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Heading the Heineken Group, Heineken Holding N.V. is no ordinary holding company. Since its formation in 1952, the objective of Heineken Holding N.V., pursuant to its Articles of Association has been to manage and/ or supervise the Heineken Group and to provide services to the Heineken Group. The role Heineken Holding N.V. has performed for the Heineken Group since 1952 has been to safeguard its continuity, independence and stability and create conditions for controlled, steady growth of the activities of the Heineken Group. This stability has enabled the Heineken Group to rise to its present position as the brewer with the widest international presence and one of the world’s largest brewing groups. Every Heineken N.V. share held by Heineken Holding N.V. is matched by one share issued by Heineken Holding N.V. The net asset value of one Heineken Holding N.V. share is therefore identical to the net asset value of one Heineken N.V. share. The dividend payable on the two shares is also identical. Historically, however, Heineken Holding N.V. shares have traded at a lower price due to technical factors that are market-specifi c. Heineken Holding N.V. holds 50.005 per cent of the Heineken N.V. issued shares. L’Arche Green N.V. holds 58.78 per cent of the Heineken Holding N.V. shares. The Heineken family holds 88.42 per cent of L’Arche Green N.V. The remaining 11.58 per cent of L’Arche Green N.V. is held by the Hoyer family. Mrs. De Carvalho-Heineken also owns a direct 0.03 per cent stake in Heineken Holding N.V.
On 4 November 2003, Heineken N.V. issued two bonds for a total of EUR 1.1 billion. In addition, on 26 February 2009 Heineken placed six year Notes of GBP400 million (EUR 450 million) with a coupon of 7.25 per cent, on 25 March 2009 fi ve year Notes of EUR 1 billion with a coupon of 7.125 percent and on 1 October 2009 seven year Notes of EUR 400 million with a coupon of 4.625 per cent. These Notes were issued under the European Medium Term Note Programme established in 2008 and updated in September 2009. The European Medium Term Note programme allows Heineken N.V. from time to time to issue Notes for a total amount of up to EUR 3 billion. As currently approximately EUR 1.9 billion is outstanding, Heineken still has capacity of EUR 1.1 million under the programme. The programme can be used for issuing up to one year after its establishment. The Luxembourg Stock Exchange has approved the programme.
Risk Management and Control Process
Under the explicit understanding that this is not an exhaustive list, Heineken’s main risks are described below, including the mitigation measures. Risks concerning the Heineken brand and Company reputation, economic downturn, volatility of input costs, exchange and interest rates, availability and cost of capital and increasing legislation (such as alcohol excise duties and anti-trust) affecting the business are considered the most significant risks. The main Company risks have been discussed with the full Supervisory Board.
Attractiveness of beer category under pressure
Heineken has many operations in mature beer markets where the attractiveness of the beer category is being challenged by other beverage categories. Consumers may also change behaviour following the rise of discount brands and retailers following the recession. In these markets, especially, the on-trade channel is under pressure, which makes adjustments to the cost base unavoidable. Heineken is relatively highly geared to mature markets since their acquisition of Scottish & Newcastle. Management focus is on product innovation, portfolio management and costeffectiveness in order to secure market position and profitability.
Pressure on alcohol
An increasingly negative perception in society towards alcohol and more specifically alcohol abuse could prompt legislators to take restrictive measures including restrictions, on such things as commercial freedom and increased government tax. This perception is fed by critical coverage in the media. Further restrictions of our commercial freedom to promote and sell our products could lead to a decrease in brand equity and potentially in sales and damage the industry in general.
Heineken actively participates in the EU Forum on Alcohol and Health and delivered its commitments in the area of consumer information, alcohol consumption at the workplace and commercial communication. In 2009, Heineken continued to work on establishing effective self-regulation in the EU together with the Brewers of Europe.
Volatility of input costs
Pricing strategies are top priority in all of our markets. This includes assessments of customer, consumer and competitor responses based on different pricing scenarios, which will have different outcomes market by market. In principle, we will pass on increased input costs impacting volume. During the second half of 2008, commodity markets rapidly declined following the world economic climate and remained depressed for most of 2009. In addition, the run of several years’ poor harvests in key grain and hop markets has reversed and world grain stocks are recovering.
The economic crisis has impacted our regular business activities and performance, in particular in consumer spending and solvency. However, the business impact differed across our regions and operations. Local management has assessed the risk exposure following Group instructions and is taking action to mitigate any higher than usual risks. Intensified and continuous focus is being given in the areas of customers (managing trade receivables and loans) and suppliers (financial position of critical suppliers). Also, management attention is given to our relationships with banks (see capital availability risk) and insurance companies (credit worthiness (re)insurance companies). Regional Management and involved Group functions oversee the effectiveness of management analysis and action, supported by input from Internal Auditors.
Heineken operates internationally and reports in euros, which has proven to be a very strong currency over the past few years. Currency fluctuations, relating to the US dollar, South African rand, Polish zloty and, to a lesser extent, the British pound could materially affect overall Company results, considering the size of exports from the eurozone to mainly the USA and South Africa. Heineken has a clear policy on hedging transactional exchange risks, which postpones the impact on financial results. Translation exchange risks are hedged to a limited extent. In 2009, operating results of Operating Companies in countries with currencies that devaluated versus the euro are translated into euro at lower rates. Since the Group attracts funding and pays interest in these currencies as well, the impact of devaluations of such currencies like the Russian rouble, British pound and Polish zloty on our results is mitigated to a certain extent. In addition, Heineken strengthened its risk management regarding the monitoring and managing of currency and interest positions.
The Company has a strong focus on cash generation to reduce its debt levels and to improve its financing ratios. The Company has a clear focus on ensuring sufficient access to capital markets to refinance maturing debt obligations and to finance long-term growth. The Company aims to further fine-tune the maturity profile of its long-term debts. Financing strategies are under continuous evaluation. Terms and conditions of additional refinancing may be impacted by the changing credit market conditions. Strong cost and cash management and strong controls over investment proposals are in place to ensure effective and efficient allocation of financial resources.
Due to increasing legislation there is an increased possibility of non-compliance. Additionally, more supervision by regulators and the growing claim culture may potentially increase the impact of non-compliance, both financially and on the reputation of the Company. Each half year, all majority-owned companies formally report outstanding claims and litigations against the Company in excess of
EUR 1 million to Group Legal Affairs, including an assessment of the amounts to be provided for. There may be current risks that do not have a significant impact on the business but which could – at a later stage – develop into a material impact on the Company’s business. The Company’s risk management systems are focused on timely discovery of such risks.
- Heineken has very different brands in thirteen markets.
- It is a global brand and established itself in international strategy
- The company have purchased a lot of national breweries.
- There is Recognition of bottle (Green bottle) dispenses and different instruments such as (Mini keg)
- Heineken has a conservative and safe play culture. The company had struggled to obtain larger Breweries.
- Young Beer drinkers don’t prefer Heineken
- Prices are costly when compared to domestic market such as $10 would be for six packs and in the domestic market it is $7 for six packs.
- Government restriction to drunken driving laws.
- High competition in the beer industry to increase the market share.
- Joint ventures and acquisition of other companies which tend to become larger than Heineken.
- The trends of the society changing to consumption of healthy beer with low calories.
- In Asia and Russian there is increase in population which the company is having high market share.
- In the U.S industry a particular segment the Hispanic are growing tremendously
Threat of substitutes:
Very little technical composition of beers
The growing segment of wine industry
Threats of new Entry:
An investment amount of $250 million dollars to build 4 million barrel brewery
There is risky entry since there is no alternative use of breweries
Top positions have not been cracked by new entrants
Bargaining power of buyers
No true brand loyal to any particular brand
The Demand for the major competitor brand Budweiser is Inelastic
Bargaining power of suppliers
There were fewer amounts of Brewers and larger plants.
High cost of production due to rise in price of products such as grains glass and aluminium.
There were many number of buying supplier of input (Wheat field).
Rivalry Between established competitors
During 1947 Heineken established itself in top 5 acquired 19% of the market in U.S.
During 2001 Heineken was included in top 5 and generated 87% of the U.S market share.
The beer industry is very highly competitive industry due to this reason many brewers leave the industry.
Anheuser-Busch, Inc.is 100 percent owned by the holding company Anheuser-Busch
Companies, Inc. The company mostly focuses on domestic beer sales, 75% of its total revenue, 4% from international beer sales, 15% from packaging, and 6% fromentertainment.
Corporate level strategy – At the corporate level, Anheuser-Busch pursues the ‘dominant vertical business’ strategy. All ratios (specialization, related and vertical) are well above 70%. The company focuses mainly, but not exclusively, on beer production and is heavily vertically integrated, which sets it apart from most of its main competitors.
Value Drivers – Anheuser-Busch ranked first in the category ‘quality of products and services’. The company also won the first rank in the overall category ‘Beverage Industry’.
Strength challenges and weakness – Anheuser-Busch derives most of its market strength from its overwhelming scale and scope economies. The ‘king of beers’ uniquely transforms this strength into several unrivalled competitive advantages, including cost efficiencies, exclusive relationships with many of its wholesalers, a dominant presence at the retail level, advertising efficiency and pricing power. A-B is growth limited because the company is operating above 95% production capacity, which already presents seasonal challenges. The overwhelming success of the past decades could potentially lead to complacency among AB’s employees and distributors.
SAB MILLER PLC
SABMiller has brewing operations in more than 40 countries spanning four continents.
The company is the second largest brewer in the world by volume and one of the largest Coca- Cola bottlers and distributors of Coke’s carbonated soft drinks outside the U.S.79 The primary brands in the U.S. markets are Miller Genuine Draft, Miller Lite, Foster’s and Pilsner Urquell, and Henry Weinhard’s and Leinenkugel’s. Other U.S. brands include Icehouse, Old English 800, High Life, Milwaukee’s Best, Mickey’s Malt Liquor and a non-alcoholic beer called Sharp’s.
Corporate Level Strategy – The SABMiller corporate level strategy is a dominant linked corporations strategy. The stated corporate level strategy is to “optimize and expand its existing positions through acquisition” and to “seek value-adding opportunities to enhance its position as a global brewer”. SABMiller business level strategy is to serve the mass markets
for beer and soft drinks with broad differentiation as perceived by consumers.
Value Drivers – A primary value driver of SABMiller is its brand recognition. The Miller Genuine Draft and Miller Light brands, for example, have a long established brand equity that drives their respective sales.
Strength and weakness – SABMiller has strong brand leadership and it continues to develop new brands through partnerships. The strategy of diversification across currencies and geography makes the company relatively immune to regional changes in beer consumption, tastes, growth trends, and currency fluctuations.
The Miller Brewing acquisition required significant management attention and a large investment on the part of SABMiller that will continue to affect profitability over the next two to three years.
Aldoph Coors Company was founded in 1872. Coors was family owned until 1975 when the company first became public. The Coors family continues to be involved in the company with nine of its members working for the firm.95 All of Coors brewing and packing facilities are currently U.S. based, having divested a brewery in Zaragoza, Spain in 2000.96 Its largest facility, in Golden Colorado, has the ability to produce 20 million barrels of beer in a year and is considered the largest brewing facility in the world.
Corporate Level Strategies – Coors’ current 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.
Value Drivers – Coors is improving its brewing operations by investing in supply chain management systems, joint ventures with packaging companies and plant upgrades.
Strength and weakness – Coors has never wavered in its dedication to maintain their access-based position in the market. Its success has been attributed to latching onto a market trend toward health conscious consumers and developing and executing a focused strategy. The company’s weakness is in establishing the correct cost basis for their strategy. Coors has the highest COGS per barrel compared to its peers. Further growth may be limited unless the company seeks global expansion. As of today, Coors is not participating in the fastest growing global geography, China.
CORONA AND LABATT
Corona beer, a brand of Grupo Modelo de Mexico, and Labatt, a brand of Labatt USA, are the major competitors to Heineken. In addition to the individual brands of Corona, Grupo Modelo also owns Pacifico and Modelo Especial. Labatt USA has strong brands with additional products such as Rolling Rock, and is the distributor of Tecate and Dos Equis. Both companies participated in the beer industry consolidation. Anheuser Busch has increased ownership of Grupo Modelo to 51% after an initial investment of 13% in 1993.
Corporate level Strategies – The corporate level strategy of Labatt USA is dominant linked, serving various niche markets throughout the country. Labatt’s large portfolio of specialty beers serves different niche markets with widely divergent geographic strengths. Grupo Modelo pursues a dominant linked strategy, however its limited brands serve only smaller niche group. Both companies focus on the specialty beer market by controlling manufacturing and distribution channels through vertical integration.
Business level strategies. Labatt USA’s and Grupo Modelo’s business strategies are product differentiation. Both companies emphasize the quality of their products and their abilities to satisfy customers.
Value Drivers – The primary value driver for Grupo Modelo and Labatt is their individual brand equity. Corona has been a staple in Mexico since the early 1900s. Many of the brands in Labatt USA’s stable, such as Bass and Lowenbrau have been around for centuries.
Since Grupo Modelo focuses on only 5 brands with huge production volume, it is able to exploit manufacturing and production scale and scope economies as cost drivers.
Strength and weakness – Labatt and Grupo Modelo enjoy strong brand leadership, while Labatt has additional advantages due to its relationship with Interbrew and FEMSA that allows brand expansion.
Heineken Holding NV
Group Modelo SAB de CV
SAB Miller PLC
Molson Coors Brewing Co.
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