Heineken Sees Boost From ‘Not for Bond’ Tequila Beer Desperados

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A beer created in France and flavored by Mexican tequila to appeal to younger drinkers from Russia to Brazil is providing a fillip for Heineken (HEIA) NV as growth slows in more traditional European markets.

Desperados, introduced by the Dutch brewer in 1995, saw sales gain 26 percent last year compared with 5.4 percent volume growth for the eponymous Heineken brand and has the potential to continue achieving “double-digit” improvements, according to Willem Jan van der Hoeven, Heineken’s head of global brands.

The Amsterdam-based company still sells more than 17 times as much Heineken, based on Euromonitor International estimates, illustrating the potential of Desperados. Both brands bettered Heineken’s consolidated beer volume, which grew 3.2 percent on an organic basis.

“When I look at the world, I look to see where I can shoulder-rub with other categories,” Van der Hoeven said in an interview in London. Desperados offers drinkers an alternative to spirits on a night out, he said.

As beer sales increase at a slower pace, particularly in developed markets where wines and spirits are posing a bigger challenge, brewers such as Heineken are having to seek growth outside of plain lager. Competitors including Anheuser-Busch InBev NV (ABI) and Carlsberg A/S (CARLA) have been buying or creating cider brands, while the increasing popularity of small craft beers in the U.S. has spurred renewed interest in novel brands.

No Choice
“Alternatives to beers have existed for more than just a couple of years now, but brewers these days have realized they have to diversify and they don’t really have a choice,” said Spiros Malandrakis, an analyst at research company Euromonitor.

Made using real tequila from Mexico, the lime-tasting Desperados was created to offer a different take on beer. Introduced initially across European countries including Germany and Poland, it is now available from Russia to Brazil, though not in the U.S., where laws prohibit the sale of the drink because it mixes beer and spirits.

The brand’s volume last year was 157 million liters, according to estimates supplied by Euromonitor, compared with 2,740 million liters for the Heineken brand.

With an alcohol content of 5.9 percent, Desperados crucially has a less bitter taste to appeal to younger palettes. It’s also better-suited to female tastes, Van der Hoeven said.

The executive, who also oversees the Strongbow cider, Amstel and Sol brands, said Desparados provides a “nice benefit” for the Heineken brand, by helping to capture young drinkers who may later switch to Heineken and Sol.

Not for Bond
By contrast, Desperados “isn’t for James Bond,” he said, referring to the Heineken brand’s promotional partnership with the movie franchise.

Priced at almost double the average price of mainstream beers in most markets, Desperados helps to boost both revenue and profit, according to Van der Hoeven.

The brand’s marketing is skewed toward bars and the Internet, as well as festivals and gigs, he said, targeting occasions where people may choose to drink spirits.

Van der Hoeven, who worked on the Most Interesting Man branding campaign for Heineken’s Dos Equis brand, said he’s particularly pleased with an advertisement on Desperados’ Facebook page which invites viewers to play along with its plot, including interacting with a snake and crafting the tattoo of one of the characters. The video got 10 million consumers engaged, he said, declining to comment on the level of spending on the brand.

Growth Drivers
Heineken has said it expects overall marketing spending to be 11 percent to 13 percent of sales. That’s lower than average of food companies and the 17 percent to 18 percent of spirits companies, Nomura analysts estimate, saying “we could question whether this level of spend is adequate in the longer term.”

As the Heineken brand and company becomes more global, illustrated by the recent purchase of control of Asia Pacific Breweries Ltd. (APB), smaller brands such as Desperados may prove to be the main growth drivers for the Dutch company. Moreover, as business becomes tougher in developed markets — where Heineken is suffering from the dual effects of government budget cuts and high unemployment — novel beers may prove a boon.

“They’re trying to push alternative products instead of their flagship brands,” Malandrakis said.

Still, according to Van der Hoeven, there’s still scope for established brews to grow in harmony with innovative brands.

“There’s still a lot of need for a very good straightforward lager,” the executive said.