just On Call - Heineken prepares shift for Europe
Heineken to invest behind brands in Europe
Heineken is prepared to sacrifice profits in Europe over the short-term in order to improve its market share amid ongoing weak consumer demand for beer in several key countries.
Heineken's CEO, Jean-Francois Van Boxmeer, has said that Heineken will boost advertising and promotion spend behind its premium beer brands in Europe, in order to regain both volume and value share in key countries, such as the UK.
"This will affect profit development in the near-term in Europe," Van Boxmeer told analysts at Heineken's full-year results conference yesterday (16 February). "we will have to invest more," he said.
Excluding gains from the acquisition of Mexico's FEMSA Cerveza, Heineken's net sales fell by 2.2% on a like-for-like basis in calendar 2010. Beer volumes slipped by 1.7% versus 2009 as the brewer suffered from weaker consumer demand for beer from London to Moscow. Heineken's volume sales sank by 3.5% in Europe, where the brewer has a higher exposure than any of its major competitors.
Even the Heineken brand, which reported 3.4% volumes sales growth globally, slipped by 0.7% in Europe.
The Netherlands-based brewer has worked to significantly reduce costs in the region and has closed several breweries, including two in the UK over the past year. Europe accounted for roughly half of the savings made under the brewer's Total Cost Management programme, which delivered EUR280m in pre-tax savings in 2010.
At the same time, Heineken has rapidly spread its wings in emerging markets. The FEMSA deal, plus the deal to acquire a 37.5% stake in India's United Breweries and gains in Africa, helped Heineken to recoup 57% of earnings before interest and tax from emerging markets during the year.
However, Van Boxmeer denied that Europe is taking a back seat in the group's plans. In Europe, "the Heineken brand still offers a lot of growth opportunities", he said, adding that the company will seek to "expand our premium portfolio with higher-value products".
The brewer's plans include selling more Stongbow cider outside of its core UK market, as well as selling more high-margin Desperados in Europe.
For just-drinks' original story on Heineken's full-year results, click here.
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