Unleashing the Secret to Future Success: Heineken CEO Reveals the Key to Pricing Power

Heineken brand, Birra Moretti. Source: Birra Moretti

Heineken has justified its move to implement "unprecedented" price hikes, despite experiencing a significant decline in profits due to a reduction in sales volumes.

Heineken, the brewer that owns popular drink brands like Birra Moretti, Strongbow, and Amstel, as well as its own namesake, saw a 5.6% decrease in volumes during the first half of the year. Additionally, its profits experienced a sharp decline of 22.2% compared to the previous year, amounting to €1.61bn.

According to the company, the declines in volume were largely influenced by higher prices implemented in the first half. Globally, Heineken raised prices by an average of 11.8%. In Europe, prices increased by 14% during the quarter, resulting in a 6.4% decrease in beer volumes compared to levels in 2022.

Heineken CEO Dolf van den Brink expressed confidence in the company's pricing strategy, stating that despite a decline in volumes, they have no regrets about implementing it. He explained that while there has been an impact on volume, it is expected to rebound within one or two quarters. According to him, taking this pricing action, especially in Europe, was crucial for the company to restore and sustain its margin.

Brand power today is pricing power tomorrow.

Dolf van den Brink, Heineken

The company stated that the volume decrease in Europe, which was caused by the higher prices, met their expectations. Heineken anticipates a sustained low single-digit decrease in volume for the second half of 2023, but believes that this decline will eventually slow down. Specifically, they noticed a decrease in demand for the Desperados brand due to pricing issues in its main European market. Additionally, there were volume declines in their cider portfolio in the UK.

The brewer continued to increase its marketing spend, despite the impact of inflation. It raised its marketing and sales investment by €200m (£171.63m) in the first half of the year. Currently, marketing and sales investment accounts for 10% of its revenue, up from 9.5% in 2022. Although the company recognizes marketing as a long-term investment, it acknowledges the influence of marketing in supporting price increases, stating that the additional €200m will take time to affect the overall revenue.

"Brand power today translates into pricing power tomorrow," he emphasized.

Despite the inflationary pressures in 2022, Heineken managed to avoid a decline in volumes and experienced a growth of 6.9% throughout the year. In the last quarter, its volumes increased by 3%. However, in the first quarter of the current year, it witnessed a decline in volumes.

Heineken, a well-known brand, successfully defied the downward trend in sales volume by achieving a growth of 1.7%, excluding Russia, in the six months up to June's end. However, the entire premium beer segment experienced a decline of 6.5% in terms of volume.

Apart from the effects related to Russia, the decrease in sales volume can be attributed to poor performance in Vietnam. The company's overall significant decrease in profits can also be partly blamed on the underperformance in this market. Heineken acknowledged that it had stocked excessively in the market and that its early price increases were not matched by competitors, resulting in a negative impact on profits.