CASE STUDY: HEINEKEN 1

Case Study: Heineken

Travis Zickermann, Susana Callejas Sandoval, Diana Avila Alvarado, Melissa Leonardi

MG495/City University/Winter 2018

Instructor: Tee Nearman

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Case Study: Heineken

Heineken N.V. owns and operates one of the largest and most respected network of

breweries in the world, producing the popular Heineken and Amstel brands of beer (which rank

number one and number two, respectively, in Europe), as well as Murphy's Irish Stout, all of

which the company markets internationally (Referenceforbusiness, 2018).

The company's beer portfolio also includes many national and regional brands, including

Tiger, the number one regional brand in Asia. Heineken ranks second in the world beer market

(trailing only Anheuser-Busch Companies, Inc.), selling beer in 170 countries and brewing beer

at more than 110 company-owned breweries in more than 50 countries. Run by the Heineken

family for most of its existence, the business built a solid reputation early in its history for

maintaining high standards for its beer, standards the company continues to adhere to more than

135 years later (Referenceforbusiness, 2018).

Heineken's position of international preeminence at the dawn of the 21st century was

attributable to its two-pronged strategy of exporting its key global brands--Heineken, Amstel,

and Murphy's--and acquiring or building from scratch foreign breweries with strong local or

regional brands. Heineken thereby had attained leading positions in several markets in Europe

and elsewhere and the number two position in Africa, behind South African Breweries plc (SAB)

(Referenceforbusiness, 2018).

The company did occasionally bypass expansion opportunities, as it did in early 1999

when it decided not to bid for a controlling stake in SAB. But another cropped up a year later

when Bass PLC of the United Kingdom began exploring the sale of its brewing operations and

Heineken showed keen interest. It faced a potential battle, however, from several rivals,
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including SAB itself, Anheuser-Busch, and Denmark's Carlsberg A/S (Referenceforbusiness,

2018).

When Jean-François van Boxmeer was appointed in 2005 to lead Heineken, the third-

largest brewer in the world, he was one of the youngest CEOs in the company’s history. By 2014

Heineken had grown into a $20 billion-in-revenue company, producing almost 200 million

hectoliters of beer (Vanham, 2015). Surprisingly, though, van Boxmeer had not spent many

years of his career in Amsterdam, where the company’s headquarters are located, or in the US,

the company’s largest export market. Instead, he spent his first decade in Africa, in countries like

Gabon, Rwanda and Congo (Vanham, 2015).

Heineken is currently in the process of expanding to the African continent. The average

Kenyan might drink 13.5 liters of beer a year – just a fraction of the average of 55 liters the

average European drinks – but the market in Africa is expected to grow five percent between

2013 and 2017, according to research by Canadean. Conversely, people in Europe are drinking

8.5 percent less beer than they did before the recession and production has dropped by six

percent in the region, according to the Brewers of Europe (Lobo, 2016).

Heineken began work on building a $100 million brewery in Mozambique, a high stakes

gamble on an increase in beer consumption in one of the world’s poorest countries (Reuters

Staff, 2017). The factory, scheduled to produce its first batch of beers in the first half 2019,

would give the world’s second-largest brewer a substantial presence in the southern African

country, where annual beer consumption averages 11 litres per person (Reuters Staff, 2017). The

world’s major brewers have turned to emerging markets for growth because consumer spending

in Europe is sluggish and the United States offers only limited expansion opportunities (Reuters
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Staff, 2017). This case study will look at Heineken and their expansion to Africa and global

expansion overall.

Problem

The biggest problems for Heineken at the moment and for the near future are: To increase

their already well-known presence in the American and European markets, due to the fact that

the growth of consumption (in these areas) does not happen as in previous eras.

Because (especially) the African market has not had any relevant breweries presence

within their borders. Heineken must know how to approach this market successfully and in

regards to this, one major issue is that the African market statistically speaking is not as

profitable as the other aforementioned markets, their marketing tactics and their operational

plans have to adequate to this situation.As mentioned above, their marketing tactics/operational

plan will have to suffer a change because the African culture, society and economy could be said

to be drastically different to the European/American markets, so what works in these markets

could potentially now work here.

Analyses

Heineken's business strategy has established strong brand awareness across European

countries but this is not enough if the company wishes to brew a sustainable future in a tight

international competition. The five forces framework analysis by Michael Porter (1979) can give

the hindsight of Heineken's marketing and branding strategy in international beer industry race.

The first two frameworks are threat of entry and the rivalry among competitors which

will affect the market strategy of Heineken. Nowadays, there is a stricter alcohol advertising

regulation of some governments to reduce addiction (Ross, Sparks, and Jernigan, 2015) which is

an entry threat in business' expansion. This regulation will restrict the campaign marketing
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strategy for Heineken to enter larger market. Not to mention, there is a huge rivalry between

Heineken and other brewers. The data from 2014 shows major beer production increased for 0.4

percent while small brewers exceeded to 18% (Rutishauser, Rickert, and Sänger, 2015). Too

many rivals will reduce Heineken's financial performance especially in the case of US, where the

price of Heineken is more expensive than other rivals and make it harder for them to keep the

desired market.

The powers of suppliers and buyers, and the threat of substitute products are three major

forces for strategic branding and innovations to get customer loyalty (Porter, 1979). Farmers and

Haye Glas Nederland as the suppliers of raw materials and the salience green bottle have the

power threats to Heineken production cost and product's distinct branding. On the other hand,

buyers have the power threat to choose myriad beers on the market over Heineken beer. The

increasing popularity of substitutes alcohol beverage like wine also can switch the market

segmentation of the consumers. Therefore, there is a need for Heineken to continuously improve

product innovations, branding creativity in the areas of packaging, ecommerce marketing and

retail availability (Rutishauser, Rickert, and Sänger, 2015).

Alternatives

Alternative 1: Expanding into Asian emerging markets

Heineken has been choosing to focus on only a few key areas, assuming those areas are

the only prosperous markets. Over the past 50 years, beer consumption patterns have changed

substantially. The demand for beer in Asia has continue to expand over the last two decades and

the strongest growth has come from emerging economies. Emerging Asian markets represent an
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enormous opportunity for geographic expansion. It can help Heineken gain access to new talent

pools and provide a robust pipeline to fuel the its’ future growth as well as helping to increase

the company’s capacity and improve the geographic location of its breweries. On the downside,

as growth opportunities are significant, so too are the risks associated with expansion in these

markets. The size and diversity of the continent’s economy could make it difficult for Heineken

to use the strategies it has successfully applied in other parts of the world.

Alternative 2: Increase brand awareness with sponsorship opportunities

Heineken needs to work on consistent branding across the young crowd and turn its

marketing strategy around to be on top of the game. Sponsorships enable brands to augment

experiences in memorable and remarkable ways. It represents a unique opportunity to engage

and play an active part in consumer conversations in addition to create new ideas that build brand

equity in key markets for the company. Sponsorships would give Heineken a means to

reintroduce itself to wider audiences and stay relevant by blending traditional, digital and social

communication mediums. However, the image of the brand would be in the hands of an eternal

resource which can lead to negative associations and thereby change consumer attitudes towards

the company.

Alternative 3: Joint Venture

The beer market has been growing steadily with highest growth expected from the

premium beer market. The global beer industry is intensely competitive, marking a difficult era

for the entire business. Joint ventures can be the best way for two diverse companies to

maximize the strengths of each other’s business acumen while sharing the risk and rewards of

the enterprise. By establishing a joint venture with the right partner, Heineken could optimize

their product mix and diversify their operations, investing in its innovation capabilities and
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establishing a unique selling proposition. Some problems that can arise are complication with

distribution or research and development, particularly if any patents involved are held in the

name of the joint venture; lack of trust and fairness and enforcing a non-competition covenant.

Recommendations

Heineken has had a clear roadmap of business objectives since its foundation. But to

support business development and maintain its competitive edge, the company need to identify

opportunities for improvement and stop pursuing only safe way in their marketing. Key

implementation steps consist in sustaining and extending its global market share through

alliances and related business modelling innovation. Expanding Heineken’s market footprint can

be messy and difficult but strategic considerations make it imperative to find a way to succeed.

Conclusions

This case study was on the analysis and profile on Heineken. Global expansion to

developing nations is key to the number two beer producer in the world. This case study posed

theories and problems that face Heineken. But to support business development and maintain its

competitive edge, the company need to identify opportunities for improvement and stop pursuing

only safe way in their marketing. Heineken must understand that going into a market that does

not have a proven track record, but if successful Heineken has the chance of being one of the

biggest beer producers in the world.

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References

[1] Adekola, A., & Sergi, B. S. (2016). Global business management: A cross-cultural perspective.

Routledge.

[2] Fick, M. (2017). Multinational brewers look to tap Africa’s $13bn beer market. Financial

Times. Retrieved February 13, 2018 from www.ft.com

[3] Khalil, M. (2017). Expansion of SMEs into Emerging Markets. Zuyd Research. Retrieved

February 13, 2018 from www.zuyd.nl/onderzoek/lectoraten/international-trade-

management

[4] Lobo, R. (2016). Africa’s untapped beer market. Worldfinance.com. Retrieved 16 February

2018, from https://www.worldfinance.com/wealth-management/africas-untapped-beer-

market

[5] Referenceforbusiness.com (2018). Heineken N.V. - Company Profile, Information, Business

Description, History, Background Information on Heineken N.V..

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Referenceforbusiness.com. Retrieved 16 February 2018, from

http://www.referenceforbusiness.com/history2/2/Heineken-N-V.html

[6] Swinnen, J. (2017). Beer Consumption and Trade in an Era of Economic Growth and

Globalization. Choices. Retrieved February 13, 2018 from www.choicesmagazine.org

[7] Vanham, P. (2015). 3 lessons from brewing Heineken in Africa. World Economic Forum.

Retrieved 16 February 2018, from https://www.weforum.org/agenda/2015/07/learning-to-

brew-in-africa/

[8] Porter, E Michael. (1979). How Competitive Forces Shape Strategy. Retrieved from

https://hbr.org/1979/03/howcompetitiveforcesshapestrategyreferral=03759&cm_vc=rr_it

em_page.bottom

[9] Ross, Craig S., Alicia,Sparks., and Jornigan, David H. (2015). Assessing the Impact of

Stricter Alcohol Advertising Standards: The Case of Beam Global Spirits, 16(3), 245-

254. doi: 10.1002/pa.1584

[10] Rutishauser, German Estevez., Rickert, Stefan., and Sänger,Frank. (2015). A perfect storm

brewing in the global beer business. Retrieved from

https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/a-

perfect-storm-brewing-in-the-global-beer-business