E-Malt.com News article: United States: New Heineken US CEO should take all advantage of his former experience in order to regain force in the US

As Heineken’s third U.S. chief executive officer in about two years, Dolf van den Brink inherits a brand that is fighting to regain its luster with consumers swamped with choice, Bloomberg communicated on November, 18.

U.S. volume of the company’s Dutch brands is set to drop a second year as Heineken raises prices while drinkers defect to cheaper brands.

Complicating Mr. van den Brink’s efforts are talks by partner Fomento Economico Mexicano SAB, the owner of Dos Equis and Tecate, to sell its beer business. Heineken in 2004 negotiated the U.S. distribution rights for FEMSA, as the Mexican company is known, and the Mexican beers currently account for about 25 percent of Heineken’s volumes in the country, analysts including ING’s Gerard Rijk estimated. Sales growth by volume may outpace that of the Dutch brands there for the third year in a row.

“Heineken has lost a bit of its shine,” said Anthony Bucalo, an analyst at Credit Suisse Group AG in London who is neutral on Heineken shares and once worked at InBev NV as a market research manager. “If FEMSA falls away, I think they’ll be in a lot of trouble.”

Heineken shares have advanced 44 percent this year in Amsterdam trading.

Losing FEMSA could cut Amsterdam-based Heineken’s main growth engine in the U.S. The volume of FEMSA beers sold to retailers in the U.S., distributed by Heineken under a 10-year agreement, rose in the third quarter as the company’s total Americas volume fell 9.6 percent. While Heineken is interested in buying the Mexican beer business according to three people familiar with the transaction, it is up against others like SABMiller that have more cash.

The Americas generated about a fifth of Heineken’s earnings before interest and taxes last year and 11 percent of sales. Competition increased after consolidation that created Anheuser-Busch InBev NV and the MillerCoors venture between SABMiller and Molson Coors Brewing Co., which has allowed them to distribute beers including Stella Artois and Peroni across the domestic networks of Budweiser and Miller.

Heineken Chief Executive Officer Jean-Francois van Boxmeer told investors this month the decade he spent in Africa was “certainly worth three times Harvard Business School.” He named Van den Brink to run the U.S. unit in September.

Heineken’s market share doubled in the Democratic Republic of Congo in the four years Van den Brink was the nation’s commercial director. The brewer generates more than 40 percent of its Ebit on the continent and in the Middle East, and sold about 75 percent more beer there last year than in the Americas.

Van den Brink, who ordered the barricade of the brewery amid street fighting to protect workers and prevent looting, “knows how to put things in perspective and keeps a clear head in a war zone,” said Hans van Mameren, Van den Brink’s old boss and Heineken’s managing director in the Congo.

Van den Brink, who holds dual masters degrees in philosophy and business administration from the Netherlands’ University of Groningen, wasn’t available for comment, spokeswoman Veronique Schyns said.

He has his work cut out for him in the U.S., according to his predecessor Don Blaustein, who stepped down in August after less than two years.

Heineken raised prices on its namesake lager for at least three years while Corona, its biggest competitor on the import market, was getting cheaper. From Jan. 1 to Oct. 4, Heineken increased the price of a case of its namesake lager by $0.57, while Corona cut its price by $0.36. A case of Corona sold for $29.49 at that time while Heineken went for $30.77, according to data from Information Resources Inc., which excludes Wal-Mart Stores Inc. data.

An organizational change hindered Heineken in the U.S., Blaustein said in an Oct. 9 interview. Heineken USA reported straight to the Dutch headquarters until 2005, when he says the Heineken Americas division was created and acted as a buffer between the two.

That helped create “a complex matrix relationship,” which made it tougher to act when the market changed, Blaustein said. Heineken USA and FEMSA each had just one team, allowing them to move more quickly, he said. Heineken spokesman Jeroen Breuer declined to comment on Femsa in an e-mailed statement. Heineken put the regional structure in place to “better attune its global operations,” Breuer said.

Following the consolidation, Heineken faces bigger local brewers. Popularity of so-called craft beers surged, as drinkers searched for new tastes and brands, said Blaustein. This year through Oct. 4, Heineken U.S. sales fell 6.4 percent in dollar terms, according to Information Resources data, compared with a 15.9 percent increase for Independent Brewers United Inc., the owner of Lucky Kat pale ale.

“If Heineken USA were to lose the FEMSA brands, that would be a challenge for them,” Blaustein said. “The FEMSA brands’ success helps give the company presence and leverage at wholesalers and retailers.”

Heineken isn’t the likeliest buyer of FEMSA Cerveza, said ING’s Rijk in Amsterdam. London-based SABMiller, the world’s second-largest brewer, has more financing power to buy the unit, which Rijk values at as much as $11.7 billion. The purchase would be more profitable for SABMiller than Heineken, which would have to sell shares to finance an acquisition, JPMorgan Chase & Co. analyst Mike Gibbs has said.

SABMiller CEO Graham Mackay said he was ready to make acquisitions in an August interview. SABMiller spokesman Jonathan Oates declined to comment on a FEMSA purchase.

Heineken aims to lower its debt to a ratio of 2.5 times earnings before interest, taxes, amortization and depreciation from 3.3 at the end of 2008. That doesn’t mean “we don’t invest anymore in expansion or in renewal,” Chief Financial Officer Rene Hooft Graafland told investors Nov. 6. He declined to comment on FEMSA.

Carolina Alvear, a spokeswoman for Monterrey, Mexico-based FEMSA, declined to comment on whether FEMSA plans to sell its beer business to Heineken, SABMiller or other companies, she said by telephone. FEMSA has said it was in talks with “several parties.”

For now, the U.S. is Van den Brink’s to turn around. To do that, he’ll have to do something most big brewers have failed to do, according to Bucalo.

“The history of U.S. beers shows that when big brands start shrinking, they tend not to recover,” Bucalo said. “Heineken has come to that point. Yet, it still has a future, because the brand is substantial enough. It’s profitable, just not growing.”


18 November, 2009