WORLD TELEVISION
Heineken Financial Markets Conference
Day One - Mexico City, 5th December 2013
Heineken Financial Markets Conference, Mexico City - Day One
Heineken
George Toulantas, Director Investor Relations
Jean-François van Boxmeer, CEO and Chairman of the Executive Board
Stefan Orlowski, President Heineken Americas
Marc Busain, Managing Director, Cuauhtémoc Moctezuma
Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma
QUESTIONS FROM
Audience Members
Andrew Holland, Société Générale
Sanjeet Aujla, Credit Suisse
Olivier Nicolai, USB
Robert Ottenstein, ISI
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Heineken Financial Markets Conference, Mexico City - Day One
Introduction
George Toulantas, Director Investor Relations Good morning everybody, I hope you enjoyed that, we're going to loop that over a few times during the breaks as well, but it's an example of a very successful execution of our Champions League Sponsorship.
Well I'm delighted to welcome you here in Mexico City for Heineken's Financial Markets Conference. Since the acquisition of FEMSA Cerveza in 2010 we've made tremendous progress here in Mexico and the wider Americas region. And I know this is a part of the business that you are all very interested in. And over the next day and a half we have a very full programme of management presentations and market visits as well that will give you some great insights into our operations here in Mexico, but also the opportunities and priorities for the Americas region.
Now we're also webcasting this event live today, so I'd like to welcome all of those who are listening in to the presentations.
Let me get the programme underway, there's lots to get through and it's my pleasure to invite to the stage, Jean-François van Boxmeer, Chairman of the Executive Board and CEO of Heineken. Over to you Jean-François.
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Heineken: Focused on delivering shareholder value
Jean-François van Boxmeer, CEO and Chairman of the Executive Board So good morning everyone, I hope you had a good night; I'm there in the morning to wake you up. And I'm afraid that I will be very consistent in my story and today for those who have attended more of my presentations you will have perhaps a new layout, so graphically it looks a bit different, but I think that the content will be quite repetitive and those who were together with us last year in Nigeria will recognise that we are consistent in what we want to do.
Let me first start by - can I have the next slide please. Now we are at the end of 2013, which has been as you all know a very - a more difficult year than the years before, it has also been a difficult year for Heineken. We had over the last couple of months quite a number of strong headwinds. Those were essentially macroeconomic in their nature, but also we have seen the decline of a lot of currencies in which we have a number of countries with high growth, so those are all headwinds which didn't help our earnings per share for this year.
What I always used to say is that the results of our company are largely, and I leave the percentage open for what largely means, but by and large it depends from macroeconomic developments on which we have very little power to move. But what is in our power is of course to win in a competitive market and create value for our shareholders. And on the right side of this slide I'll show you a triangle and the triangle is a little bit how and on what levers do we create value in our company.
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Here I have to say that every single operating company of Heineken has targets alongside what we call the golden triangle, as well as a region, and as well, of course, as a result of it the whole and the total company. And so we focus very much on revenue and market share growth and everybody got a target about revenue and market share growth, and whether the market is growing, or the market is declining you can still increase your market share at least.
The second pillar of creating value for shareholders is of course return on sales and the third one is return on invested capital. So everybody in our company is measured around these three pillars. We of course never show what these asks and targets are, but this is how we organisation our target setting inside the company.
Obviously to get there it's not to dream about revenue growth and increasing returns on sales and our return on capital. It's about what we do. And therefore I will articulate my presentation today to you in the eight key drivers of action that all our operating companies work on and that if you do well on all these dimensions, well that golden triangle will move in the right direction.
So eight strategic pillars for actions - the first one is a strategy one; it's to increase our exposure to developing markets. That is a journey we have been embarking on over more than a decade ago; it's a very simple concept. We have to increase and enlarge our footprint in geographies where you have an accelerated economic growth, where you have strong population growth and certainly a strong population growth in its younger drinker cohort.
You have to look for markets where there's still a lot of room for urbanisation. And finally you look also for - you compound that by political stability when you go and invest in any geography. And you look and that's the end of the chemical equation, you look whether there is a lot of sun or not, because that last one helps also a lot in beer consumption I can assure you. So this is our first strategic pillar, it's how we take our investment decisions.
The second one is to grow Heineken disproportionately. The thing is about disproportionately one has to realise that we are the only brewer to have a global brand, i.e. present in 179 countries around the world, or b) that the Heineken brand is in effect only 15% of the total volumes of the company - it is close to 30% of the profits of the company. You see if we had to take the Heineken brand as a business unit, as an operating company on its own it would be our first one. And we have seen and the past has shown that this particular brand is not only what defines us and what unites us, but it's also the principal growth engine of our business model and therefore we give it disproportionate attention.
Now, we have 235 other beer and cider brands who make up the other 85% of the volume of this company. And so we have to continue not only for the Heineken brand, but for all our brands, and you will have many examples of it today, about Mexico and some other territories in the Americas. We have to continue our investments in brands and innovation, because at the end of the day it's out consumers who choose a brand. And for that you can only activate or mobilise them and make them choose your brands
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if you have superior and exciting marketing as well as you can demonstrate your capacity to surprise them by innovations in the market.
Then comes the excellence in sales execution, it's kind of a buzz word, but it says you have to reach your consumers and you have to reach out for clients. Now clients can be very different from geography to geography, but you have to make sure that these people are with you to win in the market; whether you do it yourself - like you will see in Mexico where we have a very large secondary distribution to the retailer, or whether you do it via a distributor.
The rule - in organised, global, modern retailers, it's all about that somebody who sells your product wants to see throughput and wants to see margins. So margins times velocity, as they say in the United States is what counts and we have to organise that make it work for us. And there is a lot of repetitive executional work in it, but if you do it well day after day, with a mindset to always improve it day after day you're going to win in the marketplace.
Then I skip number five and I go to number six which is drive cost efficiencies, that's the third pillar on which our company drives. Obviously you have the cost side; we will never compromise on quality at Heineken. We stand for quality. That's very important. All our people have got that through their ears and that's from day one, never compromise quality, never cheat the consumer; he will recognise what quality is. That is notwithstanding how efficient you can be on delivering that quality. And so the drive of cost efficiencies it has been a discipline in our company for the last 20 years in the supply chain, but it has also been extended in distribution processes as well in other SG&A processes in our company and that relentless target of improving on cost and productivity is an integral part of how we deliver value.
With that goes the notion - number seven, of a capital allocation which we have to put the money where our mouth is. So on all the, I would say, the five key pillars I told you, it is to allocate your capital on where growth can be expected and where you can more easily create growth.
I will touch in my presentation a little bit on the value growth for us in Europe, since Europe is still a large and very important part of our business. We've got many questions because business in Europe is obviously tough, but we are the market leader in Europe, so we better defend and continue to attack on our turf, so I will have a couple of words about Europe, otherwise you would ask the questions anyway.
And finally a word about sustainability, a final, but not unimportant pillar; sustainability is very much - it's not a fashion thing, it's also integral to be considered in how you create value, and I will give you a couple of examples for that.
I'll dwell a little bit longer on the first sheet to give you kind of the gist of how in Heineken we create value. You don't create value by just turning knobs on let's increase in the price and diminish the costs, and that kind of thing. No, there are a lot of things at stake but they can be ranked in eight key actions that if you do that well you're going to move the triangle. And I hope to have shared that with you as clarity.
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Now let me dig into the first one which goes about the footprint in developing markets. Now, that is just - you have seen that chart many, many times, it is boringly repetitive, it just gives you where we stand now. One has to realise that ten years ago 80% of our operating profit came from the more mature markets, which were at that time only Western Europe and the USA. That was what it was back in 2000, 2002, ever since we have been developing ourselves out of Western Europe into Central Europe, more into Africa, more into Asia and more into Latin America. And this is today the result of that longstanding action, which of course entailed a lot of acquisitions, some big and some strings of pearls and some smaller.
The last one was obviously in 2012 last year APB and that has an effect that the proportion of the profit groups coming from Asia jumped from 6% to 16% in our group and are poised for further disproportionate growth if you will.
Now the other view we can give, and if we take Canadean for granted and obviously always for a presentation like ours today I have to take publically available figures. But Canadean identifies a number of markets where the bulk of the growth will come. Now here I've depicted the number of markets here where we are and those markets together account for 80% of the growth going forward until horizon 2017.
Now in the orange colour you see where we develop a policy of international premium segment leadership. You remember we have two strategies, we go for leadership in the premium and where we choose to compete in the mainstream we also obviously go by default for the premium, but we want to a number one, or at least a strong number two in any market where we compete and those are the markets which are depicted in green.
Now if you all add it up this only gives you mathematically an add up of 17 million hectolitres in the ramp up to 2017 of natural market growth if nothing changes. So just to show you we are in markets which are poised to grow and we invested in those markets exactly for the reason obviously.
Now a snapshot - Africa, Africa is the world's second largest and second most populous continent. Population growth is at the 2% compounded average growth rate per year until 2020; by 2020 it will also represent 20% of the world's population. So we'll cross the two billion people somewhere in 2050 if we believe the projections of the United Nations. And it's a young population by definition and so over a billion Africans will be working age by 2040. So we also expect strong economic growth and in the past years and a lot of people forget about that - we have had strong growth coming out of Africa, so it's still set to be on average 6% in the years ramping up to 2020.
And there is also an improving political stability trend, the governments - and I have said it many times I have worked myself for ten years in Africa in troubled times, by the way Marc Busain who is our speaker about Mexico can tell you also about these troubled times because we worked together in those years in Africa. We have seen really an improvement, the change of generation in leadership. I think the pressure, which the Western world has been exercising consistently over the last 20 years has led to an improved situation, it is not perfect, but definitely it has led to an improvement.
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And then finally the urbanisation, now you know there is sun, so that is not the problem of the equation in Africa, that works really well for us. But the urbanisation, it's perhaps the continent where massive urbanisation is starting the latest. And beer is very much an urban drink obviously. And when I was working in Africa in the '80s and in the very early '90s, you had five cities in Africa which had more than one million inhabitants, now today you have already 52 cities which have crossed the million inhabitants mark, that's how fast it goes.
The whole mobile phone industry has also boosted enormously these economies. So Africa is on the move, is on transformation and it is clearly for us a key territory to invest. I will stop there because I could continue on Africa for hours.
Now moving to Southeast Asia, this is the turf of APB. APB's stronghold is definitely in Southeast Asia, now APB Southeast Asia, Heineken we cover the whole of Asia obviously but the stronghold of APB was definitely Southeast Asia. And you have on the left side of the chart the number of positions where we are in the number one or a strong number two position. We have seven number one positions in that, the main competitors in Southeast Asia are Carlsberg and Kirin, SAB and ABI are not - I should say yet, there.
But this is clearly a territory where we have been for years outperforming and where you still have a lot of growth to expect from. When I say growth, i.e. it means that this region will disproportionately grow. Southeast Asia has inherently a better growth rate in it for beer and particularly for premium beers. But not only - as we concentrate on premium beers and the Heineken brand in particular in China I can also report that the Heineken brand is doing well in China, it is growing with a double digit figure and that we are making progress with an ambition of being a segment leader like we are in the United States. Whereas in Southeast Asia, whilst we have already huge and fantastic positions for the Heineken brand it's much more a portfolio and a broad leadership approach. So a lot of exciting things that will come from Asia.
Finishing with America, the title of the slide is A Transformed Presence, obviously it didn't start yesterday. We started already in the beginning of the 2000s, to deploy some more ambition in the continent. We have been exchanging the long standing participation, which was not very active, with the Quilmes Group, to a more active participation and joint venture with CCU in both Chile and Argentina. And ever since we started in 2003 it has been over a decade a real success story, which I have been celebrating with our partners in Santiago earlier this year. A success for CCU, it's a stock listed company and you have verify the value creation which was done over the last ten years, but also the position of the Heineken brand in that country which developed superbly.
We did an inroad in 2004 if I remember in Costa Rica and in Panama where we also had a very good return for our bucks. And finally in 2010 we did a big deal which was the acquisition for shares of FEMSA Cerveza, which entailed Mexico here with a beer division, a packaging producing division in Mexico, the import of the Mexican beer brands in the US which we had already in the portfolio since 2005 and finally a position to work on in Brazil with Kaiser in which we were associated already for the last 20 years.
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Those strings of acquisitions made our presence, as depicted on this chart - made it a lot more meaty than it was a decade ago. And I think I will stop here about the Americas because the theme of this gathering is all about showing how we can create value with the positions we have been acquiring in Mexico going forward and we are very excited about how it is going so far.
Now I jump to the Heineken brand, as I told you it's the profit maker of the company, it has all the attention - and don't forget we have been growing a lot by acquisitions. So adding companies that we acquire, we are an integration machine. We tend to integrate quite quickly the companies we acquire. We have developed a whole methodology for that.
But there is also a cultural component of integration. And one of these components goes through people, and the very simple recipe is that when you send people out to an acquired company you have also to take people from the acquired company that you sent out in the Heineken Group. So you start very early with the cross exchange of experiences, because there is always something to learn from a company you recently acquired.
And the second segment and driver of unity is the Heineken brand, because everybody has the Heineken brand in its portfolio and everybody is proud to have and everybody is excited to make it grow. And that's a really very powerful lever and tool to integrate people around a common goal and a common identify. So you don't have to declare a common culture by making a charter, we don't have these charters by the way, but it's by working together. And the Heineken tool is one of these really powerful tools to create unity in a group which otherwise is constituted of an accumulation of acquired companies.
Now, you all know this chart and you all know that the business case is IPS is growing faster than the mainstream market; Heineken is growing faster than the IPS. And even in the time, and for some markets which are deemed - are say temporarily under pressure that equation still works for us. When I look back and I look into the future there is still a lot of potential for the Heineken brand, and especially if you consider that over the last decade we made so many acquisitions - we entered 30 new markets. And you can redeploy the Heineken brand, which was already present, but most of the time in a niche fashion, into a more premium way and a more bulky way in the premium way which I call 'Mastige' the combination of mass and prestige if you will and give it really more legs to fly.
Now, you all know we make the brand attractive by a premium price, never forget the price is the first proxy to being premium. But then the beer has to be impeccable. And we never change the recipe, and yes it is a more costly recipe than all the other beers, we make it 100% malt and we still make it in 28 days minimum. There are not many lager beers any more in the world that are brewed and matured in 28 days. But we continue to do that. We could make a perfect beer in 15 days, but no we continue to apply the same, I would say, old, traditional recipe which guaranteed that quality that we have been serving for now 140 years in a row for the brand.
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Attractive young marketing and a lot of innovation, that is the recipe. And I'd like to turn to a video showing the introduction of what we call the SUB, the SUB is a draught beer system that you can install at home, it's the successor of our BeerTender that we launched more than ten years ago. I'll leave the movie to speak for itself.
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Video Played
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board That is the SUB, the SUB is charged with TORPS, I do not have enough time to make you a full sales pitch today, but I believe we have some more here that you can try out. It will be launched in Italy and France early next year and then we will be following it with launches in the Netherlands, Brazil, UK, Ireland, Russia, Spain, Greece, Germany, US, Mexico, Canada, Austria, Switzerland, Portugal, Czech Republic, the Gulf, South Africa and several key cities in South America. So this is the SUB available for Heineken and also will be given with a few other speciality brands of ours.
So this was the SUB and the next one is - and what we do about Heineken, this is typically the kind of innovation for Heineken where we keep people excited, typically an urban product, a product that you like to have in your kitchen when you are with friends. So I really recommend it. I will talk to you more in the pause about the selling price, where you can buy it and obviously we will sell it also on the internet and the beer can be also delivered over an e-trading platform to make it more convenient.
And then I'll have a quick look at the 235 other brands which are making together 85% of our volume, they are also quite important for making a sound company. We have three categories, there are the other global brands, in effect there are no global brands, there is only one global brand which is Heineken, but those are global brands in the make, or candidates for being global brands.
Now Amstel is already quite present, it is already present in 75 markets in the world. The Amstel brand is more used in a tactical way, whereas the Heineken brand is really our strategic premium lager beer. But we have been adding cider, epitomised by its flagship brand Strongbow. The Mexican brand Sol as well as Desperados, which is not Mexican but French, but which is a blend - beer and tequila which then is Mexican that we have been selling quite successfully in a number of countries and that is still growing at double digit rate with very good margins for us. Those are the brands that we kind of tend to rollout across the world, because we believe that they have mileage to be alongside Heineken having a good position in our global portfolio.
Next to that we have local and regional brands, you just have a few examples here, some are regional. In Africa the Primus brand is a very big brand and it spans over four countries, the Mutizig brand which is a local premium brand from French origin, also sold in six or seven countries, so those are more regional brands. And then you have also the local champions, so the brands which are the champions in their respective market.
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Obviously the approach to marketing to all these brands is differentiated, that would be the object of a separate conference. But having an adequate and top of the bill marketing for these brands is also what makes our company thrive and for today you will have examples of it coming out of Mexico. With the brands we bring here in Mexico and two regional brands we have Tecate and Dos Equis, which both are also very successful in the United States of America.
The innovation I showed you an example with the SUB, those are innovations about draught systems, the picture just next to the SUB is depicting a draught beer installation where you can put 200 litres of beer that you put in the cellar or in your bar behind a glass wall which is a self-cleaning installation and in some versions also a self-ordering installation - when it's empty it calls the brewery and your beer will be delivered. Those are system innovations we call them and all the others are about product and packaging innovations.
We do it for cider, in the UK we have been reviving our cider presence, we're doing a lot of flavour innovations with success on both brands, Bulmers and Strongbow. We do variety packs like here in Mexico. We have been launching what we call the Radler it's beer with lemon juice, it's a global recipe but we have been rolling it out to every single blockbuster brand across the world, or every single - not yet everywhere in the world but we are already doing it in 27 countries and we are adding seven to eight countries every year. And it is a proven success formula, it's a beer with a very low alcohol percentage it's 2.8%, it has a bite to it given by the lemon, it's not too sweet and it's extremely refreshing. And in many, many countries it has been a fantastic success and ranging target hit rates from 3 to 5% of the main brand in the summer months.
And those are products which of course are innovative, the retailers like it because it makes their shelf drive a little bit more, it brings them more margin and it brings us more margin and the consumer even more pleasure. So that is a thing that worked very well. And then as the last you have the classic line extensions that we continue to do.
The innovation rate jumped to 6% this year, it was our target for 2020, we are already at that target for 2020. Now let me tell you it's about maintaining the innovation rate now at 6%. We do not want to raise that, because we do not want to shoot innovations like you go with a Kalashnikov kind of thing. I think beer brands are by nature - people today expect more innovation from their beer brands, but you can never reach the innovation rates that you would have in shampoos for example. So people have to be realistic also in the expectation it's about food and beverage.
So an innovation rate of 6% in our industry and sustaining that which is something which I deem is very good for the industry, it's very good for our company, and it's also something that the consumer can cope with. That's about innovation.
Then I think I'm going to serve you a commercial about two innovations about Radler, one in Brazil and the other in Singapore. Two very different commercials, one is very - the one of Tiger in Singapore is very functional, it just tells you what the product is. So don't expect any gimmicks or jokes, it's about telling you what it is. A lot of people expect from advertising that it should be entertaining, but sometimes it should say what the product does to you. So that is an example of that. And the other one is a little bit
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more fun and it goes in Brazil, but it's not a commercial, bit was the introduction for the sales force in Brazil and our customer base in Brazil to warm them up for the coming innovation, not a commercial. Just show these two.
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Video Played
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board Okay, that's the concept of double refreshment that we have been rolling out all over the world. And I have to say that in 95% of the countries where we launched a Radler variant it has responded and even exceeded our expectations. So we will continue doing that, whilst admitting that because it's a success we will of course be copied outright, that is also true. But we have I think - the first mover advantage going forward.
The next one is about driving excellence in outlet execution. This would warrant a session on its own and a conference of an hour on its own because the variety of how you do it is so wide. You will have examples of how we do it in Mexico in a very articulated way where Mexico is still a market dominated by small format retail. Other countries have big format retail; other countries have still a predominant on trade. Out of home consumption, like Spain or the UK asks for a different approach. We elect in the UK to own our own pubs, whereas in Ireland which has the same pubbing culture as the UK we elected not to own pubs. It's also very much linked to the history and how distribution is organised and how trade is organised that you will organise for ourselves the winning sales organisation.
The principle is to be discipline about how you do sales, because I deem to say that sales is boringly repetitive, you have to do the same things impeccably every single day. And the fun part of it is to celebrate the successes when you beat the competition, when you gain a new client. But the whole concept here, it's not about that excellent execution, but it's the concept of winning in the trade and being commercial - deploying commercial aggressiveness, trying to win. Not at any price, because it's easy to buy your market share, but that sound commercial aggressiveness is what we try to instil in our company. So an important pillar for us for creating value.
The situation in Europe, and there again we could speak for an hour about it, let me be clear that yet again 2013 was a difficult year for Europe. Insofar that we don't see the unemployment figures going down really, except for a little leeway in the UK the rest of the European continent, and again setting apart Germany, Austria and Switzerland, which are the exceptions, but a large part of the European continent is still struggling with unemployment. And as long as you have high unemployment and rising unemployment beer consumption will be under pressure.
Add to that that we had some price rises which were due to the heavy hand of the taxman; you have a cocktail of headwinds against you. We have been redeploying from this year much more - or deploying much more forcefully a public affairs commando, if you say, to fend back on tax increases.
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We have learnt the hard way that if you don't resist you will be eaten by the taxman. So now we even organise, like we did in the Netherlands and Italy, public campaigns where people can vote and protest on the internet. We buy newspaper pages to say stop the beer increases. So we are much more, I would say, pushing our advocacy for our industry a little bit more on the public street. Sometimes with success like we had in the UK and the Netherlands, sometimes we don't have success like in Italy where we got a tax increase. But again in Poland we were successful. So we had perhaps this year for the first time more successes than not. So it's a good way of going about it.
What is important in Europe - it is even if the markets are declining because demographics are against you; it's all about market shares. Market shares you can buy, very easily in Europe, markets are - the promotional quantities put on the - or the proportion of beer sold under promotion in modern retail is very important. So you have a lever to artificially move your market share, and I say artificially because you really move your market share, when you have consumer brand preference rising and you bring about more innovations. And innovation is certainly one of the ways we use in Europe more actively, because that's the way you can make your margins stick and improve also the margin for the retailer, and having a positive dynamic going for you.
We will continue of course to be very disciplined on the cost management as we have always been in Europe. We have been over the last ten years closing 46 brewing and malting plants in Europe. It has been a huge effort. Continuous productivity improvement is important and we moved from doing that only from the supply chain, the manufacturing supply chain, we moved to the logistic supply chain part and we moved also to the other SG&A. And the set-up of our shared financial shared service in Krakow, is one of the masterpieces of it, where we move all our local administration - out of 22 countries we move them into that Krakow shared service centre, just to give you a few snapshots of how we do it in Europe.
But I think we take for Europe a balanced view, we will not have it only from cost cutting and cost management, we also have to invest in growth. And that growth is particularly in brands and disproportionately premium brands and a lot of innovation. This is the cocktail and you add a little bit more commercial aggressiveness and we deem that when you accept that the situation is tough you have to be ambitious for your top line and this is the route we fair in Europe, as well in Western Europe as in Central and Eastern Europe.
Now I jump onto the cost efficiencies, I think you have been killed with these graphs so by now you know it all, so I will not dwell on it, just to say that we are well on track to deliver our third cost savings programme, we roll them for three years and we renew them every three years. We move from cost savings programmes, which were again for 80% at the start they were on supply chain, now they're much more balanced between the supply chain and other support functions and commercial functions. And it is more balanced between Europe and other territories.
So it starts to be a more worldwide effort, whereby productivity and cost savings is also important in emerging markets. It's not because you have a natural growth rate that you can have your eye off the ball of productivity. So expect from us that when we will
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have closed our programme of productivity improvement we will start a new one. So it is part of how we do business at Heineken.
Now as I said previously the capex should focus on growth. You see here a little bit the line of the capex over the last few years. We have been recently increasing again our capex, just to show that rising capex - a) our footprint is much bigger because the acquisitions, they also need some further investment for growth.
Examples of main capex recently are the capacity expansions we did in Nigeria and the DRC; we are building a greenfield currently in Ethiopia. When you rollout the fridge programme in Mexico those are really very big numbers, or returnable packaging to fuel your growth are also very sizable investments. So going forward if we expect to grow you can also expect that we increase our capex levels. And the last one is that we are currently building a brewery in Myanmar as an example of yet another capex investment in growth markets.
The next slide is to tell you the big capital allocation - of course the biggest capital allocation we do is acquisitions. So the first slide was about the organic capital allocation, the one we spend on existing companies and then we have the capital allocation on new companies. I'll just show you here in a snapshot our three large acquisitions we did, S&N in 2008, FEMSA Cerveza in 2010 and Asia Pacific Breweries in 2012. And just to give you an update on how it went, I think we will go much more deeper into the acquisition of FEMSA Cerveza in these two days, but it is absolutely going in the way we planned it to go.
Asia Pacific Breweries is of course a bit early days, but the first year is delivering what it has to deliver, those are growth rates including the effect of the currency. So they are not organic, they are taking in account the fluctuations of the currency. You see that big effect of the currency this year in - Asia Pacific because without the currency the growth rate would have been 16%, so 5% went with the currencies.
And then you see the specific profile of S&N, which you will remember when we bought it at the height of the market we had the financial crisis coming on us and the first country to be hit was the UK and the UK at that time really melted down. Stefan Orlowski who today is our president of the Americas region has been commissioned with the difficult task to put Heineken UK now back to life and did that with success. And when you see that graph it's mainly the work done in the UK, plus countries - Portugal, Finland, Belgium, but essentially it's the returns of the UK. It has been a spectacular turnaround and we are back on track where we had to be, although I have to reckon that in terms of value creation it has not been really spectacular, nor the timing of it has worked well.
But I have to say that now we are back in a good leadership position, in a difficult market still, but transformed the business model and it's certainly one of the shining stars in many aspects of our Western European business today. This is a small update for the acquisitions.
And then finally the sustainability, we have and we publish targets about sustainability. We organise it around four pillars where we want to deliver commitments and it's water,
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where we over the last years have been reducing our water consumption from five hectolitres per litre to 4.2. And you have to realise that 20 years ago I remember the number was around 20 litres per litre that you were producing.
We harvested all the low handing fruit, it's a blend of practices and technology. Now we are having every time a fraction of a litre - but every litre counts for our environment, but also for the bill, because most of the time we don't get the water for free. Water is not for free for humanity anyhow, but in most cases also you pay for the water; so just to say that the economic agenda - cost works hand in hand. So only those five year periods yielded an €11m benefit on the period by diminishing our water consumption.
The same goes about the carbon dioxide, we reduced it from the energy consumption, which is the main driver of it, we reduced it from 174 megajoules per hectolitre in 2008 to 157 now, which is a reduction of 9%. And again that can be translated in money because it's fuel, it's electricity, it's gas consumption.
And we have it about sourcing responsibility and I think by empowering local farming communities in a number of countries, noticeably in Africa, not only do we do a good job on creating economic value for them, but we also create economic value for us, because most of the time we've got these raw materials for slightly cheaper because we kind of spare the importation costs, they can be very, very costly, principally in Africa. But also we create economic value for them and at a time they will also bring us a little bit of money in return as customers. So it is a model that works well.
And the last one I would say is articulated around responsible consumption, it's the most contentious one, it's the one that we cannot drive fully. But we have taken a stance that we have to advocate actively responsible consumption with our brands. And so more and more through labelling, through websites, and through advertising we will mobilise an attitude that will promote responsible consumption. Now it can be bland, or you can make it a little bit more appealing.
We have chosen with the Heineken brand to do it with more appealing, the commercial, which is the Sunrise Belongs to Moderate Drinkers, some of you might have seen it otherwise you go on YouTube and you see that the point we're trying to make is that being drunk is absolutely not cool. Some cultures have that in them, my Italian friends if you are drunk you look really ugly, brutto figura. They say it's not done. It's true that in some other cultures they are more forgiving about drunkenness. But the thing is to combat abuse of alcohol I think you have to also there make your brand speak [short gap in audio] - it's also looking, it's a lot of contacts with the scientific community to see what works and what does not work. And we have to open ourselves for criticism for that.
We are on a journey and I deem it as an important part of our agenda of work to continue to be a licensed business and having the licence from civil society to continue to be a drink of pleasure and encounters for all of us.
With that I finish my presentation, well over time, but I told George that I would be over time seeing the number of slides that he served me to comment to you on. I don't know if there's time for questions?
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George Toulantas, Director Investor Relations Yes, ten minutes for Q&A.
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Questions and Answers
Jean-François van Boxmeer, CEO and Chairman of the Executive Board You've got ten minutes from George to do some Q&A. Thank you very much.
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Andrew Holland, Société Générale Just a couple that occurred to me as you were talking. One just - I wrote down here that you're saying that brand Heineken costs 100% more to make than other beers. Did I hear that correctly?
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board No I said it's made with 100% malt and my English is not superb I realise, it's 100% malt, malted barley. Most of the beers are made with a proportion of malted barley and then un-malted barley or wheat, or maize grits, or corn starch, or whatever - cassava grits, you can do a lot of things in beer and still make a very good beer. Heineken is 100% malt, barley malt.
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Andrew Holland, Société Générale So that then begs the question, how much more expensive is it to produce Heineken?
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board That Andrew I wouldn't tell you, but I can tell you one thing - yes it is more expensive, but the premium price we ask for it is more than covering the extra of the price, that is the whole - I would say secret of the luxury industry goes by that. ask yourself, I don't know what watch you have, but how much it costs and how much it is sold, so that is a little bit how it works.
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Andrew Holland, Société Générale And then just another quick one, your comment on innovation rate and you say 6% is the right number, why is it 6%, why not 5 or 10%, you would have thought the more you could do the better?
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board
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No, because I think you have to realise that when we started we had a lot of innovation which were not really contributing to value enhancement. So we went through a period where we had superb innovation and everybody says hooray, but you know with a lower contribution margin. So I think we have learnt that you have to focus - some markets will require innovations which are a bit margin dilutive out of competitive necessity, or tactical necessity, I'm not discarding that. But the main route is to have innovations that are value accretive obviously.
Now by saying 6% that's good, we are on the 6% earlier than we thought, we have been mobilising the whole Heineken Group for that, everybody got it, it's to sustain it. Because after three years an innovation is out of counting it as an innovation and so you have to come with something new. So it's only when you have done it for ten years that you can say - well is 6 enough or not enough? But you certainly have to complete a full cycle of three years and it's only this year that we end our first three years of cycle. So I think 6 is for me a very good number to continue to maintain and then we will see in a couple of years whether it's good enough or we can up it. And obviously this is an average of the Group, some countries have more and some other countries have less.
If you have a very big and broad portfolio you have naturally a higher innovation rate than 6%. If you have a narrow brand portfolio take the Heineken brand there are not a lot of innovations, when we made them they're big, but they are - if you are a segment leader and you're importing Heineken in Colombia there is not a lot of innovation rate over there. So it's an average.
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Question Thank you, Jean-François you talked about selective route to market decisions on a country basis, could you talk in a bit more detail about Brazil, I'm very mindful that your partners are in the audience, or part of it, how that's working. And you put up the chart on the performance of FEMSA Cerveza which included the Brazilian business, have you been able to bring that business up and into meaningful profit, or was that mainly all driven by the Mexican business?
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board No it's mainly - your second question, it's mainly driven by the Mexican and the US business for sure, the Mexican business is about broad leadership, it's a big position, we want to extend that position, make it - this all will be presented by our Mexican team. We will have some insight on Brazil, so I will not go forward with this.
But the business model we go about is essentially segment leadership. The Heineken brand has been growing exponentially ever since we took over. That's doing fine. The returns are not great, but we know out of the segment leadership that the first five to eight years are investment years. The distribution system in Brazil is complicated, it's an inherited one, it's a distribution system which you can dream to change it, but we have said, okay it's what it is and let's make the best out of it. And the distribution system is that we work with Coca Cola bottlers in Brazil and they do the distribution.
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Now in most of the - we have learnt over the two or three years now that we have been operating in Brazil to make better use and better - having a better connect with the Coke distributors in Brazil we have been making some changes and the network of bottlers in Brazil is also in itself changing and consolidating. So it changes also for us, but I have to say that it changes rather for the better than for the worse.
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Question Thanks, you know in the third quarter conference call when I asked about sources of margin expansion going forward you mentioned that by far Mexico was going to be the main source of margin expansion. But you know when you look at the cost savings in Western Europe, APB, the potential in Brazil, one would think that there would be several levers of margin expansion for Heineken over the next couple of years besides Mexico. Did I miss something there? If you can just expand in terms of what are the other areas where we should expect margin expansion, what is going to be reinvested? Thanks.
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board I'm not going to dwell over single individual countries, I cannot do that. But the thing is we said Mexico yes, because in itself it's our largest single operation and when we bought it it had the margins. And again I'll leave it to the Mexican team to show how we did and how far we came with margin expansion. And I think it's a very - so far a very good job done. And so it has been a very large source of margin expansion.
Now in Asia, we by definition have margin which - operating margins, returns on sales which are north of 25%. Now Asia, boasting a growth rate which is higher than Europe and Africa also having margins in that range and Africa and Asia, hand in hand, even if we had a little lukewarm year for Africa, but medium term Africa is still for us a growing turf, those continents are going to grow. And so by definition in our mix mechanically you're going to improve your margins, that's what I can say.
Europe is going to be still a tough job for margins. And I do not want to put the outcome of a margin increase in front of having a market share increase through what I said - innovations and higher brand preference that would be wrong. You know it's turning up the - it's slashing down a bit the costs and turning up a bit the prices and then turning off a few adjacent business and then you get there. It would be very artificial. The thing about Europe it's to go over the baby-boom generation. The business will be rebased somehow in 2020 when the whole baby-boom generation will be phased out of drinking. And it's going fast I tell you, people over 50 drink very, very little beer.
The good news is that X and Y generations are in balance. So it will bottom out somewhere in 2020. We've got to prepare our leadership in Europe and make the beer category and our brands sexy in Europe, desirable, people have to love to drink beer. Like you see it when you go and you travel in Spain. And so for me margin expansion in Europe is not the number one priority, though I wouldn’t like to see our margins dropping, you don't hear me saying that.
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I think Europe has to increase its position by fuelling its growth towards better productivity. That is what the agenda of Europe is - and go through a few difficult years, the economy is not great, we all know that. But it is still a very good business and a fantastic cash generator for the company. But there margin growth would not be so high on the agenda, margins are good in Africa in Asia essentially and it will only increase and have its effect on the average.
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Question Jean-François, home dispense has been a focus of your company now it seems for as long as I can remember. But we really don't have any sense of the scale or the profitability of this business and whether it's really an attractive market. The SUB looks great, but is this something that's really as an innovation worth pursuing from a scale and profitability standpoint, or does history show that at all?
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board Definitely not a mass product, but Heineken is a premium brand and this fits the bill of a premium brand like Heineken. You know to be honest it's never going to be a mass thing. We have still to find an engineer - we learnt a lot from the first generation the BeerTender, in some markets it didn't fly, but in some markets it did fly, and noticeably France. This is one of the markets where we had the biggest mileage. We have learnt a lot of how to do it right in France. So it's also learning. And we're going to apply a lot of these learnings from France when we're going to roll it out in other countries or cities, because it's essentially a capital city kind of concept.
If you do it right it has some traction and you can bring it to a scale where you will make money with it, but it's never going to be something which is really very, very big scale, i.e. the growth of the Heineken brand that we can expect is going to come in the future years, disproportionately of course from these emerging markets, where the brand is still relatively minute in its development. But it's an integral part of what we have to do to make our brand desirable.
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Question Do you fear that you're cannibalising your bottle package at all?
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Jean-François van Boxmeer, CEO and Chairman of the Executive Board Very difficult to measure - very difficult to measure. Part of it must be additional, but if somebody got addicted to it obviously and he was drinking Heineken in a bottle, obviously it cannibalises one on one. Now there is a premium to buy this thing obviously, that factor is embedded in how we price the whole model here.
I'm afraid I have to stop now. Thank you very much for your attention.
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George Toulantas, Director Investor Relations Thank you Jean-François.
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Applause
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Introduction George Toulantas, Director Investor Relations Thank you Jean-François. It's my pleasure to introduce to you next Stefan Orlowski who’s a fellow Australian national, he's held a number of senior management roles within Heineken since 1999. He spent several years working in our central Eastern Europe region, both with Zywiec business in Poland as well as Brau Union in Austria.
In 2008 he became the group Commercial Director and a member of our Executive Committee before taking on the role of Managing Director of our UK operation where he was leading the whole turnaround of our business there following the acquisition of S&N.
A few months ago he was appointed Region President of the Americas, so it's my pleasure to introduce Stefan to the stage. Thanks Stefan.
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Heineken Americas: Position for Growth
Stefan Orlowski, President Heineken Americas Thank you George. Well good morning ladies and gentlemen, as George mentioned, I'm four and a half months in the role so I'm very, very pleased actually to have joined this very exciting region I think for beer and a very exciting region for our company and I'm looking forward to meeting you throughout the next one and a half days.
What I'm going to cover is first of all I'm going to talk about a story that I'm sure you're all very well familiar with and that is the strong beer fundamentals in this region.
I then am going to talk about, and Jean-François already touched upon it, our transformed footprint in the region and how that positions us to take advantage of the fundamentals.
And finally I'm going to zoom in on a few markets, there's not the time to go in to tremendous detail, but I am going to do that, and I'm going to use also for a few minutes the example of Haiti. Not about only what we do but also to give you a flavour of how we do things. So that's what we're going to do.
So going straight in to it, this is a story I'm sure you're all very familiar with so I won't dwell on it too much. The figures on the right are of course the Canadean figures, but the short story is that the fundamentals for beer in this region are very, very positive.
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And our business very often, and Jean-François mentioned it on a number of occasions, is it's about the demographics, and the demographics in this region are very strong. We have 937 million people, we have population growth, and importantly we have a large number of consumers entering legal drinking age every single year so these are really positive drivers.
But it's not only about the numbers of consumers, also the incomes are rising. As the economies have been driven forward over the last years, we have more people joining the middle class, of course more disposable incomes, and that's driving performance of the beer market, and again you see that in the Canadean figures on the right hand side.
And that’s not only for the Latin American, Caribbean markets, but also even the mature markets such as the US and Canada. And I don’t know if you saw the GDP figures the US released this morning at 3.2, so quite encouraging there, some growth expected there as well. So all in all a very positive fundamental story for beer in this region.
Zooming in a little bit on the Latin America and Caribbean market, there's significant volume and value growth opportunities. And you see on the left hand side here that the per capita consumption, and most of the markets in which we operate is still well below Western European levels, or for example, US levels. There's still quite a lot of headroom for growth. And I'm talking about total beer here.
On the right hand side, the picture refers to the IPS, the International Premium Segment, again is defined by Canadean. And of course you see there all of the markets of Latin America which we access not only through, let’s say direct brewery operations, but also through our export operations, particularly with the Heineken brand.
And what you see there is that there is tremendous room for growth, and the penetration of IPS is at fairly low levels, and there's obviously headroom that we've seen going forward.
And this is, I think, very well illustrated in this picture. On the left hand side you have the more mature markets of the US and Canada. And you see that although IPS as a total percentage is reasonably high, you also see that the expected growth rate is 2.6% again, as Jean-François mentioned, outpacing generally the beer market growth.
Way over to the right hand side we've got the Latin American and Caribbean markets where the penetration of the IPS is the lowest of all the regions in the world. So again the head room for growth in IPS is very strong, and you see the CAGR that Canadean refers to in the 17.3% as being very attractive.
Again that’s a story that you're well familiar with. I didn’t want to dwell on it too much. Fundamentally, beer markets are very attractive and IPS, we feel, is going to outpace market beer growth.
Moving to our transformed footprint, Jean-François went in to this picture I think already in some detail. What I want to highlight a little bit is the flexibility of the different business models which we employ in this region which allows us to access the opportunities that I've been talking about.
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And they range from the strong leadership position such as we've got in Mexico, the direct operations such as we've got in Brazil, such as we've got in Haiti. We've got a commercial organisation, as you know, in Heineken USA, so those are noted there in the green colour.
We then have our joint ventures. Jean-Françoise mentioned, and I'll talk a little bit about CCU, our very successful joint venture with Quiñenco, the joint venture we have with CCR.
Then we move in to the licensed market such as we have in Jamaica and of course our export operations, the largest of which is the distribution arrangements that we have with Molson’s of course in Canada, but overall we access some 35 markets for example in the Caribbean through the export operations, focusing particularly, as Jean-François mentioned, on the IPS segment and really going for leadership in that segment, particularly with the Heineken brand.
Now maybe one thing worth mentioning is that we are using the Canadean figures, and you see that here for the IPS segment, but as you know, and Jean-François I think pointed it out quite clearly, we have a very clear and consistent premium strategy for the Heineken brand. And the Heineken brand is generally positioned at a price index of at least 130 in all of those markets, which of course lets us access the value in the growing IPS.
So from our footprint to our strategy. And this is something that’s familiar to you from a global perspective, but let me spend a little bit of time in explaining how we apply that from a regional perspective, and again there's not the hours to go in to each of these individually. Many of them will be touched on in Peter Hall's presentation tomorrow, you will see some of these things in the presentations of the Mexican colleagues.
But let me just touch on a few briefly. Of course growing the Heineken brand disproportionately is a key priority, for the obvious reasons that I've already stated. And we feel that we are uniquely positioned in the IPS with the Heineken brand because of course of all the fantastic global assets that we have, such as the UCL, such as Bond, such as our global campaign, such as the innovation that we have, which also makes it for a very effective and very efficient model that we can deploy for the Heineken brand. So that's definitely a strong priority.
Second of course, we are a marketing company and the capability that we have in this area in brand portfolio management, in innovation management, again you'll see from the Mexican colleagues some great innovation being showcased. There's some other examples, the variety pack in the US which is today the number one variety pack, the Beers of Mexico in the US, and many others.
And finally a topic that’s very close to my heart, and that’s excellence in outlet execution. Consumers make their decisions very often right there at the last moment, and there's a decision tree that they go around. And if we are there and if we win at every point of those we finally win with that consumer, and that again as Jean explained, is a very important part of our strategy, not only globally, but here in the region.
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Capturing opportunities in the emerging markets, of course our region has those opportunities, and this is simply about focusing the capital ahead and in line with where the growth is. As we have seen and as you know, many of the markets are still poised for growth, not only in the total category, but even more so in the premium segment, and we are of course prepared to invest to make sure that we are capitalising on that growth. And whether that's doing so directly, through our own direct operations, or through the successful partnerships that we've got in the region, such as for example our CCU partnerships.
Leveraging the benefits of Heineken’s global scale, of course that is the advantage of being a global company. The Mexican colleagues will talk quite a lot about this, but this is of course not only about the marketing capabilities that I've talked about already but of course procurement, sourcing scale, the excellent work that is done in supply chain and improving productivity and ensuring quality, and of course the extension of many other group practices, whether they're in finance or supply chain or other functional areas of the business.
Another topic that’s very dear to my heart; driving personal leadership. We have a strong management team here in this region, and you're going to see that I think very well over the next day and a half. But growing talent, developing talent and developing the leaders of tomorrow is something that we as an Americas leadership team, and Marc Busain who you'll meet is a part of that, is very, very high on our agenda. Because in the end it's people who make the business, and if we get the right people doing the business then of course we’re going to get the right results.
And finally, again very importantly, embedding and integrating sustainability, and of course for us, that’s very much about responsible consumption, and we have a lot of initiatives, whether they're global initiatives or whether they're local initiatives, whether they're partnerships with local NGOs or government agencies, I'm not going to delve deeply in to all of these, but this is a very important topic on our agenda, as well as of course the implementation of Brewing a Better Future - water consumption, talking about CO₂, talking about basically the environmental impact that we make, all matters are of course very, very important to our strategy here in the region.
So building on that strategy, and building on the organic steps that we have made here over the last number of years, we have made significant progress. You see here on the left, that’s simply volume and market share. In 2009 our market share here in the region was about 3.4%. We have now progressed to 10.8, and yes of course the FEMSA Cerveza acquisition has made a big impact but we have also made significant progress, and consistent progress, from an organic perspective.
And you see that that has taken us overall in the Heineken world to 28% of the beer volume of the global company, 25% of the revenue, and 26% of the EBIT (beia) contribution. So a significant movement over the last four years, and clearly a very, very transformed business.
But of course this has not only come from delivering a top line, and I talked to you already about the progress in market share and volume, here you see the progress we
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have made in driving cost efficiencies, and we have driven 250 million of savings from 2009 and 2012.
And you see here on the left hand side, of course that has come from product, non- product related, and when I say non-product related, that’s non-raw and pack, but it's obviously all of procurement, that’s driven significant synergies for us. The Implementation of supply chain initiatives, such as those that really, really impact productivity.
And you see here on the bottom that we have driven our productivity improvement fairly significantly over the last four years, despite the acquisition of Haiti which was early 2012, and we found that to be a fairly labour intensive operation. You see that the progress that we've made is around 16% in productivity improvement.
And then when you look at that total cost savings, as I said, it's 250 million in those four years of which 75% have come from the synergies around the FEMSA Cerveza acquisition.
So when you put that all together, you see the progress that we are making in the region. Again from a top line perspective, we've added, organically and inorganically, some 43 million hectolitres over the last four years. Importantly, our revenue from an organic perspective has grown consistently at a CAGR of 5.2, and even more importantly, our organic BEIA development has been well ahead, or more than three times the development in our revenue growth.
So we’re making consistent positive headway, building both on the inorganic elements that we've been able to integrate, as well as the organic strategy that I've described to you over the last few minutes.
So, we have delivered consistent growth, but we've also got more opportunity. And when we talk about where we choose to compete, and again I'm probably sounding like a broken record, but the international premium segment is of course a significant opportunity for us, particularly with the Heineken brand.
So the picture that you see here is Canadean’s view of the IPS growth in the region. And again you see the growth that has been experienced over the last two years, from 2010 to 2012, and the expectation of IPS growth in the region going forward. And simply if you take Heineken’s share of the IPS, which on the right hand side you see split in to the Latin America and the Caribbean, as well as the US and Canada, and you take that share at a constant, that obviously presents significant opportunities for us to accelerate Heineken brand growth in the region.
Now, in the US, and I don't know how many of you took part in the What's Brewing seminar that Dolph ran in New York I think about two and a half months ago, and again that’s obviously a topic all on its own, I haven't got the time to dwell deep in to it, but in the US where the Heineken brand obviously ever since the first cases touched the shores of the US or in the New York docks after prohibition, Heineken built the IPS segment in the United States, and it commands a very significant and strong position in that market.
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But in this market we are focused primarily and only on the IPS with a balanced portfolio approach.
And the FEMSA Cerveza acquisition also gave us Dos Equis which has grown consistently, I think again that was presented by Dolph in that seminar in quite some detail, has grown consistently for us at double digit levels, backed by I think an iconic, one of the best beer campaigns that we've had in the United States or anywhere around the world in the last number of years, in The Most Interesting Man which I hope you are all well familiar with, and that together with Newcastle Brown Ale which is a brand out of our global stable, as well as now Strongbow, backed by Tecate in the Sunbelt, has delivered consistent incremental share growth in what has been admittedly not an easy market for beer over the last two or three years, but we have delivered consistent incremental share growth over this time.
Now I know there was a question about Brazil a moment ago, so let me spend a few minutes on Brazil here.
Now obviously Brazil’s facing some short term difficulties as a market, there's quite a bit of pressure on the market volume, but at the same time, as Jean explained it, the strategy that we pursue is focused on the premium segment, so it's a value focused strategy. Yes our local brands, which are Kaiser and Bavaria, are still important to us because they provide our business with scale, yet our focus is on building Heineken, primarily, in the international premium segment.
And you can see that the growth that we've been able to achieve on Heineken has been really, really tremendous, and in particular we see an acceleration from around the time of the FEMSA Cerveza acquisition when we got direct control of that market and we were able to really move the brand forward. Today you can see that the CAGRs of the last two years has been close to 70% and this is now, or it was in 2012, a brand of more than one million hectolitres.
Now I know there was a question asked about the distribution system, yes the bottlers are consolidating, but let’s be clear, these results have been achieved by working much more closely, much more effectively, and in a collaborative way with our Coca Cola bottler partner, so we’re obviously happy with the progress that we’re making with the Heineken brand.
And on the right hand side here you can see again the Canadean figures, as the market grows, the opportunity for Brazil in Brazil for the IPS is very significant, and again because Heineken has extremely strong equity we are investing very well behind it using our global platforms, also our local platform such as Rock and Rio have been tremendously successful, we are very well positioned in order to take advantage of the growth that’s expected in the IPS.
And I'm sure many of you cover also other FMCG categories, Brazilian consumers are very, very predisposed to premium brands so this is, we feel, an exciting opportunity.
Moving over to CCU, and Jean already touched upon CCU and the tremendous value creation that has taken place in this company. And you see the figures here since 2002
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when the partnership effectively was put in to place, and you see that the revenue growth since 2002 has more than tripled, so we've gone from 491 million to 1.73 billion.
And if you look at the EBIT development, there's been a CAGR of around 18% consistently over 10 years, and I underline over 10 years. And you see that the EBIT has more than trebled from 53 million to 287, so a tremendous performance by CCU.
And on the right hand side you see the market profile of CCU in some more detail. Of course CCU is a Chilean based company where it has a combined beer and soft drink portfolio with a Pepsi licence where it's been making great progress in growing incremental market share, but you see that in beer, CCU has a market share of some 79%. And if you go to the circle below, you see the Heineken brand has been able to grow to 49% of the IPS segment. So a very strong performance in Chile.
Argentina where of course the market share position is very different, and we face of course strong competition, nevertheless you see that we've been able to develop the Heineken brand to 40% of the IPS segment, and the brand again being very important in the portfolio of CCU. And as I say, the value creation, very consistent over 10 years, we’re very, very happy with this partnership.
Moving from Chile and Argentina to the Caribbean. The Caribbean is of course by its nature a fragmented landscape and we've been building our positions in the Caribbean for many, many years, accessing those markets through the various models that I mentioned I think some 20 minutes ago. And you see those here in the middle, we have breweries in the Bahamas, in Surinam, St Lucia. Haiti, I'll talk about in a minute. We have export operations in many markets. We have our licence in Jamaica with Desnoes and Geddes, and finally our joint venture with ANSA McAl in Trinidad.
And again this flexibility of approach has delivered for us very strong IPS growth, and you see, Heineken has consistently performed in terms of share of the IPS growing over the last number of years consistently from 20.2% right through up to 33.4% of the IPS in 2012.
So again deploying a number of very different, very flexible business models we are able to achieve results in the IPS for the Heineken brand in a consistent way.
And I'm going to zoom in to Haiti, and as I said, I'm going to simply use it as an example of not only what we do but a little bit more about how we do it. So just a tiny bit of background on Haiti.
It's a country of about 10 million people, a country that’s emerging from a lot of regime change, a country that’s emerging from a terrible earthquake that occurred there some three years ago, and we made our BRANA acquisition early in 2012. We have 95% share of the beer market, we've also got a soft drink operation and a Pepsi licence, that’s an important part of our business.
And importantly, the beer consumption in this country is about 1.7 litres per capita, so clearly a lot of headroom for growth. And you see the country moving forward, Jean- François was talking about the last 20 years of the movement in Africa, I could tell you I
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spent quite some time in Haiti and you see the investment money that has been put in there by the EU, by the US, and investors and there's no doubt the country is moving forward.
Now I'm going to stop there and I'm going to play a video which I think will show you very well how we go about our business. We’ll give you a bit of insight in to the management team we've got, the people we employ, and what are the important elements of how we do business in a market.
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Video Played
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Stefan Orlowski, President Heineken Americas Hopefully if you watched that carefully you will have seen all the elements of the strategy that I talked about some 20 minutes ago. You saw the focus on the development of the Heineken brand, you saw the emphasis on the brand portfolio management and the brand management around prestige. You would have seen the implementation and the leverage of our global scale, whether it was supply chair or with sourcing. You will have seen the emphasis that we put on getting the right mix of talent in the market [short gap in audio] and right at the end there you will have seen our colleague talking about our actually ground breaking sorghum project which on the one hand is part of course of our sustainability programme but also important to the country of Haiti.
And simply that is about engaging some 18,000, and I underline the number, 18,000 local famers in growing sorghum, so providing obviously livelihoods to 18,000 families, growing sorghum which we can then use in our beer production, and as Jean mentioned, you can make fantastic beer whether it's with cassava or sorghum, or mixtures - a fantastic programme, not only for BRANA but also for Haiti as a country.
So I'm going to start wrapping up now in the next few minutes. So I'm going to zoom out of Haiti now and back to [short gap in audio] and the simple message of this slide is that building on the inorganic steps that we have made, and applying the strategy of - solid progress in all these key markets, you see Mexico I'm not going to go in to that deliberately, you're going to see a lot of that, you're going to hear a lot of that over the next day.
I talked about the USA, I've been talking about Brazil where we've been making tremendous progress with the Heineken brand. We talked about Chile and Argentina, again there's been fantastic [short gap in audio] about Canada, but our distribution agreement with Molson has consistently delivered a strong performance for the Heineken brand market.
So in summary, I hope the messages are clear. A story that’s familiar to you is that these markets are poised for growth, I hope the message that's landed very well is that IPS is going to outpace that growth, that we are very well positioned in order to take advantage of that with the Heineken brand. We have transformed our footprint here in
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the region, we’re building on that footprint with our strategy, we are, as I said, very strongly positioned with Heineken in the IPS, and finally the results show that we are winning where we choose to compete.
That ends my presentation, thank you very much. Questions and answers please.
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Questions and Answers
Question Hi, good morning, just a quick question on CCU. I share your thoughts on how successful they’ve been, but I'm just curious, why did you only subscribe to one third of your rights in the recent rights issue for the company?
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Stefan Orlowski, President Heineken Americas Yes, so I think the share structure’s reasonably well known. I think the reason that’s also been clearly expressed I think by the management of CCU, many of you know the management of CCU, was simply to increase the liquidity in the capital structure.
The capital structure of the joint venture has ultimately not changed in terms of the balance between the partners but has increased liquidity in the CCU scrip and that was the main purpose.
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Question You've given us an overview of the various markets across the region, maybe you could [short gap in audio] and if I could ask you a question on the strategy in Brazil which has clearly focused on the IPS - [short gap in audio] your thoughts on consolidation there in the market.
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Stefan Orlowski, President Heineken Americas There's quite a number, I hope I remember all of them. So, I think your first one was about the smaller markets, what opportunities do you see? Can you zoom down on a couple in particular?
I think first the general comment I would make on the smaller markets is that we have found consistently, over time, that in these smaller markets where we can build on positions, where we can enhance those positions very strongly with a good growth of the IPS and a good participation in the IPS, particularly with the Heineken brand, we can make very attractive returns. So I think that’s the first thing to say.
I've already pointed out Haiti, I think that’s an interesting story because that’s a country that’s emerging from a difficult past. There are probably a number of parallels that we can make with countries in Africa. Again I talked about the sorghum project, that is a practice that has been developed within our organisation in the Africa region already
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many, many years ago. This wasn’t invented in Haiti. So I think that’s an interesting market.
In terms of your question on Brazil, as I said, our strategy is focused on creating value by really focusing on the IPS segment. Our mainstream brands remain an important part of our business and we have, as you know, re-launched Kaiser, we have put new packaging in the market and we have put new advertising, this has grown positively the equity of Kaiser. So these brands continue to be important in our scale.
I'm trying to move to the last part of your question, you're looking at me - like when's he going to do that, so I am trying to do that. And if you look at the opportunity that we've got, in particular for the Heineken brand, and if you look especially over the last couple of years, and if you see how we are developing I think and growing the collaboration with our distribution system, I think we've got, as Jean-François pointed out, this is not going to be an overnight story, but I think we've got a very, very consistent growth model that we can put in place in Brazil, focusing on IPS, which has I think a lot of mileage to come.
So if we concentrate on doing the right things right in that market I think results will come.
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Question For FEMSA Cerveza you have a nice little volume bump from 2011 to 2012, how much of that growth is domestic versus how much of that growth is export?
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Stefan Orlowski, President Heineken Americas I won't go directly in to all the numbers but I will give you a little bit of a flavour. I think for the domestic volume you're going to see quite a lot of detail from Marc and Josep and Leandro and his theme so I won't go in to that. I maybe will mention something on the USA, and I think the key story there has been the acceleration of the growth of Dos Equis. Dos Equis continues to grow at double digits and is an important or key part of our Heineken USA portfolio, and that incremental growth I was able to show you before.
So you see that really Dos Equis has been the key engine of the growth, particularly in the USA, but also, as the team will show, in Mexico.
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Question Just thinking then how we break out that two and a half million hectolitre bump, it's fair to say a considerable part of that would be Dos Equis exports to the US or Tecate exports to the US?
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Stefan Orlowski, President Heineken Americas
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Yes a considerable part will have been but again I'd invite you to wait for the Mexico presentation to see the detail of how the domestic business looks.
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Question A question on - the slide regarding IPS as a percent of existing business in the regions and then the expected growth rate and so it's slide five where you show Asia, Pacific now as 3.7% IPS and you think it will grow to 4.7.
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Stefan Orlowski, President Heineken Americas Yes.
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Question But in the case of Latin and Caribbean it's 3% starting, but the growth rate will be I think 17%. What is the difference that drives the expectation off bases that are relatively comparable? Also it relates to an earlier slide that Jean-François showed which suggested that the Chinese IPS business will grow only modestly, even though at the start it's extremely small. So I'm curious from your view why Latin and Caribbean are to outgrow IPS Asia so sharply?
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Stefan Orlowski, President Heineken Americas Yes, it's a bit more difficult for me to comment on the Asia, Pacific region because I don’t have myself detailed knowledge of that. All I can tell you is that I can see very clearly, or we can see clearly the drivers in Latin America and the Caribbean that are going to deliver that type of growth. And again, without wanting to repeat things, yes you've got population growth but you’ve got tremendous income growth as well.
You've got consumers that are predisposed, such as in Brazil for example, very predisposed to premium. You see the track record that we've been able to generate also in some of these markets like Chile and Argentina, in the growth of the IPS and the growth of Heineken, so when you put all those elements together I think, and again you'd have to ask Canadean ultimately the question, I can see how Canadean comes up with these sort of numbers, bit more difficult for me to comment on the Asian figures.
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George Toulantas, Director Investor Relations If I could just add to that, keep in mind Tom that the Asia, Pacific, 3.7 of total beer market’s influenced by the very big size of China where IPS is a very small component of that today, and secondly I would add that the Heineken brand and the IPS segment is more developed in a number of those markets. For example in Vietnam the Heineken brand in itself is about 11% of the market so we do have a starting point where the penetration in South East Asia is higher than it is in Latin America.
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Stefan Orlowski, President Heineken Americas All right I think I'm out of time. So thank you very much.
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Applause
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George Toulantas, Director Investor Relations Okay, we're going to take a coffee break now and perhaps we could have everyone back in this room by five minutes past eleven, for the next presentation. Thank you.
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Coffee Break
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Introduction
George Toulantas, Director Investor Relations Okay let’s get the next session underway. Okay it’s my pleasure now to introduce you to Marc Busain our Managing Director of Cuauhtémoc Moctezuma since last year, Marc is a Belgian national, he began his career at Heineken in the Democratic Republic of Congo in 1996 within the finance organisation. He then held managing director roles in Burundi, Egypt and France before taking on the role of Managing Director of Cuauhtémoc Moctezuma. Over to you Marc, thank you.
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Marc Busain, Managing Director, Cuauhtémoc Moctezuma Good morning, I will try to stand still and try not to bend too much. Good morning and welcome to Mexico City, a pleasure for me and my management team to welcome all of you in this wonderful city. Winning in Mexico is the title of my presentation and I will be walking you through a 45 minute presentation, starting with having some relevant data on our acquisition. I will also share with you how important the Mexican beer market is for Heineken and finally I will dive into our strategy to win.
Before doing that I would like however to share with you a couple of important data in the history of Cuauhtémoc Moctezuma. Cuauhtémoc Moctezuma was founded in 1890 and that very same year Carta Blanca was launched on the Mexican beer market, Carta Blanca that plays today a regional role in our portfolio.
In 1918 the SCYF is created and the SCYF is the Sociedad Cuauhtemoc y Famosa, I like to stress that it’s a milestone of 1918 because the FEMSA founders were really before CSR was a trendy topic very much involved into this kind of activities. The SCYF is a kind of a predecessor of the Mexican social security, we still have that up and running in the organisation and that includes extensive health facilitations for all our employees and family members.
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1920 Empaque is created, Empaque is the producer of packaging materials and basically the start of the vertical integration within FEMSA.
1943 another milestone in the social role that FEMSA was playing, Don Eugenio Garza Sada founded the Tec De Monterrey, Tec De Monterrey which is today still one of the leading breweries in Latin America, sorry, Universities sorry.
1954 Tecate Breweries are acquired, in the '70s we start exports to the US. And in 1985 an important milestone in the Mexican beer industry Cuauhtémoc acquires Moctezuma and basically shapes the beer market into the duopoly that we know today.
1992 a very important innovation in the Mexican beer market Tecate Light is introduced on the market. And finally in 2010 FEMSA Cerveza is acquired by Heineken.
Now how is this integration going and I would like to spend some time on the first bullet point which is the importance the integration of both cultures.
I’ve been working Heineken almost 20 years in companies managed by Heineken for more than 75 years, but also in companies that we had recently acquired like in Egypt. We spend quite a lot of time in assessing the culture of the operations that we acquire and trying to make the best of both worlds. When I say the culture it’s a company culture, it’s a country culture and we meld it within the Heineken culture. We did it also here in Mexico, I wasn’t there in 2010 to '11, I joined in December 2011, but I could see immediately the impact of that work that was done, motivated people that after one year and a half feel part of the Heineken family.
So that’s the more soft part of the integration. We start pretty rapidly in to implementing a new route to market structure; we have been cutting the tail of all our customer base and removed the customers that were not profitable first, about 30/40,000 customers were not any more delivered any more by us.
We started very early local production of Heineken in Orizaba, we have invested significantly since 2010 in all our brands, Sol, Dos Equis, Tecate, Carta Blanca, repositioning of all our brands, rejuvenation of the packaging, new communication campaigns.
Finally, and I will touch base on that a bit later and more in detail, we have a small jewel in the company which is called Six, Six is a retail chain of today of about 11,000 stores that used to be managed, completely decentralised and that we’ve started to manage in a more centralised way. I will zoom into that later in my presentation when touching base on the channels.
So these will be the main priorities and main achievements in the first year and then something that is probably a little bit, not emphasised enough, we also did deliver significantly cost savings. At the end of this year we will be delivering more than €200m of cost savings, €220m, those savings were achieved primarily through supply chain initiatives, route to market initiatives, but also for example over 2011 and 2012, 2012 and 2103 we have halved our head office in Monterrey so overhead costs were reduced significantly.
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There is more to come, we are committed to delivering an additional €100m of savings, 50 of those are also already integrated in the TCM targets that Heineken NV communicated. So by 2016 we should be delivering €320m of cost synergies, you have to look at this €320m versus a cost base of €2bn so significant achievements in that part of the business.
A successful integration is only if you manage to do those internal restructuring whilst at the same focussing on the business. Now I believe that since 2011 we have managed to do that, we gained significant market share in 2012, gained market share again this year so focus on the market.
Revenue growth, compound growth rates of 2010 of the revenues of 6% whilst operating profit has increased over the same period with 21% and operating margin has increased from 13% to 18%. So this is data and is basically based on those KPIs that we claim today that we are winning in Mexico. Mexico like Stefan and Jean-François already mentioned, is important for Heineken, it represents 14% of the company volume, it represents 11% of the revenue, 11% of the operating profit.
Now that successful integration and those rather pleasant trends in KPIs is of course only possible if you have the right people running the company. And I would like to take some time to present to all of you my management team, starting on the number one position. Leandro Berrone was an Argentinian but Mexican by adoption, married to a beautiful Mexican lady, more than 12 years in the company and with a strong marketing background at S… and Unilever and one year and a half in the company, you will be hearing him later today.
Josep Ferrer 100% Mexican although he claims he’s coming from Spain, he’s had more than 20 years in our company, Catalonia yes sorry, and three years in his current position. We have our VP and logistic and customer service in the room Paco, 25 years in the company, 5 years in the current position.
Our VP supply chain Jorge Meillon who’s not here today unfortunately who is 35 years in the company, seven years in this current role. Javier Castano who’s just joined from Chrysler and Home Depot, he’s in the company two months.
Arnulfo Trevino our VP corporate affairs in the back of the room, 16 years in the company, three years in this current role. Cicero Willis, 35 years in the company and 5 years running IT what we call global information services at Heineken. And then the only Dutch in the company or in the management team, Marc Goumans, 27 years at Heineken and three years in the current role.
18,000 employees, only five ex-pats joined Cuauhtémoc Moctezuma, we have more than 10 nationalities and then I think I mentioned the importance of getting the best of both worlds, we have today 13 Mexicans that integrated in the world on Heineken. And as from next month we are very happy that there will be another one so there will be 31 by the year end Mexicans that integrate the global world of Heineken.
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The importance of the Mexican beer market I would expect that most of you are pretty familiar with the key data on the Mexican market. Population of 150 million, positive economic outlook, growing middle class, it’s the fourth largest profit pool, every year 1 million Mexicans join the legal drinking age and it is the number one beer exporter in the world.
Mexico GDP growth over the past three years from 2010 to 2012 the GDP has been growing with an average CAGR of 4%. This year is a bit disappointing the expectations were again close to 4%, the hacienda has been lowering the GDP expectations almost every quarter, today the ….., I expect that to be lowered again.
Historically every year following a presidential election there has been a dip in the GDP growth of Mexico, this year probably a bit more. I think that the new government has announced pretty rapidly rather important tax reforms and that had an impact on the industry. In addition for our industry the weather was much worse than last year and everybody knows in September the two hurricanes that entered roughly at the same moment in Mexico.
However the outlook is positive for the coming years, it is expected that the government will re-inject the benefits of the tax reform in the market, positive formal employment growth as well in Mexico so all in all a very positive economic outlook.
I would like to spend time on the slide on the left which shares the red line indicates the consumption per capita which as you can see is not extremely high, the main differences from the north of Mexico, some cities with more than 100 litres per capita to 30 more in the south so an average of 63. And then the green columns give you population in legal drinking age, definitely room to increase the consumption per capita in Mexico. Very health population with the Mexican average age below the global average age and the average Mexican age not expected to increase the coming 10 to 15 years so a very healthy social demographic in Mexico.
Then the next slide is interesting for us, I will be touching base later when I will share our strategy to win building and owning the premium segment is important for us, the fact that there is a rise in the urbanization and the growing middle class definitely creates for the future a more important consumable to whom we will be capable to talk to with our premium brands.
Mexico City’s the largest city in this part of the world, more than 20 million inhabitants, increasing urbanization, increasing purchasing power so all of that contributes for us being invested here in Mexico to feel very positive towards the future in this country.
Share of throats, clearly Mexico and beer is part of the culture in large parts of Mexico, if you look at the share of throat you will see that alcoholic beverage represents 18%, soft drinks are very important in Mexico, almost 60%. Do I expect opportunities there yes I do believe that it would launch on the market products with lower alcohol content, more refreshing, I do believe that there is room to attract other drinkers or at least to play on other moments of refreshment. On the share of beer in the total alcoholic beverages I do not expect that we can grow that, we have 94% in the total alcoholic beverage world,
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spirits and wine, I would expect those in 5 years to be slightly higher but I would expect that total share of throat that there is an opportunity for beer.
Now I think this is an important slide because it gives you an indication of how important the beer industry is for Mexico, when we speak about France we associate France with wine. Now we believe that the Beer Chamber and that is something that has changed over the past 9 months, we have with the Beer Chamber stepped up and we definitely want to make the beer industry shine and be perceived as one of the most important industries in Mexico.
4% of the government tax income and you see the direct employment and indirect employment rate, so beer industry in Mexico is very important with the Beer Chamber we definitely want to leverage that. Positive beer market projections for the future so all in all to close the chapter on Mexico and the Mexican beer industry the outlook is very positive for the beer industry.
Our strategy to win, and I will spend some more time on that part of my presentation. It is built out the three blocks; the left one is all about our brands, the centre one is about our regional priorities and the right one is about our channel priorities, our brands and our national portfolio.
The first most important critical battle for us is Tecate, Tecate is a winning horse, it is today representing more than 50% of our volume, Tecate Light is dominant in that franchise, we have Tecate Roja and we have launched this year Tecate Titanium which you will be able to drink in the coming days it’s a 5.5% beer. So Tecate more than 50% of our volume, today is not a national brand, it is very big in the North and we are today unleashing the full potential of Tecate in Mexico. We believe that Tecate can close in the coming years the gap with Corona.
Of course it’s good to have a winning horse like Tecate in your portfolio it also increases your dependency of a single brand and so therefore it is important for us and this is second critical battle is to ignite growth from Dos Equis and Indio. The Mexican beer market, 60% is roughly lager, 20% is light, 20% is dark beer, we have a very dominant position in the light segment, there is really room to grow in the dark segment with Indio. Indio is a great brand, Leandro will elaborate on that, it speaks to your consumer, it’s winning in the digital media, I do believe that in the dark segment that Indio will be a winning horse in the coming year.
Dos Equis definitely has been stretching the success of Dos Equis in US, it is also a success here, it is a very cool brand and we believe it is growing double digits since a couple of years, we do believe also that Dos Equis together with Tecate Red can play a very dominant role in the lager segment.
On the more regional brands, Carta Blanca and Sol we will continue to support those brands that are important for us given the regional footprint. And then finally the other critical battle when it comes to our portfolio that is about growing and owning the premium segment while growing the international premium segment, what we call the premium segment prize position of above 25% represents no more than 1%.
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The Mexican beer market is a mainstream beer market so there is a lot of room for us being, we know how to build premium segments, we know how to make Heineken shine and is appreciated by consumers so there is room for Heineken in the coming years here.
How is it going, we’re growing disproportionately with Heineken, we have in that segment Heineken but we also have Bohemia, we have launched Strongbow which it’s not easy to introduce a new category but you will find it here the market, you will start to find it in on trade, it is a promising start for Strongbow.
We are supporting our ambition in the premium segment with innovations and line extensions so very important. So again on our portfolio part Tecate, Dos Equis, Indio, Carta Blanca, Sol, regional role and then the importance of growing and owning the premium segment in Mexico.
On our regional strategy you know that we have a very strong footprint in the North, we are the leaders in the North of Mexico and then we have that on the bottom right in the Southeast we are leaders in Cuauhtémoc and that’s because in ‘85 Cuauhtémoc buys Moctezuma and Moctezuma had that regional footprint, that’s the history, why we have that footprint.
So we make most of our profits in our strongholds, obviously and that is also our first priority when it comes to our regional strategy, we need to strengthen further our positions in those strongholds but if we really want to be a leading brewer in Mexico we also have to gain market share in the centre and the centre has been traditionally let’s say what we call a challenging market.
So strengthening the strongholds and penetrating the centre and rest of the country, these are the two priorities when it comes to our region. And how are we doing, let me elaborate something that we are pretty proud of is that over the past, since 2011 we are basically growing at three times the pace in central markets than our average growth so it looks like we have found the key to penetrate those markets and that for us is very important. Good, so regional priorities the North, strengthening our strongholds and next to that developing new capabilities, finding new roads to markets to also enter into the centre and the rest.
Channels, now the traditional off-trade is still by far the most important channel in Mexico, it is declining but if you add Six, maybe Six is not known by all of you, Six is the retail channel chain that we had. It used to be a bit invisible because it started historically by a completely decentralised approach, regional directors had the opportunity to take over a traditional off-trade and because of that we have today Tecate Six, S…., we have ….., we have all kinds of let’s say small retail brands. One of the things that we are managing that in a centralised way and that we will roll that out as a successful route to market so if I put Six together with the traditional off-trade because Six is traditional off-trade, it is still more than 50%.
OXXO is a subject on which I read a lot and on which I would like to remove a couple of taboos, yes OXXO is our largest customer and we are very happy to work with OXXO, I do believe that we have a strategic advantage with OXXO, it represents as you can see
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from the pie roughly 20% of our volume, I will come back on OXXO later. The on trade roughly 20% and then a very important other segment which is the modern trade C stores on which we have recently also delivered significantly successes.
OXXO I would like to have a slide on OXXO, I would like to spend some time on OXXO. OXXO is I believe one of the most successful retail businesses in Latin America, very fast expansion and we have as you’ll know an exclusive agreement with OXXO, that agreement was signed before the acquisition or the period of the acquisition of FEMSA Cerveza.
So these guys know how to manage retail and they also know how to grow the beer category so if you compare them with other C stores they are good at doing that. So we help them doing that, they are today expanding their footprint outside our strongholds and winning the challenging markets. So the growth of OXXO is absolutely a win, win relation and a route to market to the challenger markets, it’s also the possibility to accelerate the growth of our premium segment. So that’s OXXO.
Some more slides on Six, so Six is roughly - imagine, and we will visit one tonight, a store of about 30 to 50 square meters that is the beer the destination of the store. The unique proposition to the shopper is that it’s a more fun and masculine environment where you’re supposed to find the largest assortment of beer and the coldest beer. And next to that you will find some other categories but beer is the dominant category in Six. Today like I said it doesn’t have yet a one nationwide identity, it will have one within 2 to 3 years.
How do we manage Six, the people that run the stores we call them store keepers, they are commissionistas and they get a margin on the business that they make. So we are not running the stores, we have team that is in charge of expansion and rolling out some procedures but the people that run the stores are independent store keepers. We target CD consumers and we are let’s say in more remote places than, you will for example not find us close to modern trade or convenience stores who are in different parts of the city, in walking distance of the shopper’s house.
It’s important to know that in Mexico people buy and likely in the following 15 following minutes they will be drinking the beer. It is profitable, I think that’s important too, and you will see that in terms of stores it is a pretty interesting footprint and like I said it is over the whole country.
We will be visiting tonight a very interesting concept because of course the Six concept in challenger markets is different than from in the North. The first reason is that here the productivity by store is lower than in the North, you know that in the North consumption per capita is 100 litre per habitant and here it’s about 30 so productivity is lower. So here it is also important to give a full assortment of beer and when I say full yes it includes products of Modelo so we are selling in stores here both assortments, our brands and the brands of the competitor. You will see tonight also what a definition Josep is of fun so that’s about music and then a good looking lady in carton at the entrance of the store so you will witnessing that tonight. But I think it’s a very important and efficient and effective access to the market also.
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Something to anticipate all the questions I might get, the Federal Trade Commission, a lot of things have been written, it has been high on our agenda, you know that the second time that something similar was filed the outcome after extensive investigation of the PROFECO was roughly the following. We have to open the on-trade accounts to the craft brewers so the craft brewers have been the ones that have been benefiting the most of the PROFECO ruling.
There is a practice in Mexico where you sign up an exclusivity agreement and you basically pay upfront the margin, the duration of that contract which is called your FPA, 36 months, has been reduced to 30 months. In addition they have asked the brewers to notify the customers that do not have enough PA but that are selling exclusively because they have for example preferred margins, to notify them that they can go and buy beer from the two brewers.
Finally the brewers cannot have more than 25% of their customer base being exclusive and we have to reduce that in the coming years by 1% every year so in the end you cannot have more than 20% of your customer base being exclusive. So we are rolling it out completely, we were fully collaborating with the PROFECO; we believe that the decisions that were taken were in the best interests of the Mexican consumer.
Yes supply chain, very important, what I mentioned in the beginning of my presentation about the milestones of Cuauhtémoc Moctezuma and I mentioned in ’43 the Tec De Monterrey the university, so we have a lot of engineers in the company and that is very much visible looking at the supply chain. We have one of the most efficient supply chains; our breweries score top 5 in our KPIs indicators within the world of Heineken.
However, since Heineken joined we have stepped up, we have increased the productivity of our breweries with 42% and then for the ones that has something with production, three important KPIs - OPI that indicates the efficiency of your bottling lines increased to 76% on average. And I know it’s very difficult to make these kind of averages but that is a rated average of all our bottling lines. Water consumption we are reaching on average 3.5 litre and then significant reduction of thermal energy, we do have a competitive advantage here in terms of the efficiencies of our operations.
Sustainability agenda I think all of you are familiar with the pillars of Heineken, I would like to pick up two. One that we are very proud of and that is related to the environment and our recent partnership with the FEMSA Foundation and we have made a commitment to make our four breweries that are operating in regions with water scarcity to make the, water neutral by 2020 so that is an important initiative and a commitment of Heineken and Cuauhtémoc Moctezuma to the environment.
Another one, although it’s not let’s say a topic like it is in some countries in Europe the abuse of alcohol, we are nevertheless very active with a dedicated programme on designated driver and creating awareness about don’t drink and drive.
So all the other pillars I think over the coming days you will have the chance to discuss with the Arnulfo and then we’ll be able to share with you in more detail what we do in terms of music schools, gyms that we install all over Mexico. So very important and we
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have been, Arnulfo, voted the greenest company in Mexico, did I say that right, yes I said that right so very important for everyone to become the most admired company.
People and culture, I talked all about culture when it was about the integration of the two entities and the importance of spending time on that soft part, we are as a team very much involved in transforming the culture of the company in being far more market orientated, faster, simpler and more efficient. The customer and the consumer is in the heart of every decision we take on a daily basis, market focus, we have different programmes where we engage the whole company, people that normally do not have a field job, we engage with them and we take them on the streets and we make them a sales rep for the day, that creates a very dynamic and powerful coalition within the company.
Every time that you acquire a company and that you go through major changes and you have seen the cost saving that I’ve been sharing and the cost savings have also been delivered by major productivity increases, and hence people losing their jobs. Nevertheless we score very high on the climate surveys that Heineken organises and we spend quite a lot of our time making sure that our people are happy at work.
Now that might sound sometimes a little bit like, hey is it so important, yes it’s important especially maybe more in a country like Mexico where these kind of cultural drivers make you better in the market and create the right dynamics. Like I said we’re very proud that we have 30 Mexicans working in the world of Heineken. 21% of our managers have been promoted over the last three years.
So in a nutshell I hope that I could pass on the message that the Mexican economy or Mexico as a country is a place to be, so the decision of Heineken to enter here in 2010 was the right decision, we are convinced that the future ahead of us is promising.
We are winning in Mexico today, we are growing our profitability, we are growing our margin, we’re growing our top line and we see further potential through our strategy to win in Mexico and that is on the mainstream part of the business but also on the premium side of the business. We have a very clear strategy to do that and although I might have been going fast over that I hope that I could convince about the direction at least that we go. We are winning market share in challenging markets and we definitely want to put a foot on the ground here in a sustainable way.
And I think Jean-François mentioned a couple of times it’s easy to buy market share, we’re not buying market share you cannot do that if at the same moment you are increasing your margins. And we have a long term commitment that’s in the spirit of the founders of FEMSA that created the SCYF that has created the Tec De Monterrey, I think it’s also very close to the values of Heineken; we have a very long term commitment towards the Mexican community.
Finally people they are at the core of our success and that is something which we’ll always continue to invest in, develop them, expose them to the world of Heineken, I do believe that we have a unique chance and I’ve been myself a product of that to report even more to places where you can face every day, different challenges. So we have
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that let’s say fantastic footprint of operations where we can expose our people, grow them and bring them as future talents of the organisation.
And I think that’s it. Questions, good shoot?
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Sanjeet Aujla, Credit Suisse Hi, thank you, just focussing on the share gains in the centre and west that you’ve made over the last few years, are you profitable in that part of the country and what has profitability done with respect to margin let’s say over that time period since you made the share gains?
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Marc Busain, Managing Director Yes we were profitable, and what was the second question?
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Sanjeet Aujla, Credit Suisse Has that profitability increased throughout the margins in centre west increased as you’ve gained share or has the cost to serve increased?
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Marc Busain, Managing Director No we are profitable and our profitability is increasing, it is what I read in between the lines is of course that the cost to serve given the fragmented market you do not have the same margin in the centre and west like we have in the north but we start to gain the scale that is a profitable business.
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Sanjeet Aujla, Credit Suisse Sure and how well is OXXO penetrated now in centre and west and what further opportunities do you have there with …
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Marc Busain, Managing Director No I cannot speak on behalf of OXXO but what I see as being their supplier they have saturated a larger part of the north and their expansion is now mainly focussed into centre and west. So like I said in my penetration - in my presentation that it’s helping us also for the route to market in these markets. We are obsessed by penetrating the market that’s of course why I made that lapses for the ones that I see people smiling here in front of me so we are obsessed by gaining new record distributions in the middle, good.
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Olivier Nicolai, USB
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Just got two questions, on the Heineken brand I mean you had a very strong growth in volumes over the last three years since FEMSA was acquired Heineken but I guess you invested a lot as well in marketing, did you get a positive EBIT contribution from the Heineken brand over the last three years or is it kind of breakeven?
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Marc Busain, Managing Director It is not yet and I think it’s normal, you know when you are in the building stage of a brand like Heineken you have to invest a lot of money and today the brand held indicators are all extremely positive, Leandro will zoom in to that. We are growing strongly with Heineken, the volume is not yet at the level that it’s a profitable business but it will be in the coming years.
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Olivier Nicolai, USB And just a follow up, did you notice any step up in terms of competition from Modelo since it was acquired by ABI? And do you see following up on the exclusivity agreement, do you see any risk of new entrants in Mexico?
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Marc Busain, Managing Director I will not elaborate too long on what the competition does, there is one thing that I would like to stress is that we have been facing a very strong competitor over the past years, you know Modelo was not a lousy brewer so that’s something that we need to bear in mind. So ABI arrives here and yes they are good at cost cutting and yes we see them pushing a bit more their global brands, but we are confident that our strategy will make us successful in the coming years. And you had another question at the end?
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Olivier Nicolai, USB Yes any risk of new entrants in Mexico - perhaps in northern Mexico since you will have no exclusivities now?
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Marc Busain, Managing Director No I see with a very, the craft brewers and stepping up and they are still very small but I do believe that they will grow, maybe not like in the US but they will grow. But I see that as a very positive, I think it will help the category and they were not in a Beer Chamber, they are now in the Beer Chamber and I think today we will join forces to grow the category so we are very much welcoming but I think it’s in the best interest of the consumer.
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Olivier Nicolai, USB What’s the current share of the craft brewer?
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Marc Busain, Managing Director 0.000, small - small.
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Olivier Nicolai, USB Thank you very much.
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Question Marc just a quick question on the cost savings you put up there, you identified an extra 100m after this year, has that figure been derived post what you’ve seen ABI doing at Modelo or is there a secondary review going on now that you’re seeing their working practices?
A second point you talked about over 6% growth in your challenger markets, mathematically that would imply that your stronghold markets are growing at a lower rate, are you losing share and what’s the growth rate in your strongholds? And a final question on share of voice, you’ve got 41% share of the market by volume, in terms of share of media how do you think you are positioned at the moment in terms of share of voice?
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Marc Busain, Managing Director Let me put the last question on the side and Leandro will answer that in his presentation. Then you were asking me about the additional cost savings that I share today and if it was additional and if it might have been triggered by what ABI has announced, no. No you start managing a company and then you make an assessment and then you realise that you can optimise that and manage a company with less cost. I’m running the company here for two years and together with my team we have identified new opportunities whilst we get to know the company better so that is a bit of the reason and nothing else.
And then your question about the north, are we losing share no but we are not growing share so today our position is roughly the same in the north, it is important for us to strengthen that position in the north and for the moment we’ve managed to keep it as is.
Yes the gentleman there keeps on looking at me?
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Question Two brief questions, one can you just comment in terms of pricing what’s happening and are you getting pricing above inflation and when was the last price increase, is the environment very promotional, if you can just comment on that?
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And the second question just in terms of portfolio you said the Tecate umbrella was about 50% of volumes but just give more colour in terms of what’s a second flagship and what’s a third? But more important than that you know when I think of what you say about Tecate trying to introduce it and grow it in the centre of Mexico the old FEMSA Cerveza had spent a lot of time and effort in pushing Sol as a nationwide brand and in the centre of Mexico and I feel you had made good inroads but you really reversed that strategy, I mean why was that then? Thanks.
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Marc Busain, Managing Director I will answer the last one first, about the Sol strategy that was applied, that strategy on Sol was with heavy promotion in the centre and west, we’d basically all year long heavy discounted brands in the market and as a consequence the brand suffered. So yes we have changed the strategy and we believe that our brands today can compete in the centre and west at all the same price point. You know that our prices are lower in terms of markets than the prices of Modelo, today we are closing that gap for the simple reason that our brands can be attractive for the consumer at that price point.
So our strategy is different than the one that was applied in the past, it seems to be sustainable, we are building brands in the right way to get enough pull from the market so I’m very confident there that we are not over promotion our brands, on the contrary. And then your first question was on pricing, over the past years the industry has been roughly passing over inflation, the price increase was equal to inflation.
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Question That hasn’t changed?
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Marc Busain, Managing Director I expect that not to change.
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Question Yes two questions please, first OXXO you say is about 20% of your volumes nationally could you say roughly how much it is in the challenger markets, trying to understand how important OXXO is for your growth strategy in these markets? Second point if you could talk a bit about barley sourcing please, how much of your barley is imported, how much is domestic and which regions does it come from?
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Marc Busain, Managing Director I will not give you a specific percentage on your question on OXXO because it’s a bit sensitive but the weight of OXXO in challenger markets is below the 20%. Then where is the barley coming from, from Mexico almost 70/80% is coming from Mexico and if you look at the map of Mexico it comes from the, I’m very bad on geographic, the
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eastern/southern part of Mexico, Veracruz, Puebla, that part of Mexico and the other part is imported from the US. Thank you.
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Robert Ottenstein, ISI Two questions, one I was wondering if you could discuss where you see your main competitor’s vulnerabilities, you know where do you think they’re weak in terms of brands or other sorts of vulnerabilities. And second can you talk a little bit about the potential to build out more domestic premium, stretch the pricing ladder higher on the domestic side and to what extent you believe there’s an economic base there that will support that?
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Marc Busain, Managing Director Vulnerability, I will be very short of that, you know there is a bit of a love, hate relationship between Mexico and the US when it comes to brands so that’s something that I’m looking at with a very curious eye, how would American brands on the long term perform in a culture where there is that ambiguous relationship towards brands imported from the US, so that’s not more than that on the brands of the competitor. And then your second question was?
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Robert Ottenstein, ISI To what extent - the potential is there to expand higher the pricing ladder particular on the domestic premium side and whether the economic base is there to support that?
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Marc Busain, Managing Director We will not expand further, you know Heineken you will see in the market is at a price point about 60% and I think it’s at the right level, we will not further increase that. And I think given the urbanisation, given the rising middle calls, I believe there will be an increase in demand for that product.
One point that I didn’t underline enough in my presentation which is important, I mentioned about the premium segment but next to that we’re also premiumising our mainstream offer, Tecate Titanium, Sol Clamato, through innovation - but also leveraging that part so that’s an important thing and Dos Equis is also part of that. So to answer your question on the price point of premium, we think it’s the right price point and we’ll not further increase it.
How much time left for … yes sir?
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Question Thanks, when you benchmark your business to your competitors in Mexico they’re clearly quite a big profitability difference here, they have a greater scale, there’s some
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regional differences, I mean what do you think are the key moving parts here in that profitability gap?
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Marc Busain, Managing Director The key moving parts yes they have a larger scale so they sell about 1.4 more beer than we do, they have a geographical footprint of the breweries would place an advantage as well, we track a bit more our beer to get it to our consumers so we will address that. Sorry your question was because the key moving parts is …
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Question Once you are in a billion dollars of synergies you know we think they’re going to generate nearly €2bn of EBIT within Mexico and you’re generating probably half a billion at the moment which is going to go up over time, you know and their market share is slightly bigger than yours but not that much bigger, just trying to understand why they’re so much more profitable?
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Marc Busain, Managing Director Large scale, export, export is significantly more important for them so you should look at the business like for like, domestic for domestic. So you know I was having in my slide that Mexico is the larger beer export in the world that’s mainly driven by Modelo, we are still small. We do see opportunities there I think so far we are only leveraging our brands in the US with Dos Equis and Tecate, Sol is still a small volume in some countries outside of this part of the world. I do believe that we can also build more on the export of our brand. So let’s focus domestic for domestic, there are opportunities for us and they’re being addressed but it’s important to know it’s difficult to compare yourself with a competitor that sells 40% more of its business and where the export is so …
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Question I’m pretty sure the profits in Mexico for ABI are purely Mexican, I mean the export bits are booked elsewhere, you know obviously the US so it’s really geographic …
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Marc Busain, Managing Director And then there is another one you know it is they are present in our strongholds also and in our strongholds it’s more easy, you reach more easily a moment where you’re profitable because of the drop sizes, because of the productivity of the accounts. So that’s also an effect, the fact that Mexico has its specific spread that there will be a third element to explain that, but we are addressing that and I’m confident that in the future we can close some gaps.
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Question
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Can I just ask one follow up on exclusivities, I mean what’s the, how do the margins work around exclusivities, how much margin do you lose when you have exclusivity arrangements?
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Marc Busain, Managing Director Margins in exclusivity contracts vary from one customer to another, from one region to another so I cannot give you a specific percentage on that. I do believe that because you also look at the dark side of what happens if the exclusivities end, there is also a positive side of that, when an exclusive will end there will be less pressure on margins than there are today so that’s a positive side of the exclusivities.
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Question You spoke about Heineken brand awareness scores and that they’re coming up, do you have a sort of directional track record of what the Heineken brand awareness was when you first took over the business and where it is now and perhaps how it competes again big domestic brands or maybe other international brands in terms of …?
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Marc Busain, Managing Director Now Leandro will be on the scene now I think after lunch, so he’s addressing all that so I don’t want to undermine his presentation so your question on brand indicators on Heineken as a general will be addressed by Leandro.
Thank you so much, see you later tonight for a couple of beers.
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George Toulantas, Director Investor Relations Thank you Marc, okay we’re going to break for lunch now, the lunch is downstairs at the Sannat restaurant, it’s where some of you may have had breakfast in the morning, in the lobby you turn right and we start again 1.30 pm, if we can be in here by 1.30 to start sharp at that time, thank you.
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Lunch Break
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Introduction
George Toulantas, Director Investor Relations Okay everyone, I hope you had a nice lunch, we’re now ready to start the afternoon programme which comprises of one presentation before we go and start the off premise visit.
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There has been a slight change to what you see in the programme, we’re actually going to have Leandro Berrone, our Marketing Director present now and Josep Ferrer will present first thing tomorrow morning.
So Marc has already given an introduction, given some background on Leandro’s career so I’ll welcome him to the stage and I'm sure he's got some great things to tell you about how we've been developing and building our brands here in Mexico in the past couple of years and activating them in the marketplace. Thanks.
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Investing in Brands for Growth
Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma Thank you. Good afternoon, I will do my best in the following 45 minutes to tell you why I do believe we are in Mexico in a very competitive shape when it comes to portfolio and brand equity.
Let’s go to the first slide. It has already been mentioned many times along the morning on the positive context and it's obvious that the reason we are here is because of that. There is a positive context. There is seven million people coming to a legal age, seven million net people coming in to the legal age of drinking in a context of five years, at the same time, a lot of those people will have more money in their pockets. And I would say these two things are very important. But I do not think they are the most important game changers.
What I'm going to try to share with you is why Mexico is changing rapidly on the younger generation and why we have a competitive advantage within these young people that are now exposed to a level of information that they have never been exposed to through the highest penetration of digital media and digital availability.
I want to just start with an example so I wake you up. Somebody knows a band called Super Junior. I'm looking at the age of some of the assistants, it's probably difficult. It is a South Korean band, and South Korean pop has never been at all famous in Mexico. They came one month ago, they didn’t do any type of ATL advertising and in only three hours they sold 19,000 tickets, 19,000 tickets, in one of the largest concert arenas of Mexico City. This is what is happening with young people.
Now we have our most important brand, our brand tagline that says, ‘Open your world’, and it's extremely reflective of what is happening in an emerging society, an emerging young society that is usually quite exposed to a very mature market or a developed market like the US, but it's also getting exposed to what is happening in Asia, what is happening in Europe.
So three things, seven million people coming, higher income, but also much more information. And that drives change in consumer behaviours, and from being a being a category five years ago where most of the category was regular beers and it was not a commoditised category, it was mainly flavour wise quite standardised, what we are looking at is consumer behaviours are changing. And there is a big move, mainly driven by Light, and I would like to enforce the role of our company on this because as you
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know and it has already been mentioned, we are more than 80% of the Light market in Mexico.
So we have been extremely capable to move this trend forwards, to influence consumers into a journey that increases importantly in our most important stronghold, Northwest, to increase the per capita consumption from 75 to almost 100 litres a year by diminishing the amount of bitterness, by also diminishing the amount of alcohol.
We also put beer in an agenda that it becomes much more related to refreshing properties and it also helps to long last the enjoyment of social behaviour but also refreshing needs.
We also have been quite important on the development of the dark segment with our brand Indio, a brand that I will show you has an important ability to compete, a brand that will we re-launched three, four years ago, we made a big change in terms of positioning, we changed also the label and by doing that we have been able to importantly increase our ability to recruit the young target audience. I will go there later.
So, when it comes to shaping consumer behaviour and understanding where the category can go, our company has been extremely successful in shaping consumer needs into the future, and better business opportunities.
The second part that I would like to mention is the opportunity of premium, and that's not too much to mention because I will come back to this, but it is tangible that in many countries there is no company that has the expertise to understand how to drive highest consumption in terms of value than what our company has.
We have been extremely important through brands like Dos Equis, Bohemia, and lately and most important, Heineken to shape this and actually to create a forecast that is quite promising and exciting.
I would like now to show you why I think that from a portfolio point of view Heineken Mexico is in a very well-structured position to capture potential future growth and actually capture market share on a sustainable basis. Take a look on the market and as Marc was mentioning, we are in a market today of 60% regular beers 20/20. And I will show you a portfolio that is trying to satisfy the different needs with compelling brand stories.
There is one important brand I will talk about, that is Indio here, focusing on the dark, another important one that is Tecate Light, the most important an area for the Light category growth, and then I'm going to talk about Tecate Roja, Sol and Dos Equis lager.
So we have for each fifth of the market a very clear shape brand position trying to target consumers that are from this profile. Later I will talk about Heineken, I will reinforce the concept of our innovation - not only with Heineken but also what is the role of Dos Equis, what is the role of Tecate Titanium on the premiumisation but also what is the role of Bohemia within the premium segment.
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So building a winning portfolio, we have ten brands, you have seen them in the different photos. But I will talk about these five. Before doing that I would like to tell you something that I was sharing with some of you at lunchtime. It's about how to measure how competitive we are in a market with more than half a million stores where an idea of market share becomes quite difficult to get in terms - the channel and consumer types.
So what we use in Mexico is our global protocol, run by a company called TNS, part of our WPP advertising group, probably one of the largest - top three largest research companies. What we do is we go on a quarterly basis and we ask 7,000 people different brand questions. And those questions are from - Tell me the first brand that comes in to your mind? What are the first five brands that come? And within the five brands we call it spontaneous awareness and we measure how much within those five brands. What is the brand that you recognise is an authority? What is the brand that is worth paying for? What is the brand that has good quality? What is a brand that is young and appealing? Etc, etc. We also ask what is the one that you consumed in the last six months - in the last three months?
And we have experience along the last 20 years that there is an important high correlation between two things that we carefully take a look at. The main brand, what is the brand that you have consumed most in the last months and what is your preferred brand? And sometimes your preferred brand doesn't mean your main brand, why? Because it's not available, or sometimes they don't have money.
A lot of the reference that I'm going to make about how well we are is related to that type of research. It's called OnEquity tool, it's run over all the countries that Heineken has. We started two months ago, before that we used to have it with a different supplier, so we harmonise it. And I'm going to share with you some interesting data.
Tecate, Marc mentioned, our most important brand franchise. The most important point here is growing everywhere all the time, from Tijuana, to Cancun, or to Vuelos, all the regions during this year and during the last five years Tecate has delivered sustainable growth. And I would like to correct you in terms of if we are different it's also winning share in the stronghold markets. So we are growing above the industry in the stronghold markets, but we are importantly growing our market share in markets like the Centre, West, Gulf, South and Southeast.
In some markets we do it with Tecate regular, in markets like Mexico you're going to see that for example this is a market very much concentrated on the regular offer and Tecate Red plays a significant role. In other markets where the weather is far more demanding [audio jumps] Cancun, we take the particular - coming from … Tijuana, places that you find are 45 degrees in a nice summer and we exploit Light as the most capable offer within the refreshing arena.
Tecate is also, as you can see, and you have it delivering a double digit component of our growth in the last four years, it has a very solid platform. It is extremely well related to us which brings equality into the brand. It has a very efficient platform related to soccer, we have six national teams, but also we have usually a campaign that reinforces our relation with soccer. And it has also good relations with baseball in the
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Northwest where baseball plays a significant role as the most important sport in the region and also in music.
The most important thing that I've found in Tecate is a discriminating point of view that the brand has and I'm going to show you some TVCs. You know Mexico it is a country where, at least so far, genders are still different and positively I think they want to keep it that way. And both parties actually, you will find out that women are the ones that want to keep it that way. And we play on that, we use a very important social insight that is men are different from women and you know men have character. And this is a brand that has a lot of soul, I don't know if you have been in the place of Tecate, but to live there you need to have character, you need to have a lot of manhood to be there, it's not an easy game, it's actually a game for real beer drinkers.
So that soul, that character from somebody that survives life in Tecate is spilling over along the country and also offering two varieties and now three that has shown very good - how we recruit and to attract consumers, regular and light.
Let me show you two TVCs there is a lot, usually on a yearly basis we make six or seven campaigns. I'm going to show you one related to soccer, because next year soccer plays a significant role, you know why, so I don't need to explain to you. And the other one makes the point of this character and this discriminating positioning that has allowed this brand to have a point of view that is extremely different to any other regular beer that exists in the Mexican market. Can you go to the TVCs?
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Video Played
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma It's nice that we have a lot of gentlemen - usually women - it is not as funny. But our brand needs to have a point of view and sometimes it needs to have some enemies.
Very well, I already explain all the opportunity of Light, I would like to reinforce the role of Light in the Southeast, you know we have a very dominant position in the Southeast market; the Southeast is also a place where we have an important amount of share. It is the place for Sol, it is the place where Sol is dominant.
Marc already mentioned we have unleashed the potential of Tecate Light in Veracruz, in Villahermosa, Cancun, etc, etc, and we are seeing amazing results. Not only in terms of growing our market share within the region, but also increasing the per capita consumption, probably because it is an easy beer to drink. And it is an offer that at the same time brings you all the character and the m… to feel that you are drinking a beer, but when you taste it is a very smooth light profile. And light does not mean at all watery. I would say that one of the key benefits of this innovation that we deploy into the market 15 years ago is actually that from a product quality point of you it follows the highest standards.
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So this is a beer that we dedicate much more fermentation days than some other beers that we have. And this, you know, we believe we're offering a product that delivers really a good quality has been the right success. We have been attacked by many other lights, other brands you know have found the opportunity of light and they try to enter and we still have more than 80% and we keep on growing market share. So a great product, great positioning, growing everywhere, a positive story; here we go.
The next one is Indio and Indio is a brand that has 120 years and it's also a brand that I like a lot. I think it's a brand with huge potential, I will tell you why - it is a brand that is considered by many of the media companies in Mexico a benchmark in terms of exploiting digital protocols. We started a webpage three or four years ago and two years ago it was one of the most awarded webpages. It was a reference for other media, for the young generation of Mexico City, it is a brand that attracts young people that it represents a different culture for the - the young one types and during this year is celebrating 120 years.
And I would like to make a point here, we said - okay how can we make something that when you show 120 years you don't look like energy sometimes and that is something that Heineken does extremely well. It is a historical brand and it's also an energy brand, it's always modern and it's always sophisticated. So how can we do that?
So we invited designers from all over the country to send us labels and we promised that the best 120 labels, they will go into the market. So today in the afternoon you're going to see very different labels. The labels are representing the different young one type that we celebrate and the diversity and this one has been celebrated for more than 100 years within the Mexican context.
To do that also, we invite a famous entertainment company called Vine, one of the most recognisable, at least from the hipster community, one of the most appreciated magazines in Mexico and we asked them to help us to film 12 documentaries of ten minutes each. And we only post them on Facebook and YouTube. We did it 20 years ago; we are close to get the first million views of 10 minutes, which is a lot of brand engagement I would say.
All those documentaries are reflecting people like the stake community, the A… which is a Japanese subculture of ladies in Guadalajara, the Colombianos, there is a subculture of people that like Colombian types of music in Monterrey, surfers of ….. Coast, and high energy people that celebrate disco dancing of the '80s in Mexico, Rockabillies, etc, etc. In terms of content and storytelling and content creation I would say within our mainstream brands this is the most exciting brand that we have.
And there is something that for me I see as very promising, I told you we very much follow brand preference and main brand and one of the things that I always ask my team is tell me the social ages. Because when you outperform the market in 18 to 25 then you have a very good possibility to win in the long run. And we see that for example when we take a look at a brand like Superior or Carta Blanca, Superior was famous in the '70s and then we stopped supporting it. Still now it has a big amount of people that love it - they were recruited in the '70s. But those people are only 50 and above.
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So it's a brand that in the South region it has 20% preferred brand but in people above 50 years old, but in people from 18 to 25 it has only 3%. So that's not what we want. And I always say our ability to win in the market it will be very much based on our ability to create main and preferred brands with people from 18 to 25 and from 25 to 35. Because those people once you recruit them they will like to be with you usually along their life story.
Indio has three times its index on 18 to 25 than what it has 50 and above and it's a brand of 120 that has been very important in Mexico for many, many years. It also had the most interesting, I would say - probably by far the most interesting music festival in Mexico, one of the top three in Latin America called Viva Latino, effectively that reaches 200,000 people on a yearly basis and which the two main scenarios are called Indio scenarios, and we are the main sponsors together with a soft drink brand.
So our ability to the win in the dark segment is very strong. Why? We keep on outperforming our competitors in young target audiences and in main brand and preferred brand constantly along the last two years.
I would like to show you a TVC, it's not the final cut, it is a little bit provocative, Indio - it is positioning, again it is positioning from an archetypal point of view, it is - if you know a little bit of young archetypal, it is the outdoor, the rebel, it is the guy that goes against the status quo, it is this guy that is studying in ….. and wants to change Mexico, and he doesn't want it any more as conservative, as repressive as it is, you know he likes to really - the left - that type of biography, have holidays in Cuba and has a French unshaved girlfriend probably.
Laughter
Sorry for the detail, but let's see it.
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Video Played
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma Sabor is a word, for some of you that speak Spanish that has two meanings, sabor means flavour and sabor means knowledge. And it's a good bridge to talk about credentials and how to expand the dark category, where do we see further potential, but also to talk about a paradox, or to make a controversial point that is quite attractive, as I said to this target audience.
Let's go now to Sol, there has been a lot of comments also on the Sol brand and its global relevance. And I would say it's not only the global relevance, it's an extremely important brand within our portfolio in Mexico. It is a brand that is the most important brand that we have in the lager segment, or in the regular segment. It has some very strong dominant positions in many Southern markets. But we have done some mistakes in the past, because we wanted to make it national we offered sometimes really low prices and price influenced very much equity perception.
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So on Sol we knew that we needed to come back and rework, the beer is a great beer, in the blind taste it's one of the best beers, I would say it performs in the top three within the Mexican market. But we know that because we offered it for a while not at the right prices we needed to give the brand, again, a little bit of health, and also to show some properties that this brand has that are quite different from other regular beers in the market.
It is a brand also that has shown an important ability to live in two markets that are becoming also relevant within the Mexican market. One is the mixer beer market. We launched Clamato and since we launched it Clamato has been outgrowing our expectations on a monthly basis. And it is by far today the most important mixed beer within the category, far more than other competitors, it has also discovered Sol Clamato a new occasion to drink beer that is for breakfast, for people that feel a little bit Clamato, because Clamato is - a very insightful thing - here in Mexico people they like to drink tomato juice, there are some Mexicans here that can explain better probably. But we found that a very interesting innovation.
We partnered with the best brand in tomato juice, or tomato clam juice, that is Clamato it is a brand that is by far the market leader, exceeding expectations on a monthly basis. And I will not only refer to that, the other one is the non-alcoholic beer segment and most of you know that this is a segment that is showing potential in some markets. It is an extremely relevant market and we are so far the total market leader in the beers without alcohol.
So Sol, it is a brand that under innovations has shown a lot of growth. It is a brand that is also growing outside its stronghold markets. And it is showing an ability to complement the Tecate and Carta Blanca portfolio in the Northern territories, delivering very positive growth.
I will show you now some TVCs that we did in order to make the quality point more alive. They are not engaging types of TVCs, I think from a production quality point of view they are state of the art for Mexico and they show the product in a different way, in a more artistic way which was also appreciated. Can we see them?
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma Opportunities occur, during 2014 we see an opportunity to align our packaging offer to the global one, I think it is more appealing to younger target audiences; it has a much more discriminating point of view, so we're going to do that. It is a brand that also needs to start recruiting again.
What I found - it is a slow type of TVC, the ones that I have shown you, nevertheless it has shown impressive results in terms of quality values, we have improved eight points, percentage points, when it comes - it is a beer that has quality and we have improved by
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six points. It is a beer worth paying for. We catch it up with some of the most important and well appreciated beers within the Mexican market and I think now that the brand is bringing in more, it's a very good stage to give good surprises again.
I will now jump into the last brand that I will cover - another one, so this is not the last one, this is Dos Equis. So Dos Equis brand growing double digit in the last three or four years. Impressively recruiting young people, it is a brand that has a very good traction in the hipster society, young society of [audio jumping] it is the brand that is by far the brand leader - which we know that it is usually a trendsetter within what is a kind of a premium offer.
Now in total, not only within our company it is a brand that is growing faster from all the regular beer brands. It has three times main brand and three times brand preference in 18 to 25 to what it has on people above 35. So if you for example to an on trade bar tonight and ask people what do they think about it - it has a different proposition, a very complementary proposition to what Tecate is. So if you take a look at Tecate and Dos Equis the complement perfectly in this important regular market segment. And they also do not compete to Sol at all.
So the combination of Tecate and Dos Equis too from an archetype point of view, they are really the two to recruit from social, young social generations, to wannabes and cooler ones, it is what makes us believe that in this 60% of the pie we have a very strong competitive advantage and ability to create market share.
We know the success of The Most Interesting Man, the brand has been doing very similar things in Mexico, but they were not fully aligned. And I think tomorrow Peter will cover that, there are synergies that we are foreseeing, in terms of using the same platform and making the brand look more similar to what happens on the other side of the world. So either with Most Interesting Man or with something similar we're going to come in 2014 with very positive communication possibilities for Dos Equis.
It is a brand that is ready to exploit, so for many, many years also we have had only a line-up that was reflected to types of on trade consumption and limited off trade, non- returnable bottles in 12 oz. and returnable in 12 oz. for on trade. It was not competing in the most important part of the market that is familiar sizes, 32 or 40 oz. and it was not having a competitive offer into cans.
By extending its line-up and by putting much more fuel into the communication plan we do believe this is a brand that can grow extremely fast in the following five years.
Last but not least - the most important one, Heineken. There is a lot of things that have been said about the importance of Heineken in the largest Op Co of the company and how the brand is performing since we launched it three years ago. And I would like to share with you that when I arrived into the company, one and a half years ago I was quite surprised on the leading model of Heineken. Because from the companies that I was coming that was a very - it was a symmetric difference and now I fully understand why it was like it was.
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It is a brand that aggressively builds on creating desirability and premiumness and it has a very solid global package to implement in the markets. It is a recipe that has been validated by many years, and we did it here. And I'm going to share with you some very positive facts, I assume you will understand them in terms of its relevance and the potential the brand has in Mexico.
One of them is I told you we asked everybody what is your preferred brand, not only what is your main, because you main sometimes depends if it's distributed on the corner of your street. Sometimes the main is the one that I can buy on a daily basis, but I have a preferred one that if I find it I will buy it. Sometimes it's a matter of affordability, sometimes it's a matter of availability.
36% of the Mexican consumers declare - of the young - from 18 to 25, young Mexican consumers declare a spontaneous awareness for Heineken, 36%. So if you ask them - tell me five brands, Heineken will be part of the five brands that they will tell you, with only three years within the market. And that is not the only important data. In five of the seven regions this is the second most important brand within the target audience, including all mainstream brands, so I'm not talking about the international premium segment, I'm talking about everybody, Tecate, Indio and our competitor brands.
Top of mind, the most acid indicator marketing has - what is the preferred brand that comes into your mind? 4% national, not only on the young target audience, generally, so take a look at the size of the market and you understand the relation between top of mind and potential market share. So we have already four points on the top of mind. The second preferred brand of the younger target audience. More than five points of the preferred brand - general target audience in five of the seven regions. 36% spontaneous awareness. Very positive brand figures.
Some things we have learnt and we need to improve - our distribution strategy, there is a lot of desirability and it's good, but sometimes people do not find it. So we are improving our distribution network, this is our main focus. We're also improving our relations with the on trade. There are some opportunities there. But we only foresee - we have been growing aggressively, totally disproportionately in the last three years, but the reality - this has been a recession year. We do foresee that if GDP starts growing, 3.5, 4, 5% this will be above.
Very well, I have already covered the brands and portfolio and I will tell you now quite quickly which are the main strategic priorities, strategic pillars that we have within marketing. What are the important things that I list on a daily basis when I go to work I focus on and our team tries to focus on.
The first one, I will go fast - mainstream, mainstream is still the most important part of the market, more than 90% of the market is mainstream and we have an extremely competitive and consolidating manufacturing footprint in Mexico, incomparable to any other country; the size of our plants, the quality of assets, the cost of the assets that we have there, so it's extremely important that we fill those lines constantly. And to do that the most important thing is to understand how to play mainstream. That is the bread and butter on a daily basis. If you don't make the volume target, maximising the price
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and the revenue opportunities we're not going to be profitable. And as we have shown you we are becoming more and more profitable.
There is a lot of activities that we do on elasticity and how to play the revenue management game. There's also a lot of opportunities that we are seeing on deciding the right packaging formats, putting more focus on returnability, in all the shops that you're going to see in the market. Mainstream is the most important part of our daily business and for the next five years it will be.
The important things for mainstream and why I do believe in mainstream we have a winning recipe. All mix and accounts we outperform our national market share. And this is to all the fears that exist on exclusivities.
The main brand or preferred brand, we outperform also our market share. Young target audience, 18 to 25, 25 to 35 we also outperform our market share. But in the 18 to 25 we outperform our market share by more than 5 percentage points, this is big data, either you believe TNS or not, it's an international company, it's a source that's coming from global. So it's not manipulated by me. I would love sometimes.
Very well, important things, as I show you to have a portfolio that has a very good segmentation horizontally in terms of what are the archetypes and the brand characters that we are offering. And you have seen Tecate is not at all Dos Equis. And Dos Equis is not Sol, and Indio is not Dos Equis near Tecate.
Secondly to play in the right price points. Not only from our brand equity point of view. I have not covered original brands so Superior and Carta Blanca that plays a significant role to protect our markets in the below mainstream, 90% price index. But on the 100% price index, Sol, Indio, Tecate, we need to have also all the important price points, from 8 pesos to 190 pesos. From our ounces option, the ....., to our 18 pack of cans. And in each five pesos we want to have an offer.
Lead the premium agenda, I have already spoken. It’s not only about Heineken. I would say one of the positive news is that with all the investment that we put in Heineken, with all the disproportionate growth that Heineken has delivered, and with the understanding that in a lot of our distribution outlets we are exclusive, Bohemia is still growing. And I would like to also reinforce how in premium our both most important positioning within beer are extremely complementary. And Bohemia do not target at all the people that Heineken targets.
I would also like to reinforce our initial efforts to build flavour alternatives, and to build in Mexico the most appealing alternative to beer rejecters, a lot of them women, and that is cider. We started that journey, it’s going very well. It’s going to demand a lot of effort but we know we have the capability to make it.
Innovation, we have talked how important innovation is to satisfy this new target audiences that demands better repertoires, better portfolios. We have importantly increased in the last two years from 0.8 to 3.6. I expect next year to be also more positive than that. There's a lot of things, very good things, coming. I will not display
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them. If I get a little bit drunk tonight, so be sure I won’t, very important things coming for next year.
But there has been a lot of important things that we have delivered in the past. Let me tell you some of these examples. Sol Clamato, I told you, the most important mixed beer in Mexico. We are launching Dos Equis 22 ounces, or 710 millilitres, very positive growth momentum. You know, exceeding our first expectations by 30%, 40%. We launched Titanium. We expected to sell it 100%. They are selling 280%, first three months. Growing the seven regions; impressive growth in Southeast, impressive growth in Mexico City.
Another innovation targeting new consumer occasions. You know higher alcohol, more focusing on socialising, one of the key consumer demands it’s mainly there are two big axis, one is refreshment and the other is socialising. And refreshment is very much daily focus, socialising is very much on the night. This is a very interesting offer to get more into the night game. But we know sometimes we are not competitive as a category. But it also brings a lot of equity premiumness into the brand, you know, it puts the brand on a different stage. So we are very positive on that.
8 ounces Heineken, we know price points are very important in Mexico. It’s a very sensitive market to price points. We put Heineken, you’re going to see it, 17 pesos. A lot of people love it but sometimes they go with 10 pesos to a market, because 10 pesos is the cost of a Tecate, one of the brands of my competitor, I don’t remember the name but - 10/11 pesos.
And people say that, you know, I cannot sacrifice money but I can sacrifice the amount of beer that I drink. I am happy to sacrifice the amount of beer, but I have ten pesos, always they have ten pesos. So it does - helping us to compete in the 10 to 12 pesos. But also with a very important functional insight which is that it stays cold. And you know, our footprint, where we win, where we are very dominant, it’s quite hot. So to remain cold it’s extremely important. So big innovation Heineken eight ounces.
Here are now examples. I think I already spoken about cider, the things to target new flavour provides, there are things to target new consumption occasions. So there are things to expand the per capita consumption like Light. Things to expand also the value within the category.
Before jumping into that I would like also to reinforce the opportunity of premiumisation. Marc a point of that. All the things that we have competing between 110 and 120 price index. Tecate Titanium, Sol Clamato, Coors Light, Dos Equis Light, all of them grow in our 20% compound annual growth, flying - big opportunity. So the margins improvement are not only coming from price management, targeting management, they are very much coming from, you know, putting portfolios that are exciting to help people to make the soft steps on the ladder to premiumise.
Last comment is I know how broadly Canadean define international premium segment. If you take on premium what it’s about 130% price index, there is only one dominant leader and that is Heineken. Above 130 that are not international premium brands, I think we should have probably 90% market share. There's nothing to compete there,
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we have the first mover advantage, we have us ourselves 36% spontaneous awareness. So depending on how you call it, if we call international premium above 130 we are very competitive. We are the ones that are establishing what premium international means.
Big topic media and sponsorship, and ability to create efficient awareness efficient awareness into the market. A comment that I made during lunchtime; the global team decided to go for one global media agency. That global media agency is Starcom, part of Publicis Groupe . They went to all countries and all did, you know all saving opportunities. And they found Mexico extremely competitive in our prices. We are one of the top ten advertisers of the market. We have a strong relationship with Televisa, that has been for many, many years. We’re keeping that. We have a strong relationship with OCESA, the largest entertainment company. We leverage very much on the global leaders that we have, with the largest digital player, Google, either for big data or YouTube. We leverage very much on our global agreement with Facebook.
We also leverage on things that are coming, Spotify. How to build awareness in a market that is changing like this, where everybody was talking about digital and suddenly digital in two years raised 44 million connections in Mexico, with 40 million connectors to Facebook; one of the top ten countries for Google. One of the top five countries for Facebook, and the fourth country for Twitter. One of the first offices abroad for Facebook. One of the benchmarks in terms of social interaction.
How to build the right awareness for our brands is one of the key competitive games. And in a company that has 100 markets with marketers playing in protocols, and protocols that nobody knows how they work because everybody experiencing now how is their relationship between Twitter and Facebook, what should you post? Do you invite people from television to digital, or from digital to television? Do you move them from Twitter to Yahoo - or sorry Twitter to YouTube? Do you need to do a push? How much should be organic? Big topics in order to create efficiency.
Everything is starting with awareness. There is no market share without awareness, and then it comes spontaneous and then one day you have top of mind. This is an important and strategic topic in our agenda and we think we have the right agreements in place. Also we show a very strong sponsorship platform, futbol, box, baseball, etc, music.
Last but not least, I have already told you important it is to grow the category and the relevance that this category has within the Mexican market, how also we compete with other alcoholic drinks to a share of growth and how important that opportunity is. Let me give you some examples on how we are driving some of the ones that are considered the most important category benefits or category future opportunities.
Accessible tastes. We have led the Light segment with more than 80% market share. We are also offering what we consider the best option for beer rejecters, and we are launching Strongbow, and we are the first in the market making a bit bet for cider. Better than you think, we lead the non-alcoholic beer segment. It’s still very small, but we are the first ones and we are learning from that. Beer with meals, association with the right beer with meals, growing important there with a brand called Bohemia. And you’re going to see we have the best sponsor or endorsement, the best chef in Mexico some may recognise from the ….. it is the face in the Bohemia campaign 2014.
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Beer is refreshing, the most important attribute in Mexico. Our dominance in Light is clear, this is extremely important for us. I would say Tecate Light complemented with Coors Light growing fairly rapidly. We also have Carta Blanca Light. We’re also offering cider, that we realise is also a refreshing opportunity. Cool and elegant, and I already spoke about the role of Heineken.
This has helped us to become an extremely important partner for the channels that are growing. And I will close this by saying on five of the six modern accounts, important modern accounts in Mexico, on five of the six we have been chosen as category captains, not being the volume market leader. And there's a reason why that’s happened, and you know how big retailers are in terms of choosing the right category partner in order to expand the role of the category. It is about how sharp you are in order to qualify what are the right consumers’ insights that will trigger consumption improvement, in revenue over in consumption; five out of six.
Just as a summary, again I do foresee a very positive future mainly driven by - we over index in all mix accounts, wherever we compete openly we over index our market share that we have nationally. Has already been reinforced our running challenge in the markets and how we are growing, but also how we are growing in the strongholds. The big opportunity to increase the per capita consumption on the Southern territories by expanding our Light segment. Our ability recruit younger target audience by our own international scale, and our enablers to understand what are the most efficient protocols in order to create relevant awareness.
That was my story. Questions?
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Questions and Answers
Question You've talked a bit about the price laddering in Mexico, and you've said that Heineken is selling at a sort of index of 130 or perhaps slightly above. That feels quite a low premium.
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma No, no. I didn’t say that, I didn’t say 130. It was a mistake if I said that.
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Question Well you define premium as -
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma Ah okay, you said it. If you define international premium segment above 130, Heineken is by far the leader. There is no competitor in a way.
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Question So where is Heineken?
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma You will see later on. Heineken is, you know, a regular mainstream beer, there are two big leaders, one in the north and one in the centre. They operate usually 12 ounce returnable and that is the price reference consumer has, 10 pesos, very simple. It’s a coin of 10 pesos, you will fine Heineken 16.5/17. So it’s between 65/70.
If you compare that to non-returnable, but non-returnable is a very small part of the market in where we compete. So for me it’s not a fair comparison. The right comparison is versus returnable, and the highest rotation SKU in the market, that is Tecate canned beer, and here there is a bottle also that is quite well sold versus that we are 165, 170, 160.
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Question Okay, thank you.
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Question Correct me if I'm wrong but the Mom and Pop shops are still close to 70% of the market, right? And even if they are not, 65, 75, I didn’t hear enough about, you know, the family size packages, the 1.2 litre, the 1 litre, detach on returnables, very little. What I'm trying to understand is that to me this is all very impressive and I think that you are well ahead of your competitor, but when I think about the Mom and Pop shops, where I suppose 90% of the business is family sized packs and returnables, I think you’re still very under indexed there. I mean can you comment on that? Is that true are you under indexed?
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma Thank you very much, very important question. And I think a big opportunity that you’re very well defining. We see that as a big opportunity. And you’re going to see; you know if you walk out of the shelf from now to next year you’re going to see a much more aggressive offer on the family sizes, 32 and 40 ounces. Let me - I think we are listing for example Tecate Light 32/40 ounces on more than 25,000. Correct me, I think Josep will jump into that tomorrow, but probably more than 25,000/30,000 outlets during this year for Tecate Light 40 ounces - for Tecate Light 40 ounces is the same. We are also listing Sol 40 ounces in Northwest and Northeast.
We are also launching 40 ounces for Dos Equis. That was extremely well received in all the market research that we did, and that brings an impressive opportunity to also upgrade that segment, where also young people do and drink a ….. like we call it here in Mexico. So it is an opportunity, it is an opportunity to reinforce returnables. The
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tradition of returnables is mainly focused on familiar sizes, and then ….. I will call it eight ounces.
So yes you are right, there is an opportunity we are addressing. You will see that, you know I think the average offer of ….. 14 ounces, in our history was 2.2 per store, and we are moving 4.5. My sales colleague, she complains sometimes that, are you happy?
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Question Inaudible question
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma I will say three, three point something. Not having the exact figure but you will find that they offer in 40 ounces returnable. That is a game that also has very good margins for them, and it’s a game that you know we have an ability to compete and this is very important and we should take that opportunity.
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Question You mentioned you were a top ten media spender in the country. In terms of your scale disadvantage versus your largest competitor, do you have a rough share where your share of media would be within beer? Do you spend a similar amount of them in absolute terms?
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma We haven’t stepped on the brakes yet, and we will not. We have ambitious plans on that, and we see that as an opportunity in order to raise awareness. One of the - it’s difficult to measure share of investment in Mexico’s total media share of investment because although television is the most important media, and it’s the only one reported, there is a lot of moving there.
So last quarter we were very high. We were above 50. Historically we were in line with market share, with volume share. I would say the last year, year and a half we were a little bit more aggressive. We are shifting resources from regional type of efforts to more ATL because we believe by having a more efficient distribution and availability we can accelerate our conversion course very efficiently.
So let me share with you something that I found quite unique within this company. This year we put in three months 950 billboards in Mexico. It is the only time in the drinks history also including soft drinks, that a company puts that amount of billboards. And that raises importantly the amount of spontaneous awareness. You know three months after we were there.
We made this campaign of football, know our competitor used to have very strong, and they have more teams than us and they used to have very positive association with
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soccer, and we diminished the bridge importantly by seven/eight points by using, you know, amplification resources. So we are moving from local to national.
We think there is a game there that we can win, because our pricing capabilities are extremely high, you know not in Mexico, internationally, you know production wise. You know we work with some of the top five agencies, with all of them at the lower scale, so our creative pull, production companies is a competitor advantage that we will be blind if we don’t take advantage of that. So we are aggressive and we are not pushing the brake.
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Question Could you say in a bit more detail, do you spend less than the group on average in terms of A&P spend?
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma Our group?
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Question The Heineken group.
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma No, we are in line. I think we are in line, yeah. It’s just something that is very well taken care of. You know, when we take a look on what is our business model, there is you know a kind of lower rules in terms of how much you should invest in brand equity development. We understand that game very well, at least the company understands it very well, and I am catching up. But there is, if you want to win with the brand in the international premium segment you need to have a sustainable level of investment, and I have never seen a company who believes and knows so well the rules of equity building like this one.
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Question And just finally on this point, it was mentioned earlier that exclusivities, as they become relaxed or disappear, will be a benefit to margin. Is that a potential pull that you could tap into to spend? And if so, how much of sales is that potentially that you could deploy?
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Leandro Berrone, VP Marketing, Cuauhtémoc Mockezuma It’s a difficult question. I do not feel I am the right person to answer it. Probably later, I don’t know, Marc or Josep, they have much more clarity on what is the impact financially, or René. So I will ask for all their resources because I think we can win. So
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whatever money appears I will ask for it. You know how marketers are; we are very good on spending. Investing, let’s call spending, investing.
That’s it? Very well, thank you very much.
Applause
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END
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This transcription has been derived from a recording of the event. Every possible effort has been made to transcribe this event accurately; however, neither World Television nor the applicable company shall be liable for any inaccuracies, errors or omissions.
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