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Heineken in Beer - World
March 2011 Downloaded fromwww.warc.com
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Learn More
To find out more about Euromonitor International's completerange of business intelligence on industries, countries andconsumers please visit www.euromonitor.com or contact your local Euromonitor International office:
Disclaimer
Much of the information in this briefing is of a statistical
nature and, while every attempt has been made to ensure
accuracy and reliability, Euromonitor International cannot be
held responsible for omissions or errors
Figures in tables and analyses are calculated fromunrounded data and may not sum. Analyses found in thebriefings may not totally reflect the companies¶ opinions,
reader discretion is advised
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Scope
Scope of the Report
� 2010 figures are based on part-year estimates.
� All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical dataare expressed in current terms; inflationary effects are taken into account.
� Alcoholic Drinks coverage:
Alcoholic Drinks - 2010
239 billion litres
Lager Dark beer StoutLow/non-
alcohol beer
Cider/perry
2 billion litres
Beer
187 billion litres
Wine
27 billion litres
Spirits
20 billion litres
RTDs/high-
strength premixes
4 billion litres
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Strategic Evaluation
Competitive Positioning
Market Assessment
Category and Geographic Opportunities
Brand Strategy
Operations
Recommendations
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Strategic Evaluation
Company facts
Heineken NV
Headquarters: Amsterdam, Netherlands
Regional Involvement:
Western Europe, Latin America, Eastern Europe,North America, AsiaPacific, Australasia
Category Involvement: Beer, Cider/Perry
World Beer Volume share
2010: 8.7%
Beer Volume Growth 2010 a: 31.7%
N ote: a Euromonitor International data ± Including FEMSA
Cerveza on a 12-months basis
Heineken the world¶s third largest brewer Heineken is the world¶s third biggest brewer in volumeterms, with a near 9% share in 2010, behind A-B InBevand S ABMiller. It is also the world¶s leading player incider/perry since its acquisition of Scottish &
Newcastle in 2008, with a 19% global volumeshare.
Acquisition of FEMSAIn 2010, Heineken¶s performance was significantlyboosted by the acquisition of FEMS A, the secondlargest Mexican brewer. The deal has fundamentallychanged Heineken¶s geographic footprint by increasingits exposure to the growing Latin American market anddecreasing its reliance on the European markets whichhave registered falling beer volumes in 2010.
OwnershipThe FEMS A acquisition has changed the company¶sownership structure as well. Heineken remained a
family controlled company, but as part of the EUR3.8billion (US$5.5 billion) deal, FEMS A got a 20% stake inthe company. In 2011 January, Heineken¶s ownershipstructure was the following: Heineken Holding NVowns 50.005% equity stake in Heineken NV, FEMS A has 9.245%, and the rest is free float interest. InHeineken Holding NV, L¶ Arche Green NV - which isowned by the Heineken family (88.55%) and by
Greenfee BV (11.45%) - has 50.57% and FEMS A has14.94% interest.
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M&A drives growth
�
Despite the challenging economic environment and fallingvolumes in its major European markets, Heineken wasable to grow in terms of net sales and operating profit in2010. Heineken¶s volumes and net sales increased mainlythanks to the acquisition of FEMS A Cerveza in Latin America. In organic terms, however,Heineken posted 3%volume decline in 2010, as its volumes fell by nearly 4% inWestern Europe and by 9% in Eastern Europe mainly dueto the falling volumes in Russia. In organic operating profit
terms, Heineken posted nearly 9% growth in 2010, thanksto its cost-management programme that deliveredsignificant savings, and could compensate for the fallingrevenues in Western Europe.
Cash flow target
� Heineken¶s recent acquisitions have led to a high net
debt to EBITD A ratio. The company was committed toreduce its debt levels and to improve its financialratios, thus it focused on cash generation in 2010.Heineken has launched a special business unit to helpmore tightly control costs across its global operations,and also made some divestments (closed 4 breweries:2 in the UK, 1 in Romania and 1 in the CzechRepublic), which helped to reduce its net debt/EBIDT A
ratio below the 2.5 target set by the company in 2009.
Financial results 2010
Strategic Evaluation
Heineken Financial Results 2009-2010
(million ¼) 2010 2009
%
growth
%organicgrowth
Net sales 16,133 14,701 +9.7 -2.2
Operatingprofit
2,608 2,095 +25 +8.6
Net debt/EBITD A ratio (times)
2.2 2.6 - -
Free operatingCash flow
1,993 1,741 +14 -
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� In early 2010, Heineken announced its acquisitionof FEMS A Cerveza, the second-largest Mexican
brewer, which was completed in April 2010. Theacquisition gave Heineken a stronger presence inLatin America with access to the two largestmarkets, Brazil and Mexico, which account for 64% of Latin American total beer volumes (2010).
� With the FEMS A acquisition, Heineken becamethe second largest brewer in Mexico, with a near 42% volume share. The company has also made
a 10-year exclusive supply deal with FEMS A'sconvenience store chain, OXXO, which will helpto widen the distribution of its internationalHeineken brand in Mexico. The premium segmentoffers high growth potential, as it registered 7%volume growth even in 2010, when overall beer volumes declined by 2% in the country. Heinekenplans to start the local production of its Heinekenbrand in Mexico in March 2011.
� The consolidation of FEMS A has also provided astrong platform for growth in Brazil and in the US.Heineken gained a near 9% market share inBrazil, where beer volumes grew by 7% andpremium lager registered 20% growth in 2010,and the company has also increased its share inthe US imported premium beer segment, with thetakeover of the former FEMS A brands.
Integration of FEMSA
Strategic Evaluation
Heineken Volumes Before and After the
Acquisition of FEMS
A(million litres)
2009 2010 % growth
WORLD 12,217.4 16,156.0 32.2
Mexico 20.8 2,654.2 12,660.6
Brazil 15.5 1,093.3 6,953.5
US A 684.3 970.6 41.8
� The takeover widened Heineken¶s brand portfolio, giving itaccess to the former FESM A¶s brands, which can belaunched in markets where Heineken operates. With theintroduction of the newly acquired Mexican brands
supported by its wide distribution network, marketing andsales practices, Heineken can become a strongcompetitor to Corona Extra, especially in Europe.
� The purchase of FEMS A has significantly boostedHeineken¶s volumes in 2010. After the takeover it hasregistered strong increases in Mexico, Brazil and the US,while the company's major European markets postedweak performances. Further gains are expected in 2011,with FEMS A¶s full integration and as recovery comes in
Mexico.
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Strengths
Opportunities
Weaknesses
Threats
Strategic Evaluation
SWOT - Heineken NV
� Thanks to its acquisitions,Heineken has a strongpresence in all major markets (except for China), which gives astrong platform for bothfuture volume and valuegrowth.
Global coverage
� Heineken has manystrong local brands and itis present in all beer segments. Its internationalHeineken brand has wideglobal recognition, and itis the world¶s best-sellingpremium lager brand.
Strong brand portfolio
� The company lacks amajor presence in theworldµs largest and mostdynamic beer market,China.
Limited presence in
China
� Heinekenµs aggressiveacquisition strategy hasled to a high long-termdebt to equity ratio, whichlimits its ability for further acquisitions.
High debt level
� Heineken is the leadingplayer in cider/perry in the
world, a category whichhas posted high volumegrowth and expected toshow further stronggrowth over 2010-2015.
Growth potential in
cider/perry
�
With a large andincreasing presence in Africa and Latin America,Heineken is well placed totake advantage of thefuture growth of beer.
Strong presence in Latin
America and Africa
�
2010 saw the introductionof increases in beer taxesin some main marketssuch as Russia andGreece. Tax rises canaffect severely Heinekenµsvolumes as consumerstrade down or away frombeer due to the increasing
prices.
Growing excise duties
�
Many of H
einekenµs keymarkets, notably Spainand the UK, were severelyaffected by the globaldownturn, and the volumedecline is expected tocontinue in 2010-2015.
Declining volumes in
mature markets
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� Heinekenµs recent acquisitions have significantly
increased its long-term debt to equity ratio. Regainingfinancial stability through reducing its debt andgenerating cash flow is one of the top priorities for thecompany.
� The company has already introduced cost-reductionprogrammes and made some divestments, but it has tocontinue to focus on reducing its debt level andimproving its profitability.
� Heineken has a strong focus on premium lager, as it
offers high volume and value growth in many markets.The company defines itself as a premium beer companyin a premiumising world.
� Heineken¶s international brand is the best-sellingpremium lager in the world, and the company intends toincrease its profit pool and Heineken¶s share in it with amore global approach, supported by its global marketingand sales practices and the platform offered by itsstrong local brands.
� Heineken¶s main strategic objective is to achieve leadingpositions (number one or two) in each market where it ispresent.
� The company is committed to strengthen its key brands,in particular its international Heineken brand, utilising itsglobal marketing excellence across all markets and tomaintain, or where possible improve its price positioning.
� The company aims to improve both its volume and valueshare in its markets via increased brand investments.
� Heineken is already well placed for future growth in Africa and Latin America, but it has limited presence in Asia Pacific, especially in China, which is the world¶sbiggest beer market.
� With growing middle-class and urban population,premium lager is becoming more popular and expectedto post strong growth in the region.
� The company needs to change its global portfolio toexploit this growth, and it needs to increase its coveragefocusing on the premium segment.
Strengthening leading position in every market Increase exposure toAsia Pacific
Focus on premium segment Cost reduction and cash flow generation
Key strategic objectives
Strategic Evaluation
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Strategic Evaluation
Competitive Positioning
Market Assessment
Category and Geographic Opportunities
Brand Strategy
Operations
Recommendations
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� Acquisitions and emerging markets drove Heineken¶s above average growth. Until 2008, the company continued toperform above the market, thanks to the strong performances of Middle East and Africa and Eastern Europe. The
company¶s performance was further boosted by acquisitions, especially that of Scottish & Newcastle in 2008.
� The global economic downturn severely affected Heineken. In 2009, the company performed below the globalaverage, with a 4% volume decline, while global beer volumes were stable. This was due to the weak performanceof its portfolio in many key markets, such as Russia, the UK, Spain and the US, where it was unable to buck overallmarket declines.
� In 2010, thanks to its FEMS A acquisition in Latin America,Heineken significantly outperformed the market again. Itsvolumes grew by 32% compared to the 1% world average; however, organically, the company had falling volumes.
Growth driven by acquisitions
Competitive Positioning
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� The combined share of the world¶s 5 largest brewersincreased dramatically over the 2001-2010 period, from 39%
to 61%. Organic growth came mainly from the major Chinesebrewers, China Resources, Tsingtao and Beijing YanjingBrewery, while much of this consolidation resulted from theconsiderable M& A activity, including the mergers of Interbrewand AmBev and, subsequently, Anheuser-Busch, whichformed the world¶s leading brewer, A-B InBev. S ABMiller, thesecond largest player, was also created through the merger of South African Breweries and Miller Brewing.
� Heineken became the third major player as a result of itsaggressive acquisitive strategy. In 2008 it acquired Scottish &Newcastle in partnership with Carlsberg, and in 2010 it madeits most significant acquisition, with the purchase of FEMS A beer operations in Mexico and Brazil. Given the high level of consolidation in the global market and scarcity of significantacquisition targets remaining, FEMS A became a keyacquisition for Heineken offering access to the fast-growingLatin America market, where Heineken had limited presence.Despite high debt levels, Heineken was prepared to changeits ownership structure to secure the acquisition in order tohold back competitors and maintain its global position.
� Consolidation is likely to continue, but on a smaller scale. Acquisition of local brewers is likely to continue, althoughconsolidation activity has left relatively little scope for acquisitions in major markets and has pushed up the value of companies. The most likely next major acquisition target will
be the beer operations of the Australian Foster's Group.
Consolidation amongst top brewers
Competitive Positioning
Major organic growth will come fromcompanies with strong focus on Asia Pacific,especially China, and from those with apresence in Middle East and Africa and Latin
America.
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Top seven remain unchanged
� The ranking of the world¶s top seven brewers remainedunchanged in 2010, A-B InBev remained the marketleader of the global beer market with a stable near 19%volume share, followed by S ABMiller, which experienceda fall in volumes in 2010. S ABMiller was not the onlyplayer to lose volume share - Carlsberg, Grupo Modeloand Molson Coors also suffered losses caused by therecession in Europe and North America.
Dynamic growth of Chinese companies
� Chinese players are still experiencing high volumegrowth. China Resources registered a 5% global sharein 2010, as it benefited from growing demand and localacquisitions in the Chinese market. Tsingtao and BeijingYanjing also registered global share increases in 2010thanks to 5-8% growth in their domestic market.
Heineken strengthens its third position
� Besides Chinese companies,Heineken was the only
player which enjoyed dynamic growth (32%) in 2010,mainly thanks to its successful acquisition in Latin America. In 2011, Heineken strengthened further itsleading position in Nigeria through the acquisition of twoholding companies from the Sona Group, which havecontrolling interests in the Sona, IBBI, Benue, Life andChampion breweries, which shows its growing focus toemerging markets.
Top 10 global beer companies
Competitive Positioning
Beer ± Top 10Global Companies by Volume,
2009-2010
Company2009
% share
2010
% share
A-B InBev 18.6 18.6
S ABMiller 9.6 9.5
Heineken 6.6 8.7
Carlsberg 5.8 5.5
China Resources 4.5 5.0
Tsingtao Brewery 3.2 3.4
Grupo Modelo 2.9 2.8
Beijing YanjingBrewery
2.5 2.6
Molson Coors 2.7 2.6
Kirin Holdings 1.8 1.8
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Strategic Evaluation
Competitive Positioning
Market Assessment
Category and Geographic Opportunities
Brand Strategy
Operations
Recommendations
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� Heineken has transformed its geographic footprintsignificantly in the last 10 years. The changes
reflect the growing importance of emergingmarkets, and by 2010 the company¶s previousreliance on European markets has decreasedsignificantly. While in 2001 Western Europeaccounted for 53% of its global volumes, followedby Eastern Europe¶s 20% volume share, in 2010Latin America became the second most importantmarket for the company with 25% volume share,
while Western Europe¶s share has decreased to29%.
� Eastern Europe still plays an important role in thecompanies portfolio, representing 22% of itsvolumes, but its share has declined.
� Heineken is well placed in Middle East and Africa,where beer consumption showed strong volumegrowth (more than 5% in 2010), and the company
has strengthened further its position in Nigeria withthe acquisition of two holding companies from theSona Group in January 2011.
� Asia Pacific is the only region, where the companylacks a strong presence. It operates through jointventures ( Asia Pacific Breweries and UnitedBreweries), but it is an area for further development, as the region is the biggest beer market and offers high-growth potential.
Transforming geographic footprint
MarketAssessment
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� Middle East and Africa is expected to post the strongest growth over 2010-2015 with a 6% C AGR, and Heineken,with its 17% volume share, is well placed to exploit the growth in the market. It has leading positions in Algeria,
Cameroon, Egypt and Nigeria, and is one of the top three brewers in most of the other countries in the region.� However, in Asia Pacific, which is expected to post a near 6% C AGR over 2010-2015, Heineken does not have a
strong presence. Its volumes in the region are realised through Asia Pacific Breweries, a joint venture with Fraser &Neave covering large parts of Asia and the Pacific Islands, and United Breweries Limited (UBL) in India, but it haslimited presence in China, which is the largest market in the region.
� Heineken successfully increased its share in fast-growing Latin America through its FEMS A acquisition in 2010, so itcan take advantage of the near 4% C AGR which is predicted for beer in the region over 2010-2015.
� North America and Eastern Europe are expected to see limited volume growth (less than 1% C AGR, 2010-2015),
while the company¶s main Western Europe market is expected to decline (-0.2% C AGR) over the forecast period.
Growth prospects by region
MarketAssessment
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� Heineken has a wide product range and is present in all different beer categories. The company concentratesprimarily on premium lager, in which it is the second largest player in the world, with an 18% volume share, behind A-
B InBev. Premium lager is expected to register an above 3% volume C AGR over 2010-2015. Due to its focus on thepremium segment,Heineken is a small player in economy lager.
� In standard lager, which is the biggest segment, Heineken¶s position improved significantly - its volume shareincreased from over 6% to nearly 11% in 2010 - thanks to the consolidation of FEMS A.
� Heineken is the leading company in low/non- alcohol beer, which is small, but shows strong volume growth, and over 2010-2015 it is expected to post an 8% C AGR.
� In the smaller stout category, which is expected to grow at a 4% C AGR over 2010-2015, Heineken is the secondbiggest player with a near 7% volume share, but faces stiff competition from Diageo¶s Guinness.
� Heineken¶s dark beer operations are primarily focused on the declining UK market, although it is well placed to takeadvantage of the future growth of the category, expected mainly in Middle East and Africa (6% C AGR 2010-2015).
Category growth prospects
MarketAssessment
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Strategic Evaluation
Competitive Positioning
Market Assessment
Category and Geographic Opportunities
Brand Strategy
Operations
Recommendations
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Category and Geographic Opportunities
Leveraging leadership in Western Europe
� Western Europe is the most important market for Heineken, as it accounts for 29% of the its total beer
volumes. The company leads beer in the region with anear 18% volume share, followed by Carlsberg and A-BInBev.
� In 2010, beer volumes declined by more than 1% inWestern Europe, due to the weak economicenvironment.Heineken registered a 2% decrease,mainly due to the falling volumes in its main markets,Spain and the UK. However, it registered growing
volumes in some countries, such as Austria, Sweden,Germany, Turkey, Denmark and Norway.
� Heineken has already achieved its targeted leadingposition, as it is the first or second brewer in most of thecountries, except for Denmark, Norway and Sweden,where it faces tough competition from the market leader Carlsberg, and Germany, where it operates through a
joint venture with Brau Holding International. As
premium lager represents a large proportion of beer volumes in these countries (49% of total beer volumesin Germany, which is the biggest beer market inWestern Europe), they are important markets for Heineken. It is worth paying attention to Turkey as well,which posted the highest growth in the region in 2010and is expected to post a 3% C AGR over 2010-2015.Heineken dominates premium lager in Turkey, with a31% volume share in 2010, in a small, but growing
segment.
Heineken NV ± Beer Rank, Share and MarketGrowth
Prospects in Western Europe 2010-2015
Rank
2010
% volume
share
% CAGR
2010-2015
Spain 1 30.5 -1.2
UK 1 19.6 -0.7
France 2 29.1 0.7
Italy 1 29.8 0.9
Austria 1 54.6 0.1
Netherlands 1 39.1 -0.3
Greece 1 63.9 -2.3
Portugal 1 38.0 0.4
Finland 2 30.4 0.3
Belgium 2 11.2 -0.9
Ireland 2 22.9 -1.3
Switzerland 1 22.3 1.4
Sweden 5 4.4 0.6
Germany 26 0.2 -0.6
Turkey 3 1.3 3.0
Denmark 3 1.9 -1.4
Norway 7 1.7 1.9
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� As Western European markets registered decliningvolumes, and beer is expected to show flat or
declining volumes in most countries over 2010-2015, Heineken has shifted its focus to valuegrowth, and thus to its premium volumes.
� Premium lager, which accounts for nearly 35% of Western Europe beer volumes, declined by 1% in2010, while Heineken¶s premium volumes weremore or less stable.
� Heineken is the market leader in the premium
segment, with a 15% volume share. It is the leadingplayer in Spain, France, Italy, Ireland, Austria,Greece, Turkey and Switzerland. Heineken and Amstel are its main premium brands, with an 8%and 3% volume share respectively. However, thecompany intends to strengthen its premium portfoliowith its high-margin brands, like Desperados, DosEquis and Sol.
� Beer and premium lager are both predicted tocontinue to decline at a less than 1% C AGR over 2010-2015 in Western Europe, but there arepossibilities to grow in some countries within thepremium segment. Turkey offers great prospects(5% C AGR, 2010-2015), with the Heineken brandbeing the category leader, and premium lager isalso expected to post some modest growth inFrance, Finland, Norway and Sweden in the
forecast period.
Focus on premium lager in Western Europe
Category and Geographic Opportunities
N.1
N.2
Other
Heineken NV Premium Lager Ranking in
Western Europe 2010
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Category and Geographic Opportunities
Falling volumes in Eastern Europe
� Heineken is the third largest player in beer in EasternEurope, where beer volumes fell by 7% in 2010, as the
region was affected by cold weather, weak economyand increased excise duties.
� Heineken¶s volumes fell by 8% in 2010, as its mainRussian and Polish markets showed high volumedeclines due to the increase in excise duty, which led toconsumers shifting towards cheaper beers and low-priced vodka.
� The volume decline in Eastern Europe is expected to
slow down in 2011-2012, with beer volumes expected togrow again from 2013, thus it will post a near 1% C AGRover 2010-2015. Premium lager, which accounts for 27% of beer volumes in Eastern Europe, is expected toperform a little better (1% C AGR, 2010-2015), mainlydriven by the growing volumes in Ukraine and Bulgaria.
� Heineken ranks first or second in seven countries in theregion, but it has to improve its performance in Russia
and Ukraine, which represent 53% of Eastern Europebeer volumes. The company should focus primarily onthe premium segment, which is expected to grow over 2010-2015 at a 3% C AGR in Ukraine and at a 1%C AGR in Russia, to account for more than half of theEaster Europe premium lager volumes.
� Heineken should also look to target smaller markets,such as Bulgaria and Serbia, where it is the leadingplayer in the premium segment, so it can exploit thefuture growth.
Heineken NV ± Beer Rank, Share andGrowth
Prospects in Eastern Europe 2010-2015
Rank
2010
% volume
share
% CAGR
2010-2015
Russia 3 11.2 -0.1
Poland 2 32.3 1.1
Romania 2 27.4 2.4
Slovakia 1 43.3 0.1
CzechRepublic
3 12.2 0.6
Bulgaria 1 29.8 2.6
Hungary 2 23.2 1.2
Belarus 3 15.6 1.5
Croatia 2 19.1 1.0
Serbia 3 8.5 2.4
Bosnia-Herzegovina
5 9.7 0.1
Slovenia 2 4.7 -1.8
Ukraine 8 0.3 2.3
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� Heineken is committed to strengthen itspremium portfolio with the newly acquired
FEMS A brands, and the company hasannounced that in 2011 it plans to widen their distribution across Europe.
� In late 2010, Heineken UK took over themarketing and distribution of the company¶stwo main Mexican brands, Dos Equis and Sol.
� Heineken can leverage its leading position inthe region, and with the new Mexican-type
beer brands supported by its wide distributionnetwork and substantial marketinginvestments, the company can become astrong competitor for Grupo Modelo¶s CoronaExtra brand in Europe.
� Corona Extra has share in the small importedpremium segment, while Heineken has stronglocal presence to support its brands. With
other Mexican beer brands present on themarket, Corona will lose its distinctiveness,and might lose market share. Modelo is likelyto face fiercer competition especially in itsmain European markets, the UK and Spain,where Heineken has a strong presence.
Challenging Corona Extra in Europe
Category and Geographic Opportunities
Heineken¶s Market Share in Beer in Main European Markets
of Corona Extra 2010
Heineken¶s
% total beer
volume
share
Imported
Premium
% share 1
% share of
Corona Extra
in IPL 2
UnitedKingdom
19.6 23.8 6.9
Spain 30.5 18.7 8.6
Belgium 11.2 61.6 19.5
France 29.1 8.7 13.8
CzechRepublic
12.2 4.2 48.1
Italy 29.8 38.6 2.3
Ireland 22.9 9.7 26.5
Netherlands 39.1 7.0 22.4
Greece 63.9 20.6 15.9
Portugal 38.0 89.3 8.4
N otes: 1 Imported premium lager volume share of total premium lager
volume2 Corona Extra¶s volume share in imported premium lager
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Category and Geographic Opportunities
Latin America - strong platform for growth
� The acquisition of FEMS A has made Heineken thesecond biggest player in Latin America, with a 14%
share of the region¶s beer volumes in 2010. In premiumlager, the company ranks second, with an 11% volumeshare, behind A-B InBev and S ABMiller.
� Heineken¶s previously limited volumes (126 million litresin 2009) have been significantly increased by thetakeover of FEMS A, with its volumes growing by 3,095%in 2010 in the region, mainly thanks to the contribution of FEMS A¶s standard lager volumes. The company has
also experienced 81% growth in the premium segment,as its premium portfolio was extended with Kaiser,Xingu, Bohemia, Bavaria Premium and Chopp Kaiser.
� Beer volume sales in Latin America grew by nearly 3% in2010 and within beer, premium lager posted the highestgrowth (13%). Dark beer, stout and low/non- alcoholbeer also registered strong growth, albeit from lowbases.
� Beer in Latin America is very concentrated, with one or two players dominating each market. Heineken has lessthan 10% market share in most of the countries (exceptfor Mexico), but it is still the second or third player, whichmakes it able to take advantage of the strong futuregrowth in the region. Its position is much stronger in thesmall, but growing premium segment - its Heinekenbrand is the third most popular premium lager in Latin America (7% volume share, 2010).
Heineken NV ± Premium Lager Rank, Share
and Growth Prospects in Latin America
2010-2015
Rank
2010
% volume
share
% CAGR
2010-2015Mexico 2 20.2 5.6
Brazil 2 9.0 11.1
Argentina 1 2 20.1 3.0
Chile 1 1 36.1 4.2
Colombia 2 3.4 10.1
Guatemala 3 7.1 5.0Costa Rica 3 15.2 4.2
Uruguay 2 11.2 3.0
Peru 2 0.8 4.4
Bolivia 2 20.6 11.0
N ote: 1 Heineken operates a joint venture with Compania
Cervecerias Unidas in Chile and in Argentina.
� Strengthening its position in Latin America shouldbe a key focus area, especially in premium lager, as
this category is expected to grow at a near 9%C AGR over the 2010-2015 period.
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Brazil
� In Brazil, Heineken became the third player in beer,with a 9% volume share in 2010, behind A-B InBev(66%) and Schincariol (15%). Heineken¶s Kaiser brandis the fifth most popular in the country, while A-BInBev¶s Skol leads with a 32% volume share. Beer
sales grew by 7% in 2010, with premium lager volumesgrowing by 20%.
� The premium segment is dominated by A-B InBev, witheight out of the top ten brands, accounting for 69% of premium volumes.However, there is possibility for growth for Heineken. In 2010, its Heineken brandposted 38% volume growth in Brazil, and premiumlager is expected to strongly grow at an 11% C AGR
over 2010-2015 in the country.
� With FEMS A¶s acquisition,Heineken has gained a strongplatform for future growth in the two key markets of Latin
America, Brazil and Mexico, which accounted for 64% of the region¶s beer volumes in 2010.
Mexico
� Mexico has a duopoly beer market. Heineken becamethe second largest brewer, with a 42% volume share,behind the leader Grupo Modelo (56%). In 2010, theMexican beer market declined by 2%, due to the weakeconomic environment and increasing prices. Mainly,
dominant standard lager declined, while the nichepremium, economy and non-alcoholic beer segmentsgrew. Premium lager offers high potential, as it isexpected to outperform the overall beer market over 2010-2015, with a 6% C AGR compared to a 3% C AGRfor overall beer.
� Heineken¶s premium lager brand is the second bestselling in Mexico, after A-B InBev¶s Budweiser, which is a
licensed brand by Modelo. In 2010, Heineken volumesdeclined by 12% despite the 7% growth in the premiumsegment. To improve Heineken¶s performance, thecompany plans to start its local production from March2011, and FEMS A¶s distribution network is expected tostrengthen further the brand¶s position.
� Heineken is the market leader in non-alcoholic beer inMexico, so the company will be able to exploit the
predicted high growth (9% C A
GR, 2010-2015) for thecategory.
Mexico and Brazil ± key markets in Latin America
Category and Geographic Opportunities
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� Middle East and Africa is very important for brewers, as it isthe world¶s fastest growing beer market. In 2010, volume
sales of beer grew by over 5%, driven by South Africa andNigeria, which are the main markets in the region,accounting for 41% of beer volumes. The market leader isS ABMiller with a 34% volume share, followed byHeineken¶s 17%.
� Middle East and Africa represents 14% of Heineken¶sglobal volumes. In 2010 the company has enjoyed nearly12% volume growth, thanks to its strong presence in
premium lager and in the fast growing Nigerian market,where the company has secured its first position with theacquisition of two holding companies from the Sona Groupin January 2011. Heineken has also reinforced its positionin South Africa in 2010, with setting up the Sedibengbrewery in partnership with Diageo, where its Heinekenand Amstel brands will be produced.
� In the premium segment, which accounts for 15% of beer volumes in Middle East and Africa, Heineken is the marketleader with a 60% volume share. The category grew by 9%in 2010 and is expected to grow at a 7% C AGR over 2010-2015 (vs. 6% C AGR for beer).
� Heineken has the leading or the second position in most of the countries, especially in premium lager, so it is wellplaced to take advantage of the strong future growth in theregion. However, the company could strengthen itspresence in South Africa in dark beer, as it is the biggest
dark beer consumer in the region.
Heineken NV ± Premium Lager Rank, Share
and Growth Prospects in Middle East and
Africa 2010-2015
Rank
2010
% volume
share 2010
% CAGR
2010-2015
Nigeria 1 86.2 6.9
South Africa 1 1 54.3 10.7
Cameroon 1 45.5 2.9
Kenya 4 0.3 4.4
United ArabEmirates
2 16.4 5.1
Egypt 1 91.5 11.9
Morocco 1 71.0 1.5
Algeria 1 42.5 1.8
Tunisia 1 72.0 22.0
N ote: 1 Heineken operates through joint venture with
Diageo and N amibian Breweries (brandhouse),
and in 2010 it has opened the Sedibeng Brewery
in partnership with Diageo.
Leading the premium segment in Middle East and Africa
Category and Geographic Opportunities
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� Due to the religious ban of alcoholic drinks, Middle East and Africa is the world¶s second most important market for low/non- alcohol beer. In terms of volume, it is expected to surpass Western Europe in 2011. In 2010, low/non-
alcohol beer volumes grew by 17% in the region, to reach 1,037 million litres.� In Middle East and Africa, Heineken is the market leader in low/non- alcohol beer, with a 24% volume share, but its
volumes are concentrated in Nigeria and Egypt. However, the most important market is Iran, which accounts for almost one third of total low/non- alcohol beer volumes in the region.
� Low/non- alcohol beer is set to post further strong growth (18% C AGR, 2010-2015), driven by Iran, which isexpected to post a 33% C AGR over the same period. Heineken is well placed to exploit the future growth in Nigeriaand Egypt, but it needs to strengthen its position in Iran to secure its leading position in this segment.
Low/non- alcoholic beer in Middle East and Africa
Category and Geographic Opportunities
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Category and Geographic Opportunities
Increasing market share in North America
� The US beer market is expected to be stagnant over the forecast period, with a less than 1% C AGR for premium lager, but Heineken can improve its positionthrough its newly acquired FEMS A brands in thecountry. With the Mexican beer brands, Heineken mightbe able to compete more successfully against Modelo,which is its strongest competitor in imported premiumlager.
Cider/perry in North America
� Heineken has launched its ciders in the Canadian andUS markets in 2008 (Strongbow and Woodpecker), andhas experienced above market average volume growthin both markets in 2010 (13% in Canada and 3% in theUS A). The company is well placed to exploit the futuregrowth in the category, as cider/perry is expected togrow at a 2% C AGR in the US and 4% C AGR inCanada over 2010-2015.
In North America,Heineken operates primarily in theimported premium lager segment, in which it ranks
second with a 30% volume share in 2010. ItsHeineken brand is the second best-selling importedpremium lager, behind Modelo¶s Corona Extra. It alsoexports its New Castle Brown Ale, Murphy's, Beamishand its non-alcoholic beer brand, Buckler, but theseaccount for less than 7% of its beer volumes in theregion.
Canada
� In Canada, Heineken ranks third in imported premiumlager, with a 20% volume share in 2010. In 2010, thecompany registered 7% volume growth, well abovethe 3% market average. Its Heineken brand posted2% volume growth and FEMS A¶s Sol was also addedto the company¶s premium portfolio. Importedpremium lager is expected to grow at a 2% C AGRover 2010-2015, which gives further possibilities for H
eineken to strengthen its position in the country.USA
� In the US, where imported premium lager declined byover 1% in 2010, Heineken¶s category volumes grewby 46%, as the strong performances of the former FEMS A brands offset the volume declines of Heineken and Amstel.Heineken¶s share in importedpremium lager increased from 21% to 31% in 2010,thanks to the previous FEMS A operations.
Heineken NV - Imported Premium Lager Rank,
Share and Growth Prospects in North
America 2010-2015
Rank
2010
% volume
share 2010
% CAGR
2010-2015
US A 2 31.1 0.8
Canada 3 19.7 1.6
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Category and Geographic Opportunities
Work to do in Asia Pacific
� Asia Pacific is the world¶s biggest beer market and hasposted dynamic growth in recent years. The region is
expected to see beer volumes grow at a 6% C AGR over the 2010-2015 period, driven primarily by the Chinesemarket, although helped by Indian, Philippines andVietnamese growth.
� With less than 1% of the region¶s 64 billion litres in 2010,Heineken is a relatively small player in this large market,and its volumes are mainly sold in Vietnam (it accountsfor 41% of its volumes in the region). China represents
20% of Heineken¶s volumes in Asia Pacific, but thecompany has only a near 8% volume share in theChinese premium lager segment.
� Heineken¶s presence in Asia Pacific is boosted by itsholding in Asia Pacific Breweries and its 37.5% stake in
the Indian market leader United Breweries from itstakeover of Scottish & Newcastle.
� Heineken¶s weak presence is mainly due to thedominance of economy lager in Asia Pacific. Premiumlager represented only 6% of beer volumes in 2010, butit registered a 13% C AGR over 2005-2010 (double thegrowth for beer overall), thus it offers long-termopportunities.
� Heineken should strengthen its position in the region,especially in China, in order to realise the gains from thefuture growth of the premium segment.
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� Heineken plans to strengthen its international brandin India with the local production of Heineken through
UBL, which is about to start in 2011.H
owever, thecompany is likely to face strong competition, as A-BInBev, S ABMiller and Carlsberg have already set uptheir operations in the country.
� However, despite the high volume growth over 2010-2015, Indians will be consuming only 2.4 litres of beer per capita by the end of the forecast period,compared with 46 litres in China or 76 litres in Brazil.The market therefore offers potential for significant
long-term development.
� India is the largest market for premium lager in AsiaPacific, as the category accounted for 78% of total beer
consumption in the country in 2010.� In 2010, premium lager volumes grew by 14% in India,
while global volumes increased by just 1%. The Indiangrowth rate is expected to continue to be above the worldaverage, with a 12% C AGR for premium lager over 2010-2015.
� In India, United Breweries Limited (UBL) dominates beer,with a 54% volume share in premium lager (2010),
followed by S ABMiller and Carlsberg. Heineken has a37.5% equity stake in UBL since its S&N acquisition, and italso has some export in the country, thus it is present inthe small imported premium lager segment.
� In 2010, UBL¶s beer volumes were up 15% from 2009, toreach 780 million litres, and the company has contributed
¼9 million to Heineken¶s net profit. UBL¶s Kingfisher brandleads the premium segment with a 52% volume share,
followed byH
aywards from S A
BMiller with 25%.� The Heineken brand has a 25% share in the small
imported premium lager segment, which accounts for afractional share of premium lager volumes, thus severelylimiting the company¶s potential in the country. However,the brand¶s volumes grew by nearly 5% in 2010, to reach0.5 million litres, but the growth was less than that of thebooming market, in which premium lager grew by 14%and imported premium lager was up by 20%.
Opportunities in premium lager in India
Category and Geographic Opportunities
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� Beer in Asia Pacific is dominated by the Chinese market,which is the biggest beer market in the world, with 45.4
billion litres in 2010.� Heineken has a limited presence (marginal beer volume
share) in the country due to the dominance of economylager, which represented 85% of beer volumes in 2010.Premium lager accounts for less than 3% of total beer volumes in China, but it grew by 13% in 2010.
� The strong beer volume growth in China is expected tocontinue, with a 7% C AGR over 2010-2015, and premium
lager is expected to perform even better, at a 15% C AGRover the same period, thanks to continued economicdevelopment and the growth of the urban population,which stimulates demand for premium products.
Growth opportunities in China
Category and Geographic Opportunities
China - Premium Lager Brands Volume Share
2009-2010
BrandGBO 2009 2010
Budweiser A-B InBev 43.6 43.4
Tsingtao Tsingtao Brewery 15.3 15.0
Heineken Heineken NV 7.1 7.5
Tiger APB 6.9 7.3
Carlsberg Chill Carlsberg A/S 3.1 3.2
� Heineken¶s main competitors, A-B InBev, S ABMiller and Carlsberg, are far ahead with their Chinesepresence. A-B InBev operates 33 breweries and has
just acquired Liaoning Dalian Daxue Brewery in2011, S ABMiller has a 49% share in the marketleader China Resources and Carlsberg has an equitystake in second-ranked Chongqing Brewery.
� Heineken is a small player, yet it can take advantageof the future growth in premium lager, asHeineken isthe third most popular premium lager brand with an8% volume share, behind Budweiser (43%) and
Tsingtao (15%).
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� Heineken¶s joint venture with Fraser & Neave, Asia Pacific Breweries, covers large parts of
Asia Pacific, and it is present even in China. InHeineken- APB China (H APBC), Heineken ownsa 50% equity stake. H APBC has breweryoperations in Shanghai and Hainan, as well asinvestments in two Chinese brewing groups,Jiangsu Dafuhao Breweries and KingwayBrewery.
� APB has registered 13% volume growth in
2010, mainly thanks to the growing volumes of its Reeb and Tiger brands. The Heineken brandgrew also, by 20% in 2010, to exceed 88 millionlitres. The good performances can be attributedto the wider distribution network which H APBChas developed and to the marketing initiativesthat supported the brands, particularly insouthern China, where the fast growingGuangdong beer market is situated. To
capitalise on the growth opportunities inGuangdong,H APBC has opened a newbrewery in Guangzhou in December 2010.
� APB supports Heineken¶s operations in Chinawith its near 1% beer market share, but itcompetes against the Heineken brand with itsTiger brand, which has a 7% volume share inpremium lager.
Heineken - Asia Pacific Breweries in China
Category and Geographic Opportunities
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Category and Geographic Opportunities
Volume and value growth in Australasia
� In terms of volumes, premium lager is expected tooutperform the overall beer market in Australasia.Premium lager volumes are expected to grow at a 9%C AGR in Australia and at a 3% C AGR in New Zealandover 2010-2015.
� The leading Australian brewer, Foster¶s, became anacquisition target following the demerger of its wine andbeer operations in 2011, which is expected to change the
competitive landscape in the region. Whichever companybuys Foster¶s, will gain leadership in the Australian beer market. An acquisition in Australia would be beneficialeven for Heineken, as it has limited volumes in thecountry, but as of now the company¶s financial ability islimited, and it has to focus on reducing its debt level.
� The Australian market is small from a global perspective,but Heineken should increase its focus on the market, asit offers potential for the company with its growingpremium segment.
� Australasia is a small market for Heineken,accounting for less than 1% of its global beer
volumes; however, the region has posted strongvolume growth in recent years. In 2010, Heineken¶sbeer volumes were up by 15%.
� Premium lager accounts for 21% of total beer consumption in the region, which should ensure itsimportance in Heineken¶s portfolio.
� In 2010, beer volumes grew by 4% in Australia, butfell by 3% in New Zealand; however, premium lager
performed well in both countries, posting 16% and 4%volume growth. In terms of volumes, Heineken hasoutperformed the market in both countries, thus it hasgained market share and strengthened its position inpremium lager.
� Heineken ranks only sixth in premium lager in Australia, but its Heineken brand, which ismanufactured locally by Lion Nathan, posted 24%
volume growth in 2010 in the country.� In New Zealand, Heineken¶s position is much better,
ranking second in premium lager, although it is amuch smaller market, with only around 12% of the Australian volumes.
� Australasia is a small beer market, with its 2.3 billionbeer litres accounting for only 1% of global volumes,but with its strong premiumisation trend, it offers value
growth for brewers.
Heineken NV ± Premium Lager Rank, Share and
G
rowth Prospects inA
ustralasia 2010-2015Rank
2010
% volume
share 2010
% CAGR
2010-2015
Australia 6 4.0 9.1
New Zealand 2 30.3 3.3
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Category and Geographic Opportunities
Growth potential in cider/perry
� In contrast to beer, which was severely affected by theglobal crisis in Europe and North America, cider/perry has
proved to be more resilient. In 2010, global categoryvolume sales grew by 8%, well above the slight 1% growthposted by beer.
� Heineken is the market leader in cider/perry since it gainedaccess in 2008 with its Scottish & Newcastle acquisition. Itsvolumes are concentrated mainly in Western Europe. Thecompany¶s most important market is the UK, as it accountsfor more than half of global volumes. In 2010, Heineken
registered a strong 24% global volume increase, due tostrong growth in the UK, the Netherlands and above marketaverage growth in the US and Canada as well.
� Expanding with its cider brands outside its core UK marketis one of the main strategic objectives of the company. Inorder to exploit the potential growth offered by the category,Heineken has launched its Jillz and Strongbow brands in itsdomestic Dutch market in 2008. The new brands haveproved to be successful, with the company doubling itsvolume sales in 2010 in the Netherlands. In 2009, Heinekenhas launched its Strongbow brand in South Africa, which isthe world¶s second-largest cider market, accounting for around 10% of global volumes. Following these successfullaunches, the company is committed to continue to widenits presence with entering new markets, but taking cider toglobal scale is a challenge, as consumption is limited in anumber of regions.
� Heineken¶s (19% volume share, 2010) main globalcompetitors are Distell Group (12%) and C&C Group(11% global share). In the UK, which is Heineken¶s
biggest market, accounting for 92% of its volumes,the company has the leading 34% market share. Itsmain competitor here is C&C Group with 15%, but itcompetes also with many small local companies.However, competition is intensifying; in 2011, theworld leading brewer, A-B InBev, launched its firstcider under its Stella brand in the UK, and if itproves to be successful, the company might use itswide global presence to strengthen its cider
business across the globe.
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� Cider/perry is still a niche category in alcoholic drinks, accounting for less than 1% of global beer volumes, but itsglobal growth rate has surpassed that of beer. Cider/perry global volume sales are expected to grow at a 5% C AGR
over 2010-2015, driven by the UK, South Africa and the Netherlands, and Heineken is well placed to exploit thisgrowth.
� Heineken can leverage its strong presence in beer and can exploit the potential growth offered by cider/perry (nearly5% C AGR) in Western Europe, where beer volumes have declined and are expected to remain stagnant. North America also offers potential, as both Canada and the US showed growing volumes in 2010, and the growth isexpected to continue in the forecast period (2% C AGR in the US and 4% C AGR in Canada). The US offers potential,as craft beer grew in appeal to many American consumers, and cider has a similar appeal to craft beer, but lacks thecompanies with the strength to push the product. Heineken has this in terms of distribution and promotional spend.
� Australia could also become an important market for Heineken, as in 2010 cider consumption grew by 30% in thecountry, surpassing the volumes of the US, and the strong growth is expected to continue at a 28% C AGR over 2010-2015.However, cider/perry is dominated by Foster¶s Group, with a 52% volume share, and as the company is apotential acquisition target, whoever buys it, will take most of these gains.
Growth prospects in cider/perry
Category and Geographic Opportunities
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Strategic Evaluation
Competitive Positioning
Market Assessment
Category and Geographic Opportunities
Brand Strategy
Operations
Recommendations
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Brand Strategy
Focus on high-margin brands
� Heineken has a wide product portfolio, besides itsinternationalHeineken and Amstel brands, it has more
than 200 premium, regional, local and speciality beers.� Heineken¶s brand strategy concentrates primarily on theHeineken brand, which is its most international brand, with90% of its volumes sold outside its domestic market. TheHeineken brand is the best-selling premium lager in theworld, with an 8% global volume share. It accounts for nearly 17% of the company¶s global beer volumes andalmost half of its premium lager volumes (45%).
� In 2010, the Heineken brand outperformed the overallbrand portfolio, registering strong growth in France, Brazil, Australia, China, South Africa and Vietnam. In December 2010, Heineken has launched its global marketingcampaign ³The Entrance´ built around the new ³Open your world´ tagline to support the brand on a global scale andwith a global approach.
� Heineken has a strong commitment to deliver valuegrowth, thus it focuses mainly on the premium segmentand on its higher margin brands such as Dos Equis,Desperados and Strongbow.
� Its second most important international brand, Amstel, haslost market share in 2010, due to weak performances inGreece, France, Netherlands and the US.
� Desperados, its tequila-flavoured beer, registered nearly13% volume growth in 2010, thanks to strongperformances in Germany, France and Poland.
� Heineken has extended its brand portfolio with theacquisition of FEMS A in 2010. Its new Mexican
premium brand, Dos Equis, has posted strong growthin the US in 2010, and the company plans to launchthe newly acquired brands throughout Europe,supporting them with its marketing and salesexcellence. In October 2010 Heineken UK took over the marketing and distribution of the Sol and DosEquis brands.
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Competitive Positioning
Market Assessment
Category and Geographic Opportunities
Brand Strategy
Operations
Recommendations
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Operations
� Heineken has 125 breweries in more than 70 countriesaround the world.
� In many markets, where it does not own a brewery, ithas equity stakes in other companies. Its mostimportant joint ventures are:
± United Breweries Limited in India (37.5% equity stake).
± Asia Pacific Breweries with Fraser & Neave coveringlarge parts of Asia and the Pacific Islands.
± Compania Cervecerias Unidas in Chile and Argentina.
± Brandhouse in South Africa.
± Brau Holding International in Germany.
± Brasseries du Congo in Congo.
� In many markets,Heineken¶s brands are brewed under licence agreements. In most markets, this is done bythe company in which it owns a minority stake (e.g.CCU in Argentina and Chile).
� In addition to its own brands, Heineken also producesbrands on behalf of rivals in certain markets. Heinekenis a major third party brewer of Diageo¶s Guinnessbrand, which it produces in many African marketswhere the British company is not present in (e.g.Rwanda, Democratic Republic of Congo) as well asvarious other countries around the world, such asRussia and Indonesia.
Divestments 2010
� As part of the cost-cutting strategy, Heineken made
some divestments in 2010, and has closed four of itsbreweries.
± Heineken closed its Louny Brewery in Czech Republicin 2010 due to falling demand for beer in the countryand the group's global strategy to cut costs. Beer production was transferred to Velké Brezno andKrásné Brezno (Usti Nad Labem), while the brewerysite was turned into a distribution centre.
± The company closed its two former Scottish &Newcastle breweries in the UK (in Dunston andGateshead) in mid-2010. Heineken transferred thebrewing operations to its John Smith's Brewery inTadcaster.
± Heineken Romania closed its brewery in the westerncity of Hateg to increase efficiency and consolidate itsposition in the market. Heineken transferred
production to its other breweries in Miercurea Ciuc,Targu Mures, Craiova and Constanta.
Operations
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Competitive Positioning
Market Assessment
Category and Geographic Opportunities
Brand Strategy
Operations
Recommendations
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� In cider/perry, Heineken should look to expand itspresence outside its core UK market. The company can
use its strong presence in beer to help develop its cider portfolio in Europe and in North America. The US offershuge potential, where craft beer grew in appeal to manyUS consumers. Cider has a similar appeal to craft beer,but lacks the companies with the strength to push theproduct. Heineken has this in terms of distribution andpromotional spend.
� Although Heineken already has a strong presence inmany of the key growth markets in Latin America and
Middle East and Africa, the company still needs to domore. Heineken still has a relatively small presence inthe world¶s largest beer market, China. While it isprimarily a low-margin market, the company should stilllook to develop its presence in the country, for whendisposable incomes rise enough for premium lager tobecome a greater proportion of sales.
� Since beer volumes are declining in mature markets,and growth estimated to remain weak in Europe andNorth America,Heineken has to shift its focus towardsvolume and value share growth in its markets, thus ithas to focus especially on the premium segment.
� The premium segment offers potential volume and valuegrowth opportunities even in the weak European marketfor the company.
� Heineken has successfully reduced its debt to EBITD A ratio to below 2.5 in 2010; however, if the companywants to be involved in future consolidation and developits brands in new markets, it needs to strengthen further its financial capability. Heineken has to continue to focuson value generation through its price/mix supported byits cost-cutting strategy with a focus on developingmargins, efficiency and considering possible
divestments.
Focus on premium segment in mature markets Debt reduction
Increase exposure to emerging markets Expansion with cider/perry
R ecommendations
Recommendations
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