We expect to have a predictable macroeconomic policy so that business not only survives but also develops in difficult conditions

Yevhen Shevchenko, the CEO of Carlsberg Ukraine, who has extensive experience in Ukraine and other countries in Eastern Europe, Baltics and Central Asia, told LDaily readers about the current state of the beer market — the change in its consumer format, the latest trends caused by the pandemic, and the difficulties manufacturers are facing in the industry.

LDaily: Carlsberg is one of the well-known beer brands in our country. What is the current market share of the company’s products in Ukraine?

Y. Shevchenko: In the first half of 2020, according to Nielsen,* Carlsberg Ukraine’s market share was 30%** in volume terms.

LDaily: Where do you export beer? Will new export destinations be opened this year?

Y. Shevchenko: Export is rapidly developing, especially since the export market has significantly changed after the Revolution of Dignity. Previously, we focused on the post-Soviet countries — Belarus, Armenia, Russia… Now we have China in the first place and Israel in the second, followed by the USA, Germany, Poland, Italy… We are discovering the markets of America and Western Europe. Sure, we are also present in Canada: the Ukrainian diaspora is quite large in this country. Even the Czech Republic “opened” for export this year. We are focusing primarily on countries with significant Ukrainian diasporas, as we export only our local brands — Lvivske and Kvas Taras. We can not export brands that we manufacture under the license of other countries — Carlsberg, Kronenbourg 1664, and others.

LDaily: There is an opinion that our raw materials are not as good as European ones. However, you produce products from domestic raw materials in Ukraine and export to countries that already possess high-quality primary products. What are your competitive advantages?

Y. Shevchenko: In fact, we produce 97% of our products from Ukrainian raw materials. Unfortunately, production of some special raw materials is not well-developed in Ukraine. These are hops and some varieties of malt that we have to import for special beer sorts, but their volumes are meager. Ukrainian malt fully meets European quality standards, so there is no need to import it. Without any doubt, the quality of our product is competitive in foreign markets. Our beer is very popular with the Chinese. Firstly, in China, Ukrainian beer is associated with high European quality (although the Chinese produce a good product as well). Secondly, it is tasty and strong for them, as most beers in China are from 2.5% to 3.5% alcohol by volume. And ours is 4.5%.

LDaily: How has the share of beer in the entire Ukrainian alcoholic beverage market changed?

Y. Shevchenko: This data is calculated in two ways. You may consider all kinds of alcoholic beverages, regardless of the alcohol content in them. Then beer leads and accounts for about 80% of total alcohol consumption. Still, they usually determine the share differently — calculate the degree of absolute alcohol.

That is, all categories of alcoholic beverages get one denominator. For Ukraine, the picture is the same as for other post-Soviet countries. The share of vodka is about 45%, while the share of beer is about 40%. This pattern is typical for most post-Soviet countries, except for the Baltics, where the share of beer exceeds the other beverages measured by the degree of absolute alcohol.

LDaily: How did your breweries work under the strict quarantine, what did you have to change in your work?

Y. Shevchenko: Carlsberg Ukraine has three breweries — in Lviv, Kyiv, and Zaporizhia. They did not stop working during the quarantine. Noteworthy, we were ready for the quarantine a bit better than most of the Ukrainian companies were. Our Chinese colleagues were the first to face the pandemic. They wrote a very detailed guide for the rest of the Carlsberg Group: what to pay attention to, what to look out for, what changes might occur, and so on. It has helped us a lot.

We had to change a lot… Some employees started working remotely if possible. By the way, I’m talking to you from my home now. The difficulties caused by the quarantine measures influenced our work the same way as they affected everyone. Still, our IT systems have coped well with this. From the first day of the quarantine, we began to pay considerable attention to the employees’ safety. We have introduced very strict sanitary measures at all our breweries. We constantly provide our employees with protective equipment. Everyone gets masks, gloves, and sanitizers every day.

LDaily: How has the coronavirus crisis affected doing business? Have the conditions changed in the trading environment?

Y. Shevchenko: If we talk about doing business in general, the document flow has become more complicated, as the physical delivery of documents is more difficult now. Due to this, we began to introduce electronic document management. Unfortunately, this does not work with all contractors and government agencies. We did not stop serving our customers but started to follow all the necessary security measures.

As for the change in the trading environment, of course, the sale of products was affected by the closure of cafes and restaurants, which took place during the most severe quarantine period. We are witnessing the growth of modern trade formats. That is, chain stores are growing faster than small independent shops. Sales are falling in the latter and are increasing in supermarkets. I should note that HoReCa is now recovering, especially after the toughest quarantine measures have been lifted. Sales of draft beer are gradually returning to the normal level.

LDaily: Are you satisfied with the current level of excise duty?

Y. Shevchenko: We see a fair and balanced policy on the part of the state and expect a similar approach in the future. The excise tax is not rising, and I think this is right, as we have already reached the European minimums on excise duties but haven’t reached the European indicators for the living standards of our customers. While the share of excise duty in the retail price is the same as it is in Germany, the salary of the Ukrainian consumer, unfortunately, is several times lower.

Also, most progressive countries and international organizations recognize the importance of maintaining the relative availability of beer and low-alcohol beverages compared to stronger alcohol, given the high elasticity of the spirituous beverage market.

It’s also noteworthy that for the last three years when the excise tax rate remained flat, the beer market returned to growth for the first time in 10 years. The production is expanding, and the number of jobs is increasing. The market continues to grow gradually even this year despite a reduction in HoReCa due to the quarantine. Excise duties in absolute terms are at last year’s level. The state has benefited financially, leaving the excise tax rate unchanged.

LDaily: Do you face “price wars” with competitors? If so, how do you deal with this?

Y. Shevchenko: The market is very competitive. The intensification of competition under the quarantine has even increased compared to the last year. All market players are desperately fighting for their market share. When the market shrinks, this struggle becomes even more actual for all its participants, and the price is in the focus. In the end, the consumer will win in these price “struggle”, so enjoy great discounts on beer this summer!

As a result, competition always leads to the victory of shoppers. That is why there are tough measures against restrictions on competition.

LDaily: Is the capacity of your sites now fully loaded? Is there a prospect of increasing volumes — acquiring other companies or increasing capacity?

Y. Shevchenko: I think that not everyone is up to shopping to some extent, as costs have increased significantly due to the coronavirus. Many millions of hryvnias are spent on protection, necessary social projects, charity… We donated UAH 5.4 million to charity in connection with COVID-19. This money was used to purchase protective and medical equipment for hospitals. I don’t think anyone is in a buying position right now.

As for capacity, of course, they are not fully loaded and our average is about 65% per year. Since there is such a resource, there is no urgent need to increase capacity.

LDaily: Did you have any planned investments this year that had to be canceled due to the impact of the coronavirus on the world economy?

Y. Shevchenko: We did not fully revise the investment program but postponed secondary plans to the next year. And then we’ll see, as there is an opinion that there will be an even larger economic crisis and recession after the coronavirus crisis. So, we will assess the situation at the end of the year and determine whether we really need these investments or whether we can abandon them so far.

As far as I know from colleagues in other industries, many companies in the consumer sector have now switched to a very tight investment ration.

LDaily: Ecology is trendy now. Many customers would like to buy products in environmentally friendly packaging. In this way, they try to do less harm to nature. Does this trend make any adjustments to the company’s work?

Y. Shevchenko: We are working with the “eco” trend quite productively. Carlsberg is a Danish company, and the Danes are known to be one of the leaders in the global environmental field. If we talk about the global level, we have a strategy until 2030 called “Together Towards ZERO”. It aims to address the global challenges of the humanity, including climate change, access to water, and health issues. The program includes four long-term strategic goals: ZERO carbon footprint, ZERO water waste, ZERO irresponsible drinking, and ZERO accidents culture. And we have tangible KPIs for each each of them.

Accordingly, we have very clear and strict goals for each market and country within this strategy. I’d like to note that the most complex issue in Ukraine is carbon emissions. It is technically impossible to do fully carbon-free production. We pay a lot of attention to packaging that has the highest percentage of carbon footprint, and the company is constantly trying to increase the use of reusable bottles. It is now 44%. This year, bottles were affected by one of the changes in the restart of the Carlsberg brand. It now has an additional coating that protects it from chipping and makes it reusable for a longer period. This is not the only change. We also started to use more ecological green paint that is processed better and faster. A special membrane was developed for the lid, which does not let in oxygen and makes beer stay fresh longer.

Continuing the topic of eco-packaging, I’d like to note the development of Carlsberg Group’s global office: the creation of Green Fiber Bottle — the world’s first “paper” beer bottle made of environmentally friendly wood fiber, which fully decomposes in the environment without harming it. We released two new research prototypes of this bottle last year. They include a thin layer of the further recyclable polymer membrane, which is necessary for testing the barrier technology. These prototypes demonstrate progress and are an intermediate step towards achieving the ultimate goal — a bottle without polymers, which is completely biodegradable.

If we return to our strategic “zeros”, then our Lviv brewery is the most efficient among the entire global Carlsberg Group in terms of water savings. The Kyiv Brewery is not far behind.

As for irresponsible consumption, our first task is to offer the consumer a non-alcoholic alternative at each point of sale where we present our products.

Secondly, our company takes part in the annual Global Beer Responsibility Day, which is accompanied by a global information company. One of the directions of this campaign is visiting outlets by our employees to promote professional ethics of relations between consumers and sellers. It’s about the refusal to sell beer to underage. In 2020, this event will also take place, but we will digitalize it as much as possible and go online, given the epidemiological situation in the country.

LDaily: How is the culture of beer consumption changing in general? Have customers’ preferences changed? Has the demand for craft beer or cider increased?

Y. Shevchenko: As for the culture of beer consumption, the demand for specialties is increasing. If we recall the notorious craft “revolution”, in our country, it is still happening only on Facebook and has not yet reached the masses. Such beer is quite expensive for the average Ukrainian consumer. Wealthy people or connoisseurs who want to diversify their taste repertoire drink it.

The cider market is rapidly growing and competitors are beginning to actively enter it. If we have been dominating this segment among large manufacturers almost without hindrance for the last few years, now we see emerging competitors. However, this will be a benefit for the consumer.

LDaily: Do you face corruption in your work?

Y. Shevchenko: Carlsberg Ukraine is a 100% Danish company, and Denmark is a compliance champion among all the world countries (it sometimes shares the first place with New Zealand, according to the Corruption Perceptions Index). So, our company operates in compliance with the strictest ethical standards. We are part of the Ukrainian Network of Integrity and Compliance (UNIC).

I think everyone has already understood that Carlsberg Ukraine never gives bribes to anyone. That’s why they don’t even ask.

If someone tries asking, I tell them that Carlsberg Ukraine won’t give a bribe under any circumstances.

LDaily: What social projects does Carlsberg Ukraine support?

Y. Shevchenko: There are a lot of social projects, and there are always various situational requests.
For several years, we have been supporting the “No waste Ukraine” public initiative, which aims to promote separate garbage collection in the country.

We are actively cooperating with the organization “Batteries Surrender”, which guarantees the recycling of used batteries in Europe.

Every year we award two scholarships to the Ukrainian Catholic University, supporting the talented youth of our country.

We are investing in the development and popularization of science in Ukraine for the second year in a row. Since we have established a fund to support science, Carlsberg Ukraine is holding a competition for research projects to improve production efficiency and reduce the negative impact of manufacturing on the environment. We select two winners among the finalists. They receive grants of UAH 500,000 each.

In addition, we provide the above-mentioned charity to fight with COVID-19 for UAH 5.4 million. It is about 8,000 protective suits for doctors, 3 artificial lung ventilation machines, 10 oxygen concentrators, and 5 patient monitors.

LDaily: Are you ready for the next crisis if a strict quarantine is imposed again?

Y. Shevchenko: Unfortunately, everything is extremely unpredictable now. We don’t see a decrease in the incidence. In many countries in Western Europe, Southeast Asia, and the Pacific, which reported victory over the coronavirus, new outbreaks are starting again. I even heard an opinion that we shouldn’t wait for a second wave because we still haven’t coped with the first one.

I think that this global problem will be solved only when an effective vaccine becomes widely available. Still, I will not make any forecasts, as this is the competence of virologists but not mine.

LDaily: What do you expect from this year?

Y. Shevchenko: In the second half of the year, we are going to compensate as much as possible for the losses we have faced due to the quarantine, closing of retail chains, cafes and restaurants in the first half of the year.

We expect to strengthen our position in the market that has become more competitive. In the current situation, this requires a lot of effort.

Expectations are also an important point. Of course, we expect predictability from regulators and governments. A predictable macroeconomic environment, a predictable regulatory policy, and the absence of any ill-conceived tax and regulatory initiatives. This is necessary to make the business survive, grow, and develop in this difficult situation when all businesses (except, perhaps, online retail and some other businesses) feel the pressure of cash flow.

* Nielsen Holdings NV (NYSE: NLSN) is the world’s leading provider of analytical data on consumer behavior and shopping habits. Find more information at www.nielsen.com.

** Calculations of PJSC “Carlsberg Ukraine” are based on data from the Nielsen reports on the audit of retail trade in the beer category for the period from January 2020 to June 2020 on the beer market in urban and rural Ukraine (excluding the occupied Crimea, Sevastopol, parts of Luhansk and Donetsk regions).