Interview with Harboes Bryggeri’s CEO Søren Malling

For those who have not heard of Harboes Bryggeri before, please tell us more about your business, what you do, and which markets you address?

Harboe Breweries is a family-managed company by the 6^th generation and the third-largest brewery in Denmark. Our motto is that we are the Peoples Brewery (in Danish “Folkets Bryggeri”) as our mission is to make good quality affordable, so it is not for the few but for everyone. Harboe Breweries consists of the mother company located at Skælskør, Denmark, where it was founded in 1883, and a sister company, Darguner Brewery, in Dargun, Germany, that Harboe founded in 1991 after the reunion of East- and West Germany.

During the 1990’s, the overcapacity of both sites was used to build up an export business, and the company today supplies more than 90 countries worldwide, with beverages like beer, energy drinks and malt beverages, in own brands and also private label / third party filling. Harboe is today a well-known and strong brand in Denmark and the leader of the price entry segment in both beer, soft drinks. Along with the development and growth of the former eastern Germany, the Darguner Brauerei also grew big on serving the German retail chains with beer and soft drinks, primarily in the private label area, among the ten biggest breweries in Germany today.

Harboe also has an ingredients department that produces malt extracts and fruit compounds. This segment has also become international, where we export to approximately 40 countries.

Can you tell us more about your beverages and ingredients, their advantages, and how the products compare to competitors?

As for our beverage products, we supply a value-for-money product. We never compromise on quality and usually get good ratings in blind taste tests, often winning the test or ending higher than much more expensive products. We are in a business where marketing plays a significant role, but historically, we haven’t invested much into it. Nevertheless, we have managed to get a reputation for producing good quality at a low, affordable price to the customers.

Our ingredients business is approximately 10% of our revenue and is very much about know-how and product functionality, focusing on B2B. We differ from our competitors by being a brewery, which is uncommon in the malt extract business, where malt companies do not produce beverages as well. Our closest competitors in the ingredients segment are located in England, Finland, and Italy. By being a brewery, we have other technologies and processes, enabling us to produce malt extracts with different functionalities, which the customers often appreciate in the bread, chocolate, and beverage industries.

The beverage market is highly competitive with large brands such as Coca-Cola and Heineken. How does Harboes Bryggeri stand out and compete in this market?

We have lower costs on organization and marketing and we have no mercers in the retail market. We have a lower margin on our products, but we also allow ourselves to sell the overcapacity to third-party filing to support the overall business. On the export markets, our products are seen with higher shelf prices than in our home market, often at the same price level as locally produced, being an affordable imported product.

For the past five quarters, you have turned profitable; what has been the main driver for this change?

We truly believe that it is the strategy that we have defined that is making a difference and that is important because it’s not in the short term. We have been through a re-organization, including establishing a category- and marketing department. We have rebranded our Harboe brand in DK. We have included fruit in our Ingredients business. We have a more strategic approach in our export markets with positive organic growth in value brands with higher margins. And we have gained new, big customers in our private label business. All in all, this is the main driver of the change. Therefore, we believe that this will be more permanent for us, that we are going to make money in the future with the ambition to do it even better than we do now.  

Could you elaborate on the new production line you are implementing in the Danish brewery? What are the reasons for this, and which effects are you expecting?

We are going from two PET-bottle filling lines that date back to 2004 and 2005 to one filling line. We decided to make this investment last year, and the restructuring has already started because it is more than just a new line; we are expanding the existing warehouse with a new juice kitchen and mixing room.

One reason behind this is that we want to support the sustainability agenda, so we want to lower energy, water, and heating usage by using one line instead of two, which, of course, also lowers our costs. The reason for the new line is also that we want to be more relevant for consumers because we will also increase our capabilities of producing the amount of R-Pet (plastic bottles made of repurposed waste PET material).

The new line is faster and more precise than the two older ones, which means it can do more fillings per hour, and we expect it to have better yields and less waste. We will also be able to fill beverages without preservations which, we cannot do today in PET-bottles.

Where do you see Harboes Bryggeri in three years?

We will continue the path we have started, which is to be the people’s brewery, offering quality and affordable beverages. Furthermore, we are investing more in marketing, which we have just initiated by introducing a commercial advertisement on National television, to increase the  preference for our products and continue to build the Harboe brand in Denmark. The TV-commercial is a historical event in the history of Harboe, as we have never done this type of marketing before.

In export, we will continue to increase control of the market positions where we have our strategic focus, with an increased category and marketing support. We aim to be in 70-90 countries, which we believe are the right markets for Harboe

For Germany, it is very much about the private label business. It will be a more profitable business with new investments coming up, lowering our production costs and also with a more sustainable approach.

For ingredients, we see a lot of potential. We will continue to develop our ingredients by updating our production equipment and investing in new capabilities, and we will see further development of our fruit business.

We will in general continue to upgrade our production facilities to meet the future requirements of ESG; just like our company values, humility, smartness, and hunger will be the foundation of our organization and the prerequisite of good teamwork that will make it all happen. 

Could you name three reasons as to why Harboes Bryggeri is a good investment today?

• You should invest in Harboe because we want to grow, make higher volumes, more revenue and we want better margins. Our goal is to reach a 10% EBITDA margin, and we are getting close to this goal as for the first three quarters, we have reached 8,8%, whereas last year, we were at 4,2%.
• Furthermore, our journey towards being a branded goods company where we strengthen our competitiveness and our market position. We want to achieve this by strengthening the preference for our brands in the minds of the end-user. Harboe has also gained new talent with good knowledge and expertise on the board.
• Lastly, we will increase efficiency in the supply chain by an ambitious investment program where earnings that we do today are reinvested into the company, for example, the new production line in the Danish brewery. We also see good opportunities in the ingredients business with new markets and product creations.