As the world's fourth-largest beer company, Carlsberg is also having a hard time recently. In the third quarter, it reported a net loss of approximately 4.1 billion RMB. To reduce costs, Carlsberg is preparing for large-scale layoffs in China while also planning to close some breweries. The former beer giant's international chic is diminishing, and it must now wrap up in a 'winter coat' to survive the cold!

01 Loss of 4.1 Billion Carlsberg's Tight Situation

When it comes to losing money, Carlsberg's third-quarter net profit figures are certainly not pretty. In the third quarter of 2015, the net loss was approximately 4.1 billion RMB, whereas in the same period last year, Carlsberg had a net profit of about 1.9 billion RMB. Carlsberg attributes the loss to sluggish consumer markets in Russia and China. Of course, the signs of Carlsberg's poor performance had already emerged earlier.

For instance, in 2013, while China's beer industry sales grew by 4.6%, Carlsberg's sales in China only increased by 4%. In the first half of 2015, only AB InBev saw overall sales growth of 9%, while major beer brands including China Resources Snow, Tsingtao Beer, Yanjing Beer, and Carlsberg performed mediocrely. This shows that the overall trend in the beer industry is basically consistent with the market rhythm and performance during the deep adjustment period of the alcohol industry.

Some industry insiders say that Carlsberg's sales model of 'emphasizing distributors over terminals' has drawbacks, especially lacking sufficient motivation at the terminal level, resulting in weak terminal sales capabilities and continuous decline in performance. In response, Carlsberg stated it would reduce costs and proposed the 'Resource Support New Journey' plan. Among these, Carlsberg's three 'winter coats' for surviving the cold are ready: layoffs, closures, and shell restructuring.

02 Layoffs of 1,300 This Is Just the Beginning

To implement cost reduction requirements, Carlsberg issued layoff notices to 1,300 employees. Of course, according to Carlsberg's layoff plan, it aims to cut 2,000 jobs, accounting for 15% of its total workforce. A senior executive at Carlsberg China said, 'The company recently replaced its CEO. Based on the current overall environment of the beer industry and changes in competitors, these adjustments are made to improve profits and returns, with the core focus still on business.'

Regarding the large-scale layoffs, Carlsberg stated that this move would save the company approximately 1.84 billion RMB in annual operating costs. At the same time, Carlsberg provided another explanation for the performance loss: to cope with the pressure brought by the large-scale layoffs, the company paid substantial severance compensation. The regions affected by personnel changes include Russia, the UK, and China, with the compensation amount for China being approximately 3.68 billion RMB.

03 Cutting Off a Limb to Save Itself Closing Its Breweries

Although the closure of breweries is not good news for the industry, there were already signs that Carlsberg would close breweries.

For example, in October this year, Chongqing Brewery issued an announcement stating that since its wholly-owned subsidiary, Chongqing Brewery Anhui Jiuhuashan Co., Ltd., had been loss-making for many consecutive years, in order to improve the company's operating conditions, enhance market competitiveness, and optimize resource allocation, it decided to terminate all production operations of Jiuhuashan Company and optimize its sales business. Jiuhuashan Company will continue to sell beer products.

Moreover, given the current poor beer market environment and changes in competitors, Carlsberg may further close one or two small breweries in eastern China. In fact, some of the breweries in East China that Carlsberg took over from Chongqing Brewery Group have been mired in losses for years.

04 Focusing on Core Business Selling the Shell of Beer Hops

Due to the unsatisfactory performance of Beer Hops (a listed company) in the past two years, its 2014 annual report showed that Carlsberg's revenue decreased by 13.41% year-on-year, and net profit dropped by 64.52%. Therefore, Carlsberg's move to restructure and sell the shell of Beer Hops as a listed company is its latest action to focus on its core beer business.

While selling the shell of Beer Hops, Carlsberg also spent 560 million RMB to acquire shares of Wusu Beer, focusing more on its core beer business. Carlsberg Group believes that this transaction regarding Wusu Beer is in line with the company's overall strategy.

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Source: Jiu Shuo

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