Baltika Owners Brewing Up Expansion

By Alexander Gubsky

Vedomosti

Published: October 20, 2000 (Issue # 613)

The St. Petersburg Times Mikael Hellberg

STOCKHOLM, Sweden - The merger was announced last week of Danish brewers Carlsberg with the joint Swedish and Norwegian group Pripps Ringnes - brewers of Pripps, Lapin Kulta and Ramlosa mineral water.

The deal, which has yet to be approved by the European Union's anti-monopoly bodies, will result in the world's fifth-largest beer company.

The Scandinavian merger will directly affect Russia - Pripps and Finland's Hartwell company formed the Baltika Beverages Holding, which has controlling stakes in Russia's No. 1 brewer, Baltika, as well as four other breweries.

Pripps managing director, Mikael Hellberg, spoke about plans for the new company.

Q: How is the merger proceeding?

A: The first news was released in June. On Oct. 5, the merger of Carlsberg and Pripps Ringnes into Carlsberg Breweries was officially announced. Sixty percent of the new company will go to Carlsberg and 40 percent to the Orkla company, which owns Pripps Ringnes. Carlsberg is not new to Sweden as it already had production capabilities there through its Falcone subsidiary. Now Pripps and Falcone will form the Carlsberg Sweden company.

Q: Carlsberg Breweries will control 60 percent of the Swedish beer market. Moreover, you will have a big share in the Baltic states. To what extent are fears that the European Union's anti-monopoly bodies will reject the merger justified?

A: We may have to sell part of our production capabilities to competitors. We are waiting for the anti-monopoly bodies' decision in mid-December, and we expect that it will be positive.

Q: What will change for Baltika as a result of the merger?

A: Nothing, in principle: Baltika will remain the same independent enterprise that it is. The share of Pripps in the BBH holding will be transferred to Carlsberg.

Q: BBH has hopes of turning Baltika into the biggest-selling brand in Europe. [At present it comes in second behind Heineken, Pripps media service said.] When, in your opinion, could this happen?

A: It all depends on how many people buy Baltika. We believe it will be No. 1 within a year. That does not mean the company will significantly increase investment and the company's situation will not change radically. There is a plan for developing production.

Q: How will the new company develop after the merger?

A: The merger is good news because we will keep the old trademarks. But in so doing, we will have more resources for development purposes. For consumers nothing will change. Now the label will simply have Carlsberg Sweden in small letters where Pripps was written previously. It is not part of our tradition to drop old names. We have kept the names of many brands that were brewed at now-defunct breweries.

Q: But you will be making cuts?

A: Of course. When two people get married they no longer need two separate apartments. The same is true when companies merge. We will be twice as big, but we don't plan to spend twice as much. A decision to cut staff has not yet been taken, but down-sizing is necessary. Most likely this will affect administrative personnel - there is no sense laying off the factory workers.

Q: What are your plans for Eastern Europe?

A: They have yet to be agreed to and fleshed out in great detail. Think about it - we export beer to these countries, plus we have the BBH holding that belongs to Pripps and Hartwell, as well as factories in Ukraine, Latvia, Lithuania and Estonia. Pripps will sell its premium goods in Eastern Europe. We are not counting on big volumes, but we would like to achieve good visibility - at the better restaurants for example. I should emphasize that Eastern Europe is a priority area for us.

Q: Are you working on any advertising projects for Russia?

A: We are considering various possibilities right now. Carlsberg has a good position on the mass market and we want to enter the market with our own products of a higher-price category.

Q: Do you plan to create new brands for Russia?

A: No, we will continue to develop the ones we have already. Perhaps Carlsberg will try to promote its brands more actively in Russia using BBH's dealer network. But this would not be a big share of the market - Baltika has priority.

Q: What is Pripps' role at Baltika? Do you take part in the resolution of technical issues? Do you provide the Russian enterprise with specialists?

A: After we became co-owners of Baltika in 1993, we began by moving equipment from Swedish and Finnish breweries to the St. Petersburg factory. There are no problems getting equipment in Sweden. Due to mergers, many smaller breweries closed, and to this day, much of their equipment stands idle.

We have trained staff and introduced new hygiene standards. The Baltika recipe was modernized - it is virtually the same as Sweden's popular Pripps Bla light beer that is sold internationally.

Q: Do any Pripps managers work at Baltika ?

A: At the moment - no. Our philosophy is as follows: National enterprises must stand on their own two feet. There shouldn't be too many foreigners. At the start, we poured resources into all areas in order to train people. But after a certain amount of time, people must work independently. Management should be local while we, the shareholders, are always prepared to provide financial or technical support.

Q: Does Pripps continue to put money into Baltika or is this no longer required?

A: The situation varies from year to year. It depends on two things: the volume of investment required and the level of profits. Some years BBH put in additional money and some years not.