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Current Position:Home » News » Beverages & Alcohol » Beverages » Topic

Heineken bids to drive Russian beer up the value curve

Zoom in font  Zoom out font Published: 2012-08-24  Origin: beveragedaily  Authour: Ben Bouckley  Views: 41
Core Tip: Heineken says it investing heavily in its premium brands to improve its profitability in Russia following past pricing mistakes, but admits that it has more exposure to less profitable value beers than its rivals.
Reporting its H1 2012 results today, Heineken noted group revenues up 5% (4.5% in organic terms) to €8.778bn ($11bn) while group beer volumes rose 3.3% to 108m hectoliters (hl); net profit rose 1.6% to but fell 4% on an organic basis, i.e. excluding takeovers, acquisitions and mergers.


Central and Eastern European beer volumes grew 5.7% in organic terms to 26.8m hl year-over-year, with Heineken reporting double digit growth in Russia – led by Three Bears, Heineken and Amstel brands – but the brewer said profits in the country remained “broadly stable”.

CEO and chairman Jean-François van Boxmeer told Sanford Bernstein analyst, Trevor Bernstein, on an earnings call that Heineken was focused on winning back Russian market share following losses after pricing mistakes made two years ago.

Taking price in Russia…

Heineken had taken five price increases this year, but price mix was low (lower than firms ahead of the brewer in the market) with growth anchored to the lower end of the portfolio, CFO René Hooft Graafland added.

Van Boxmeer said: “We are back to where we wanted to be, and we pursue a policy aimed at creating share in value and improving our mix. H2 will be better than H1 for us in terms of Russian pricing.

“Our policy of focusing on the premium end of the portfolio is starting to give really good results.”

Matthew Webb from JP Morgan asked whether Heineken was raising prices at the lower end in Russia – given that “growth at the low end is doing nothing for your profitability” – to translate volume growth into profit contribution.

Chasing market leaders

Van Boxmeer stressed that his firm was not the market leader in Russia. (2010 Nielsen market data from shows Heineken with a 14.4% market share by volume, making it the third market player after AB InBev (16%) and Baltika Breweries (Carlsberg) with 39.8%.

“When you are with brands that are under index 100, where market leaders typically have that kind of pricing index…you move always with a certain delay to his [your rival’s] price moves,”
 Van Boxmeer said.

“People buy brands because they see a value-price relation. It is not because you succeed in putting interesting value brands on the market, and growing quite a lot, that you can suddenly raise prices ahead of the price-value equation as the consumer sees it.”

Van Boxmeer said Heineken’s strategy involved using the value segment to pay for its infrastructure – with good utilization rates across its eight Russian breweries driven by higher sales over the last 18 months.

After Fraser & Neave’s (F&N’s) board signed a formal agreement with Heineken, approving its improved US $53 bid for Asia Pacific Breweries (APB) and recommending it to shareholders, Van Boxmeer said he was pleased.

But he stressed that thetransaction was subject to F&N shareholder approval, before adding that Heineken had also acquired 6.9m APB shares on Tuesday, bringing its total stake in its JV brewer up to 44.6%.

The Southeast Asian and Pacific markets contain some of the most exciting and high growth markets for beer, and it’s a region we know well, having established APB as a JV some 80 years ago,” 
Van Boxmeer said.

 
 
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