This month, we have decided to run The Wehring Interview over two instalments. After all, having waited so long to speak to Heineken’s CEO, I have a lot of questions for him. Luckily, I’ve been granted plenty of time in which to ask them.
Early May. A Thursday lunchtime. London. The CEO of Heineken, Jean-Fran?ois van Boxmeer, is in town to meet up with a Lehman of analysts – yes, that is the collective noun. Prior to their grilling, he’s got me to deal with for an hour, one-to-one, up the Oxo Tower. It’s quite an impressive view of the city of London from up here, right on London’s south bank, but the view is not front of mind for me.
I’ve been looking forward to meeting Heineken’s CEO for quite some time. Indeed, this will be the first time I’ve done so since I started with just-drinks in 2003. We can’t blame van Boxmeer for all of my seven-and-a-half-year famine, though: He didn’t assume the position until 2005.
As the small talk (consisting of van Boxmeer chatting in Polish to our – presumably Polish – waitress) comes to an end, I scene-set for him, jokingly pointing out that, as just-drinks’ coverage is global, I care as little about the UK beer market as he does. “I do care,” he protests. But, is it not a thankless market for the multinational brewer amongst us right now? “I don’t think sincerely, that the UK is a thankless market. You have other difficult markets in Europe – take Germany, for example. You still have a lot of players, and volumes are going down essentially because of demographics, but also because people are drinking other stuff, like wine in particular.”
This trend is in place across most of northern Europe, according to van Boxmeer. The further south one goes, the better the landscape looks. “In southern Europe, meanwhile, people are favouring beer and quality wine,” he says. “In Spain, southern Italy, southern France, Portugal, Greece – these are all markets which have been growing for beer over the last 25 years.”
Staying in Europe, it is out east that the real big bucks are being made. “The Eastern European countries were drinking vodka 20 years ago,” he says. “That has been a huge growth reservoir for brewers around the former Soviet empire. It’s now nearing maturity, but not all of them, and they are still very beer-oriented cultures.”
What of Russia, then? The country has played host to robust volumes for brewers in recent years, although these have taken a turn for the worse of late. “You have a conjunction of two things in Russia,” says van Boxmeer. “The economic crisis hit Russia at the same time that it hit the rest of the world, which was followed by the increase of excise duties which affected consumer prices very heavily. That has dented the market quite a bit, with per capita consumption dropping from around 80 litres to nearer 70 litres. So, the market has lost quite a bit of volume.
Van Boxmeer maintains, however, that a corner has been turned in Russia. “We’re more optimistic today. We lost 40% of volumes in the first quarter last year, but we’ve got 40% volume growth in the same quarter this year. We’re happy with how our key brands are developing in Russia.”
That’s Europe sorted, then. But, let’s take a break from our world tour at this point, and get back on the bus a bit later.
Heineken can boast the most recent big M&A transaction amongst the global brewers, when it bought Mexico’s second largest brewer, FEMSA Cerveza – or, as it’s locally known Cerveceria Cuauht?moc-Moctezuma (“it took me 20 minutes of repetition to get it right”) – early last year. The deal saw the Mexican unit’s former owner, Fomento Econ?mico Mexicano (FEMSA, conveniently), take a 20% stake in Heineken. Just over a year on, and van Boxmeer remains happy with how the purchase has panned out. “It gives us a good anchorage,” he says. “They (FEMSA) are the largest independent Coca-Cola bottler in the world, and specialise entirely in Latin America. They have an intimate knowledge of that region, so it is really helpful for us to have FEMSA as a shareholder. The acquisition unfolded very well – synergies are on-track, if not ahead. The business is doing well.”
What surprised me at the time was that SABMiller, the front-runner for FEMSA Cerveza allowed Heineken to steal the march. The Mexican brewer’s Brazilian operations, we learnt soon afterwards, were what had put SABMiller off. Heineken, however, was well-placed to step in. “We have been shareholders in Brazilian operations with the Coca-Cola bottlers since the early ’80s,” van Boxmeer explains. “Kaiser Brazil was a coalition of Coca-Cola bottlers who wanted to develop their beer brand to give them more clout. Heineken was called in as a 20% shareholder in order to build the breweries and operate them. So, we know the operations very well. We have been producing Heineken in Brazil all the time with the Coke bottlers, then it was acquired by Molson, after which FEMSA bought it. But, we always kept our minority share and we always kept our licence.”
Van Boxmeer believes that, despite Anheuser-Busch InBev’s dominance of Brazil’s overall beer market, the Heineken brand has strong scope to grow in the country’s premium segment. “The momentum is there for a premium brand like Heineken to grow really big-time in Brazil,” he says. “So, our strategy in Brazil is rather different to how we operate in Mexico. We will be less of a full national mainstream brewer in Brazil – we have some regional pockets of strength, but we intend to do a fair bit with the Heineken brand in Brazil. With the distribution powers from the Coca-Cola system, we have national coverage.
“The value that was attributed to Brazil in our valuation for the whole of FEMSA Cerveza was low,” van Boxmeer insists. “The bulk of the value of the deal was attributable to Mexico and the US. We view Brazil much more as an opportunity.”
Coming up on Thursday, we bring you part two of our interview with Jean-Fran?ois van Boxmeer, in which we look at the booming markets of Africa and India, the spoils of Heineken and Carlsberg’s carve-up of Scottish & Newcastle, and which sport van Boxmeer doesn’t understand.