Heineken is the first European Brewer and one of the first brewers in the world. Also, to give a better idea of the situation of the company, let's state some figures. In 2005, net profit was 761 million €, with sales above 10 billion € and a total beer volume of almost 120 million hectoliters. All this represents an annual growth of nearly 20% in net profit, more than 7% in revenue, and more than 5% in sales volume (hectoliters). So, we may wonder where this growth comes from, what is Heineken's strategy to achieve such a growth and sustain it. In their 2005 annual report, they state: “We are committed to growth and have embraced innovation as a key component of our strategy. We work to continually anticipate and meet the changing needs of consumers. Our innovations are in the areas of production, marketing, communication, packaging, and, in particular, draught beer systems, where we are an acknowledged leader.” So, it could seem that there strategy is focused on innovation, but as we will see, not only. Another part of the strategy seems to focus on an active participation to the consolidation in the beer market, so as to be able to grow and strengthen a good position in mature and profitable markets.
[...] Also, in this part of the world, Heineken also has to cope with increasing excise duties, which causes damages to the volumes. This is namely the case in Malaysia. (Heineken advertising in Asia) To finish with the challenges facing Heineken, we should state the increase in oil price, which will directly affect Heineken because it increases the costs of energy, transportation and packaging material. In a competitive market in which it could be difficult to pass on these costs to the customer, this will automatically have a negative impact to the financial result of the group. [...]
[...] A good element that shows this is the fact that in Russia there are actually more than 30 license marks canned and bottled, which is a world record. Thus, I would recommend to Heineken, to try gaining market shares very rapidly by continuing its policy of acquiring local beer brewers. Heineken is one of the world leaders and has a sane financial situation (In 2005, the company hit profits of nearly 800 million Euros and a free operating cash flow of more than 1 billion Euros). [...]
[...] In Russia Beer is largely an impulse purchase, thus, a brand has to be everywhere all the time for the consumers to remain faithful to this given brand. Otherwise, they will switch to whatever is available. Also, as it's mainly an impulsive purchase, most of these purchases are done in the street, in small kiosks. These kiosks can sometimes account for up to two thirds of the sales volume of some brewers (article “Drinking ban threatens Russian beer growth”). This also increases the difficulty of logistics, because a multitude of very small shops will have to be provided very frequently as their stock is very small. [...]
[...] Firs of all, we should start with Western Europe, which is the region which best participates in the group profitability until know, and where Heineken is the market leader with its different brands. Challenges in this area of the world mainly concern the overall economic situation in the different countries and thus sales volumes tend to decrease in some key markets such France and the Netherlands. Also, not only are the overall sales volume for beer in these countries declining, but on top of that, consumers tend to switch for lower priced beers and this creates a high pressure on prices because Heineken has to fight against lower priced competitors. [...]
[...] So, let's see what these environmental factors that Heineken has to face in Russia are. Political factors: Political stability, elections to be held in 2008; Will to diminish the consumption of strong alcohols such as vodka; Beer still considered as a soft drink; New laws proposed to limit the consumption of beer by youth and in outdoor. Economic factors: Growth of the Russian economy, nevertheless rates are slowing down; Cost of labour much lower than in Western Europe; Slow increase of disposable income; Decrease of unemployment; Impact of foreign exchange rates (Impact is currently positive but this might change). [...]
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