Heineken

MGT 490

Sean Maines

About Heineken
One of the leading beer brands for 140+ years Headquartered in Amsterdam #1 beer in Europe #2 imported beer in USA

125 breweries in over 70 countries

Premier brands - Heineken, Amstel, Newcastle

Financial Snapshot 2010

2009 Revenue EBIT 14,701 1,757 2010 16,133 2,476 Change in % 9.7% 40.9%

Net Profit Total Assets

Free Operating Cash Flow

1,018 20,180
1,741 55,301

1,436 26,549
1,993 65,730

41.1% 31.6%
14.5% 19.6%

Employees
*in millions (EUR)

Since 2006
In millions of Euros

EBIT

Consolidated Beer Volume

In millions of hectoliters

In millions of Euros Net Profit

Beverage Life Cycle

PEST ANALYSIS
FACTOR TREND
EVALUATION IMPACT RANK

POLITICAL

- Government excises alcohol because it - Threat is addictive - Heavy taxes on emerging beer markets - Threat

-2 -3

ECONOMICAL

- Currency fluctuation with Euros - Raised costs of grain, glass, aluminum - Higher advertising costs - Raised unemployment around the globe

- Threat - Threat - Threat - Threat

-2 -4 -3 -4

Political

Government has a negative view on alcohol due to the negative social and health consequences

All governments have higher taxes on emerging beer markets while exporting alcohol

Economic

Unemployment around the world is rising Money for leisure spending will decrease for everyone globally

PEST ANALYSIS
FACTOR TREND
EVALUATION IMPACT RANK

SOCIO-CULTURAL

- Women are drinking beer more - More fast paced lifestyles - USA more health conscious - Decrease in college student drinking

- Opportunity - Threat - Opp/Threat - Threat

-4 -3 -5 -2

TECHNOLOGICAL

- Increased information technology

- Opportunity

-4

Socio-cultural

Beer isnt just for men anymore. More and more women are enjoying beer for the taste The new lifestyle of the newest generation is face paced. This leads to less time to drink beer; at home or at a bar. The growing population in China leads to more leisure time for people to drink. The more health conscious America becomes leads to less drinking.

Technological

Every business uses some type of technology.

With Heineken increasing their technology, it becomes easier for them to communicate with all aspects of their worldwide operation.
Makes penetrating new markets easier

Industry Overview
Contributes $223.8 B/yr. to US economy

Beer industry predicted to increase steadily

Every brewers goal- to grow globally Very concentrated industry

Michael Porter
Five Forces of Power

Supplier Power

Suppliers for ingredients are mainly farmers.

Threat for supplier power is very high Makers of green glass bottle is Heye Glass Netherland

Had 33% stake in the past

Since 2002, they have kept 100% stake

Buyer Power

A buyer has many different options on where to buy beer A buyer also has many different options on what beer they want to drink

Threat for buyer power is very high

Competitive Rivalry
The Top US Breweries include:

Anheuser-Busch, MillerCoors, Pabst, Boston Beer The Top International Competition include:

Anheuser-Busch, Carlsberg, SABMiller

Beer industry is very saturated

No evidence of price rivalry Product differentiation is very important

Threat of Substitution

Threat of substitution is very high

People have many different tastes and preferences

Some aggressive mergers could help Heineken develop new products under their core brand

Threat of New Entry

Recent explosion of craft breweries in last decade

Making industry very competitive

Threat of new entry is very high

Heineken must focus on uniqueness and innovations to keep a competitive advantage

Five Forces Summary

FORCE
SUPPLIER POWER

DRIVERS
Small suppliers, high power

EFFECT OF PROFITS

0 -

BUYER POWER

High distributing power. Many choices

COMPETITIVE RIVALRY

Highly concentrated, Big Four

THREAT OF SUBSTITUTIONS

Growing substitutes, low switching costs Increase in craft breweries, Need more innovations

THREAT OF NEW ENTRY

Blue Ocean Strategy?

Penetrating Russia Biggest untapped beer market

Growing economy (7-8% annually)

Growing market for alcohol

Premium beer is 50% of beer market

Conclusions

Highly competitive and concentrated industry

Heineken must focus on differentiation with the competitive environment

Continue to grow globally with increased technologies

Must develop new product innovations with rapid increase of craft breweries

competition
Top Breweries Worldwide by Volume

1. AB InBev 2. SABMiller 3. Heineken 4. Carlsburg 5. Tsingtao 6. Molson Coors 7. Grupo Modelo 8. Beijing Yanjing 9. Kirin 10. Asahi Breweries

Competition by Region (%)

AB InBev SABMiller Heineken

North America
Latin America Western Europe Central/Eastern Europe Asia Pacific Africa

32.4%
38.6% 8% 6.7% 14.3% -

14%
31% 19% 2% 34%

21%
47% 19% 1% 12%

Fastest predicted drink rates regions- Asia Pacific and Africa

Strategic map
HIGH

SAM

MILLER BUD
Branding Effects

COORS
CORONA

HEN
LOW

LOW

Specialization

HIGH

competition
Beer

Adjunct % alcohol

Calories

Loyalty

Price

Target Market

Rice Corn Miller Lite Starch Rice

4.2%

110

Very High

Medium

- Beer drinkers of all ages

- Men in mid 20s - Health conscious

4.2%

96

Medium

Medium

4.15%

104

Medium

Medium

- Heavy focus on
what men like

Heineken

Purest Water
Rice

5%

150

Low

High

- Young males - Affluent

-Vacationers - Mexican decent

Corona

4.8%

148

Low

High

import competition
Losing Import Market Share
2.25 gallon cases

Brand Corona

Supplier Grupo Modelo Heineken USA InBev

2005 96,105

2006 97,930

% change 1.9

Heineken
Labatt Blue

62,500
15,075

63,125
14,192

1.0
-5.9

Competitor Analysis
one of the best selling beers in Mexico and one of the top selling beers worldwide. The top selling import beer in the United States

Strategy- Volume growth through brand development - Enjoy the moment campaign - Grow their sponsorship portfolio

Assumptions- Heavy sales in warmer regions - Seasonal sales drop - Growing popularity of light beverages

Objectives- Maximize potential in highgrowth markets - Penetrate Canada and other colder climate markets

Resources- Strong brand image - Good relationship with distributors - Financially healthy

Types of rivalry
Price-based
No evidence of price wars in industry

Non price-based
Compete with product innovations Ex- Bud Light Lime vs. Miller Chill

Product Differentiation
Ways each company brews their beer

bud light
Future strategic plans Stay undisputed market leader

Steal loyal drinkers from other companies

Take tag lines out of campaigns Only for loyal customers

Miller Lite
Future strategic plans Take market share from InBev New strategy plan against Bud Light Better tasting beer campaign

New multi-addition hoppy process

Coors light

Future strategic plans What guys like campaign

Less focus on TV campaigns

More broad adversing fields

More sponsorship in sports

Corona

Future strategic plans Strong penetration into Facebook

Going after Canada beer drinkers

Increase sales in all seasons

Saturated summer

Who is drinking?

- one drink/week

who is drinking?
Age Occupation Income

Where people are drinking

Premium beer drinkers go to bars less
Domestic beer drinkers go to bars more

Growing rate

According to Global Beer Trends Report: Global beer consumption will increase to 2 billion hL by 2013 Global average growth by country is 2.8% per year from 2011 and 2015 Predicting very strong changes in country consumption trends

Global drinking trends

Between years 2011 and 2015

Beer trends

Trends towards increased: Craft beers

Malt beverages
Wine

Low calorie beers

beer trends

Huge growth in Microbreweries

More appreciation for craft beers Hurting sales of major brewers More attention to detail and ingredients

Social Media Influences

Budweiser steps out of there comfort zone with social media advertising. Big Brother meets FIFA World Cup with BUDHOUSE, a reality TV show with 32 soccer fans Also added a Facebook application where fans can paint their face with flag of favorite team With social media, Budweiser can increase there branding with people across the world.

social media influences

Miller realized that mobile devices has become a part of everyones everyday life. Take approach towards active, lowcalorie life style MGD 64 promotes Users can compete with friends and take progress on Facebook application.

Reflection
Every top beer company world-wide has a goal of:
Overcoming their competition Sustaining global growth Focusing on markets not yet reached Strengthening their global position anyway possible

Companies need to make changes due to:

Shift in global beer markets Trends in alcohol use Increase of social media advertising

Heineken - Overview
Corporate Amsterdam, Overview Corporate Headquarters The Netherlands
CEO # of Employees world-wide Developing Regions Revenue - 2010 Net Profit - 2010 Key Brands Jean-Francois van Boxmeer 57,557 Latin America, Asia, Africa $16,133,000 $1,436,000 Heineken, Newcastle, Strongbow, Amstel Western Europe- 48.9% Americas- 21.2% Central/Eastern Europe- 19.4% Western Europe - 38.2% Americas - 32.0% Central/Eastern Europe- 17.7%

Geographical Revenue - 2010

Geographical Assets - 2010

Key Figures 2006-2010

2010
Revenue

2009
14,701 1,018

2008
14,319 209

2007
11,245 807

2006
10,829

16,133 1,436

Net Profit

1,211

In mill euros

Heineken was hit by the 2008 recession, but was able to weather it better than its competitors due to its premium brands.

Geographical Split
REVENUES
Western Europe
Eastern/Central Europe Africa/Middle East

2010
7,894 3,143 1,988 3,431 206 -529

2009
8,432 3,200 1,817 1,541 305 -594

2008
7,661 3,687 1,774 1,566 279 -648

2007
5,450 3,226 1,311 1,608 245 -595

2006
5,351 3,359 1,182 1,975 560 -598

Americas Asia Pacific

Head Office/Eliminations

Totals

16133

14701
In mill euros

14319

11245

11829

The Africa/Middle East Region is the only region not to have a decline in revenue during the 5year period.

The Global Picture

Revenue - Euros (mil)

Region
Western Europe
Central/Eastern Europe Africa/Middle East Americas Asia Pacific

Full Yr 2010

Full Yr 2009

% Change

$7894
$3143 $1988 $3431 $206

$8432
$3200 $1817 $1541 $305

-6.4%
-1.8% +9.4% +123% -32%

Business Model
Growth Strategy
- Marketing excellence - Key innovations - Focusing on the changes of consumer needs - Making aggressive investments to yield huge returns

Role in Society
- Social Responsibility in every region they operate -Heavy training with employees on alcohol abuse - Being the Worlds Greenest Brewer

Performance
- Sustain a broad successful brand portfolio (acquisitions) - Strengthen position in all regions of worlds premium beer - Focus on American and Central/Eastern Europe regions with poor economic conditions

Consumer Segment
- More focus on a younger market as a growth strategy - Acquisition spree in order to find beers that appeal to the younger drinker - Decrease in television ads because it is ineffective to successful 18-26 year old males

Sustainability
- Brewing a Better Future plan - Making a 10-year plan to create a valuable future - Creates innovative ideas and new products and services

Mission - Sustainability

To Brew a Better Future

Become the GREENEST international brewer in the world

Continuously IMPROVE the environmental impact of our brands and business

EMPOWER our people and the communities in which we operate Positively IMPACT the role of beer in our society

Brewing a Better Future

Heinekens 10-year Plan

Three Core Values

Passion for Quality Responsible Enjoyment of the Brand Respect for the People, the Environment and the Society we work in

BCG Matrix

SWOT ANALYSIS
STRENGTHS
1. Has brands in over 13 markets world-wide 2. Global pioneer of international strategy 3. Strong brand recognition 4. Different dispensing instruments

WEAKNESSES
1. Play it safe culture 2. Not drank by younger beer drinkers 3. Price versus top domestic beers in US

OPPORTUNITIES
1. Low-calorie beer that helps healthier lifestyles 2. Growing populations in Russia/Asia 3. Growing hispanic culture in US 4. Premium beer market expected to grow 84% by 2012

THREATS
1. Increasing laws against DUIs 2. Competitors are increasing in US market share 3. Older brand lacking excitement 4. All brewers are trying to increase global presence 5. Rising costs of commodities - aluminum and glass

Value Chain Analysis

Primary Activities

Inbound Logistics
Heineken is distributed globally, with warehouses strategically placed throughout to minimize shipping costs.
- Materials handling and Inventory control

Operations
Heineken was limited to buying smaller breweries but bought BBAG in 2003, making it the largest beer maker in 7 countries across Europe
- Assembly and Packaging

Value Chain Analysis

Primary Activities

Outbound Logistics
Heineken has brewers throughout the world so they can ship their finished product to local areas to minimize shipping costs
- Order processing and Deliveries

Marketing and Sales

Heineken is the 5th most recognizable beer brand in the world. By steadily buying smaller breweries they can spread their name even more.
- Advertising, Sales promotions, and pricing

Value Chain Analysis

Primary Activities

Service
Heineken has ventured out to the field of nonalcoholic beverages to service a different type of consumer
- Repairs in Warehouses and Training of employees

Value Chain Analysis

Secondary Activities

General Administration
Heineken has been the top import premium beer in the USA until Corona took over. So, Heineken pushed on its different brands to put less stress on its core brand.
- Most popular import light beer in USA - Amstel Light

Human Resource Management

Heineken created more management positions in all five operating regions. This lead to more risk taking and boosted the level of energy within the company. - Increased recruiting, training, and developing personnel

Technology Development
Heineken increased technology to keep more detailed documents of deliveries to keep shipping more efficient. - Product and Process development

Heineken Strategic Choice

Heinekens strategy of Broad Differentiation has helped them be the largest premium beer in the world. The beer has a unique brewing process and they have been able to gain new products with increasing mergers and acquisitions.

Heineken Grand Strategy

Heineken Grand Strategy

Factor
Product Development
Developing new innovations in the beer industry will make Heineken stand out from the US domestic brewers.

Expand marketing to emerging market such as Asia, Middle East, Market Development Russia, and Africa. This will allow them to penetrate these markets first. Focus on the marketing of Stars and Question Mark brands in Market Penetration developing regions Invest in more distribution channels to lower the shipping costs

Backwards Integration
Frontwards Integration Concentric Diversification

This will allow: getting closer to the customer, increase the involvement in the value chain, and increase the product offerings Take on a technology to help enter markets not penetrated yet. It would be useful to start with core brands first, such as Heineken, Amstel, Strongbow

Conclusions

Heineken has a very strong brand

Need to continue to market core brands while penetrating emerging regions Heineken should continue to focus on strengths while taking advantage of opportunities that are present Strong focus on sustainability will be key to continue to be the global leader in premium beer