn’t only dependent on price hikes to defend our margins.”

What could be on the way in Malaysia though will be price hikes for off-trade, though neither Clini or Gun confirmed this as yet.

“It would be too sensitive a matter at this point to comment on the quantum range for any such possible price hike, but if it does take place the increase would be just enough to protect our margins,” said Clini.