Home' Brewers Guardian Digital Magazine : November 2012 Contents Beyond excluding ThaiBev from a potential say in the direc-
tion of APB -- and let's not overlook a stake in Fraser and Neave
acquired by Kirin two years earlier -- the business case present-
ed to financial analysts was unusual in that it lacked estimates
of achievable cost synergies. In fact, there was no reference to
cost savings whatsoever.
Instead, the message was that this was a transaction about
top line growth, partnered with an ability to respond more
nimbly to market conditions. Decisions on capital expenditure
should be easier to come by: "Fraser and Neave was a con-
glomerate and they had to weigh investments in beer versus
investments in property and soft drinks and publishing," notes
Hooft Graafland. "And that discussion will be easier when you
are the boss in your own house."
And analysts were assured that APB's flagship lager, Tiger,
would find new opportunities in an expanded Heineken universe.
In part, though, the acquisition is about reordering priorities
when it comes to the brand portfolio, namely prominence given
Tiger was a brand owned by APB; Heineken was a brand
brewed and marketed under licence. As such, Hooft Graafland
has sympathy for the way brands were prioritised.
"Logically, if you don't know for long the licence will be, or
will the licence be renewed, etcetera, you take a slightly differ-
ent perspective and commitment and we saw the same with
the Mexican brands in the USA. Yes, we were the importer of
the Mexican brands but these were not our brands. Now they
are our brands you see a complete different attitude from the
organisation, the salesman in the street, to work the Mexican
brands because it his brand.
"You will have that to a lesser extent in APB but for them
the Heineken brand was not their own brand. So you see that
you get more focus, more determination and one captain on
Chinese brewing puzzles
Full control of APB allows Heineken to access growth oppor-
tunities in world's largest beer market, China. The strategy is to
build premium brands, namely Heineken and Tiger, eschewing
the low margin mainstream.
Hooft Graafland minces no words when it comes to avoid-
ing the perils of brewing large volumes of low margin beers in
China, equating profitability as a near impossibility. To his think-
ing at issue is overcapacity, a situation acerbated by continued
government support for brewing investment.
"The ex-brewery price of premium is five times the main-
stream, and mainstream is extremely cheap. It's something
like 25 euros per hectolitre and you can hardy make money
on that. And we don't think that will change in the short
"There's a continuous overcapacity in China that is driven
by local governments who are enabling new brewers to start
or new brewers to come into that region. They give them tax
incentives but reap the excise. And they want to keep the beer
prices as low as possible so volumes are as big as possible so
their revenues on the excise are as big as possible. So you get
a very unhealthy industry in that sense but in the premium we
see opportunities to further grow."
All well and good, but Heineken has but three breweries in
China. In contrast, Carlsberg operates more than 20 in the
country -- and just manages to number amongst the country's
top 10 brewers, ranking ninth according to market researchers
Canadean. Heineken, it would seem, doesn't have the scale to
execute a premium brand strategy.
It's a suggestion that is, of course, rebutted by Hooft
Graafland: "Certainly going forward we will further expand
capacity and that is not an issue in China. It's not difficult to
build new breweries there but we will do that as a result of the
growth we achieve."
Global brands, micro mates
Growing Heineken the brand remains the Heineken the multi-
national's number one priority -- it's there in black and white and
green in the latest annual report for all to see. The brand con-
tinues to add volume on a quarterly basis, and 2012 has been
kind thanks to the Olympics and now the arrival of Bond, James
Bond. Heineken today sells around 28 million hectoliters.
One wonders if this is the best use of company resources --
how much marketing should be devoted to one brand? Hooft
Graafland is robust in his reply.
"I would argue almost the opposite ... There is so much oppor-
tunity for the Heineken brand and, given its price premium, it
accelerates your profitability in such a big way that you should
ask yourself, 'are we putting enough behind it to exploit that fully?'
Cider should be mentioned, especially with the acquisition
this year of Belgian cider maker Stassen. Hooft Graafland
sees potential for cider, with it a unisex proposition, its sweet-
ness skewing towards women, combined with its healthy,
natural positioning. Yet this is a long-term play, more so than
beer brands such as Desperados, which are easier for con-
sumers to grasp.
As one of the world's Big Four brewers, it's worth asking how
Goliath is responding to David, that increasingly enthusiastic
band of craft brewers that are, at least in the United States,
grabbing market share. Hooft Graafland says that there's no
intention for Heineken to become a craft beer producer, akin to
ABI's acquisition of Chicago's Goose Island.
"We don't believe that we should do that by buying craft brew-
ers because part of these craft brewers is that you have an
owner who is passionate about his products, that he knows his
customers. So we don't think when buying that you will kill half
of the fun of craft beers.
"Yes, we are passionate about how we do beer but we are
an over 200 million hectolitre brewing company and that is a
different dynamic than craft. That means that we can bring in
propositions which resonate with consumers and the drive for
differentiation and discovery of consumers but you have to do
it in your own way."
It's a good note to close on, and the wide-ranging interview
ends. Heineken has never styled itself as, certain competi-
tors would have it, the world's local brewer. This, folks, is the
world's global brewer. And rightly proud of it.
Hooft Graafland at launch of Heineken K2 bottle, 2010
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