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Heineken International

Team project

Strategic Management

14 May 2017

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Table of content

Table of Contents

1. Introduction 3

2. Analysis of the entrepreneurial formula 3

2.1 Competitive system 3

2.2 Product system 8

2.3 Stakeholders system 8

2.4 Structure 10

2.5 Prospects offered 11

3. Analysis on a business unit 11

4. Evaluation of the Entrepreneurial Formula at a Strategic Business Unit Level 12

5. Evaluation of the need to innovate the entrepreneurial formula 15

6. Conclusion 15

7. References 17

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1. Introduction

Heineken was founded in 1864 by Gerard Adriaan Heineken, who had bought the Haystack

Brewery in Amsterdam. After nine years, the name of the brewery was changed to Heineken

Brewery and with this change officially began the production of Heineken beer. The original

brewery was used until 1988 and today it is a museum called “The Heineken Experience”.

The company was focused on brewing beer until 1933 when they started exporting their

product to other countries, such as the United States. Once they had gone global, Heineken

turned their focus towards acquiring other brands, such as Brand, Scottish & Newcastle,

FEMSA, Lagunitas and their biggest rival Amstel. This was part of their global expansion

strategy which resulted in the company being one of the world leaders in the beer industry

today (The Heineken Company, 2017).

Heineken is active in the beverage industry, specifically the brewing industry. Today,

Heineken is an independent global brewer, active in 178 countries across the world, with

operations in over 70 countries and a total of 85.000 employees. The company is the number

one beer brewer in Europe and the number two beer brewer in the world. The product

portfolio consists of more than 250 beer brands, with brands such as Desperados, Amstel and

Sol. The brand stands for quality of the product and the company aims to be a leading brewer

in all of the markets they operate in. Furthermore, the company’s aim is to have the most

prominent brand portfolio in the world (Heineken N.V., 2015).

Some key figures from 2016 include an increase of organic revenue of 4.8%, with revenue per

hectoliter up to 2.2%. Furthermore, the operating profit grew by 9.9% and the overall

Heineken brand grew by 3.7%. Heineken wants to further grow and expand their brand

through innovation, acquiring existing breweries, investing in key developing markets, and

building new breweries (Heineken N.V., 2017). The main question of this report is: “Does

Heineken have a good strategy?”. The sub-questions are: “Are there some risks in their

strategy?” and: “How can they improve their strategy?”. The practical goal of this report is to

evaluate and implement the Entrepreneurial Formula in a correct way, to better understand the

success of the company and if the need to improve their strategy exists.

2. Analysis of the entrepreneurial formula

2.1 Competitive system

The competitive system in which a company operates is very important to evaluate and

reevaluate in order to ensure a company retains their competitive advantage. Factors such as

target markets, competitors, rules of competition and the condition of the industry itself are all

factors that need to be evaluated in order to gain an understanding of the environment a

company operates in. Therefore we begin our analysis of the Entrepreneurial formula of

Heineken by analyzing the competitive system in which they operate.

Target Markets:

Heineken owns 17.7% of the global market share, owns more than 250 brands and is present

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in more than 70 countries. Depending on the region, the performance of Heineken differs. In

2016, the Africa – Middle east division the company performed very well despite the

macroeconomic issues that occurred in these areas (rising inflation and currency pressure

weighed on performance). During the same year, the American division experienced a strong

growth and now represents 24.3% of regional revenues as a percentage of the total. Moreover,

the Asian-Pacific division experienced an overall growth due to the increase in consumption

in Sri Lanka, Vietnam, Cambodia and Malaysia. The strategy to invest in company’s brands,

premiumization and innovation, combined with a strong focus on operational excellence, is

paying off (The Heineken Company, 2017).

The company also focuses on a large segment: all adult consumers. Their main market

consists of men aged between 21 and 34 years old, which make up 63% of their consumer

base. Most of these men are sports fan, have a college education background and belongs to

the class with mid to high income (Heineken Annual Report, 2016). Naturally, their

expectation about the product varies according the country we are referring to, but an overall

trend can be identified. Since the target group appertains to the so-called “millennial”, their

needs are evolving and becoming more and more complex. According to the central Piedmont

Community College, these customers have a complex personality, are confident and

progressive and able to navigate any social situation (CCPC, 2016). Due to this, they demand

top quality product with a reasonable price, a differentiation in tastes and a beer conform the

every situation.

Environment:

To determine the environment in which Heineken operates we have chosen to perform a

PESTEL analysis to analyze the key components of the environment. From a political and

legal point of view, Heineken meets heavy regulations regarding the restrictions on drinking

ages and all the governmental anti-alcohol campaigns, which could affect the company. To

adapt to these regulations Heineken has chosen to work in tandem with local governments on

this issue. In fact, Heineken participated in a lot of campaigns concerning responsible

drinking in order to increase awareness of the problem in their youngest consumers.

The economic side of the environment is experiencing a slowdown due to the lack of growth

in income of middle class consumers and the huge amount of beers available on the market.

Moreover, the price of raw materials is fluctuating as these materials are becoming scarce.

Heineken is already working in order to overcome these issues by creating new networks of

suppliers worldwide. The social-cultural aspect of drinking is changing its conception. Indeed,

there is an increasing awareness regarding alcohol and its effects on humans. People are

following a healthy lifestyle and trying to avoid “cheap and unhealthy” beers and instead they

are starting to appreciate premium and craft beers. Heineken has been investing a lot in the

last years in order to strengthen their customer relationship (by offering new products and

rewards). The company is also facing a technological revolution since innovative techniques

are being introduced in beer production. Furthermore, they developed software that is able to

interact digitally with customers. Nonetheless, Heineken is not losing sight regarding the

environment regulations and the eco-friendly processes and materials used in their products.

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Competitors:

According to Birritalia 2016/2017, the current leader in the Italian brewing industry is

Heineken (with 28% of the market share), followed by Peroni (19%) and AB InBev (8,7%).

These companies not only compete with each other for control of the Italian market, but they

also compete with approximately 682 other active brewing companies in Italy. The greater

number of companies all competing for a greater market share drives down the profitability of

the industry as a whole. Due to the low switching costs and the perishability of beer, there

tends to be a greater price competition between competitors (Economics Online, N.D.).

Relatively small costs of changing products and the variety of possible substitutes for beer are

the main causes that determine the level of competitiveness. The solution to beat its main

competitor, Ab InBev, is to keep on with the acquisition process of small breweries

worldwide in order to acquire a larger market share. Heineken should not care too much about

future competitors since the brewing industry has high levels of brand loyalty, meaning that

customers are more reluctant to change. Due to this, new competitors will have to

significantly advance their brand value in order to compete effectively and convert customers

to their brand.

Rules of Competition:

Regarding the rules of competition, Heineken follows very high standards and it’s proud to

share and communicate its values. First of all, the company goes out of its way to avoid

capturing the attention of minors. In fact, they avoid displaying content that could be

associated with schools or children’s media and use restrictions on social networks. Heineken

ensures that its practices are always legal, ethical and truthful. The company is proud of their

brand identity and tries to communicate a key message for their success: drink responsibly.

One example given by Heineken is the fact that the brand is never associated with antisocial

behavior or overconsumption (Heineken, 2016).

Key success factor:

A key success factor for a trade, profession or industry is something that a business must do to

be successful. It is a necessary condition for success. The key success factors that drive

Heineken are: differentiation, marketing, premium quality, cost, customer experience. In each

market that they enter, Heineken creates a strong brand and introduces different beers to

better serve the tastes of each individual market. As for marketing, Heineken’s marketing

strategy is constantly changing and updating to capture the interests of their consumer base.

Due to huge investments made within the last few years, Heineken built a brand image

capable to gather all the consumers within the target group.

As for premium quality, Heineken has the highest quality beer brands. To ensure their

products quality, Heineken uses a superior brewing process, high-quality materials, and

checks the quality of the taste of the beers they produce. Even though they are using a

premium price strategy, their products are the perfect quality-price tradeoff so the cost of their

products is a key success factor for them. Last but not least, the Heineken Experience has

been an integral component of their success. Heineken is trying to embrace moment

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marketing by giving to the customer the perception of beer associated with our best moments

and it can also be the indulgence for the consumers’ premium moments. Moreover, Heineken

has different programs to reward their customers. For example, they are the principal sponsor

of the UEFA Champions League, so in Europe they have promotions where you can win

tickets from some games, and also the final match. In some events around the world, they

always have a station where they give out gifts, such as speakers, cup holders, shirts,

souvenirs, etc. In conclusion, Heineken believes that corruptions must eliminate from society.

Heineken decrease and avoid the fraud and conflict between business benefits (Heineken,

2016).

As mentioned above, one of the key characteristics of the brewing industry has always been

the rivalry among competitors in the industry. Heineken is in competition with Ab-Inbev and

Carlsberg Group for gaining the greater market share possible worldwide. But due to the low

switching cost among the beer industry, this competition drives down the overall profitability.

In order to overcome the competition, Heineken should keep on acquiring more national

breweries globally (to expand their already consolidated global presence) and increase

advertisements in multi-language toward young people. From the production point of view,

the company should try to make its own ingredients and develop a strategy for recycling

glass. Moreover, Heineken could try to diversify their offer and push to develop new low carb

(low calories) beers in order to meet the needs of all the customers.

Competitive Advantage:

A competitive advantage is a condition in which a company has some strength - compared to

the rivals - that let it: serve the customers better and realize higher margins. Concerning the

competitive advantage for Heineken we are focusing on some drivers that the firm adopted in

order to perform well in most segments. Heineken has core competencies that allow the

company to perform well in most segments by impacting positively on the different key

success factors.

Cost advantage:

Even though the company is using a premium price strategy, it is able to offer a product or

service similar to the one of the main competitors in terms of features and performances but at

a lower price. This is possible by reducing costs compared to their rivals. It is necessary that

the company costs are lower than any other competitors; otherwise competitors will be able to

reduce prices, gaining customers. Heineken does just this within the premium beer market.

Although they market themselves as a premium product, Heineken is able to use this strategy

to better position themselves against other beer brands that also market themselves as a

premium quality beer.

Product and process innovation:

Heineken will invest €50 million in Italy for the next three years for the creation of a new

production line. The investments aim to enhance technical, security and environmental

improvements. In order to foster these sustainable practices, the company has invested €25

million in the last five years. Sustainability-related processes will be getting funds in the form

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of €11 million investment for security, €7 million investment to enhance productive

efficiency and €3 more million for environmental protection. The new production line will

cost €15 million: a big portion of the production will be shipped abroad and towards their new

Chinese breweries. They will be making a competitive product, leveraging their economies of

scale to lower the price without sacrificing the quality.

When it comes to innovation, Heineken’s leading Italian brand Birra Moretti has truly stood

out. Birra Moretti has experienced resounding success in Italy and has become the leading

brand of Heineken Italia spa. Birra Moretti capitalizes on the differences between regions in

Italy by differentiating its flavors by region. Depending on the region, the recipe for the beer

will change in order to include regional ingredients. As of now there are 4 regional beers

brewed from regional ingredients in Friuli, Tuscany, Sicily and Piedmont (IlSole24Ore,

2015). This constant investment into product and process innovation allows Heineken to

retain their competitive advantage by exploring different possibilities for products that better

meet their consumer needs

Technological innovation:

In order to keep their competitive advantage, Heineken keeps their thumb on the pulse of

technological innovation. They are quick to update and invest in new machinery for their

breweries and packaging plants to ensure that they optimize their production. One example

where they have successfully utilized new innovations is in the Massafra packaging plant in

South Italy. After the opening of the new establishment in Massafra, Heineken created a new

packaging line called “Combi 4”. This new line allows the company to produce packaging

with more flexibility and automation, which allows the plant to produce and fill more bottles

of beer faster. In fact, the implementation of this new packaging line increased production in

this facility from 300.000 hl to 2 million hl of beer per year.

Among the most innovative elements in the establishment we can find a “filling machine”,

completely automated, which allows to fill all the different types of bottles only by changing

the software’s parameters. Furthermore, the machine is linked to 3 robots with the function of

palletizing/depalletizing of the crates. With only 200 employees, the Massafra establishment

works on several brands of the Heineken group and manages to be one of the most efficient

plants for Heineken. The institution of technological innovations such as the ones they

implemented in Massafra allows Heineken to create a better quality product for their

customers while lowering their costs. This helps Heineken realize higher margins and

contributes to their financial success.

Strong brand identity:

Sustainable growth requires that the firm acts according to their values of respect and passion.

These values guide how Heineken works and conducts their business each and every day. The

firm works with “personal integrity”, commercial identity and company identity in order to

ensure the preservation of their good reputation and the capability to operate in confidence

with all the stakeholders. They operate showing their respect for people and for the society

(The Heineken Company, 2017).

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Key partnerships:

In order to boost the international marketing, Heineken has sponsored a lot of entertainments

activities all around the world. For example, Heineken is a major sponsor of tennis

championships such as “Wimbledon” and is an official partner of the “Uefa Champions

League“, the world's most prestigious club football competition (The Heineken Company,

2017). Partnerships like these, benefit Heineken by helping them get their name out to

potential consumers as well as reinforce their brand image. These partnerships contribute to

their competitive advantage by not only helping to reinforce their brand image but by

providing their loyal customers with unique experiences through these partnerships. For

example, Heineken will provide their customers an opportunity to win free tickets to UEFA

matches. This opportunity contributes to the ‘Heineken Experience’ and raises the brand

image in the eyes of their target market.

2.2 Product system

The products and related services offered:

Heineken is active in the alcoholic beverage sector, more specifically in the brewing industry.

The company’s product portfolio consists of more than 250 global premium beer brands. Next

to that, the company offers a variety of innovative products, such as the The SUB, Heineken

igNITE, Club Bottle and numerous other innovations.

The product’s features:

Heineken’s products and brands are mostly (alcoholic) beverages. The products range from

beers to ciders and alcohol-free beverages. The company is not active in e-commerce, which

means it does not sell its products over the Internet. Heineken sells to retailers, who then sell

to consumers. Heineken aims to be successful as the undisputed leader in the premium

segment, through building their portfolio with premium branded products (The Heineken

Company, 2017). With the premium brand comes the premium price Heineken charges for

their products. Premium pricing is a pricing strategy that establishes a higher price than

average. Heineken strongly promotes health and safety when it comes down to drinking

responsible. This can be considered an intangible feature of their product, since they actively

market their product with a campaign that promotes health and safety (The Heineken

Company, N.D.).

2.3 Stakeholders system

Heineken communicates and engages with stakeholders through reputation research,

roundtables and ongoing stakeholder dialogue. In order to get the desired satisfaction and to

be sustainable, the company should use the Stakeholders System for social consensus and has

to balance the expectations of the different stakeholders. First, the main stakeholders of a firm

have to be analyzed: the shareholders, suppliers, financial partners, labor unions, the

employee, government and the local community. The company has to build strong

relationships with each stakeholder, especially in the economic, environmental and social

areas.

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Employee expectations:

The employee expects job satisfaction (in terms of remuneration) and career development.

The Heineken company journey begins and ends with 73,500 employees (FTE) in more than

70 countries who make every effort to brew a better world. In 2016, Heineken invited almost

70,000 employees from 78 operating companies to participate in a job satisfaction

questionnaire. They accumulated a response rate of 86%.

Heineken is one of the most culturally diverse companies in the world, with 53 nationalities

represented among their senior management. They also aim to build gender diversity, which

currently is at 17%. The Heineken corporate culture promotes a stimulating work

environment supported by a clear Code of Business Conduct and Employees’ and Human

Rights policy, which guides the employees and their interactions with stakeholders.

The Employee Engagement Index score, which assesses the motivation, commitment and

willingness of Heineken employees to apply discretionary effort, rose by 1% to 78%. This is

7% above the externally benchmarked norm and marks Heineken out as a high-performing

organization in relation to engagement.

Government expectations:

One of the most important goals of Heineken is to be a sustainable business by addressing

issues, such as alcohol abuse or water consumption. The company has met with the European

Transport Safety Council, FIA and EuroCare to discuss the “When You Drink, Never Drive”

campaign. This was to raise awareness on drunk driving. Heineken leads to fight against

alcohol abuse and environmental issues as well as contributing to the local economy.

Supplier’s expectations:

Heineken never stops working with their suppliers to reduce emissions in the design and

production of their packaging. For example, Heineken and one of their most important

suppliers, Ardagh Glass Moerdijk, created a lighter 330ml Heineken brand bottle, which they

introduced in the Netherlands in 2015.

Throughout 2015, they significantly increased the number of suppliers signing their Supplier

Code to more than 60,000. Since the start of the rollout in 2011, more than 2,000 suppliers

have been invited to join the EcoVadis sustainability-monitoring platform identifying areas

for improvement.

Investor expectations:

The investors of Heineken can find all the information they need in order to perfectly know

the company at http://www.theheinekencompany.com/investors. First of all, the performance

of Heineken does not stop growing. Since 2012, Heineken’s revenue increased by €2,410

million.

Per share of €1.60:

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The cash flow from operating activities grows annually. In 2013 the cash flow per share of

€1.60 was 5.07, to finally be at 6.53 in 2016. The dividend proposed by Heineken is 1.34 in

2016. The dividend percentage payout was about 36.4%.

• Market capitalization of Heineken: €44.9 billion

• Shares outstanding: 569,683,655

The current price of the share (HEIA:NA AMSTERDAM) is now at €85,10 with a growth

rate of 0.37%. Dividends are paid in the form of an interim dividend and a final dividend. The

interim dividend is fixed at 40% of the total dividend of the previous year. Annual dividend

proposals will remain subject to shareholder approval.

Consumer:

Heineken tries to engage consumers on responsible drinking with their brand campaigns. On

16 September 2016, they held the second annual HEINEKEN Enjoy Responsibly Day, as part

of the Global Beer Responsibility Day. The day aims to shine a spotlight on responsible

consumption activities across the business, through partnerships, brand campaigns and

innovations. In total, 62 markets participated, engaging 25,000 employees, 50,000 retailers,

39 NGOs and thousands of consumers through #EnjoyResponsibly. They see their consumers

who embrace a moderate and healthy lifestyle and they keep working on innovating for fight

against alcoholism.

NGOs and Internationals organizations:

Meeting with big NGOS such as Greenpeace, WWF, World resources institute, Action Aid

and Care. Discussions about renewable energy, responsible tax, packaging, human rights and

transparency in reporting are held.

2.4 Structure

This subchapter will give an answer to the question of what activities Heineken runs for them

to have distinctive competences and achieve the competitive advantage in the brewing

industry. This all can be achieved by having a good structure that is based on primary

activities and support activities.

Primary activities:

This part is regarding the primary activities Heineken is running to product realization, sales,

transfer to the customer and after-sale service. The company sets goals, which they call

“business priorities”. These goals are mainly focused on their products and how to achieve

desired success in the market. A couple of their business priorities that translate into primary

activities are (The Heineken Company, N.D.):

• Shaping the cider category.

• Leading by cool marketing and innovation.

• Winning in the premium segment.

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Support activities:

This part is regarding the support activities Heineken is running to supplying materials,

technology, human resources and general services. As mentioned before, the company has

business priorities. A couple of their business priorities that translate into support activities

are (The Heineken Company, N.D.):

• Being commercially assertive.

• Brewing a Better World (Heineken’s approach to sustainable brewing).

2.5 Prospects offered

Heineken’s mission is clear: they aim for sustainable growth as a broad market leader and

they aim for segment leadership. In both cases the brand plays an important role. Heineken

wants to establish broad leadership by acquiring strong brand, which is combined into a new,

larger company. Their business mission is guided by the following three core principles:

strong brand portfolio, strong local market position, corporate social responsibility with

regard to policies on alcohol abuse and social and environmental issues. The company’s

mission is supported by strong values, which makes Heineken unique and competitive. First

of all, enjoyment of life is what Heineken stands for. Consumers fully enjoy Heineken’s

products, they sponsor music, art, sports and other events bringing people together to enjoy

themselves. Respect is the second pillar of the company. In fact, they respect individuals, the

society and the environment by promoting responsible alcohol consumption and by

embracing diversity. Last but not least, passion for quality drives the company. They are

passionate about what they are doing and how they are doing it. They are committed to make

Heineken a great place to work and invest in people working there.

One of the differential advantages the company has is its strong brand, which has earned them

loyal customers. Heineken’s marketing and its long activity in the market have created this

strong brand. Through smart marketing and positioning, Heineken has branded themselves

and their products as a premium brand producing quality beer with an original and authentic

formula descending from 1864. Another differential advantage is that Heineken is available

everywhere around the world. If it is not with their beer, it will be under another brand that

they have acquired in their product portfolio through brewery and brand acquisitions.

Through acquisitions, Heineken has found itself active in every part of the world and that is

how it has been keeping its market share high.

3. Analysis on a business unit

The beer industry as a whole can be separated into two main strategic groups. The first

strategic group being premium and sub-premium beer, which consists of major brewers

primary product and functions on a more commercial level product, hold the vast majority of

the beer industry's market share. The second strategy group is classified as higher quality beer

and is therefore considered as premium and super-premium beer by the market. Premium and

super-premium beers include a variety of companies with small market share, but due to the

quality and unique characteristics are able to constitute a high retail price. Heineken operates

under the first strategic group and is classified as a premium beer. This sector is high in

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competition, but through a few distinct traits Heineken has been able to keep its prosperity

and market share.

One distinct trait being Heinekens strong advertising investments in product awareness

advertising and sponsorships. Through the building a holistic marketing strategy around the

themes of interaction exposure engagement and relationships and in combination with

traditional thematic marketing communications channels such as TV spots and activation

channels, such as The Champions League, The Rugby World Cup, Formula 1 and James

Bond Spectre Heineken uses interactive ways to integrate its exact target group, males

between the ages of 23-35. Heineken is also investing more in experiential activities locally,

in a bid to bring its tagline to life and to get consumers engaging on a physical level with its

brand message. It's doing this through events and festivals that include international food,

music, art and entertainment.

4. Evaluation of the Entrepreneurial Formula at a Strategic Business Unit Level

The Heineken Corporation is a multinational corporation, which has penetrated many

different markets around the world. Each of these markets requires different strategies in

order for Heineken to be successful within the different cultural, economic, and political

environments. According to the information provided by Heineken’s 2016 Annual Report,

Heineken has divided their operational basis between the following four categories: Europe,

Americas, Asia Pacific, and the Rest of the World. In the following section, we will analyze

Heineken’s Entrepreneurial Formula in each of these key markets from the perspective of a

Strategic Business Unit.

Europe:

Being the continent where Heineken Corporation first took roots as well as the source of

nearly half their revenues, Europe is clearly the most important market in which Heineken

operates. Here Heineken focuses of producing a top-quality beer for consumers in their 20’s

and early 30’s. In order to differentiate themselves from their competitors Heineken has not

only implemented the strategy of premium pricing but has created new and innovative ways

to interact with their consumers. One instance of this can be seen through the production of

igNITE bottles, an interactive beer bottle that lights up in response to different musical beats.

So how has Heineken’s Strategy held up on both a competitive and profitability perspective?

Through a competitive perspective, Heineken has remained competitive within the European

Market. As it stands Heineken has retained top positions in 3 key European Markets, the

French, Italian and Dutch markets. Their market shares within these three markets goes as

follows: 28% market share in the Italian beer industry, 32% market share in the French beer

industry, and 38% market share in the Dutch beer industry (Euromonitor, 2015). With high

market shares in these major industries, Heineken continued to be competitive in the market.

They have also have created quite a brand loyalty surrounding their products. The fact that

they have retained such high market shares within these countries shows that customers who

have had their products have been satisfied and continue to consume Heineken products.

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Through a profitability perspective, Heineken has been moderately profitable within the

market. Between the years 2015 and 2016, the EBIT for Heineken’s operations in Europe rose

by 5.15% (Heineken Annual Report, 2016). This growth in EBIT comes after another strong

growth year for Heineken, in 2015 Heineken’s EBIT grew by 7.27% from its 2014 level (The

Heineken Company, 2017). This consistent growth indicates that Heineken’s strategy in this

area has consistently generated profit for the company. For the last four years, Heineken’s

ROI has remained stable between the values of 7.72% and 8.50% (GuruFocus, 2016). While

the lack of continuous growth in these numbers is concerning, the company manages to

remain in range of the industry benchmark for ROI which is 8.75% (Investing.com, 2017).

Clearly, Heineken has remained a profitable company within Europe and has successfully

kept pace with the Industry as a whole. Considering both the profitability and the competitive

perspectives, Heineken’s strategy would fall into the first quadrant, consistent competitive

formula, at this SBU level.

America:

The American market, including countries such as the United States, Canada, Mexico, etc., is

arguably the second most important market to Heineken. According to their annual report,

24.3% of their total revenues come from this region of the world (Heineken Annual Report,

2016). Within this market, Heineken has put special emphasis on their premium portfolio

strategy in order to promote their product lines. They’ve had their product lines associate

themselves with a cause to create goodwill within the market, such as their campaign against

gender violence in the US (Heineken Annual Report, 2016). How has this strategy performed

within this region?

From the perspective of competition, Heineken has had some competitive success in certain

markets while others could be improved. Within this region there are three key markets in

which Heineken mainly does business, the United States, Mexico and Brazil. Heineken’s

market share within these countries helps determine whether they are competitive in this

industry. Their strongest market share within this region can be found in the Mexican beer

market where their market share is 44% (Euromonitor, 2016). This strong performance

whoever starts and ends within the borders of Mexico. According to the Market Realist,

Heineken’s reported market share in the United States in 2015 was 27% lagging behind major

competitors like AB InBev, MillerCoors, and Crown imports (Marketwatch, 2015). Last but

not least Heineken reported that their market share within the Brazilian beer industry was only

10% in 2017 (Heineken Company, 2017). With such mixed results in different countries of

this region, Heineken appears to be having mixed results with their strategy in the Americas.

From the perspective of profitability, Heineken has excelled within this market. One area

where you can see their success is through the growth in their EBIT within this region.

Heineken’s Regional Report shows a 11.5% growth in their EBIT between the years 2015 and

2016. They attribute this growth to the strong performance of Tecate within the United States

and Mexico as well as the introduction of Amstel into the Mexican market (Heineken Annual

Report 2016). Another inspiring figure is the Asset Turnover within this region. Heineken’s

ratio for Asset Turnover has remained below the industry benchmark by .05, which means

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that Heineken has utilized their assets to generate revenue better than their competitors

(Investing.com, 2017). Furthermore, Heineken’s Asset Turnover ratio has steadily declined

over the 9 years which signals that Heineken has improved their efficiency throughout the

years. Considering both the profitability and the competitive perspectives, Heineken’s

strategy would fall into the first quadrant, consistent competitive formula, at this SBU level

overall. The only exception within this region would be in the U.S. where their strategy could

be rated as an insistent competitive formula.

Asia Pacific:

Being Heineken’s smallest market, the market in Asia Pacific holds the most potential for

growth out of all the locations we have discussed thus far. This particular market makes up

about 13.6% of Heineken’s current revenues, the lowest out of all their markets, but has

shown tremendous growth in countries like Vietnam, Sri Lanka, and Malaysia (Heineken

Annual Report, 2016). Within this market, Heineken has focused on investing in new

breweries and entering new markets as well as promoting differentiating their products to

better fit consumer needs. For example, their product portfolio within the Asia Pacific

includes well-known brands such as Tiger as well as regional and local brands, which have

been crucial for Heineken’s strategy in this market (Heineken Annual Report, 2016). How has

their strategy paid-off in the long run?

Through the lens of competitive performance, Heineken has been performing well within this

growing market. The three key markets in this region in which Heineken operates are

Malaysia, Vietnam, and Cambodia. According to their own research on this region, Heineken

has positioned themselves number 2 or 3 in Cambodia and Vietnam with a market share of

34% and 20% respectively. However, Heineken has managed to dominate the Malaysian

market by acquiring a market share of 57% (Heineken Company, 2013). The strong consumer

base that Heineken has developed within these developing markets has fortified their position

and bolstered their economic success within the region. Of course customer satisfaction

within this region is another important measure to determine the competitive success of

Heineken in this region. According to the Popular Brand Index, Heineken was ranked number

one overall popularity for Vietnam in 2016 (Popular Brand Index: Alcohol beer, 2016). This

index calculates the popularity of the brand among consumers taking into account brand

awareness, customer loyalty, and purchasability. Heineken outperformed all other competitors

within this index scoring a 39.5, which far outranks the nearest competitor, who scored only a

13.8. Having a high score on this index shows that Heineken has been excelling within this

particular market.

Through the lens of profitability performance, Heineken has experienced tremendous growth

within these developing markets. Out of all of their markets, the Asian Pacific market has

experienced the greatest rate of growth in EBIT with a gain of 32.1% from 2015 to 2016

(Heineken Annual Report, 2016).This growth has continued from a similar spike last year

when their EBIT in the region grew by 27.6% in 2015 (Heineken Company, 2015). These

numbers are fueled by the recent boost of sales of Heineken’s major products in the region

such as Tiger and Bir Bintang (Heineken Annual Report, 2016). Another margin that

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showcases the growing profitability in the region is their net margin ratio. For the past three

years, their net margin has increased from 7.10% to 9.22% between 2014 and 2015

(Gurufocus, 2015). The growth of this margin signifies that this region is becoming more

profitable year after year. Considering both the profitability and the competitive perspectives,

Heineken’s strategy would fall into the first quadrant, consistent competitive formula, at this

SBU level.

5. Evaluation of the need to innovate the entrepreneurial formula

Regarding innovation in the beer sector, Heineken’s product is positioned in the

customer's mind as a high quality premium beer. Apart from the actual quality of the beer, a

big part of the brand image is that the beer has been produced since 1864. This creates brand

value, because of being a classic product in the industry. Therefore, Heineken should not

innovate its product regarding taste and looks. Overall, Heineken’s entrepreneurial strategy

both on a firm level and on a SBU level puts them into the category of consistent competitive

formula. Therefore, their business strategy is still performing well so it is not necessary to

change it immediately.

However, Heineken should keep on innovating its marketing activities in order to

increase its awareness and grow as a brand. Heineken can do this by continuing to sponsor

and stay involved with events that are aimed at their target group. Furthermore, they should

create their own events that reflect their image and culture, which will strengthen its

interaction with the end consumer. By continuing to innovate, they can ensure that their

strategy remains current and to keep the company at the forefront of the industry.

6. Conclusion

To conclude the analysis on Heineken’s current strategy, it can be stated that that Heineken’s

competitive system, which is a strategy to retain a competitive advantage, is well structured.

First of all, Heineken investments in company’s brands, premiumisation and innovation in

Asia Pacific, has been showing successful results. Furthermore, Heineken has great insight in

their target market, which makes it easy for them to fulfil the needs. The company invests

(technological) innovations and in environmental issues, such as drinking restrictions and

campaign. They work closely with governments to help increase awareness on these matters.

In Italy, Heineken is the current leader with 28% of the market share. To keep this position in

the brewing industry, Heineken has to make sure to be greater than its competitors. This is

done through acquisitions of small breweries worldwide. Some of the key success factors that

drive Heineken are: differentiation, marketing, premium quality, cost, customer experience.

They also highly valuate creating a strong brand image and having and preserving premium

quality. Heineken uses a premium product strategy to better position themselves against other

brands that market themselves premium. Furthermore, the company makes a lot of

investments for future growth. These investments are done in the following areas: products

and (technological) innovation.

Heineken communicates and engages with stakeholders through reputation research,

roundtables and ongoing stakeholder dialogue. In order to get the desired satisfaction and to

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be sustainable, the company should use the Stakeholders System for social consensus and has

to balance the expectations of the different stakeholders. The cash flow from operating

activities grows annually. In 2013 the cash flow per share of €1.60 was 5.07, to finally be at

6.53 in 2016.

Heineken is engaged in multiple activities to have distinctive competences and achieve the

competitive advantage in the brewing industry. These can be divided in primary activities and

support activities. Shaping the cider category, leading by cool marketing and innovation and

winning in the premium segment are considered primary activities. Being commercially

assertive and brewing a Better World (Heineken’s approach to sustainable brewing) are the

support activities.

Heineken’s goals are to strive sustainable growth as a broad market leader and becoming

segment leader. Their business mission is guided by the following three core principles:

strong brand portfolio, strong local market position, corporate social responsibility with

regard to policies on alcohol abuse and social and environmental issues. Furthermore, their

differential advantages include its strong brand, which has earned the company loyal

customers, and Heineken’s global availability.

Heineken operates under the premium and sub-premium beer strategic group, which consists

of major brewers primary product and functions on a more commercial level product, hold the

vast majority of the beer industry's market share. This sector is highly competitive, but

Heineken has been able to keep its market share and position through strong advertising

investments in product awareness advertising, sponsorships and investments in local

experiential activities.

From the perspective of a Strategic Business Unit, Heineken’s Entrepreneurial Formula has

been analyzed in the key markets the company operates in, which are: Europe, Americas,

Asia Pacific, and the Rest of the World. Starting off with Europe, their most important

market. Here, Heineken has the highest market share, which is how they continued to be

competitive. Heineken has also created a strong brand loyalty and this all paid off in revenues

and profitability. Next is the American market, which is the second most important market.

Here, Heineken has had some competitive success in certain markets while others could be

improved. Furthermore, the strongest market share can be found in the Mexican beer market,

with a market share of 44%. Overall, the company has seen great success from operating in

America, as sales, profitability and revenues have been outstanding and sti growing. When it

comes down to Asia Pacific, it is the smallest market, but it holds the most potential for

growth. The company has been performing well, slowly but surely creating brand and

customer loyalty in this region.

As far as innovation of the entrepreneurial formula goes, the company should not innovate its

product regarding taste and looks, because of the brand image they created over the years of

the authentic beer that has been produced since 1864. However, Heineken should keep on

innovating its marketing activities in order for it to grow as a brand.

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