Thunderbird Consulting - First Year Solution to CBS Global Case Competition
- 1. 1 Brewing For A Better Today & Tomorrow
- 2. • Carlsberg continues to be an industry powerhouse • Observed two profit upgrades in 2018 • Changing consumer behaviors and expectations are limiting additional growth in the beer market Situation Complication Question The Carlsberg Group can implement a variety of strategies in all levels of the value chain to improve the experience of customers, vendors, and brewers to maximize growth Solution Implement all encompassing strategies, that drive revenue growth, strengthen our brands, and reinforce Carlsberg’s social values, ultimately improving the beer experience for the consumer, the vendors, and the brewers • Conflicting products and value propositions require reevaluation for sustainable future growth • Vendor outlets are unable to meet consumer preferences while struggling with supply chain management • Mature Western European market inhibits growth potential for flagship Carlsberg brands How can Carlsberg differentiate and disrupt the on-trade scene, or find other high-value channels, to secure a 5% revenue growth in Europe by 2022? Strategies Consumer Leveraging Carlsberg’s brands to provide a memorable, personalized beer experience to the end customer Vendors Developing physical and digital technologies to streamline distribution and inventory management Brewers Expanding partnerships through M&A, maintaining local quality while also ensuring Carlsberg’s expertise Summary Insights Recommendations Impact Conclusion 2
- 3. Current Beer Lines 2018 Volume Growth Premiumization Scalability Adaptability Result Local Power Brands International Brands Alcohol-Free Brews Craft & Specialty During on-trade sales situations, a preference towards the “exclusive experience” of craft & specialty beers is evident over international brands that are perceived as common These beers benefit by maintaining regionality while continuing a scalable procurement model. However, they are still subject to lower volume growth AFBs are growing quickly and represent a strong opportunity in Wester Europe, however they still are only a small portion of the market Craft beers, while giving consumers the best beer experience, now require additional resources to grow in presence Core beers are already mature Carlsberg brands. While easily scalable, these brands are facing increased consumer resistance Slower core beer volume growth compared to craft & specialty growth due to lack of “exclusive experience” This has led to an untapped opportunity within the craft & specialty and AFB beer markets 15% 29% Source: Case Material; Business Insider Summary Insights Recommendations Impact Conclusion 3
- 4. Due to increased health concerns, consumers are moving away from beer and towards AFB’s and craft & specialty indulgences and experiences 2017 Non-Alcoholic Beverage Growth est. 6-7% Growing Health Concerns Surrounding Drinking Beer This presents an opportunity for Carlsberg to target these alternative beverages, specifically the AFBs for reduced health concerns and craft & specialty alternatives for special experiences Non-alcoholic brews are a growing alternative to beer Craft & specialty beers continue to grow in popularity Beer has the highest caloric value of any alcohol Beer can raise blood pressure level Beer is attributed with bad cardiovascular health 0 20 40 60 Sweden UK Denmark France Growth All Beer Growth Non Alcoholic Brews Source: Case Material; Web MD; Bord Bia – Irish Food Board, 2017; Statista; WBOC16 831 931 1052 1210 1396 0 500 1000 1500 2012 2013 2014 2015 2016 MmofLitres 2012 - 2017 Craft Beer Consumption Growth Rate of 67.9% Summary Insights Recommendations Impact Conclusion 4
- 5. On-trade vendors lack both digital and physical technologies to understand local consumer preferences and streamline supply chains Summary Insights Recommendations Impact Conclusion Most Common Pain-Points for On-Trade Alcohol Vendors Unappealing Tap Lineups Inventory Guesswork Premature Keg Untapping Unclear consumer profiles Vendors lack the business intelligence required to maximize both efficiency and customer experience 5 Source: Astute Solutions
- 6. Taking into consideration demographic changes and shifting cultural norms, use a hands-off marketing approach guided by the global demand space model Summary Insights Recommendations Impact Conclusion Economies of Scale & Trusted Tradition Exclusive Experiences and Distinct Identities The flexibility to take risks in uniquely communicating the values that the specialty brews stand for Local subsidiaries will continue to operate independently, partaking in their own production, sales, and distribution while taking advantage of financing and marketing resources from Carlsberg, the parent company Identify campaign base on global demand space model • Tuborg -> Music and Fun • Grimbergen -> Indulgence Allow brand managers to launch campaigns with a local focus • Highlight the social experience and uncover consumers’ emotional drivers Guide future decision making with past KPIs • Online video views, clickthrough rate, online sales conversions, etc. 6 Source: Company Filings; Inc
- 7. Non-alcoholic beers are one of Carlsberg’s strongest performers, and as the market for AFB’s grows, Carlsberg must innovate to stay ahead; serving AFB’s on tap Paris + Charles De Gaulle Marseille + Nice Bordeaux Copenhagen City Center + Kastrup Odense Aarhus Securing the European AFB on-tap market Leverage relationships with existing on-trade clients where Carlsberg is in top market position to test on-tap AFB Promote on-tap AFB at concerts and sports events – have a Carlsberg stand serving AFB Advertising campaign in cities – TV/Billboard Supply draught AFB at major airports, downtown restaurants, hotels, and nightclubs Younger consumers are trending toward healthier, low-alcohol brews. Together with Carlsberg’s belief that beer is a social catalyst, having AFB’s on-tap will allow health-conscious consumers to engage in the shared experience with their friends and family with a fresh AFB, right off the tap 7Summary Insights Recommendations Impact Conclusion Source: Morning Advertiser; Brewhound;
- 8. Loosen Status Quo Commit to Change Explore Solutions Commit to Solution Justify Decision Make Decision • The OnTAP Portal will be a cloud-based business intelligence tool to - Assist on-trade customers making the right choices - Providing live information about sales and usage - Product management services for inventory maintenance Waste from unused kegs and beer reduced significantly Client analyzes intraday, weekly, and seasonal beer trends Client allocates required beers based on demand model DraughtMaster • The DraughtMaster allows for the perfect beer by - compressed air to create pressure in the keg, pushing out beer without adding CO2 - Increasing shelf life from 3 to 31+ days - The systems’ ability to track and monitor beer flow is also noted 8 Provide digital and technological solutions to remove friction points in the on-trade buyer journey Summary Insights Recommendations Impact Conclusion Source: Beverage Wholesaler
- 9. Integrate cloud software and Internet of Things integrated hardware to create a full service beverage management system: the DraughtMaster+ DraughtMaster+ Solutions State-of-the-art keg that keeps beer fresh and on-tap for 30 days Tracking which brands are consumed in which circumstances Providing a suite of analytics to help on-trade clients model consumer demand and react appropriately Keg Type Preservation Local Data Global Analytics Regular Keg DraughtMaster DraughtMaster+ Summary Insights Recommendations Impact Conclusion DraughtMaster+ is an integrated system combining the technology of the original DraughtMaster and the OnTAP portal. This combination of the resources will allow for better management and less waste of products Collect Data •Utilize the Draught Masters’ monitoring to collect data on regional consumption patterns (quantitative) •Time-series data also be recorded, consumer behaviours become more easily monitored and taken care of Identify Patterns •Use machine learning/AI (Azure or AWS) to predict which products are likely to do well in previously untested markets •Provide recommendations for new flavour profiles based on macro-level trends Remarket and Leverage Findings •Create value for retailers by recommending products suited to their clientele’s evolving preferences •Evolve supply chains to be autonomous and self- sufficient Real time usage statistics, including auto-order refill service 9 Source: Case Material; Forbes
- 10. Carlsberg must continue to rapidly expand the acquisitions of local breweries and microbreweries to expand the craft & specialty portfolio using strategies currently in place with SAIL ‘22 Carlsberg will purchase established local breweries with unique product offerings and established retail customers, including AFBs “Strengthen the Core” – Brand diversification and segmentation gives Carlsberg more local presence and options for diverse products “Position for Growth” – Working with local brands creates more effective, local-centric ad campaigns for small brands that can used as segues to multinational brand marketing “Excel in Execution” – The acquisition of multiple brands with established production capacity and marketing efforts allow for growth “Create a Winning Culture” – Expanding resources such as DraughtMaster an OnTAP help local retailers with sustainability, data analytics and customer needs Carlsberg will provide these breweries access to company technology such as the DraughtMaster and OnTAP Using Carlsberg’s funding and resources, these local companies can expand production and marketing efforts These efforts culminate in increased local brand awareness and thus expansion into retailers such as restaurants and cafes “In the last two decades, Carlsberg Group has grown mostly through mergers and acquisitions of existing breweries and beer brands” 10Summary Insights Recommendations Impact Conclusion Source: Case Material; Business Wire
- 11. Summary Insights Recommendations Impact Conclusion The new initiatives undertaken by Carlsberg would support the company’s Corporate Social Responsibility model and satisfy the Triple Bottom Line 11 1 2 3 DraughtMaster: Reducing water waste and cutting the carbon footprint by increasing the beer shelf life in the keg, and allowing for clients to recycle the device On-trade AFB offering: Increasing non-alcoholic options to Carlsberg consumers, one step closer to zero irresponsible drinking OnTAP Technology: Reducing the carbon footprint by allowing clients to track their beer reserves, resulting in clients only receiving the beer they need, and cutting down on redundancies Source: Case Material; Carlsberg Group Strategic Overview
- 12. Implement immediate strategic initiatives to inject both capital and brand awareness in order to drive future growth and reach target growth rates Summary Insights Recommendations Impact Conclusion 2019 2020 2021 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Marketing OnTap DraughtMaster+ Micro-Brewery Expansion Investment Brand Manager Initiative (3%, approx. €10m/year, increase in marketing expenses) AFB Awareness Campaign (approx. €3.6m/year) Launch of Platform (€160k) €20.9m Platform Maintenance (€10k per year) Product Launch (€4.5m) Impairment Costs(€1.1m per year) Acquisitions of Micro Breweries (1.5% increase, €6.5m, per year) €30.8m €25.1m 12 Immediate investment in implementation will stimulate growth, creating both a long and short term action plan to ensure Carlsberg remains an industry leader Source: Case Material; Company Filings
- 13. The OnTAP, DraughtMaster+, and AFB expansion face several risks that may hinder revenue growth Summary Insights Recommendations Impact Conclusion Risk Scenarios Mitigating Actions OnTAP is not fully utilized by vendors Overestimation of AFB demand DraughtMaster+ is not widely adopted by clients 3 Prior to full launch, have a beta phase where a limited amount of on-trade vendors trial the platform to provide feedback and develop and initial userbase Revert to DraughtMaster sales, with follow up on upgrade after conversion Reduce total number of locations where AFB’s are served on tap, focus on getting the word out through sponsorships, advertisements, and pop-up shops in downtown cores 13 ImpactonTopLine Probability Risk Map 1 1 2 3 2 Health Concerns • Expand Alcohol Free Beverage (AFB) reach and diversify product portfolio • Change the conversation; Market brews as exclusive experiences Stagnant European Beer Consumption • Focus on the evermore growing craft & specialty brew segments • Utilize large resource pools to help small subsidiaries become industry leaders Rise of Substitute Beverages • Grow on-trade awareness by adding value to retail partners through strategic initiatives • Grow SAIL 22 and TTZ initiatives to add disruptive value in consumer eyes Macroeconomic Risks and Mitigations Source: Case Material
- 14. Strategic initiatives will increase revenue growth at an average 3.67% per year, ultimately reaching 5.07% at the end of FY 2021 Summary Insights Recommendations Impact Conclusion 0.62% 2.49% 3.44% 5.07% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 6000 6200 6400 6600 6800 7000 7200 7400 2017 2018 2019E 2020E 2021E GrowthRate BillionsofEuros Revenue Forecast Investments will inject capital to further growth potential… …while driving revenue in European markets and reaching growth target… 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2019E 2020E 2021E Cost Breakdown Acquisitions Marketing OnTap DraughtMaster + Key Assumptions • Acquisition annual growth rate of 1.5% • Marketing expenses annual growth of 2% • €2M cost of OnTAP implementation and €500K maintenance costs • 0.15% COGS growth rate attributed to DraughtMaster+ Key Drivers • SAIL 22 integration in new micro-brewery acquisitions • Value added from OnTAP and DraughtMaster+ • Marketing initiatives from “The Experience” campaign and AFB proliferation Source: Company Filings; Case Material; Salesforce (OnTap Implementation Cost) …ultimately re-branding Carlsberg while adding value to clients Emphasizing the exclusivity and experience of Carlsberg brands Creating a disruptive product to better serve client needs Tapping into unique craft beer segment while applying unique economies of scale 14
- 15. The Carlsberg Group can implement a variety of strategies in all levels of the value chain to improve the experience of customers, retailers and brewers to maximize growth Summary Insights Recommendations Impact Conclusion 15 Three main insights were identified Craft & Specialty Brews are growing rapidly Perception changes in beer consumption Retailers need consumer and managerial analytics Four main solutions were crafted Granting small subsidiary brand managers with marketing solutions Launching digital and technological initiatives to better serve retail partners Expanding craft & specialty segments via acquisition and subsidiary growth Developing a long term sustainable strategy (SAIL ‘22 and TTZ) These initiatives will provide both short and long term revenue growth and industry dominance Carlsberg will defend its international brand, reputation and competitive advantage Carlsberg will differentiate itself from competitors through growth initiatives and technological innovation Carlsberg will disrupt what consumers thought was possible from a brewing company