Heineken N.V.

views updated

Heineken N.V.

P.O. Box 28
1000 AA Amsterdam, Netherlands
The Netherlands
(20) 5 239 239
Fax: (20) 6 263 503

Public Company
Incorporated: 1873
Employees: 23,997
Sales: $5.65 billion
Stock Exchanges: Amsterdam Brussels Luxembourg
SICs: 2082 Malt Beverages; 2086 Bottled and Canned Soft Drinks & Carbonated Waters; 5181 Beer and Ale; 5149 Groceries & Related Products, Not Elsewhere Classified

Heineken N.V. owns and operates one of the largest and most respected network of breweries in the world, producing the popular Heineken and Amstel Light brands of beer, as well as Murphy’s Irish Stout and Buckler nonalcoholic beer, all of which the company markets worldwide. In 1995, Heineken ranked second in the world beer market, selling beer in more than 150 countries and brewing beer in 90 of those countries. The family-run business built a solid reputation early in its history for maintaining high standards for its beer, standards the company continued to adhere to over a century later. Moreover, Heineken was also the single largest exporter of beer in the world. The company had operations in many countries outside its base in The Netherlands, though in the mid-1990s it had no brewing facilities in the United States, by far the company’s largest export market.

In 1864 Gerard Adriaan Heineken convinced his mother that there would be fewer problems with alcoholism in Holland if the Dutch could be induced to drink beer instead of gin, and, moreover, that beer brewed in Holland was of such poor quality that he felt a personal obligation to produce a high-quality beer. Heineken’s mother bought him an Amsterdam brewery known as De Hooiberg (The Haystack) which had been established almost 300 years before. Heineken was only 22 when he assumed control of De Hooiberg, one of Amsterdam’s largest breweries. He was so successful that after four years he built a new, larger brewery and closed the original facility. His business continued to grow rapidly, and after six more years, in 1874, he purchased a Rotterdam brewery to add to his operation.

During this time, using a new cooling technique developed by Carl von Linde, Heineken gained the ability to brew year round at a consistent quality level. Heineken was thus one of the first breweries in the world to eliminate the brewer’s traditional dependence on seasonal natural ice. In 1879 Heineken hired Dr. Elion, a former student of Louis Pasteur, to research yeast. Over the next 13 years Elion systematically bred and selected a specific yeast cell for Heineken, which came to be known as the “Heineken Ayeast” (yeast being the source of alcohol and carbon dioxide in beer). The Heineken Ayeast would continue in use into the 20th century and would eventually be shipped from Holland to all breweries owned or operated by the company, providing for a uniformity in taste among Heineken products, regardless of the different climates in which they were produced or consumed.

Heineken began to export just 12 years after the De Hooiberg purchase. Exporting to the United States began soon after the founder’s son, Dr. H. P. Heineken, assumed control of the company in 1914. Traveling on the Dutch liner Nieuw Amsterdam to New York, he met Leo van Munching, the liner’s bartender. Impressed by van Munching’s knowledge of beer, Heineken offered him a position as the company’s importer in New York. The bartender quickly accepted.

Van Munching distributed Heineken beer to the finer restaurants, taverns, and hotels in the New York area until Prohibition forced him to stop in 1920. After the repeal of Prohibition in 1933, Heineken was the first beer imported into the United States. World War II once again brought importing to a temporary halt while van Munching served in the U.S. Navy. When he returned in 1945, he formed Van Munching and Company, Inc. and established a nationwide distribution system to expand the beer’s market beyond the New York area.

Beginning in the 1940s, the U.S. market became extremely important to Heineken, eventually becoming the beer’s largest market outside the Netherlands. Through Van Munching’s distribution system, Heineken became the dominant beer import in most of the United States. While many imports were available only in metropolitan areas or other limited geographical regions, by the 1980s Heineken was available in 70 percent of the nation’s retail outlets handling alcoholic beverages. The majority of Heineken beer destined for America was brewed at the company’s Hertogenbosch brewery, where special production lines accommodated the varied labeling requirements of the different states. Heineken beer also became the leading import in Japan, Canada, and Australia. Moreover, currency fluctuations had little effect on the company itself, largely because Heineken sold its beer to Van Munching, which paid the brewer in guilders and thereby assumed all currency risks.

In 1930 the company entered the first of many joint brewing ventures in countries to which it had previously exported. That year Malayan Breweries was formed in Singapore in association with a local partner. This was followed closely by participation in a brewery in Indonesia. In 1949 the company built the first of four breweries in Nigeria; the fourth opened in 1982. Between 1958 and 1972 the company also built four breweries and two soft drink plants in Zaire. Heineken had breweries in Rwanda, Chad, Angola, the People’s Republic of Congo, Ghana, Madagascar, and Sierra Leone as well.

During the late 1940s H. P. Heineken sent his son Alfred to New York to learn about Van Munching’s marketing operation. The young Heineken took advertising and business courses in the evening and spent his days canvassing New York on foot with Van Munching’s sales staff. His return to Holland in 1948 marked the beginning of a new era in the company’s marketing strategy. Alfred Heineken had been impressed with the changes in the American lifestyle brought about by electrical refrigerators and modern supermarkets, and he foresaw the eventual impact of modern conveniences on the Dutch way of life. He prompted the company to implement marketing techniques that capitalized on these habits. Recognizing the importance of the take-home market, for instance, the company began selling beer in grocery stores (with store displays designed by Alfred Heine-ken). In addition, Heineken began advertising its beer on the radio. Previously, advertising had been considered unnecessary because tavern owners were tied to specific breweries.

In the 1960s the company institutionalized its meticulous quality control efforts under its technical services group, Heineken Technisch Beheer, or H.T.B. High quality was always the company’s hallmark. The brewing process of medium-quality beers usually took three days and aging lasted a week at most. Heineken, however, brewed its beer for eight days and aged it for six weeks. The H.T.B. unit operated out of the company’s laboratory at Zoeterwoude in The Netherlands and provided laboratory services, research on raw materials, project engineering, and other services for all breweries associated with the company. There was also a tasting center at the Zoeterwoude laboratory. Samples of all beers brewed under Heineken supervision were shipped there each month to be tested by panels of taste experts. The tests at Zoeterwoude augmented the taste testing that was carried out at each individual brewery.

Product diversification began relatively late in Heineken’s history, because the company’s emphasis had been on expanding its markets. However, in 1968 the company purchased the Amstel Brewery, Holland’s second largest, founded by Jonk-heer C. A. de Pesters and J. H. van Marwijk Kooy in 1870 and the first in Holland to brew lager beers. Amstel’s export market was firmly established by the time Heineken purchased the operation. Heineken eventually entered the low calorie beer market with Amstel Light, and Amstel beers were sold in more than 60 countries.

Shortly after the Amstel purchase, the company changed its name from Heineken’s Beer Brewery Company to Heineken. The company’s remarkable success outside The Netherlands led management to emphasize Heineken’s international presence rather than casting it as a Dutch company with significant international operations. In fact, the company looked upon all of Europe as its domestic market. Heineken Holland had headquarters at the Zoeterwoude brewery. Its various breweries contracted with Heineken World to supply worldwide beer shipments. Heineken World headquarters remained in Amsterdam and were housed in an addition to the Heineken family home.

In 1970 Heineken entered the stout market by buying the failing James J. Murphy brewery in Cork, Ireland. In addition to Murphy’s Irish Stout, the brewery produced Heineken light lager brew under license. Wines, spirits, and soft drinks were also becoming increasingly important Heineken products. Soft drinks were made at Bunnik by Vrumona B.V., and the company bottled PepsiCola and 7Up under license. Heineken and its affiliates also sold Royal Club, Sisi, Sourcy, and B3 soft drinks; Royal Club and Green Sands shandies; and nonalcoholic beers such as Amstel Brew. Spirits and wines included Bologna, Hoppe, Coebergh, Glenmark, Grand Monarque, and Jagermeis-ter brands. In 1971 Heineken purchased the Bokma distillery. Bokma Genever was Holland’s most popular gin. The distillery at Zoetermeer was the headquarters of Heineken’s Netherlands Wine and Spirits Group B.V.

The French market proved the most challenging to Heineken, and since entering France in 1972, Heineken had only one profitable year there by the mid-1980s. The situation was considered so bleak that in 1986 the company and its French partner cut 500 jobs and closed down three breweries and a bottling plant in France, offering displaced employees retraining and outplacement. From 1983 to 1986 Heineken invested significantly in Sogebra S.A. (Société Générale de Brasserie), trying to sustain the company’s French activities.

In the 1980s the company was a victim of a series of criminal incidents. In 1982 two unsuccessful blackmail attempts were made against the brewery, followed the next year by an extortion attempt. The most serious incident was the November 1983 kidnapping of the company chief, Alfred Heineken, and his chauffeur. The two were held for 21 days and released after the company paid out an estimated 30 million guilders for their return (though the actual amount was never made public).

Heineken spent tens of millions of guilders each year to bolster its image as a prestigious import. The company’s refusal to brew in the United States, even though its beer is brewed under license in many other countries, was in part attributable to a need to maintain the image. Löwenbräu’s experience was not lost on Heineken; when Miller began brewing Löwenbräu under license in the United States the German brand lost a major portion of its market share. It appeared that Americans enjoyed the exclusivity of an import. The premium price they paid for Heineken beer lent credence to the image.

Heineken was unquestionably a powerful force in the brewing industry in the 1980s. In revenues it ranked fifth in the world behind AnheuserBusch, Miller, Britain’s Allied, and Japan’s Kirin. Its share of the world beer market increased from 2.61 to 2.82 percent between 1977 and 1981.

Management policies at Heineken changed little over the years. The family retained control over virtually all aspects of the company, which was managed by a small team selected by the head of the family. The group was kept small in order to prevent factions from developing. However, as in the past, the family head of the company was involved in Heineken’s day-to-day functions. Alfred Heineken, grandson of the founder and owner of 50 percent of the shares in the company, directly supervised research and development, finance, and public relations in the mid-1980s. Though Alfred Heineken officially retired in 1989, he kept close ties with the company well into the 1990s, serving as chairman and delegate member of the board of directors.

As the company entered the 1990s, Gerard Van Schaik took over as chairman. When Van Schaik joined the company in 1959, he was responsible for export sales to the United States, which then, as in the 1990s, was the most important source of profits for Heineken. U.S. sales represented just 2.6 percent of the company’s total, but contributed 23 percent of the company’s $435 million in pretax profits in 1991; a 24-bottle case of Heineken sold on average for about 50 percent more than a case of the domestic favorite Budweiser.

Van Schaik focused on expanding the company’s presence in Germany, by far the world’s top consumer of beer. Emphasizing Heineken as a premium beer, the company invested in costly advertising, targeting in particular young Germans who, it was hoped, might find a foreign, imported beer appealing. Also during this time, Van Schaik oversaw an important American acquisition, when Heineken purchased Van Munching & Company, the U.S. operation that had handled the Heineken import business in the United States for six decades. This business then became officially known as Heineken USA, the American arm of subsidiary Heineken Worldwide.

In the 1990s specialty beers remained very strong among the American beer-drinking public as many consumers began drinking less and drinking better beers. Heineken was able to take advantage of this trend, offering a more full-bodied, European beer that many consumers desired. In fact, Heineken became the leading imported beer in the United States and brought the entire Heineken USA portfolio double digit growth in 1994. During this time, more than one out of every five imports in the United States was a Heineken.

According to a 1992 Forbes magazine article, worldwide annual beer consumption had increased to about 30 billion gallons, equivalent to more than ten six-packs of beer per person per year, with especially strong volume in Latin American and Asia. In accordance with this trend, Heineken announced in 1992 that it had signed a joint agreement to become the first foreign beer producer in Vietnam. A $42.5 million brewery located near HoChi Minh City began producing beer under the Heineken and Tiger labels. Heineken also moved into China, which in 1994 represented the world’s second largest beer market, after the United States. By 1994, Heineken had three export offices and three breweries in China. Later, Heine-ken and Fraser & Neave joined forces to build a brewery in Cambodia, producing about 17 million liters of Tiger and ABC stout annually.

Karel Vuursteen became Heineken’s chairman in 1993 and continued to expand the company’s international presence focusing on Latin America, the Far East, Scandinavia, and Middle Europe. To facilitate the introduction of Heineken in Poland, Heineken paid $40 million for a 25 percent stake in Poland’s Zywiec Brewing. Moreover, in April 1995 Heineken acquired Interbrew Italia SpA from Interbrew of Belgium, increasing Heineken’s Italian market share from 25 to 30 percent.

When asked by a company publication, The World of Heineken, what position the company would occupy in ten years, Vuursteen responded, “We are going to consolidate and expand our leading position as a brewer in Europe. ... Essential in that drive for growth is a true understanding of the three C’s: customers, consumers and competitors.” Following this principle, Heineken would likely remain a major force in the world’s brewing industry for many years to come.

Principal Subsidiaries

Heineken Nederlands Beheer BV; Heineken Brouwerijen BV; Heineken Nederland BV; Heineken Internationaal Beheer BV; Heineken Technical Services B.V.; Inverba Holland BV; Amstel Brouwerij BV; Amstel Internationaal BV; Vrumona BV; Brouwerij De Ridder B.V.; Limba B.V.; Brand Bierbrouwerij B.V.; Gemeenschappelijk Bezit Brand B.V.; Beheer- en Exploitatiemaatschappij Brand B.V.; Sogebra S.A. (France); El Aguila S.A. (Spain; 64.8%); Calanda Haldengut AG (Switzerland; 89.3%); Amstel Sörgyár RT (Hungary); Mouterij Albert NV (Belgium); Ibecor S.A. (Belgium); Atheniean Brewery S.A. (Greece), 98.8%; Murphy Brewery Ireland Ltd. (Ireland); Heineken Finance N.V.; Heine-ken USA Inc.; Brasseries, Limonaderies et Malteries du Zaire ‘Bralima’ S.A.R.L. (71.8%); Brasseries et Limonaderies du Rwanda ‘Bralirwa’ S.A. (70%); Brasseries et Limonaderies du Burundi ‘Brarudi’ S.A.R.L. (59.3%); Brasseries de Bourbon S.A. (Reunion; 52.4%); P.T. Multi Bintang Indonesia (77.2%).