Heineken International - Case Synopsis - BUS 478 - D300
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Heineken International
Case Synopsis
BUS 478 - D300
October 28th, 2014
Submitted by:
Mohammad Basij
Leslie Chow
Domenico Delli Santi
Sara Loski
Robert MarzitelliFIRM OVERVIEW
Background History
Heineken International (“Heineken” or “the company”) is a Dutch brewing company that was founded in
1864, just outside of Amsterdam, when Gerard Adriaan Heineken purchased the Haystack brewery. Over
the years Heineken has acquired many different breweries throughout the world. Heineken owns over 250
different beer brands, some are popular all over the world and some are more popular depending on
location (The Heineken Company). The table below lists some examples of its brands:
TABLE 1: Heineken brands related to location
Global Brands Heineken, Amstel, Desperados, SOL, Strongbow, & Affligem
Western Europe Cruzcampo and Gold
Central and Eastern Europe Zywiec, Zlaty Bazant, and Russian Oxota
Africa and Middle East Star, Primas, and Mutzig
The Americas Dos Equis, Kaiser, Tecate, and Cristal
Asia Pacific Anchor, Tiger, Kingfisher, and Bintang
Heineken’s stated mission is:
To delight consumers, day in day out, with perfect cider and beer experiences
In support of Heineken’s mission, its values are enjoyment, respect, and passion. More specifically its
values inspire the company to:
• Please customers
• Continue sponsoring sporting, music, and art events
• Promote responsible alcohol consumption
• Embrace diversity
• Commit to making Heineken a great place to work
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Heineken Today
Heineken wishes to have sustainable growth in its brand. Heineken is available in over 70 countries
worldwide. The company is currently the third largest brewer in the world along with SABMiller, the
second largest, and Anheuser-Busch InBev (AB InBev), the largest (Welch, D., Cambel, M., & Bagoirri,
M. 2014, Sept 15). Heineken has a global market share of 17.7 percent compared to a 15.5 percent market
share of SABMiller and a 29.6 percent market share of AB InBev (Rooney, 2014). The company also
strongly sponsors sporting events such as the UEFA Champions League, Europe’s premier soccer club
tournament (The Heineken Company).
Notable News
Recently, Heineken’s European sales have decreased due to Europe’s unseasonably rainy summer.
Although European sales have decreased, “Heineken nevertheless repeated it’s [expectations] of full-year
margins” (“UPDATE 2-Wet”, 2014) as strong sales in Asia as well as higher prices offset this decrease.
In September 2014, SABMiller, wished to purchase Heineken in the hopes of being able to better compete
with the market leader AB InBev. Heineken did not accept this offer and it is unclear if either SABMiller
will act again. There is also the possibility that AB InBev will attempt to acquire Heineken since it has
spent “$100 billion over the past decade to purchase … Corona to Budweiser” (Welch, D., Cambel, M., &
Bagoirri, M. 2014, Sept 15). AB InBev has spent a lot of money to become the market leader, and
therefore, it has a lot of motive to retain this position.
Financial Performance
Heineken has experienced much success in over 70 countries and wishes to continue its financial
performance throughout the coming years. Predominantly a single-product company, Heineken has
developed solid reputations with suppliers, distributors and customers to earn increasing profit margins
and revenue streams. The tables below highlight the growth of Heineken in the coming years along with
its 2013 fiscal year financial results.
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TABLE 2: Annual Income Statement Data
Year
Financials 2013 Expected 2014 Expected 2015 Expected 2016
Sales (In
Millions of €) 19,203 19,352 20,259 21,194
Earnings Per
Share (EPS) 2.37 2.70 3.14 3.48
Net Income (In
Millions of €) 1,364 1,554 1,784 1,961
Debt (In Millions
of €) 10,758 9,820 8,624 7,272
Yield (%) 1.56% 1.70% 1.96% 2.18%
TABLE 3: Profitability
Year
Financials Expected 2014 Expected 2015
Net Margin (%) 8.03% 8.81%
Return On Assets (ROA) 5.2% 5.63%
Return On Equity (ROE) 14.2% 14.6%
Adapted from 4-traders: Heineken Report, by 4-traders.com – Thomson Reuters, 2013, retrieved from http://www.4-
traders.com/HEINEKEN-6283/financials/
Copyright © 2013 by 4-traders.com
What should be noted is the expected increase in sales from 2014 to 2016 along with decreasing debt.
These expectations are to be supported by cooperative strategies and the strategic alliances Heineken
posses with companies such as Asia Pacific Breweries in Singapore and Brau Holding International & Co
in Germany (4-traders, 2014).
GENERAL ENVIRONMENT
Global Environment
As the global economies continue to develop, new industrialized countries emerge. This provides great
potential consumer markets for alcoholic beverages. The emergence of developing countries also creates
new markets that have not been exploited previously by the industry leaders, allowing for growth from
companies like Heineken with global presence to enter those markets. The global alcoholic beverages
market is continuously growing and remains as a high opportunity market for the alcoholic beverages
industry (Euromonitor, 2013).
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Demographic Environment
Beer consumption is divided between all types of demographics globally. The Generation Y population,
which is a larger group than their predecessors, Generation X, are less inclined to drink beer (Clarke,
2012). According to a 2011 study by the Harris Poll, 37 percent of Generation Y says beer is the drink of
choice, compared to 41 percent of Generation X.
Tara Carraro, senior director for corporate communications at Heineken USA, says Generation Y
consumers are a prime target for Heineken USA. Senior multicultural director for MillerCoors, Al Patel
states “younger consumers are more adventurous, therefore incorporating more brands into their routine”.
Craft beers, which directly compete with Heineken, appear to be the biggest beneficiaries of the
Generation Y’s adventurous character. Even when craft beer drinkers commit to a brand, their
adventurous character provides interests in variety and will almost always consider new brands (Clarke,
2012).
Men and women represent 75 percent and 25 percent of the beer market, respectively. Heineken is
attempting to target both by different packaging standards for each segment. With this in mind, it is
crucial for Heineken to continue to appeal to the male market as it represents the majority of the market.
The largest beer markets in the world are Russia, China, United States, Brazil, and Mexico. Heineken’s
shares in these markets are 12.1 percent, 0.4 percent, 4.4 percent, 8.3 percent, and 43.6 percent,
respectively. In addition, Heineken’s market share is significant in Nigeria, Netherlands, Spain, France,
Austria, and New Zealand (Euromonitor, 2013).
Political and Legal Environment
Heineken, being one of the global leaders in beer industry, must abide by the rules and regulations of the
countries of operation. With the increasing concerns about drinking and driving, alcoholic companies
must be responsible and include such cautions and promote safety. Heineken’s 'Enjoy Heineken
Responsibly' campaign assists in overcoming these challenges by informing and educating consumers
about the safe and responsible consumption of alcohol.
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Economic Environment
One of the most important beer market growth indicators is a country’s economic growth. According to
Heineken’s 2014 Annual Report, six of the ten fastest growing economies in the world are located in
Africa. This is an important factor in the creation of a brand-conscious middle class in a market that
Heineken is looking to target.
Sociocultural Environment
In the last decade there has been a dramatic increase in health awareness leading to a social movement
towards healthier lifestyles worldwide. These new trends in the global beer market appear to show a
higher preference toward healthier beers with lower calories and carbohydrates. Heineken has introduced
new lines of beer products under the “light” branding, which satisfies the new consumer needs. Currently,
the majority of the Heineken beer sales in the US market are from the “light beer” brands with the lower
calories.
Technological Environment
As a single-product industry, Heineken aims to develop new and exciting innovations through extensive
Research and Development. Heineken recently launched “Heineken Ignite” on April 9, 2014 during
Milan Design Week as a part of Heineken’s Lounge of the Future concept (Digital Synopsis, 2014). With
help from Tribal DDB Amsterdam, Heineken Ignite has become the first interactive bottle. This product
contains clever technology that “brings the bottle to life” through lights and sparks when in contact with
another bottle (Digital Synopsis, 2014). Innovations and product development such as this draws
attention from consumers and leads to a more connected drinking experience.
INDUSTRY ENVIRONMENT
Threat of New Entry - Moderate
The threat of new entrants in the beer industry is moderate. With the adequate amount of capital,
competitors could decide to enter the market by acquiring the necessary equipment and skilled brewers.
Many people enjoy a wide variety of different beers, and since switching costs for beers is low, many
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enjoy trying out small or locally brewed beers. However, with companies like Anheuser-Busch InBev
(19.7% in 2013) and Heineken (9.2% in 2013) having large portions of the global market share in the beer
industry, it may be difficult for new entrants to grow a lot in the industry.
Many of these the existing competitors also have large amounts of capital and experience. If new entrants
do not have an adequate amount of capital to compete, they can easily become overpowered. The many
years of experience these existing competitors have gained also allow them to create economies of scale,
as well as having access to a large number of distribution channels, which is difficult for new entrants to
obtain.
Lastly, many existing companies have developed well-known reputations and have successfully
differentiated its product. For example, Heineken has successfully developed a brand that is recognized
globally, and the organization is most well known for its premium lager and dark beer products.
Threat of Substitutes - High
The threat of substitute products in the beer industry is high. This is due to the low switching costs
customers face with beer products. In the alcoholic drink market alone, consumers have many different
other choices such as wine, spirits, and ciders. Beer may also be substituted for non-alcoholic drinks such
as soft drinks and coffee.
Bargaining Power of Suppliers - Low
The bargaining power of suppliers is relatively low in the beer industry. Even though the commodities
required to brew beer such as hops, wheat, and barley are important components; these items are
generally easy to obtain from a variety of farmers. Therefore, companies would not face many switching
costs in order to find other suppliers. Previously, the hop production market had a supply shortage in
2006, but returned back to normal in 2009 (Euromonitor, 2011). In addition, the beer industry makes up a
large portion of these commodities' sales every year.
In terms of brewing, many larger companies own their own breweries, allowing the company to control
costs. For companies that do not own their own breweries in certain regions or markets, it is possible to
contract with a brewing company or license to brew their products.
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Bargaining Power of Buyers – Moderate/High
The buyers' bargaining power is moderate to high. Consumers have very low switching costs, which
allow them to move from product to product. In addition, the beer industry has a wide variety of options
in which customers can choose from. However, many companies have differentiated their products by
building a strong company brand, and product taste which reduces buyers' bargaining power if they enjoy
that product specifically.
Intensity of Rivalry – Moderate/High
The intensity of rivalry in the beer industry is moderate to high. This is due to the large number of
competitors in the beer industry. However, there are several firms who control more global market share
than others. These top companies are generally equivalent in size and power, and are constantly fighting
to maintain and gain market share. The only exception would be Anheuser-Busch InBev NV, who owns a
much larger proportion of the market than any other competitor. Many of these companies have high
strategic stakes in this industry, meaning it is very important for them to perform well in the market. In
addition, the low switching costs buyers have also create a very competitive environment.
MAIN STRATEGIC CHALLENGES
Decreasing Revenue Streams in the US and Europe
In 2013 Heineken experienced decreases in beer sales volume in all markets except Asia over its first
quarter (Financial Times, 2013). This was most noticeable in Western Europe and the United States,
where Heineken’s key markets are located. The decreases were due to unseasonably bad weather in
Europe and weak customer confidence in the United States. Heineken’s exposure within Europe has also
contributed to its recent disappointing results. Russia was hurt by a kiosk sales ban (2013), which was
directly felt by Heineken as it recently acquired Efes, a beer sold predominantly in Russia, from
SABMiller.
Additionally, Heineken struggled to compete in the US market with the recent craft beer phenomenon as
craft beers have been taking the lion’s share of beer market growth in the US for the last decade
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(Bouckley, 2013). Heineken decided it could not compete directly with craft beers and instead chose to
focus on growth in the cider category (2013). As craft beer continues to gain popularity in the US market,
Heineken will be hard pressed to sway customers back to its product.
Major Reliance on the European Market
Heineken has been recently expanding into emerging markets in countries such as Nigeria, Vietnam, and
China. This is to attempt to offset the major reliance that the company places on the European market for
its success. However, despite its aggressive and effective expansion into emerging markets, the company
still remains highly leveraged to Europe for nearly 40 percent of its earnings (Wehring, 2014). As Europe
is a difficult market to operate in if conditions are not right, this poses as a challenge for the brewery to
perhaps find more reliable sources of revenue.
Increasing Competition with SABMiller and AB InBev
Heineken has been constantly competing with the two other major brewing companies of SABMiller and
Anheuser-Busch InBev (AB InBev). In September SABMiller made an offer to purchase Heineken (Van
Daalen, 2014). The company rejected the takeover approach stating that it intends to preserve the heritage
and identity of Heineken as an independent company (2014). With advanced competition between these
three brewing giants, Heineken will be pressured to continue strong sales in order to ensure that either
company does not acquire it.
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REFERENCES
Bouckley, B. (2013, August 21). “Heineken cannot compete with US craft beer phenomenon”: CEO.
William Reed Business Media. Retrieved from
http://www.beveragedaily.com/Manufacturers/Heineken-cannot-compete-with-US-craft-beer-
phenomenon-CEO
Clarke, J. (2012, May 1) Who is The New Beer Consumer? Beverage Media Group.
Retrieved from: http://www.beveragemedia.com/index.php/2012/05/who-is-the-new-beer-
consumer-brewers-ready-to-say-ihola-and-more-to-expand-reach/
Esterl, M. (2014, September 14). Heineken Rebuffs SABMiller Overture. The Wall Street Journal.
Retrieved from: http://online.wsj.com/articles/heineken-rebuffs-sabmiller-overture-1410736024
Rooney, B. (2014, October 9). Beer 101: big changes are brewing. CNN Money. Retrieved from
http://money.cnn.com/2014/10/09/news/companies/beer-101/
Van Daalen, R. (2014, October 22). Heineken profit declines, post lower sales in Europe. The
Wall Street Journal.Retrieved from http://online.wsj.com/articles/heineken-third-quarter-profit-
falls-1413960678
Wehring, O. (2014, October 23) Analysis – Time for Heineken to make a European break. Just-drinks.
Retrieved from http://www.just-drinks.com/analysis/analysis-time-for-heineken-to-make-a-
european-break_id115229.aspx
Welch, D., Cambel, M., & Bagoirri, M. (2014, September 15) SABMiller Said to Approach Heineken
Family With Offer For Brewer. Bloomberg. Retrieved from:
http://www.bloomberg.com/news/2014-09-14/sabmiller-said-to-approach-heineken-family-with-
offer-for-brewer.html
(2013) Alcoholic industry Statistics. Euromonitor International.
Retrieved from: http://www.portal.euromonitor.com.proxy.lib.sfu.ca/portal
(2014) Digital Synopsis. Retrieved on October 27, 2014 from
http://digitalsynopsis.com/advertising/heineken-ignite-interactive-beer-bottle/
(2011) Global Performance and Prospects for Beer. Euromonitor International.
Retrieved from: http://www.portal.euromonitor.com.proxy.lib.sfu.ca/portal
(2011) Growth Opportunities for Beer Suppliers. Euromonitor International.
Retrieved from: http://www.portal.euromonitor.com.proxy.lib.sfu.ca/portal
(2013, April 25) Heineken. The Financial Times. Retreived from
https://global-factiva-com.proxy.lib.sfu.ca/ga/default.aspx
(2014) Heineken (HEIA). 4 Traders. Retrieved from
http://www.4-traders.com/HEINEKEN-6283/financials/
(2014) Heineken Ignite. Retrieved from http://heinekenignite.tumblr.com
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(2014, October 22). UPDATE 2-Wet European summer dampens Heineken beer sales. Reuters. Retrieved
from: http://in.reuters.com/article/2014/10/22/heineken-nl-results-
idINL6N0SH0XO20141022?type=companyNews
(2014) We are HEINEKEN Company Presentation. Heineken NV.
Retrieved from: https://secure.theheinekencompany.com/latest-reports
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