Heineken changes tack to protect market share

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Heineken will reverse its long-held priority of value over volume as it seeks to maintain its dominance in maturing European markets.
The group – which yesterday posted higher full-year profits on the back of cost savings and emerging market growth – saw sales volumes in western Europe slide 3.5 per cent during 2010.
The worst-hit markets included the UK, Spain, Italy, Ireland and the Netherlands, where beer consumption has fallen amid weak economic conditions.
Heineken is the largest seller of beer in Europe and the UK, thanks to the 2008 acquisition of the former Scottish & Newcastle operations in Edinburgh. Its UK market share is about 28 per cent – compared with number two Anheuser-Busch InBev’s 15 per cent – while western Europe as a whole accounts for about half of all of Heineken’s sales.
The group has traditionally focused on maintaining healthy margins, but signalled yesterday that it would sacrifice short-term profitability in favour of its market-leading position.
Analysts said the extent of Heineken’s volume losses had been such that its European brewing base is at risk of becoming financially inefficient.
“In Europe, Heineken will shift its prime focus toward volume and value share growth, with increased investments in marketing and innovation in Heineken and other key brands, further supported by the international rollout of higher margin brands,” the company said.
Despite difficulties in its mature main markets, the group as a whole posted a 41 per cent increase in profits to €1.4bn (?1.18bn) for 2010 on revenues slightly below expectations at €16.1bn. The results were boosted by last year’s acquisition of Femsa Cerveza, the Latin American owner of brands such as Dos Equis and Tecate, as well as cost savings that beat expectations.
Heineken’s cost-cutting programme resulted in savings of €280 million last year, about €80m more than forecast by analysts at Evolution Securities.
Much of this came in the UK, where Heineken closed breweries in Reading and Dunston near Newcastle, and sold the loss-making Waverley TBS wine business. It also undertook a major reorganisation of its Scottish & Newcastle Pub Company management arm, with about 1,300 properties now in its portfolio.
The resulting savings allowed Heineken UK to raise operating profits, despite a 4 per cent decline in last year’s beer market. It also allowed the business to overcome lengthy price negotiations with Tesco and Morrisons, which hit off-trade volumes and market share in the first half.
Heineken, which brews Foster’s, Kronenbourg and John Smith’s in the UK, will introduce higher-margin brands into the international market to bolster its European performance.