Carlsberg ups marketing spend as inflation bites

Carlsberg Group increased its marketing investment by DKK 1bn (£120m) last year, as the Danish brewing company looks to beat inflation and get on top of changing consumer behaviour.

The 19% uplift was primarily a result of increased spend in Asia, particularly in China and Vietnam. Marketing investment now sits around 10% higher than pre-pandemic 2019 levels.

A further marketing boost can be expected this year, new CFO Ulrica Fearn told analysts on a call today (7 February), despite the business anticipating a total DKK 10bn (£1.2bn) increase in its cost base.

In the 12 months to 31 December 2022, Carlsberg Group’s total operating expenses increased organically by 13% as a result of higher marketing investment, logistics costs relating to on-trade recovery and rising energy prices. The war in Ukraine was also cited as a challenge for the business.

We continue to trust in the long term opportunities for premium.

Cees ‘t Hart, Carlsberg Group

Taking all this into account, as a percentage of revenue, reported operating expenses improved by 70bp to 30.7%. When excluding marketing investments, the improvement was 100bp.

Overall, the group reported operating profit growth of 13.2% to DKK 11,470m (£1.38bn) for the year, with organic revenue up by 15.6%. This year’s results are well ahead of 2019’s when excluding the Russian business – which Carlsberg Group intends to sell – with revenue up 20%, operating profit up 22% and volume sales up 9%.

However, despite a good first half to the year thanks to the rebound of the on-trade post-pandemic, the UK suffered from an “increasingly challenging” second half. Carlsberg Group CEO Cees ‘t Hart blamed this on the toll high inflation is taking on consumers’ disposable incomes, as well as there being fewer people travelling into cities due to train strikes and high levels of flu and Covid-19.

Long-term growth strategy

Compared to 2016, when Carlsberg Group launched its first long-term growth plan Sail22, marketing investment has increased by 35%.

“We have invested behind our key growth drivers in terms of brands and marketing,” Hart said as he outlined the strong earnings growth experienced by the beer company over the same period. In 2016 the business reported organic revenue growth of just 2%, compared to 2022’s 15.6%. Organic operating profit grew 5% in 2016, compared to 2022’s 12.2%.

Last year Carlsberg Group launched Sail27, its next multi-year growth plan. Part of the strategy is to bolster its premium portfolio, which includes Tuborg, 1664 Blanc and Carlsberg. Premium brands now account for 16% of total volume.

“We continue to trust in the long-term opportunities for premium, both for international premium brands and local premium brands,” Hart said.

International premium beer brands were particularly strong drivers of volume growth in 2022. Carlsberg’s volume sales were up 14%, while Tuborg improved by 9% and Grimbergen by 11%. 1664 Blanc underwent a 4% decline, however, due to lower volumes in Ukraine and China.Diageo commits to ‘strong’ marketing investment as efficiency improves

The business’s alcohol-free brews also grew well in western Europe, with volumes up 7% in the region. The category grew 1% in total when excluding the impact from Ukraine.

Overall, volumes for the year grew by mid-single-digit percentages in almost all markets, despite price increases in the first and third quarter. However, as warned last year, volumes declined in the second half of the year, and on-trade volumes remain around 10% below 2019 levels.

The brewer is anticipating “another challenging year” in 2023, with Hart announcing plans to take further price increases as costs rise. The group is predicting lower beer consumption in some markets, particularly in Europe, as a result of higher prices and inflation. Growth in organic operating profit is expected to be in the range of -5% to 5%.

Nevertheless, Hart said the business will continue to invest to drive long-term growth.

“We will continue to invest in our brands, of course, very much so in countries like Vietnam and China, but also in countries in central and eastern Europe. We’re very much focusing on the development of Sail27,” he said.