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What can the beer industry learn from Heineken? - Comment

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Heineken has released its 2017 results and, despite the generally-depressed state of the global beer market today, the group reported some very positive trends. It therefore merits consideration with an eye towards what others in the brewing business and, indeed, the drinks industry, in general, can learn from the world's number two brewer.

Heineken unveiled H41 in early-2016

Heineken unveiled H41 in early-2016

The principle lesson to be learned from Heineken is 'don't panic'

At the risk of sounding trite and clichéd, perhaps the principle lesson to be learned from the brewing giant is 'don't panic', even when your two biggest competitors, the world's largest and second largest brewing companies at the time, merge to become as one.

Make no mistake, there was plenty of room for panic when Anheuser-Busch InBev absorbed most of SABMiller in 2016, thus creating an entity over twice the size of Heineken by volume. The company could have immediately launched upon a frenzied buying spree, acquiring or attempting to acquire a number of smaller breweries or one or two of its closer-in-size competitors, simply to bulk up and stay nearer in volume and revenue the new AB InBev.

But it did not.

Instead, Heineken stayed the course it had been following for the previous decade, continuing with modest but strategic acquisitions, introducing key brands where appropriate and gradually transforming itself from a largely European-centric brewer into a truly global player.

Let's look at the acquisitions side first. 

Slow and steady may not have yet won the race, with A-B InBev still the preferred darling of a majority of drinks analysts, but in 2017 the strategy resulted in impressive growth of 5% in sales and 9% in organic net profits for Heineken. One key aspect of this approach has been to buy where necessary, but not necessarily buy.

Compared to its larger and acquisition-mad competitor, the total value of the 65 brewery purchases Heineken has made over the past dozen years is only US$30bn - not even one-third of the amount A-B InBev paid for SAB. While the US craft brewer Lagunitas was unquestionably the highest profile of these buys, the majority have taken place in emerging markets, which now account for a full 55% of the company's operating profits.

Heineken's strategy has evidently been to keep its activities in the acquisitions marketplace as quiet and discreet as possible

And, in contrast to the much-discussed and -debated brewery purchases of its larger competitor, most of Heineken's brewery acquisitions have flown largely under the radar of public criticism, dating all the way back to the little-discussed purchase of half of the Belgian family brewer Affligem in 2000 and the almost-unnoticed purchase of the remainder in 2010. With the exception of the high-profile, two-step purchase of Lagunitas, Heineken's strategy has evidently been to keep its activities in the acquisitions marketplace as quiet and discreet as possible.

Key brand development has also been pivotal to Heineken's performance over the years, and here, again, the company stands in contrast to A-B InBev. While the latter appears at times to favour a scattergun approach, developing and introducing brands at such a rapid pace that at times it seems willy-nilly, Heineken appears to take a more considered approach to the matter, strategically launching brands that reflect and strengthen its image as a brewer of premium, quality beers.

One such case in point was H41, developed for the Italian market in early-2016 to highlight both the stalled ale segment and the company's commitment to innovation in brewing, the latter via its use of an historic Patagonian yeast.

With a majority of Heineken's profits now coming from emerging markets, an obvious two-pronged lesson would be to embrace change - witnessed here in the company's transformation from a European-focused operation to a truly global one - and fearlessly approach developing markets. Particularly impressive has been Heineken's performance in Mexico, through its FEMSA subsidiary, and Vietnam. Further, it is entirely possible that the Mexican success story is poised to be replicated in Brazil through the properties Heineken acquired from Kirin in 2017, with positive signs already appearing for brands like Devassa and Eisenbahn.

There is another lesson to be learned from Heineken's emerging markets, as well, and that is to neither be cowed in existing markets nor afraid to act boldly in others. In Africa, for example, where Heineken has traditionally been one of four dominant companies - along with Diageo, SAB and Castel - the group was suddenly faced with massive power in the form of the combined might of SAB and A-B InBev. Rather than react defensively, however, the company doubled down on its activities on the continent with an expansion in production capacity in Ethiopia, new brewery builds in Mozambique and the Ivory Coast and double-digit volume growth plus a craft brewery purchase in South Africa.

In Brazil, meanwhile, the company acted proactively by purchasing an underperforming set of breweries from Kirin and using them to make a bold foray into A-B InBev's backyard, the largest beer market in South America. While it is still early days, the move already appears to be paying dividends.

It could nonetheless be argued that the company has not done enough to address declining volumes and sales in Europe

Still, irrespective of these positive lessons, it could nonetheless be argued that the company has not done enough to address declining volumes and sales in Europe, which for all its international expansion remains Heineken's largest continental marketplace, with sales down 7.5% from 2012, although still up from the nadir of 2014 and 2015. For this to see a more convincing reversal, Heineken will need to follow the lead of its larger competitor and address cost-cutting across the board, while pursuing an aggressive programme of innovation and brand development.

Lagunitas will help in this regard, if the company decides to actively promote the American craft brand across western Europe, as will Heineken's now sizable stable of international brands, which could easily be marketed in Europe to satisfy the rising demand for the new and unusual.


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