Heineken is one of the largest alcoholic beverage makers in the world. Beer is the main product that earns the maximum revenue and maximum profit for Heineken. Beer industry is the largest in the world in the alcoholic beverage industry. As estimated in 2013, beer industry globally is more than $500 billion dollar industry (Huffington Post, 2013). There are thousands of microbreweries and local players in this market. Still the top 10 players control more than 60% of the market share. However, the beer market has reached a saturation point in most part of the developed world, and hence the growth in those markets is very minimal for the beer industry. In fact, the Western Europe market is facing a decline in revenue while USA is seeing a marginal 1% growth rate by volume (Flannery, 2013). On the other hand, emerging markets like Latin America, Asia-Pacific and Middle East market are growing at a faster rate. Over and above that, the overall share of the beer industry to the alcoholic beverage market is also dropping every passing year. Wine and spirits are on the rise, pushing the beer market down (Huffington Post, 2013). In recent years, Belgium beverage maker InBev has made a $52 billion takeover of the Budweiser maker Anheuser Busch Cos. This has turned InBev into the number one alcoholic beverage maker in the world pushing aside SABMiller and Heineken to number 2 and 3 spots respectively. Heineken, on the other hand, is growing at a rate faster than the industry growth mainly because of its presence in emerging markets (Gross, 2012). Overall, the alcoholic beverage market has very limited opportunity for growth with many players doing business in this industry. The competition in this industry has become fiercer than before. This paper will discuss the strategy of Heineken, its main competitors, shareholding structure, its relation with the government and corporate social responsibility.
Heineken: International Operations Strategy
Heineken is consciously reducing its exposure in the developed markets and focusing its attention on the emerging markets. It had less than 35% contribution of beer sales by volume in the emerging market in 2008, and that has now increased to 62% contribution in the emerging markets in 2012 (Gross, 2012). This growth fueled by the emerging markets has made the company witness a 4. 3% growth by volume due to the increase of business volume in the Asian market and Latin American market. Its European operations are still facing a downturn in volume due to bad macroeconomic conditions, but the revenue for the company went up by 7. 4% in 2013 partly because of the volume growth in the emerging markets and partly because of the better price-mix ratio of the beer brands (The New York Times 2013). Heineken has increased its sell by increasing the sales of its Tiger brand in the Asia Pacific region. Asia Pacific Breweries, the company responsible for manufacturing the Tiger brand and operating in the Asia Pacific region, is solely owned by Heineken. Tiger brand, the largest brand in the Asia Pacific region, has witnessed over 20% CAGR in the last three years (The New York Times 2013). Heineken Brazil, a small entity in the whole Heineken business house, has experienced the highest growth rate. By witnessing 59% CAGR in the last five years in Brazil, Heineken Pale Lager has become the fastest growing beer brand in the country.
Heineken Competitors and Opportunities
Alcoholic beverage industry is a competitive industry with a lot of global and local players vying for growth. This is a product category many people across the world would like to have locally made over the global brands. That is why the industry has become fragmented. The already established beverage brands need to compete with the local players dominating the local market. Due to easy knowledge of brewing and low cost involved in setting up a microbrewery, there is always a scope for new entrants making an entry into this market. For example, in recent times in USA, a slew of microbreweries, which brew craft beer and specialty wines, are posing huge competition to established beverage brands like Miller-Coors, InBev and Heineken (Brewers Association, 2013). The number of breweries being all-time high in the history of USA with over 2, 700 registered breweries in the US alone, out of which only 10% are operated by the global players, alcoholic beverage market is fragmented between local and global players. There are a myriad of breweries worldwide. However, Heineken with the other 4 top brands hold over 50% of the global beer market (Flannery, 2013). Despite many players being in the market, the competition is mainly concentrated between Miller Coors, InBev, Carlsberg, China Resources Enterprise and Heineken (Huffington Post, 2013). These players continuously compete with each other to grab the maximum market share. Currently, Heineken is trying to enter the Brazil market. Chinese market, the second largest in the world, has a very low margin because 85% of the total alcohol consumption accounts for low end beer products (Huffington Post, 2013). On the other hand, Germany is the fourth largest market being dominated by the local microbreweries. Heineken along with other international brands fails to perform well in the German market.
Overall, the volume of beer market is not increasing at all. In fact, the market trend suggests that the CAGR in the US market is 1% for the last three years for beer volume (Flannery, 2013). The annual growth rate between 2008 and 2012 in Europe is -3%. On the other hand, other alcoholic beverages like wine and spirits are seeing higher growth rates in the developing and developed markets. For example, the growth rate of the wine market in the US has almost been 5-6% in the last 3 years by value (Huffington Post, 2013). The rapid growth of the spirits market indicates the customers’ shift of choice from beers to other alcoholic beverages like spirits and wine.
Heineken Shareholders Structure and Board of Directors
Figure 1: The Shareholder Structure of Heineken (Heineken#2, 2013)
The ownership structure of the company is carefully created to ensure independence and growth of the company without much interference. Heineken Holding N. V still holds the majority share of 50. 005%. This shows that the Heineken family involvement, vision and legacy are still in place. FEMSA owns 12. 532% and the remaining share is owned by public (Heineken#2, 2013). In Heineken N. V., L’Arche Green N. V. has 51. 607% shareholding, FEMSA has 14. 935% shareholding and the rest of the share is owned by public (Heineken#2, 2013).
Heineken Holding N. V. is created in such a way that it controls the majority stake in Heineken but still does not interfere in the day to day affair of the management managed by the Heineken N. V. supervisory and executive board (Heineken#2, 2013). The executive board of Heineken comprises of CEO and CFO. Under the leadership of CEO and CFO, the board comprises of the regional presidents and the chief supply chain officer, chief human resource officer and chief corporate relations officer. The executive board is responsible for the smooth operation of the company and making strategies for future. The executive board reports to the supervisory board of Heineken N. V. The supervisory board of Heineken consists of members from the Heineken N. V. and also from the board of directors of Heineken Holding N. V. This way the company operation is responsible for both Heineken and Heineken Holding, but Heineken Holding has no direct influence on the company strategy and operational matters.
Heineken and Governments
Heineken over the years has maintained a good relationship with all the governments by abiding by the law of the land in every country. Alcoholic beverage industry is an interesting industry. The government in order to reduce the overall consumption of alcohol of its citizens levies a high tax rate on the alcoholic beverage manufacturers. Though levying tax does not reduce the overall consumption of alcohol, the government, however, receives a substantial tax from the industry. In most of the developed countries, the taxes received from the alcoholic beverage companies are substantial. The government, not willing to reduce the inflow of this income drastically, goes easy with the alcoholic beverage manufacturers. In the whole process, both the government and alcoholic beverage manufacturers like Heineken remain on the side of gain. The government is on a constant pressure to come up with measures to reduce the per capita alcohol consumption. Some of the governments, in recent years, have started collaborating with manufacturers like Heineken to cut binge drinking. Heineken already is doing that in UK (Heineken#1, 2013). By putting less alcohol in its products, Heineken is actually reducing the cost per bottle and also helping the government reduce the overall alcohol consumption level of the citizens. However, some conservative countries like Saudi Arabia pose barriers to foreign manufacturers like Heineken from entering their countries (Heineken#1, 2013).
Heineken Licensing Structure
Heineken uses different licensing structure for different products. For example, its flagship Heineken Lager Beer, it produces its own products in its 40 plants across the world. It does not give license to anyone else to sell Heineken lager beer. Other brands owned and produced by Heineken exclusively include Heineken Dark, Heineken Extra Cold, Heineken Oud Bruin, Heineken Premium Light and Heineken Tarwebok (Heineken#1, 2013).
However, in many countries Heineken operates through its wholly owned subsidiaries and sells their brands under Heineken licensing. For example, in Italy, Drewer Brewery produces and sells brands like Birra Dreher and Birra Ichnusa under the Heineken brand. Similarly, Heineken sells Amstel beers under the company licensing agreement (Heineken#1, 2013).
Similar kind of structure is used in China, Singapore, other Asian countries, Africa and South American countries. However, in Asia Pacific, Heineken has partnership with other breweries. For example, it sells Tiger brand as an exclusive brand of Asia Pacific Breweries (Heineken#1, 2013). Asia Pacific Breweries is a joint venture of Heineken and Fraser and Nueves. Similarly, in New Zealand, Heineken sells beers and other alcoholic beverages in partnership with DB breweries.
Heineken CSR strategy
Heineken is a responsible corporate. Over the years, it has taken initiatives towards better environment and a greener planet. In terms of production of the alcoholic beverages, Heineken is the greenest manufacturer in the world with minimum CO2 emission levels (Gross, 2013). Heineken has a target of reducing the CO2 emission by 40% and water consumption by 25% by 2020 (Gross, 2013). Heineken also has a target of expanding its Africa funding by €20 million (Gross, 2013). It also has a target of partnering with other players in every market it operates to reduce alcohol abuse. Heineken wants each of its subsidiaries to have a sustainability plan publicly available. It also wants all of its partners to commit to sustainability plans and then publish regular progress.
Alcoholic beverage market dominated by few players like InBev, Heineken and Miller Coors is one of the biggest sectors in the beverage industry. Heineken is the third largest beer manufacturer in the world. Unlike other players trying to grow through acquisition in mature markets, Heineken lays its main focus on the inorganic growth in the emerging market. The decline faced in terms of the market share and growth in the developed market is compensated by its phenomenal growth in the emerging market. Heineken has a great shareholding structure to ensure that the company operations are not interrupted by the shareholders. Simultaneously, the structure also ensures that the vision and mission of the company as conveyed by the owners are fully taken into account. Heineken is a responsible corporate citizen and has started lot of sustainability initiatives. With the current structure and the way of operation, Heineken will stay successfully in the market for a long time.
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