Heineken cuts forecast as price hikes, Vietnam and Nigeria take their toll

The Netherlands | Heineken cut its 2023 profit growth forecast on 31 July after an economic slowdown in Vietnam and unprecedented price hikes squeezed sales volumes, depressing first-half earnings by more than expected.

The same day, shares in the Dutch brewer fell as much as 6.7 percent to their lowest level since January at EUR 90.40, according to Reuters.

Heineken said it now expected operating profit growth this year to be between zero and a mid-single-digit percentage. It had previously forecasted a mid- to high- single-digit percentage.

When quizzed by analysts why the brewer has revised its forecast downwards within the space of a few weeks only (since its first quarter 2023 presentation in May, actually), they were told that in May Heineken still believed that Vietnam’s economy would recover (it has not). Vietnam is one of the company's largest markets.

Besides, no one had expected the new Nigerian government to introduce measures like cutting subsidies on fuel (the price of petrol has tripled since) and devaluating the Naira currency, which negatively impacted beer consumption.

As a result, in the first half of 2023, Heineken sold only 120 million hl beer, compared with 126 million hl in the same period last year. Although volume sales declined in all regions, more than 50 percent of the drop was due to two markets: Vietnam and Nigeria.

In Vietnam, volume sales were down by 25 percent, as the country is facing reduced global demand for its exports. The decline in sales must have been a blow as in 2022, Heineken had grown its volume sales there by 43 percent. Still, with a market share of 40 percent, Heineken should have retained its market leadership. Also, by pivoting its portfolio from mostly premium brands to a healthier mix of premium (64 percent) and mainstream brands (the rest) over the past five years, it should be able to weather the storm.

In Nigeria, volumes were down some 20 percent, due to “inflation, cash shortages and structural economic reforms”, Heineken said.

Perhaps the main reason for the sales decline is Heineken’s decision at the beginning of 2023 to hike the average price of its beers by 12.7 percent, ahead of its peers, to cover its own cost hikes. Heineken’s CEO, Dolf van den Brink, called the price hike “unprecedented” but necessary.

This led to a 6.6 percent jump in revenue to EUR 14.5 billion (USD 16 billion). However, Heineken suffered an 8.8 percent decline in operating profit to EUR 1.9 billion, from EUR 2.1 billion a year ago. Analysts had expected a drop of only 4.8 percent. Heineken’s operating margin was down to 13.4 percent.

The drop in operating profit was mainly due to Heineken’s woes in Vietnam, as the Asia Pacific region is Heineken’s most profitable region and Vietnam a major profit-spinner.

Heineken said it expected a strong second-half turnaround, helped by lower energy and commodity costs and accelerated savings from productivity improvements. Mr van den Brink seems confident that the worst is over for 2023, because all his price hikes have already happened. But perhaps he should make sure that his next price move is the right one.