Heineken to cut brands and costs in fresh start

By Chris Mercer

- Last updated on GMT

Related tags: Heineken, Europe, Netherlands

Heineken has come out fighting after announcing losses so far in
2005 with plans to cut back on brands and step up efficiency drives
to beat cost pressures and stagnant Western European beer markets.

The Dutch brewer, complete with new chief executive Jean-François van Boxmeer, said it was conducting an extensive review of its beer brands with a view to cutting off the dead wood and focusing in on the real earners.

"The concentration of marketing spend on brands which create most value will enable the company to better develop its markets,"​ Heineken said. The brewer currently has more than 175 brands.

The firm announced in February it would spend an extra €100m on new product development and marketing to reinvigorate disappointing performances in mature, western markets - especially France, the Netherlands and US.

Heineken's sales dropped by €100m to €2.55bn in Western Europe during its 2005 first half. Overall sales went up by nearly six per cent with a continued strong performance in Eastern Europe. Russia is now Heineken's biggest market by volume.

The core-brand strategy Heineken is now interested in has already been used successfully by some brewers in the UK.

Scottish & Newcastle recently sacrificed market share to dump non-core licencing rights for Beck's and Miller. S&N UK is now firmly focused on its big four - Foster's, John Smith's, Kronenbourg 1664 and Strongbow (cider) - and managed to increase their volumes amid a shrinking British beer market in the first half of 2005.

A relatively small UK brewer, Greene King, has also consistently out-performed the market by building up three solid ale brands backed by strong promotions.

Both of these firms have placed a strong emphasis on cost-saving initiatives, and that is something Heineken's new chief, van Boxmeer, said he was determined to improve.

Heineken's overall profits dipped eight per cent, despite saving an extra €35m in the Netherlands and €40m in Central and Eastern Europe. The latter has been subject to rigorous rationalisation with a combined 11 breweries and malt plants closed since early 2004, and the planned closure of Romania's Grivita brewery in November 2005.

Unfortunately, one of van Boxmeer's first major tasks will be to help defend Heineken against charges of price-fixing in the Netherlands, brought by the European Commission. If found guilty, Heineken could be fined anything up to 10 per cent of its global annual sales.

Yet, the firm seems determined not to remain on the defensive. It has made four acquisitions in Russia this year and said it had allocated €850m to invest in fixed assets, such as production facilities, across its business.

Heineken's premium focus continues to gather pace everywhere with three per cent volume growth, but has yet to turn around the company's fortunes in difficult markets.

A recent report on UK beer by Goldman Sachs​ said Heineken could also face earnings losses in Britain as it invests in the re-launch of Heineken as a premium brand.

The firm will also launch Heineken Premium Light Beer nationwide in the US next year. Other brewers, including SABMiller and Anheuser Busch, have highlighted 'light' beers as one of the only positives in a US beer market going backwards in volume and earnings.

Related topics: Heineken

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