Click to read the original article for details. According to incomplete statistics, in recent years, Carlsberg has closed more than 10 factories. Behind the continuous factory closures is Carlsberg's persistently sluggish performance. By Liu Yibo, Xu Wei As the domestic beer market gradually recovers, competition between domestic and foreign beer brands in China is intensifying. Carlsberg Group (hereinafter "Carlsberg"), as an early entrant to the Chinese market, is facing dual challenges of declining market share and poor performance from its subsidiaries. Recently, Carlsberg's subsidiary Chongqing Brewery (Group) Co., Ltd. (hereinafter "Chongqing Brewery") sold its 100% equity in Liuzhou Company held by its controlling subsidiary Chongqing Jianiang for 10 yuan, and transferred a 110 million yuan creditor's right in Liuzhou Company to Min Shang Investment Company for 23.5 million yuan, in an effort to improve operations. A Beijing Business Today reporter found that this is not the first transfer by a Carlsberg subsidiary. According to incomplete statistics, in recent years, Carlsberg has closed more than 10 factories. Behind the continuous closures is Carlsberg's persistently weak performance. According to Carlsberg's financial report, in the first half of 2017, global sales volume was 6.74 million kiloliters, down 3.7% year-on-year. Beer sales in the first half were 5.67 million kiloliters, down 4.1%. The reporter attempted to interview Carlsberg about its strategy in China but had not received a response by press time. Frequent factory closures in China A review by Beijing Business Today found that since entering the Chinese market, Carlsberg has opened nearly 100 factories in Guangdong, Chongqing, Anhui, and other places. However, starting in 2015, Carlsberg began rapidly shrinking its China footprint, especially its subsidiary Chongqing Brewery, which has closed plants in Qianjiang, Anhui Jiuhuashan, Bozhou, Liupanshui, and Liuzhou due to poor management and debt. The reporter learned that most of the closed factories are subsidiaries of Chongqing Brewery, including the Liuzhou plant, all suffering from aging equipment and low capacity utilization. Zhu Danpeng, a food industry analyst, said that in recent years, Chongqing Brewery has been selling off bad assets at low prices, focusing on the Sichuan-Chongqing region to cope with fierce competition. Competition in northern Guangxi is intensifying, with Yanjing's Liquan beer performing strongly in Guilin and Liuzhou. Some argue that the Chinese beer market is diversifying, and with consumption upgrading, Carlsberg faces greater challenges in China. Carlsberg has said that closing factories optimizes operations by eliminating plants with weak reach, high substitutability, and low efficiency. Besides closing plants in China, Carlsberg has also sold many overseas assets. In August 2016, it sold its 59% stake in Carlsberg Malawi to France's Castel Group, further consolidating its global assets. Persistently weak performance Notably, behind the factory closures, Carlsberg's performance has been declining. Zhu Danpeng told Beijing Business Today that due to poor performance, Carlsberg's strategy in China has been difficult to advance. According to Carlsberg, the group's overall sales volume declined in 2017, with organic net revenue growth of 1% to DKK 61.808 billion (about $10.25 billion), organic total volume decline of 2%, and organic operating profit growth of 8.4% to DKK 8.876 billion (about $1.472 billion). However, despite the parent's decline, subsidiary Chongqing Brewery saw a recovery due to divesting bad assets. According to Chongqing Brewery's 2017 financial report, revenue was 3.176 billion yuan, down 0.64% year-on-year; net profit was 329 million yuan, up 82.03%; beer sales volume was 887,500 kiloliters, with a gross margin of 38.86%. Data from the China Alcoholic Drinks Industry Association's Beer Branch showed that Carlsberg's market share in China is only about 5%, lower than imported brand AB InBev and domestic first-tier brands like China Resources Beer and Tsingtao Brewery. In China, AB InBev holds about 15.81% market share, China Resources Beer about 26%, and Tsingtao Brewery about 17.6%. Zhu Danpeng said that Carlsberg still focuses on the northwest market, and due to failed expansion in the east, it lacks regional advantages. Additionally, in terms of product and marketing, Carlsberg's products have a European taste, generally light style, which does not match Chinese palates well, resulting in mediocre market response. Furthermore, its brand integration marketing needs improvement. Premium strategy for breakthrough In recent years, with rising consumption levels and purchasing power, China's beer market has been evolving toward mid-to-high-end products. The reporter found that domestic giants like Tsingtao and China Resources have launched mid-to-high-end new products to optimize product structures. In response, Carlsberg's President and CEO Cees 't Hart said that in China, Carlsberg has realized that products are becoming more premium, and high-end products offer better prospects and profitability than low-price and mainstream segments. Currently, Carlsberg is reducing supply of low-price products to reallocate resources and gradually move toward premium product marketing. The reporter learned that in 2012, Carlsberg launched the mid-to-high-end brand "Tuborg" in China. Currently, Tuborg accounts for about 10%-20% of Carlsberg's total sales. According to Carlsberg's 2017 financial report, Tuborg's volume in Asia grew 6% year-on-year. Organic profit grew 8.4%, and operating margin increased by 90 basis points to 20%, driving a 5% organic net profit growth in Asia. Like other domestic beer companies, Carlsberg is increasing its focus on premium beer brands, but still lags behind domestic first-tier companies in market share and brand awareness. With changing consumption habits, the proportion of premium beer products in the market will further expand, seen as a key step for Carlsberg to boost its China market. Industry insiders point out that Carlsberg has always adopted a strategy of leveraging international brands while focusing on local markets, which creates difficulties for premium brands to take root. Introducing mid-to-high-end brands like Tuborg not only fills gaps in Carlsberg's product line in China but also supports its premium strategy, with vast future development space. However, Zhu Danpeng believes that although Carlsberg has launched mid-to-high-end brands in China, occupying some market share, it still lags behind stronger international giants like AB InBev. Given the current competitive landscape, Carlsberg may retract its frontlines to focus on core markets, channels, and products. Source: Beijing Business Today -END-