Heineken Strategic Analysis

Heineken

Heineken is United Kingdom’s leading beer and cider producer which has been existing for over 150 years. It’s the name behind iconic drink brands like Foster's, Desperados, Strongbow, Kronenbourg 1664, Heineken and Bulmers, among other full range specialty brands. ("Heineken UK"). Heineken boasts of over 250 local, regional, international premium and specialty beers and ciders in their portfolio. Being the world’s most international brewer and having operations spanning over 70 countries and operating companies globally, Heineken has millions of customers to consume its products. The company has been experiencing a good global beer market growth percentage over the years. The consumption volume development has also been increasing worldwide with North America leading followed closely by western Europe and central and Eastern Europe.

Heineken’s capital expenditure related to plant, equipment, and property is estimated to be around €1.6 billion. Early last year, Heineken tweeted that it had saved $83.8 million (which translates to 75 million Euros) within a span of six years by using less energy and water in its breweries. This intriguing strategy implies that the company cut its cost of production to save millions of dollars from its 160 breweries situated in 70 distinct countries (Amirtha). Although Sol, Dos Equis, and Strongbow could potentially become global brands, the company has over the past few years been increasing resource allocation and investment into its Heineken beer brand. Many analysts attribute this to safeguarding the brewer against potential market weakening as a result of austerity measures witnessed in Western Europe (Hall).

As of 2012, Heineken was the third largest beer producer in the industry producing 171.7 million hectoliters of beer behind SABMiller and Anheuser-Busch InBev which produced 173.4 and 356.2 million hectoliters consecutively. As of the same year, Heineken claimed a 9% market share thus being the third in the top 4 key players in the industry. In the global cider category, Heineken leads with a 20% market share. In 2012, the global cider market grossed 19.9 million hectoliters. Last year, Heineken produced 18.1 billion liters of beer which translates to (4.7 billion gallons) which grossed €19.2 billion in sales.

The Heineken company strengths include; a strong brand name, a strong distribution network, digital marketing strategy, and expertise in quality beer production. Weaknesses include a low-profit margin as a result of hiked prices for petrol and raw materials worldwide, overdependence on the American market and high customer concentration. On the other hand, they have a lot of opportunities such as Bringing special beers on the market for women, diversification into more flavors and fewer calorie beers and capitalizing on the Middle East and the growing Asian market. Threats include intense competition i.e. competitors doing bigger M&A deals, declining demand for beer in the United States, and constant fluctuations in the prices of raw materials.

Heineken mainly produces beer. Beer is considered as the leading alcoholic drink globally as it accounts for 74.58% of the market share of global alcoholic drinks. Brazil, Germany, China, India, Russia, Mexico and the USA are among the leading markets in the world. The beer industry has been experiencing an upward trend worldwide. Most brands are currently exploiting niche segments such as non-alcoholic beers, ice beers, and malt liquors for the sake of increasing health consciousness among drinkers. Last year, the world beer market was valued at $520 billion, an amount that is expected to reach $736 billion by 2021 with a 6 % CAGR for the forecast period between 2016 and 2021 ("Global Beer Market |Size, Share, Value, Trends, Analysis, Growth, Forecast| Beer Market Europe, North America, Asia-Pacific, South America, Africa").

The entire beer industry can be segmented into four primary segments; by packaging, category, geography, and product type. The global beer market competition is high mostly in developed countries like Europe and North America whose markets are at saturation level with steady demand and a slow growth rate. However, total beer consumption in the North American region is said to be declining. Innovative product packaging, multiple product launches, mergers and acquisition with small; level players, flavored and crafted beers, and huge promotional or marketing activities have remained the strongest business strategies for market growth in the North American region.

The beer industry is also influenced by Political, legal, social, technological, demographic and economic factors both positively and negatively. It is also affected by the bargaining power of buyers and suppliers as well as threatened by potential entrants and substitutes. Finally, the average cost of beer decreases with output hence economies of scale which can also be achieved with mass production. Mass customization might also bring a competitive advantage although the latter differs from mass production in suitability, product nature, and customer needs.

Heineken is indeed a giant in the beer industry with an experience spanning over 150 years. Despite this, the company is faced with a huge privilege to plan strategically, be dynamic and ever changing so as to remain relevant in the global market and thrive amidst stiff competition. Strategic planning refers to a process that an organization undertakes to develop a plan for achievement of its overall organizational goals. Strategic planning steps include; analyzing the current state, defining the future state, determining the strategies and objectives and implementation, evaluation and review (Grimsley).

 Heineken has been on the forefront of setting bold plans for the future in the contemporary world. According to its International Chief Executive Officer Jean-François van Boxmeer in the 2014 Heineken USA National Distributors Conference, the company was determined and looking forward to a journey of another 150 years. After this, almost a dozen Heineken brand managers and executives took the stage at New Orlean’s ornate Saenger Theatre to outline the strategy of the company for Heineken’s key brands and the near future. The brewer promised a new focus on the convenience-store channel as well. Following a year (second half of 2014) when the Heineken beer brand experienced prosperity with healthy sales growth after humongous challenges, Mr. Dolf van den Brink, Heineken USA CEO presented the company’s strategy for consistent growth through focusing on; One unique premise channel, two major channels, three customers and four brands

The on- premise would include underscoring the growth of Brewlock and Mexican imports. The brand’s draught innovation would become major plays in bars and restaurants. The senior vice president commercial, Dirk De Vos said the company strategy was not changing much, but there would be more channel focus on convenience, Walmart, grocery, and on-premise. Van den Brink concluded that the organization’s aim is to become the leader in upscale beer while noting volume goals for all Heineken brands. The two channels strategy includes Heineken working on best practices for the rest of the c-store channels and the grocery as part of its work with 7-Eleven and Kroger. Heineken wins in the grocery channel and c-stores tend to be a humongous opportunity for Heineken USA network. On the fair share of the market, Heineken lags behind regarding its fair share of the market. The company hopes to change this situation through few, bigger and better promotions, packaging assortment including slim cans and targeted distribution.

The three customers strategy involves Heineken focusing on three major retailers in its endeavor to grow its share of the beer market. Walmart and Heineken have partnered in its 5-year effort to double up its beer sales. According to Heineken USA chief sales officer Ray Faust, the results have been positive so far. A significant portion of this strategy includes getting more products on the store floor. The other two clienteles getting attention through extended partnerships are Kroger (the largest chain in groceries) and 7-Eleven (the largest chain in convenience stores) (Holtz).

Finally, the four brands strategy aims to capitalize on the company’s four biggest brands: (Strongbow Apple Ciders, Dos Equis, Heineken, and Tecate) out of the seven major brands it owns in the United States. All of these brands would get a substantial increase in their marketing budgets as from the 2015-2016 financial year in the United States. Andrew Katz, Dos Equis’s new marketing vice president, is determined to continue an over 15 percent beer brand growth through improving in-store displays and growing placement in on-premise accounts. Katz is committed to making Dos Equis a true national brand and one of the ways he did this in 2015 was through introducing the newly launched Dos Equis Dos-A-Rita to 12 new states. The main steps the brand should consider undertaking when assessing risks and opportunities of a new market include; defining the market, performing market analysis, assessing internal capabilities, prioritizing and selecting markets and developing market entry options (Stark and Stewart).

Heineken doubles down on soccer and utilizing the growing sport as a platform to drive more sales. The brand is the UEFA Champions League sponsor and the “official beer of Major League Soccer.” The beer will continue a city marketing plan aimed to establish Heineken as one for urban settings and celebrations. In fact, 60% of Heineken’s business is in the top 12 cities in the United States. Tecate brand plans involve the growing awareness of Tecate Light that includes “Born Bold” campaign to make Tecate Black Eagle the best for a party. According to its marketing manager, Max Skowron last year, his plan was to grow the Tecate franchise by 10 percent. He further suggested the increase of Tecate Light by 55% and the decline of Tecate Red.

 Strongbow remains the readiest brand to explode according to Charles vans Es, the senior brand director. The cider brand would be supported by a new campaign. Also, as part of a variety pack to encourage sampling, two new flavors would be introduced. The smaller, regional brands of Heineken including; Newcastle, Desperados, and Amstel Light will also see increased spending as part of the strategy. However, it’s paramount to conduct a cost-benefit analysis to ascertain whether the benefits outweigh the costs and by how much. The main steps in this process include; understanding the cost of status quo, identifying costs, identification of benefits, determining cost savings, creating a timeline for expected revenue and costs and evaluating non-quantifiable costs and benefits. A Newcastle will significantly introduce a spring variety pack with two new flavors; Newcastle Summer Session IPA and Newcastle British Pale Ale.

Heineken has implemented the three levels of company strategy: functional, corporate, and business. Despite focusing on the type of businesses the company should be in, corporate strategy gives Heineken an advantage of focusing and rapidly responding to problems in the industry that it can be vulnerable to. Therefore, corporate strategy helps it demonstrate and exploit the benefits of remaining active in one industry as they evaluate business opportunities in areas having complementary activities. Corporate strategy compares the return of the brand’s continuing investment with the acquisition of complementary businesses with a goal of optimizing the company’s operations, growth and profitability. The business strategy part supports the corporate strategic initiatives. It sets goals for performance and specifies actions the organization will take to maintain and improve its competitive advantages after evaluating the actions of competitors. Typical strategies include; becoming a low price leader, focusing on promotion or achieving differentiation in quality and other desirable features.

The marketing functional strategy, on the other hand, does influence the other functions and their strategies. A common marketing strategy is to determine customer needs in an area where the brand has a natural competitive advantage. Such advantages are in the following areas: facilities, staffing, location or reputation. As soon as the marketing strategy identifies the type of products customers need, it relays the information to operations to design and produce those products at the required cost. The advertising department ought to develop a promotional strategy, the customer service must support it, and the sales must sell it. The marketing strategy typically forms a basis for strategies of other departments (Markgraf). A good strategic plan makes thoughtful decisions about the future of the organization to ensure its success amidst competition.