Question

Heineken

Evaluate Heineken’s corporate-level and international strategy using concepts and tools from the course. How has the entries into new product and geographical markets created value for the company? What are some problems with its diversified global operations and how can these be addressed?

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Answer 1

Ans

Heineken introduction

Heineken and multinational company in which the main strategy is to built priority in 5 directions designed to enable to win in market the main focus on the long-term sustainability of business in market and to continue delivering growth and shareholder value committed to leading the premium segment in beer and siddha across the world.

Corporate strategy

The corporate level strategy states that the optimised and expand its existing position through acquistation and to seek value-adding opportunities to enhance its position as a global brewer.

The primary value Of the company is its brand Recognisation have a long established brand equity that drives their respective sales.

corporate strategies focus on improving operational efficiencies and expansion through acquisition. Coors seeks to grow its markets regionally. This is evident through its Carling acquisition and its current regional appeal in the U.S. All of Coors’ revenues come from the sale and distribution of beer and malt beverages.

International strategy

According to Heineken InternationalAnnual Report and net finance expenses including income Tax , impairment losses recognised on investments, and gains or losses on hedging instruments that are recognised in the income statement cost is EUR 214 million.

This includes Wages and salaries EUR 1,554 million, compulsory social security contributions EUR 287 million, contributions to defined benefit plans EUR 17 million, increase in other long term employee benefits EUR 7 million, Expenses related to define benefit plans EUR 107 million, Equity-settled share-based payment plan EUR 10 million, Other personnel expenses EUR 397 million, Heineken International

Heineken structured like Holding Company. The role of the Heineken Holding N.V. has performed for the Heineken group since 1952.It has been set to safeguard Heineken continuity with independence, stability and steady growth of the Heineken group’s activities.

Essays

Marketing

Marketing in the beer industry and Heineken International

3189 words (13 pages) Essay

1st Jan 1970 Marketing Reference this

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Beer is at present worlds most consumed and oldest alcoholic beverage in the world, Max N., (2005). According to Heineken International (2011), expected that worldwide beer consumption grow by 2% to 3 % annually but growth forecasts different vary substantially in regions. Heineken is one of the world’s great brewers and is committed to growth and remaining independent. The Heineken brand is available in almost every country on the globe and it is the world’s most valuable international premium beer brand. The Company’s aim is to be a leading brewer in each of the markets in which it operates and to have the world’s most valuable brand portfolio. According to Heineken International (2011), The Company operates 140 breweries in more than 70 countries and Heineken is Europe’s largest brewer and the world’s third largest by volume and the average number of people employed is more than 75,000.

Activity 1: Understanding the Business

Suggests the income streams and costs

Income Streams

Source: Heineken International (2011), Annual Report, 2009 [Online]

Product sold

According to Heineken International (2011), Annual Report (2009), Revenue is EUR 14,701 million gains from the sale of products. Consolidated beer volume is 125.2 million hectolitres and Heineken volume in premium segment is 25.1 million hectolitres,

Heineken International (2011), Annual Report (2009),[Online].

Other income

Other revenues are gains from rental income and pub management services also technical services that are giving to third parties. When the services have been delivered Rental income and technical services are state in the income statement. Also some Other incomes are gains from property sale, equipment and plant, intangible assets and (interests in) subsidiaries which are accounted for EUR 41 million, Heineken International (2011), Annual Report (2009) ,[Online].

Costs

Raw materials, consumables and services cost

This includes cost of Raw materials EUR 1,140 million, non-refundable packaging cost EUR 1,739 million, Goods for resale cost EUR 2,253 million, Inventory movements, marketing and selling expenses EUR 1,664 million, Transport expenses EUR 934 million, Energy and water cost EUR 319 million, Repair and Maintenance cost EUR 299 million. Other expenses include rentals of EUR 184 million, consultant expenses of EUR 158 million, telecom and office automation cost of EUR 145 million and other fixed expenses of EUR 820 million, Heineken International (2011), Annual Report (2009) ,[Online].

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Research ,Development , Software and other intangible assets costs.

According to Heineken International (2011), Annual Report (2009), [Online], Research, Development, Software and other intangible assets costs is EUR 1,083 million these includes purchase of software’s and expenditure on internally development and maintain of software. Also Expenditure on research activities such as design and improve product brand image (Heineken DraughtKeg, improved design of the new iconic Bottle) .

Government Grants

According to Heineken International (2011), Annual Report (2009) ,[Online],cost is EUR 70 million Government grants has been surety to the authorities in a number of countries as security for the payment of taxation where Heineken operates, especially excise tax paid for beers and non-alcoholic beverages , spirits and import duties.

Other net finance expenses including income Tax

According to Heineken International (2011), Annual Report (2009), [Online], Other net finance expenses including income Tax , impairment losses recognised on investments, and gains or losses on hedging instruments that are recognised in the income statement cost is EUR 214 million.

Personnel expenses

This includes Wages and salaries EUR 1,554 million, compulsory social security contributions EUR 287 million, contributions to defined benefit plans EUR 17 million, increase in other long term employee benefits EUR 7 million, Expenses related to define benefit plans EUR 107 million, Equity-settled share-based payment plan EUR 10 million, Other personnel expenses EUR 397 million, Heineken International (2011), Annual Report (2009),[Online].

The measures of performance for the Beer Industry

According to Plato Logic Limited (2011),”Global beer consumption grew by 1.8% in 2008, but a sharp slowdown to less than 1% growth forecasted for 2009, also China market is strengthened its position further as the world’s biggest beer market in 2008 by achieving record sale of 407mhl”.

Top 5 Global Beer Markets, 2008

Source: Plato logic Limited. (http://www.platologic.co.uk/pr_world_beer_report_2009.htm)

Top 20 Beer Brands in year (2007)

Source: Anheuser- Busch (2007) via http://www.anheuser-busch.com/mediakits/08/08%20Top%2020%20Beer%20Brands%20-%20Oct%2007.pdf.

“Anheuser-Busch InBev, SABMiller, Heineken and Carlsberg beer brands accounting for 50% of beer sales volumes and up to 75% of the global profit”, Plato Logic Limited (2011).

Over the past 5 years the beer category average growth rate was 3.5% globally. However according to SABMiller (2011), this reflects different pictures in growing and developed markets with growing at an average rate of 6.8% .while developed markets gradually become less by 3.4%.The largest contributor to this growth rate is China, which is now the world’s largest beer market, Africa and Eastern Europe. China recorded a rise of over 7%, despite being hindered by heavy weather conditions that affected for consumer demand, SABMiller (2011).

The measures of performance of the Heineken Company and beer Industry

Financial performance

Source: Heineken International (2011), Annual Report (2009) via http://www.annualreport.heineken.com/report_of_the_executive_board/financial_review/index.html

Revenue and expenses – According to Heineken International (2011), Annual Report (2009), [Online], Heineken revenue increased by 2.7 % from EUR 14.3 billion in 2008 to EUR 14.7 billion in 2009 and decreased organic growth by 0.2 %. However Heineken Annual Report noted that other income is increased from EUR 32 million in 2008 to EUR 41 million in 2009.Main reason is of increased cost of sale of property, plant and equipment.

Furthermore Total cost management (TCM), Heineken’s wide cost reduction programme for the period 2009 to 2011 which is delivered mainly savings in fixed cost spending. Therefore other expenses were decreased by EUR 36 million. In 2009, exceptional restructuring charges as part of personnel expenses related to Total cost management amounted to EUR 63 million before the tax, Heineken International (2011), Annual Report (2009).

Heineken International (2011), Annual Report (2009) further noted that Costs of raw materials and packaging decreased by 4.4 %, of which 3.2 % which was due to low volumes and low purchasing prices for barley the end of 2009.Furtthermore Marketing and selling expenses reduce organically by 3.7% to11.3 % of revenue in 2009 from 11.7 % in 2008,

Heineken Signs Sponsorship Deal With ESPNSoccernet – According to adoimagazine.com, Interactive Hub has secured a sponsorship deal with Heineken on ESPNSoccernet for three seasons of the UEFA Champions League (UCL). The three-season agreement will run until the 2012/2013 season.

Heineken supply lager for London Olympics 2012 – According to Ruddick G., (04 Feb 2011), London Olympics Business, Heineken UK will be the official lager supplier in a tier three deal, typically worth around £10m, that pushes London 2012 closer to its target of raising £2bn from sponsorship.

Heineken profits up – According to BBC News (25 August 2010), Business, Heineken Net profits for the first half of the year hit 621m Euros (£510m; $788m), up 17% on the same period last year.

Heineken’s acquisition of FEMSA increases its exposure to key Latin American markets – According to Curran P., (01-12-2010),The Heineken’s acquisition of FEMSA strengthen Heineken’s position in the Americas and substantially increase its share in Mexico and Brazil as well as securing its joint venture with FEMSA in the US premium beer import market. Mexico and Brazil are other two leading markets in Latin America and those countries accounted of 63% beer volume of those regions in 2009.

Heineken NV sees profits grow – According to Canadean’s,( 17/02/11), latest beer news Heineken’s Non-organic net profit rose by 41 per cent to €1.4 billion (£1.2 billion), while its premium volumes climbed by 3.4 per cent.

Nearly 1 million jobs rely on sector – According to Canadean’s news ,(17/02/11), A new report, conducted by Oxford Economics and commissioned by the British Beer & Pub Association (BBPA), showed that 980,000 people are reliant on the licensing sector for employment, with the beer and pub trade bringing £21 billion into the economy annually.

Value Chain for the Heineken International

Firm infrastructure

According to Heineken International (2011), Heineken structured like Holding Company. The role of the Heineken Holding N.V. has performed for the Heineken group since 1952.It has been set to safeguard Heineken continuity with independence, stability and steady growth of the Heineken group’s activities.

Management

Heineken International (2011) noted that Heineken Holding N.V. is head of the Heineken Group with a Board of Directors. The management of Heineken N.V. is run by the Executive Board, which has two members and is chaired by Jean-François van Boxmeer.

Heineken currently operate in 5 regions, which are The Americas, Western Europe, Central and Eastern Europe, Africa and the Middle East as well as Asia-Pacific. Each operating region is headed by a Regional President. The five Regional Presidents, two members of the Executive Board and five Group Directors are included in the Executive Committee. The Executive Committee ensures the alignment and implementation of key priorities, strategies across the organisation and supports the development of organisation policy. Heineken International (2011).

Primary Activities

Inbound logistics – Heineken operates in many different countries, therefore Heineken purchase raw materials (malt, hops and adjuncts), equipment and other goods and services within in order to meet the needs of customers and consumers and distributed beer worldwide, stored in warehouses strategically placed throughout to minimize shipping costs to stores. Supplier Code is designed to ensure both ethical and effective sourcing processes that reduce the risk of reputational and financial damage through the supply chain, Heineken International (2011).

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Operations – Heineken main operation is Brew beer and it operates in more than 170 countries. With total consolidated beer volume of 125.2 million hectoliters in 2009, producing beer in more than 70 countries through its 140 breweries and also through other brewers under license, Heineken International (2011), AMCO Heineken Prospectus [Online].

Outbound logistics – Heineken is the largest beer and beverage distributor in Western Europe. In every market where Heineken active, Heineken strive for comprehensive coverage through alliances with independent distributors or via Heineken own beverage wholesalers. Often, Heineken wholesalers also distribute wine, spirits and soft drinks to the on-trade. Heineken also has brewers throughout the world so that it can ship its finished products to local areas to minimize shipping costs, Heineken International (2011).

Marketing and sales – Heineken has world’s leading portfolios of premiere beer brands and is the 3rd most recognized brand of beer in the world. By acquiring smaller brewers in the world Heineken spread brand name even more also in achieving sustainable growth. National advertising play a prominent role in promoting Heineken strengthened brand equity through associations with high-impact, high-profile sports and music events Social networking sites and video blogs, films. Heineken remain fully committed to the responsible brewing, Respect for the consumer and an acknowledgement of the dangers associated with the misuse of alcohol drives to market Heineken products in a responsible way, Heineken International The company encourage consumers to visit the internet site and register to become part of the “Heineken”. As part of this, the company could send out periodical surveys to gain input from consumers on product related issues. Heineken International

Negitive imapat of globalisation

The globalization of Heineken has negative effects to small breweries in countries where it choose to build breweries. The minor companies are finding it hard to compete with large multinational companies such as Heineken. Globalization also pushed Heineken to change their products and brands, which are their legacy to products that will be accepted worldwide.