Heineken doubles down on cost savings in Europe

The Netherlands | Global beer consumption is holding up despite economic challenges, with employment strong and drinkers still treating higher-priced premium beer as an affordable luxury, Dolf van den Brink, CEO of Heineken, told analysts at its Capital Markets Event on 2 December.

But Heineken’s business in Europe is a bother. There is a perception in the investment community, one analyst said, that Europe is “tricky”. It is very hard to generate much growth, both top-line (revenue) and bottom-line (profit), on this continent.

One of the reasons is that supermarket and discount chains in Europe – and especially in Germany – haggle particularly hard over prices. While US retailers usually pass on suppliers’ price hikes directly to consumers, the European retailers traditionally insist on low purchasing prices.

Cutting costs

To chase growth, Heineken seeks to cut cost while it pushes brands for a younger audience. The Dutch brewer launched its EverGreen strategy revamp last year, centred around a cost-savings target of EUR 2 billion (USD 2.1 billion) that is designed to allow more investment for future growth.

The brewer said it will go beyond that target in 2023 as it plans to find productivity improvements of EUR 400 million per year, equivalent to about 2 percent of annual expenses.

It also hopes to implement price increases more consistently to cover rising input costs.

Heineken is the market leader in Europe, but when compared to its peers, it is less profitable in terms of operating profit margin. It partly blames this on its many breweries across Europe, which are far smaller than its competitors’ on average.

Leaving no stone unturned

Therefore, Heineken will shutter seven of its 50 breweries on the continent, without giving details. So far it has only announced the closure of five breweries.

Additionally, it is looking into more cross-border cooperation between its national operating companies, based on its success in Germany, where in 2021 it sold more than 1 million hl of beer (Heineken, Desperados and Gösser Radler etc), all of which are produced outside of Germany.

Big brands are key to EverGreen

Heineken has also reduced its product range and is channelling more marketing into fewer brands.

The brewer has high hopes for Heineken Silver, a lower alcohol and less bitter version of the original Heineken, which began in Vietnam in 2019 and this year was the biggest launch in Europe of any fast-moving consumer good.

Heineken has now allocated USD 100 million for Heineken Silver for what it says will be its biggest ever launch in the US next year.