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2026.10.01 | TB | Consumer | Carlsberg China Market Update

原标题：Carlsberg – China Market Update – Short-term Pain for Longer-term Gain?

#consumer #china

Third Bridge · 2026-10-01

Analyst-led • 9 Sep 2026

Companies: CARL B DK, HEIA NL

Akhil Srivastava (AS2) Senior Director, New Business Development, Innovation & International Supply Chain at Anheuser-Busch InBev NV (AB InBev)

Alex Smith (AS1) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

AS1 [00:04:01]: Akhil, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

AS2 [00:04:30]: I agree.

AS1 [00:04:32]: Thank you very much, Akhil, and welcome to Third Bridge's Interview entitled Carlsberg – China Market Update – Short-term Pain for Longer-term Gain? We will be focusing on Carlsberg Chinese market operations. I'm Alex Smith, and I'll be hosting today's Interview, and I'm very pleased to have with us today Mr Akhil Srivastava. Akhil is the Senior Director of New Business Development, Innovation and International Supply Chain at Anheuser-Busch InBev. Akhil, could you begin with a brief introduction to your background?

AS2 [00:05:05]: I have 20 years of experience across the FMCG landscape globally, worked across in US, India, China, Europe. Currently, in my role, I look forward to understand the market landscape to understand what could be opportunities to build innovative products and have effective development in terms of business as well as market penetration and reach.

Questions

00:05:35] Could you walk us through some of the key consumer trends and behaviours in the Chinese beer market today? How do you think some of these trends might evolve over the next few years?

AS2 [00:05:58]: Before going to the beer market in particular, let's talk about the overall Chinese sentiment in terms of consumption, because beer is a CPG product in the consumption category. What we see is consumption is directly related to people sentiments, hope and faith. In terms of that, if you look into, currently, in terms of China as an overall market, the consumer sentiments have been pretty muted, specifically in terms of spending because of uncertainty in the future. Most of the consumers in China have, a, I would not say stopped consumption, but have limited their spend on items which are not necessary and may also be termed as luxury in overall loose terms. The prime driver for this is essentially the sentiments attached to the real estate in China as, if you see, the property prices in China have been declining since last 3-4 years post-COVID. At places, we have seen around 30-40% of people notional wealth declining because most of the notional wealth is attached to an infrastructure, maybe an apartment, a building, a commercial complex, etc. Because of that, on a sentiment basis, people have limited their expenses and are looking forward with a more landscape of future to be not very certain. That's the overall scenario in China.

Then how does it impact the overall consumption of beer? Obviously, if the people have started looking at spending lesser on items which are non-necessary, beer is one of them in certain cases. What we have seen is that the consumers had, a, shifted their channel of operation or consumption, which means big popular cities like Shanghai, Beijing, Guangzhou, Shenzhen, where you used to see a lot of nightlife in the weekends, for sure, but definitely in the weekdays as well, we have seen a lot more of consumer preferences shifting to in-home, which means they don't see a lot of consumption happening, on-trade/bars, pubs, Horecas, restaurants or eateries. In that case, what we see is when you tend to be there in a celebratory mood, when you tend to be there with a group of people outside, you tend to overindulge. You tend to overspend, and you tend to premiumise yourself. That trend, when you bring it back home, the group size decreases to a family. Within the family, of course, there will be different occasions, but then the consumption pattern changes, the consumption laddering changes, people move from premium to maybe core because there's no one judging us, and it's more about just having a consumption within a house. That's a significant change in the beer industry, so spending less, trading down on the volumes and ladders as well as changes in the channel of consumption.

00:09:52] If we're seeing a shift from on-trade to in-home and a theoretical trade-down from premium to core associated with that, what would the cost difference be for a consumer between buying a beer in a nightclub and buying a beer at home after trading down to core?

AS2 [00:10:27]: Significant. I would say, more than 60%. Let me give an example. I will not name certain brands for reasons, but assume we are looking at a premium or a super-premium brand of beer offering at a nightlife, it will cost you anywhere between RMB 45-60 a pint. There could be occasions like happy hours where the distributor or the retailer is trying to promote it, but then ballpark would be around RMB 45-50 on an average. Now if you bring this in-home, a similar product, when you buy it from an O2O channel or from an e-commerce channel or even go from a retail store, it costs you around RMB 8-12. The delta is between RMB 12 to RMB 40, RMB 45, RMB 50. Of course, the delta also is because you are now not utilising the space, the channel and the other experiences. You are probably just enjoying it in the realm of your house within a boundary. To your point, RMB 8-12 vs RMB 40-60, that's the delta.

AS1 [00:11:41]: I think you said that was buying an identical product. What if you were to trade down at the same time, presumably to something less than RMB 8-12?

AS2 [00:11:53]: Yes. If you're trading down, you are as well trading down to RMB 6-8.

00:11:59] I think the cost of doing business for someone such as Carlsberg in the on-trade is actually very expensive. A lot of that lost profit is not necessarily coming out of the company's profit if it is able to trade down and absorb a beer in the on-trade. Presumably, the profit loss would be less significant. Is that fair to say?

AS2 [00:12:29]: Part of it is right. Let's split it into an overall cost base. Obviously, there is a channel cost, there's a distribution cost, there is the cost which company makes in terms of profitability, but then there is a higher level of premium being charged by the channel itself, which means assume you are in a city like Shanghai where the cost of rentals is pretty high, the POC owner in this case or the bar owner in this case, gets the revenue as well as his fixed cost generated through this particular sale lead. In that context, what happens is they would like to promote more volumes to average out the cost, and that's why you see the concept of happy hours, festivities, etc, coming in. Still the least which you see in a POC still is a happy hour, one-plus-one, which means a RMB 60 might end up becoming a RMB 30 to the best.

Now essentially, this is not something which is paid by the company because it is managed by the retailer or the POC owner in this case, on-trade. Thus their margin suffers. That's what we saw over the last 3-4 years, just for a ballpark number, there is around 4-5 million outlets across China which serve as share of cold, which is any beverage, including beer. We have seen most of the POCs either shifting from downtown to a secondary street to reduce their rental cost or just shutting down their shops, or changing businesses. We have seen significant closures in these bars and pubs and Horecas over the last three years because they're not even able to meet their fixed cost expenses.

00:14:26] Despite the dynamic of trading down, is this just driving a slower rate of premiumisation than we've seen in the past, or are we actually seeing negative mix across the market? Listening to Heineken or Carlsberg's comments, the premium end of their portfolios is still growing more quickly than the mainstream or core parts of the portfolio.

AS2 [00:15:03]: Basically, in terms of China, there are three things we need to understand also, unlike the other part of the world. Number one, is the ABV or alcohol by volume is much lesser in China, which means the beer would be around 2.5-3.5%, max out at 4% vs in other parts of the world, the ABV for the similar brand would be running at 5-6%, which means at least 1.5 times, if not double. What was the strategy in China? The strategy in China was more consumption because of lesser alcohol per serving. Now given that as an understanding, what we see is overall, the overall consumption trend in China was more core and value. Premium was much under-penetrated itself in China. The premium market share, if I'm not wrong, would be around 15-17%, depending on how you cut, basis the companies you're considering. On a 17% market share of the total beer volume, it's not a huge market share on premium vs, say, Europe or a western part of the world, where a premium would be around 60-70% as well.

If a particular company's brands are increasing sales on the premium, yes, because there is a scope to increase the premium set, but then what is more important to understand is, is it cannibalistic to their own brands or SKUs or is it cannibalistic across the ladder? By ladder, China is one of the biggest white spirit market called baijius, followed by beer, followed by wine, champagne, the long tail of spirits. If people are trading down, not necessarily that they're trading down only in beer, they might as well be trading down from the baijius. One of the ways you can see it is through index for Moutai, wherein the Moutai sales have also been declining, which means if I was buying a RMB 10,000 or RMB 8,000 bottle of Moutai before, maybe I'm just buying a case of a premium beer. I'm trading down from that category or that ladder into a beer premium, could be an option. The second is for some of the companies wherein you are saying the premium penetration or premiumisation is still increasing, yes, but then the question is, are they increasing in overall volume alongside it or is their volume getting decreased? For example, one of the companies in question, the overall volume is decreasing, while maybe the stand of premium could be same or higher.

00:18:20] What is your outlook for the beer industry in China over the next 18 months? To what extent do you expect the recent trends that you've outlined to continue, or do you expect to see some pick-up in growth?

AS2 [00:18:45]: Very interesting question. I don't think anyone has a magic wand to really define this because it's a very different consumption pattern in China vs everywhere else in the world. However, my limited understanding are as follows. A, China is the biggest beer volume in the world. It's 400-450 million hectolitres, depending again how you cut it, taking regional brands, national brands, international brands in play. That 450 million hectolitres has been declining. The industry over the last 3-4 years declined. That's a bigger question. Is that decline coming because people have stopped consuming, people have reduced consumption per capita or people have switched to other substitutes like coffee, for example, because what you see is over the last 7-8 years, coffee penetration has been significant. COVID came up with a vibe saying, "Drink healthy, eat healthy," so maybe juices, maybe boba teas and all those have also popped in significantly. You know all the coffee market in China is even making Starbucks run for their money.

Having said that, what I am able to understand is it's a cyclical trend. Obviously, health benefits, calorie consciousness, post-COVID effect and also the legal drinking age people not being able to be inducted during this COVID period, because every year, there are people who will turn 18, 19, 20. For three years, if you did not get those inductions, your population dwindled as well. All these effects together will continue to stress the volume in China, which means the volume in China is going to continue decreasing, not significantly, but 1-2%. I'm talking of beer overall, then we need to talk about the categories within the beer, premium, value, core, etc. However, this trend for the next 18 months, given the data which I've seen so far from a lot of alcohol department and government, etc, looks to be stabilising, which means the industry decline will get arrested. Now the question is, how are the companies having their marketing and penetration strategy play?

To your point, are they going to reduce their cost? For example, some of the Japanese beer in China have been doing significantly well vs all others are struggling. What did they do? Did they go to more POCs? Did they acquire more POCs? Did they had higher penetration? Did they reduce the pricing power or the pricing per se? Did they offer more occasions or did they did more tie-ups for distribution, etc, which we also see in certain major companies in beer doing that as well to gain reach and penetration using someone else's distribution channel. Then, of course, innovation plays an important role. Are you getting more craft? Are you being more lager? Are you being experimental in your offering of SKUs like a one litre, like a 750ml, pint, glass, cartons, all those, or are you also playing on certain sports sponsorships like the FIFA, like the Formula 1, etc. In summary, no one knows what happens in 18-24 months or 12-18 months. My understanding is the market decline will be arrested. There will not be a significant fall. However, there will be a lot more competition in terms of price and positioning of the products in consumer mind.

00:22:45] Carlsberg's Q2 2026 was a fairly subdued quarter for the group across its imported and local brands. The Carlsberg brand itself saw very strong growth, up 20%. I think there's a similar dynamic with Heineken and the Heineken brand, although perhaps there's something a bit different going on with Heineken. What is driving the strong outperformance of the Carlsberg brand? How sustainable do you think this is?

AS2 [00:23:34]: As I said, people are trading down, which means those people who were drinking core-plus or a premium segment have started coming into core or even value. In that case, Carlsberg has a very good strength in terms of, a, regional manufacturing, they have a good penetration, and then they have local brands. Brands which people associate would also be nostalgic, would also be very regional. Example, Wusu, example Chongqing, example Dali, these are some of the brands, they positioned very well. Hence, using those, you are able to penetrate that RMB 6-9 or RMB 10 per offering or per serving bracket, especially when people are moving the consumption to in-home vs on-trade. That's the win for them. Hence, channel penetration is equally important. Probably Carlsberg is also very, very active in terms of giving a lot more of reach in terms of e-commerce and faster delivery using Meituan, etc, etc, all those e-commerce channels and the fast delivery services.

Those are some of the wins, which they have been able to do very well. Specifically, region-wise, they are very, very strong in certain regions of China. It's a big country. I believe they are very strong in the western part of China. They are also having good, selected penetration in other parts, including the north, south. I don't think they are penetrated so much in the eastern part yet, but then it's what they are doing as an entry strategy, if I may say. That's exactly what they did earlier 15 years ago. I can give you an example from India because I did the similar business in India. They came from the eastern part of India and then they penetrated across to gain the whole market share across India. You need to find where you are doing good. Probably, western part of China is where Carlsberg is doing very strong, especially with the local brand.

00:25:49] Why is it that the Carlsberg brand itself seems to be driving the growth or outperforming the rest of the portfolio? My understanding is that Chongqing was actually quite soft in recent trading.

AS2 [00:26:15]: I might not have a very valid answer for that yet, but my understanding is Carlsberg has been able to use a bit of their distribution muscle. As a brand, if you tell me, the brand power for Carlsberg, it would not be very significantly changing over the last 2-3 years. It's of course, international brand. Of course, it's doing good, but then the whole portfolio effect brings into play because the local brands and products and manufacturing is able to contribute a lot more to the Carlsberg growth overall. On the brand per se, I would say, the Carlsberg recall of the brand power would be quite limited. I have not done a research on Carlsberg brand power yet, but that's an interesting point to check probably.

00:27:08] What are the current cost pressures or tailwinds facing the industry? My understanding is that the industry in China is probably facing less inflation than outside China, but is there anything that we need to be aware of in terms of cost headwinds facing the industry over the next one year?

AS2 [00:27:37]: Significant headwinds. Let's start with how the beer is made. You need raw materials. One of the biggest penetration point for every company is to have a good mix of raw material, which would be malt, barley, rice, etc, etc, as part of their procurement as a strategy. Most of these commodities have had different level of escalations or indexation over the last 3-4 years. Companies keep on adjusting their recipe for that matter. Then the biggest point for each company is the cans. Everyone wants to do a higher penetration on cans. Cans are considered to be more premium than bottles or kegs unless people are going for experience of craft. Let's talk about cans. Aluminium prices have been through the roof. That's roughly 40-45% of your COGS. If you are not able to correctly hedge your aluminium, you're going to bleed out on your COGS. That's one piece of it. Second piece is, of course, many companies have significant footprint in terms of manufacturing because China is, of course, a very broad and a big country. The distribution cost plays a very vital and a major role. The distribution cost is directly proportional to your location of the brewery.

The problem is if your volumes are not doing well and you're trying to optimise your footprint, which means you're probably, if not shutting down, optimising the brewery, is looking at certain line runs, efficiencies, etc, your cost for distribution will increase. You know what's happening on the other side of the world with Iran war, which means, I don't know, if the oil will be at USD 150 a barrel going forward if the war continues as we see. That would be a bigger headwind. Because of this, there will be a lot of conversion cost issues, which will happen not just for the beer manufacturer, but their tier 1 and tier 2 suppliers, which we faced over the last 2-6 months, wherein the suppliers are not able to produce effectively and efficiently or even productively, the products for example, cans, can body, can shells, can painting, everything else, cartons. In some places, they even might not have enough of energy to have an effective supply of manufacturing. These constraints are going to continue for at least next 6-8 months as we see, including any domestic production as well as consumption.

In short, there's going to be significant headwinds on the commodity front, including raw material and cans. There are certain tailwinds, which you rightly said. For example, the CPI is lesser than anywhere else in the world. Yes, China does not have inflation. It does not have an inflation because they are dealing with another problem of real estate crisis. We call them as ghost town. People have invested money, but that money is stuck. There are no buyers at this point. The notional value has come down by 30%, 35%, 40%, even 60% in some of the cities. The second piece is while the government is trying to promote and boost consumption, you would have heard over last six months to one year wherein government is giving a lot of consumption-based subsidies and incentives, that could be a good tailwind, but whether that's strong enough to boost consumption back in China is for the times to be seen. I think it's more about people having hope of a better future.

00:31:51] If the cost headwinds are outweighing any tailwinds, what do you think that means for pricing to the consumer? Presumably, suppliers will look to pass some of those increased costs on to the consumer. Would they think about pricing ahead of inflation, or is the consumer too weak to be able to accept those price increases?

AS2 [00:32:19]: It depends on the market maturity. China is a mature market. Of course, beer is essentially a bit elastic. I would not say completely elastic. You can always pass on the price through the price laddering and you can increase the pricing. There are smarter ways to do it. Instead of directly increasing the pricing, you can change your pack sizes. You can come up with different penetration packs. You can come with value packs. You can come with a 210ml pack, you can come with a one-litre pack, you can come with 30-litre kegs, just to offset all the pricing indicators. Then that is totally dependent on channel where you're going to, a, look at this and then the segmentation of the consumer. Are you looking at consumer which are going to pubs and bars and Horecas, wherein pricing is lesser important, experience is more? We can clearly pass on inflation plus more.

In places where people have changed channels and they are now looking at in-home consumption, most probably you would be a bit hesitant to even increase by RMB 0.01 per serving as well because otherwise, consumer can always trade off with your product unless there's a brand loyalty, which is next bigger question, whether Chinese consumer are having brand loyalty in the beer category? They do have a lot of brand loyalty in the white spirit. They do have a brand loyalty in a lot of food products, but for the beer, is someone willing to switch for RMB 1 or RMB 2 per serving, depends. It depends on age, depends on channel and more importantly, depends on the geographic location within China. Are we talking of Shanghai? Are we talking of a city like Foshan or Chongqing where consumers might be more price-sensitive?

00:34:33] The Chinese government could be pulling back on previous subsidies for local brewing facilities. If this is the case, how can someone such as Carlsberg or a local brewery reconfigure or repurpose its supply chain to help mitigate some of that negative impact?

AS2 [00:35:15]: Yes and no. China has always evolved its infrastructure through government support, of course. The general concept is the government gives the land, you build on it. You deploy and employ people. Then in tough times, when there's a retrenchment or reduction, probably government jumps in and tries to facilitate so that there's not much of chaos or reputational risk for overall in terms of workforce. Yes, the government is going to cut down incentives. No, they are not going to completely cut off the incentives because then for the international brewers there's very low incentive to continue having so many footprints, especially when your volumes are dropping down and continue to be as a trend to drop down, but if they continue to reduce their footprint offerings, that means rightsizing the organisation, rightsizing the people, which you see in some companies as well overall, the Diageos of the world, globally. That would trigger a much more emotional issue in the minds of the audience or the consumer in this case, like we said, they are looking and hoping for a better future, not hoping to be retrenched and losing jobs. It will totally emphasise in terms of saying future is going to be bleaker, so how will you boost consumption then? It will not go like 100% on the subsidy will not be evaporating from government, but then it might become more selective in terms of what can be subsidised and incentivised, what may or may not be.

00:37:09] You alluded to the point that, even in the long term, there's very little opportunity to grow beer volumes in China, but there's presumably a long-term opportunity to continue to premiumise the category. How would you describe Carlsberg's premiumisation strategy in China? How has that evolved, if at all? Could you compare the company's premiumisation strategy with those of CR Snow and Heineken?

AS2 [00:37:57]: That's a lovely question. If you are right now travelling anywhere in China, especially the metros, the tier 1 and tier 2 cities, what you see is a lot more of regional/local sponsorships, especially on events, regional or local promotions and regional or local display in terms of ad spends and A&P expenses by all companies because as you know, the channel is shifting, which means people are going towards their home consumption, which means they are more looking at something in the neighbourhood than going into a big bar and big Horeca outlets. Having said that, what we see is the biggest success factor for any company would be convenience because the first thing is what is the serving size? Is it going to be value for money for me? Do I need a one-litre can? Do I need a smaller serving? The second would be can I get this in terms of when I need it rather than I stocking it in my refrigerators?

Because the biggest trend we are seeing is O2O, which is online-to-offline, and we are seeing people ordering from their home using the Meituan and all those, Hema or other apps. In that context, what we see is that convenience is playing a more vital role. Those platforms now, if you are utilising it well in terms of promoting the particular brand, in this case, a Carlsberg vs Heineken, which I can compare directly, consumer is tempted to order the brand basis visibility, convenience and, of course, availability. That's the biggest strategy which I see for the regional players, wherein Carlsberg is doing pretty good job and so is Heineken. Given the CRB background, they have been able to have a much more better distribution system, they have a very good penetration on in-home, and they have a very good alignment with the O2O and e-commerce channels. Where I see Carlsberg missing out is basically on experiences, which are on-trade.

For example, if you go to a good bar, you might find 6-8 taps, maybe four or five of them would be on a craft experience, two or three might be Japanese or any other international brands and then one of them being the mothership of the brand, basis where the POC is being aligned with. For example, it will be Heineken, it will be Carlsberg, it will be any other brand. In that case, what I see is Heineken having a lot more of visibility. I'm not saying consumption here because people go for experience and you get visibility there, a lot more visibility than Carlsberg, but probably, Carlsberg using its local brands is able to penetrate more into tier 3, tier 4 towns vs a tier 1 at this point. Maybe that's a strategy because otherwise, you bleed more in tier 1 for visibility, but you don't get that much of volume. It would be Carlsberg's strategy.

00:41:37] You mentioned that each POC [point of consumption] will have a particular alignment with Heineken, Carlsberg or another brand. Is that a particular exclusive agreement, and is this typical or consistent across China?

AS2 [00:41:57]: Yes. If it's a tap room, you definitely have that alignment. You can't have two competing beers of major repute on the same tap offering. Doesn't make sense, having Carlsberg and Heineken next to each other and then who is sponsoring the POC? Because someone is sponsoring the POC for their promotions, for their display and planogram and everything else.

AS1 [00:42:25]: You alluded to Heineken having greater visibility because of CR Snow's legacy presence in that market. Is that correct?

AS2 [00:42:35]: Yes. Because they are big sponsors of certain events like Formula 1, which is a pretty important event. When you see Carlsberg's promotional campaign is mind-boggling. It's like all the metro stations are just lit green. It's a significant amount of investment they do for the brand power and visibility, which I have not so far seen for Carlsberg.

00:43:10] What's your opinion on the strength of the Carlsberg brand's equity in China? How would that compare with the Heineken brand?

AS2 [00:43:39]: Let's take a step back. Chinese consumers, although the world doesn't know them much as western is a different culture, but Chinese consumers have a very much of inclination towards sports, towards theatres, towards shows as well as towards any event for all that matter. The way. generally in China, the promotion activity happens is you put up a pop-up bar or a pop-up tent in this case. The example of Labubu, if you're familiar with that monster doll concept. Then you will get the people lined up. For the first time I saw, the people don't break line. They wait patiently, even if it's four to five to six hours, to earn that. That's a very big important cultural aspect in China, wherein people like to earn that moment. This is where most of the local brands, I'm not talking beer, I'm talking of CPG, do a lot of penetration.

Then there's a way to attract them in terms of WeChat is much more penetrating here. You just gather credentials in terms of phone numbers, WeChat ID and then you give them a freebie by the end of it. The freebie could be a beer can for all that matter. Having said that, this particular penetration strategy in China has worked significantly in, (a) inducting people, (b) registering the brand image and brand equity in their minds. If I'm standing for six hours to get a can of beer, it's a lot of effort. I will remember it at least for next 2-3 months. Then if you follow through that with a lot of penetration strategy in terms of A&Ps and visibility and sponsoring big events, the shows, the theatres, etc, it's going to be flagged up in the mind for a very long time. I see Heineken being the best at doing it. I don't see Carlsberg currently at a scale doing it. Maybe they are doing in some pockets in western part of China, but not across China at a scale. That's a key differentiation.

00:46:04] Presumably, Heineken is spending a lot of money on its penetration strategy in China. Do you think the company is getting a good ROI?

AS2 [00:46:16]: That's a bigger question. Are you doing it for immediate volume throughput and ROI in terms of hard metrics like volume or are you doing it for a longer-term shaping up the competitive landscape of the country by building an irrefutable brand for centuries, at least for a decade? Having said that, Heineken's market share is roughly between 30-32%, including CRB, which means they already have a strong market share. Now the question is, can I premiumise this market, which is what we started saying, 17% of the market is premium. Can I be a part of it? Can I premiumise it with Heineken or Heineken Silver or any other SKU, which I want to launch in near future? That's where probably Heineken is looking at a 5-10-year horizon. Certain companies, because they had bigger, deeper roots, are looking at 6-8 months to one year to even sustain and survive and turn around. Certain other companies like Carlsberg is probably looking to be present, partially visible, but not taking head-on. Maybe doing, if I may call it as, a guerrilla warfare equivalent. I will win in some pockets, not at a national level because I don't want to bleed out today. I'll wait and watch until the markets grow and then I grow with the whole momentum. Could be one of the strategies. I don't know. I'm not working for Carlsberg, but I think that's how the two companies are looking at differential pan-China strategy vs regional strategies.

00:48:06] You mentioned a shift towards convenience. How has Carlsberg's channel strategy evolved to where we are today, and could you compare that with Heineken's?

AS2 [00:48:27]: As I said, Carlsberg has been doing regional plays in parts of China. Their strategy has been very clear. They do have restaurant tie-ups. They do have their own nightlife and bar tie-ups, especially for Carlsberg and Tuborg brands, which are more premium. They do have significant share of play in terms of modern retail as well as convenience and the O2O channel. I believe the overall strategy for Carlsberg is working more towards volume throughput and lesser on, I would say, premiumisation support. Now I know you're saying Carlsberg volume increased slightly, but then I would still say there's a lot more of regional play in this case because when I, as a consumer, go to the market, I see Wusu as a brand being placed directly on to the competition with other core market players. That's Carlsberg's strategy on the channel. They are doing a cross play on bars, nightlives, restaurants, then again, convenience, small retail and e-commerce.

For other players, it's a mixed bundle because if you are strong on your bars and restaurants, like I just discussed, if you have a tap and if you're sponsoring that particular POC, a point of consumption, you see that you need to drive people in. Otherwise, why are you sponsoring that particular place if there's no throughput happening from there, or VPO as we call it, volume per outlet. In that context, what we see is the creation of occasions, the creation of sessionabilities, the creation of promotions in terms of happy hour, in terms of bundling it with food because Chinese consumers love drinking along with their food. You make a package deal and then you are able to offer those. That's where the bigger brands are more playing in the nightlife and restaurants. Of course, they do have a play in their modern retail as well as O2O, which is the fastest-growing segment because the channel is changing from on-prem to off-prem or in-house.

00:50:56] We've discussed Carlsberg's geographical growth strategy, and you've alluded that it tends to be more regionally focused vs someone such as Heineken. We know Carlsberg is extremely strong, if not dominant, in the west. I think you suggested that the company may look to grow its presence in the east. How difficult or easy could that be? Is it even worth spending the money to extend its footprint from west to east?

AS2 [00:51:42]: You're talking manufacturing footprint? Are you talking of…

AS1 [00:51:48]: Yes, both, because you have to manufacture close to where you sell. Is it worth making that investment when you have a very small market share and are trying to grow market share in the east, where other players are so dominant?

AS2 [00:52:03]: That's a very, very internal question for Carlsberg, depending on what's their key indicators on China growth as a momentum, because to your point, China is very broad, as we already discussed. You need to have adequate footprint and by that you need to have a proper… Because beer is heavy, the more you make the beer travel, the more is the cost of your variable logistics, which eats away into the overall thing. Plus you will always suffer from the out of stock because none of the companies' forecast accuracy are more than 75-80% at this point given the way the trend is happening. In that case, depending on the strategy for Carlsberg, if they are looking forward to a strong regional play and they are already strong in the western part, do they really need to go and do this in a declining market today in eastern part, or do they just need a presence and not be very ominous to the competition because do you want to play the flanking strategy or do you want to take head-on, because very different ways.

Setting up a brewery is not so easy, but the good news is China has enough and more supply in terms of manufacturing because when government made these promises and gave these lands for breweries and now volumes being 40%, 50%, 60% lower, there are a lot of breweries which might be willing to do as manufacturing… A co-packing for Carlsberg as OEMs. You don't need to have your own greenfield or a fixed structure. You can play it on a momentum basis, have a look, play on the turf. If you see yourself winning, then probably invest, but don't invest on your fixed capacities ahead of the curve is what my suggestion is. That's what I see for east part of the country. For the western part of the country where there's a lion's share out of the total for Carlsberg, they should double down, simply double down because the market is declining. It's not going to favour you unless you have enough of penetration, reach and brand power.

00:54:37] What is the threat of someone such as CR Snow or Heineken taking on Carlsberg in Carlsberg's strongholds in the west?

AS2 [00:54:52]: That will eventually happen, because everyone will be grappling for share of volume in a declining market. Every commercial team would be vying for that additional pint to sell. Whatever is within the limited boundaries, you will be going ahead and trying to win that in the market. Having said that, if you do have a stronghold, depending if it's… Stronghold in terms of, again, pricing-based stronghold or a loyalty-based stronghold. If it's loyalty, there's a lot more of A&P, which any company will have to do. It runs into millions of dollars before you can move the needle. For example, what we see is further decline for 3-6 months in the beer industry would mean that the turnaround might take 3-5 years. Now does someone want to invest in promotion and brand awareness for 3-5 years, knowing that the momentum will only come after 3-5 years, and then you can ride the wave? That's a significant amount of CAPEX, including chillers, including packaging, including sponsorships, including kegs, on-trade, etc. It will happen in a declining market. Then the question is, is it the right time for someone to take heads on or continue flanking strategy.

00:56:40] What are your thoughts on Carlsberg's innovation capability and its track record? How does it compare with Heineken? Which of the two companies do you think is more consumer-centric or understands the Chinese consumer better?

AS2 [00:57:11]: I'll answer your last question first. I don't think any company in the world understands Chinese consumer. None, because the Chinese consumers have a very different way of thinking. The Chinese consumer has shifted gears in the last 15-20 years from the people who were then 40, in their 40s, and who really saw China coming up from the 1990s until 2010, those 20-25 glorious years of China, when China emerged as the second largest economy in the world, doing more business, their GDP per capita was increasing, that population is now in their 60s, which means they've taken a step back and a new population has come up, which are now in their early 20s. There's a very different consumer mindset for these early 20 guys. They believe and behave in a very YOLO sort of a situation, if I may use that lingo for them right now. For them, experiences is the most important thing. However, they may or may not be the biggest beer or alcohol consuming population as well. That's why the market is declining.

What you see is innovation is something very, very important to keep these people who love seeing experience as a way to getting back to consumption. That's where you see companies either, a, experimenting on their liquid offering, for example, witbier, for example, craft beers, for example, ales, for example, stouts, or better yet at least in their packagings. Right from an offering of 200ml can. I also saw 140ml can, which I don't think is even half of the satiation limit for any human consumption. From 140ml can to one litre to a 12-litre BIB kegs, so that innovation is happening in the packaging more so. However, what you also see of late is a lot of promotions on football, on World Cups, on theatricals and on drama, as we said. Now the packaging have started showing those, whether it's NFL, whether it's FIFA, whether it's F1 and all those because this consumer, which is in the 20s, 25, actually, most of them, at least in the tier 1 cities, have got themselves educated or have got an experience or exposure on the western side of the world. They want to recreate that experience in China. Hence, innovation either in pack format, liquid format or even the experience format is very important for them.

AS1 [01:00:23]: Thank you so much indeed for spending time with us. It's been very, very insightful and very helpful to us. Thank you very much indeed for your contribution.

AS2 [01:00:40]: Likewise. Thank you so much. If you have further questions, you can send me an e-mail or ask me or we can have another call nowadays.

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