International Team project

Strategic Management 14 May 2017

1 Table of content

Table of Contents

1. Introduction 3

2. Analysis of the entrepreneurial formula 3

2.1 Competitive system 3

2.2 Product system 8

2.3 Stakeholders system 8

2.4 Structure 10

2.5 Prospects offered 11

3. Analysis on a business unit 11

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

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

6. Conclusion 15

7. References 17

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1. Introduction Heineken was founded in 1864 by Gerard Adriaan Heineken, who had bought the Haystack Brewery in Amsterdam. After nine years, the name of the brewery was changed to Heineken Brewery and with this change officially began the production of Heineken . The original brewery was used until 1988 and today it is a museum called “The ”. The company was focused on brewing beer until 1933 when they started exporting their product to other countries, such as the United States. Once they had gone global, Heineken turned their focus towards acquiring other brands, such as Brand, Scottish & Newcastle, FEMSA, Lagunitas and their biggest rival Amstel. This was part of their global expansion strategy which resulted in the company being one of the world leaders in the beer industry today (The Heineken Company, 2017).

Heineken is active in the beverage industry, specifically the brewing industry. Today, Heineken is an independent global brewer, active in 178 countries across the world, with operations in over 70 countries and a total of 85.000 employees. The company is the number one beer brewer in Europe and the number two beer brewer in the world. The product portfolio consists of more than 250 beer brands, with brands such as , Amstel and Sol. The brand stands for quality of the product and the company aims to be a leading brewer in all of the markets they operate in. Furthermore, the company’s aim is to have the most prominent brand portfolio in the world (Heineken N.V., 2015).

Some key figures from 2016 include an increase of organic revenue of 4.8%, with revenue per hectoliter up to 2.2%. Furthermore, the operating profit grew by 9.9% and the overall Heineken brand grew by 3.7%. Heineken wants to further grow and expand their brand through innovation, acquiring existing breweries, investing in key developing markets, and building new breweries (Heineken N.V., 2017). The main question of this report is: “Does Heineken have a good strategy?”. The sub-questions are: “Are there some risks in their strategy?” and: “How can they improve their strategy?”. The practical goal of this report is to evaluate and implement the Entrepreneurial Formula in a correct way, to better understand the success of the company and if the need to improve their strategy exists.

2. Analysis of the entrepreneurial formula

2.1 Competitive system The competitive system in which a company operates is very important to evaluate and reevaluate in order to ensure a company retains their competitive advantage. Factors such as target markets, competitors, rules of competition and the condition of the industry itself are all factors that need to be evaluated in order to gain an understanding of the environment a company operates in. Therefore we begin our analysis of the Entrepreneurial formula of Heineken by analyzing the competitive system in which they operate.

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

3 in more than 70 countries. Depending on the region, the performance of Heineken differs. In 2016, the Africa – Middle east division the company performed very well despite the macroeconomic issues that occurred in these areas (rising inflation and currency pressure weighed on performance). During the same year, the American division experienced a strong growth and now represents 24.3% of regional revenues as a percentage of the total. Moreover, the Asian-Pacific division experienced an overall growth due to the increase in consumption in Sri Lanka, Vietnam, Cambodia and Malaysia. The strategy to invest in company’s brands, premiumization and innovation, combined with a strong focus on operational excellence, is paying off (The Heineken Company, 2017).

The company also focuses on a large segment: all adult consumers. Their main market consists of men aged between 21 and 34 years old, which make up 63% of their consumer base. Most of these men are sports fan, have a college education background and belongs to the class with mid to high income (Heineken Annual Report, 2016). Naturally, their expectation about the product varies according the country we are referring to, but an overall trend can be identified. Since the target group appertains to the so-called “millennial”, their needs are evolving and becoming more and more complex. According to the central Community College, these customers have a complex personality, are confident and progressive and able to navigate any social situation (CCPC, 2016). Due to this, they demand top quality product with a reasonable price, a differentiation in tastes and a beer conform the every situation.

Environment: To determine the environment in which Heineken operates we have chosen to perform a PESTEL analysis to analyze the key components of the environment. From a political and legal point of view, Heineken meets heavy regulations regarding the restrictions on drinking ages and all the governmental anti-alcohol campaigns, which could affect the company. To adapt to these regulations Heineken has chosen to work in tandem with local governments on this issue. In fact, Heineken participated in a lot of campaigns concerning responsible drinking in order to increase awareness of the problem in their youngest consumers.

The economic side of the environment is experiencing a slowdown due to the lack of growth in income of middle class consumers and the huge amount of available on the market. Moreover, the price of raw materials is fluctuating as these materials are becoming scarce. Heineken is already working in order to overcome these issues by creating new networks of suppliers worldwide. The social-cultural aspect of drinking is changing its conception. Indeed, there is an increasing awareness regarding alcohol and its effects on humans. People are following a healthy lifestyle and trying to avoid “cheap and unhealthy” beers and instead they are starting to appreciate premium and craft beers. Heineken has been investing a lot in the last years in order to strengthen their customer relationship (by offering new products and rewards). The company is also facing a technological revolution since innovative techniques are being introduced in beer production. Furthermore, they developed software that is able to interact digitally with customers. Nonetheless, Heineken is not losing sight regarding the environment regulations and the eco-friendly processes and materials used in their products.

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Competitors: According to Birritalia 2016/2017, the current leader in the Italian brewing industry is Heineken (with 28% of the market share), followed by Peroni (19%) and AB InBev (8,7%). These companies not only compete with each other for control of the Italian market, but they also compete with approximately 682 other active brewing companies in Italy. The greater number of companies all competing for a greater market share drives down the profitability of the industry as a whole. Due to the low switching costs and the perishability of beer, there tends to be a greater price competition between competitors (Economics Online, N.D.). Relatively small costs of changing products and the variety of possible substitutes for beer are the main causes that determine the level of competitiveness. The solution to beat its main competitor, Ab InBev, is to keep on with the acquisition process of small breweries worldwide in order to acquire a larger market share. Heineken should not care too much about future competitors since the brewing industry has high levels of brand loyalty, meaning that customers are more reluctant to change. Due to this, new competitors will have to significantly advance their brand value in order to compete effectively and convert customers to their brand.

Rules of Competition: Regarding the rules of competition, Heineken follows very high standards and it’s proud to share and communicate its values. First of all, the company goes out of its way to avoid capturing the attention of minors. In fact, they avoid displaying content that could be associated with schools or children’s media and use restrictions on social networks. Heineken ensures that its practices are always legal, ethical and truthful. The company is proud of their brand identity and tries to communicate a key message for their success: drink responsibly. One example given by Heineken is the fact that the brand is never associated with antisocial behavior or overconsumption (Heineken, 2016).

Key success factor: A key success factor for a trade, profession or industry is something that a business must do to be successful. It is a necessary condition for success. The key success factors that drive Heineken are: differentiation, marketing, premium quality, cost, customer experience. In each market that they enter, Heineken creates a strong brand and introduces different beers to better serve the tastes of each individual market. As for marketing, Heineken’s marketing strategy is constantly changing and updating to capture the interests of their consumer base. Due to huge investments made within the last few years, Heineken built a brand image capable to gather all the consumers within the target group.

As for premium quality, Heineken has the highest quality beer brands. To ensure their products quality, Heineken uses a superior brewing process, high-quality materials, and checks the quality of the taste of the beers they produce. Even though they are using a premium price strategy, their products are the perfect quality-price tradeoff so the cost of their products is a key success factor for them. Last but not least, the Heineken Experience has been an integral component of their success. Heineken is trying to embrace moment

5 marketing by giving to the customer the perception of beer associated with our best moments and it can also be the indulgence for the consumers’ premium moments. Moreover, Heineken has different programs to reward their customers. For example, they are the principal sponsor of the UEFA Champions League, so in Europe they have promotions where you can win tickets from some games, and also the final match. In some events around the world, they always have a station where they give out gifts, such as speakers, cup holders, shirts, souvenirs, etc. In conclusion, Heineken believes that corruptions must eliminate from society. Heineken decrease and avoid the fraud and conflict between business benefits (Heineken, 2016).

As mentioned above, one of the key characteristics of the brewing industry has always been the rivalry among competitors in the industry. Heineken is in competition with Ab-Inbev and Carlsberg Group for gaining the greater market share possible worldwide. But due to the low switching cost among the beer industry, this competition drives down the overall profitability. In order to overcome the competition, Heineken should keep on acquiring more national breweries globally (to expand their already consolidated global presence) and increase advertisements in multi-language toward young people. From the production point of view, the company should try to make its own ingredients and develop a strategy for recycling glass. Moreover, Heineken could try to diversify their offer and push to develop new low carb (low calories) beers in order to meet the needs of all the customers.

Competitive Advantage: A competitive advantage is a condition in which a company has some strength - compared to the rivals - that let it: serve the customers better and realize higher margins. Concerning the competitive advantage for Heineken we are focusing on some drivers that the firm adopted in order to perform well in most segments. Heineken has core competencies that allow the company to perform well in most segments by impacting positively on the different key success factors.

Cost advantage: Even though the company is using a premium price strategy, it is able to offer a product or service similar to the one of the main competitors in terms of features and performances but at a lower price. This is possible by reducing costs compared to their rivals. It is necessary that the company costs are lower than any other competitors; otherwise competitors will be able to reduce prices, gaining customers. Heineken does just this within the premium beer market. Although they market themselves as a premium product, Heineken is able to use this strategy to better position themselves against other beer brands that also market themselves as a premium quality beer.

Product and process innovation: Heineken will invest €50 million in Italy for the next three years for the creation of a new production line. The investments aim to enhance technical, security and environmental improvements. In order to foster these sustainable practices, the company has invested €25 million in the last five years. Sustainability-related processes will be getting funds in the form

6 of €11 million investment for security, €7 million investment to enhance productive efficiency and €3 more million for environmental protection. The new production line will cost €15 million: a big portion of the production will be shipped abroad and towards their new Chinese breweries. They will be making a competitive product, leveraging their economies of scale to lower the price without sacrificing the quality.

When it comes to innovation, Heineken’s leading Italian brand has truly stood out. Birra Moretti has experienced resounding success in Italy and has become the leading brand of Heineken Italia spa. Birra Moretti capitalizes on the differences between regions in Italy by differentiating its flavors by region. Depending on the region, the recipe for the beer will change in order to include regional ingredients. As of now there are 4 regional beers brewed from regional ingredients in Friuli, , and Piedmont (IlSole24Ore, 2015). This constant investment into product and process innovation allows Heineken to retain their competitive advantage by exploring different possibilities for products that better meet their consumer needs

Technological innovation: In order to keep their competitive advantage, Heineken keeps their thumb on the pulse of technological innovation. They are quick to update and invest in new machinery for their breweries and packaging plants to ensure that they optimize their production. One example where they have successfully utilized new innovations is in the Massafra packaging plant in South Italy. After the opening of the new establishment in Massafra, Heineken created a new packaging line called “Combi 4”. This new line allows the company to produce packaging with more flexibility and automation, which allows the plant to produce and fill more bottles of beer faster. In fact, the implementation of this new packaging line increased production in this facility from 300.000 hl to 2 million hl of beer per year.

Among the most innovative elements in the establishment we can find a “filling machine”, completely automated, which allows to fill all the different types of bottles only by changing the software’s parameters. Furthermore, the machine is linked to 3 robots with the function of palletizing/depalletizing of the crates. With only 200 employees, the Massafra establishment works on several brands of the Heineken group and manages to be one of the most efficient plants for Heineken. The institution of technological innovations such as the ones they implemented in Massafra allows Heineken to create a better quality product for their customers while lowering their costs. This helps Heineken realize higher margins and contributes to their financial success.

Strong brand identity: Sustainable growth requires that the firm acts according to their values of respect and passion. These values guide how Heineken works and conducts their business each and every day. The firm works with “personal integrity”, commercial identity and company identity in order to ensure the preservation of their good reputation and the capability to operate in confidence with all the stakeholders. They operate showing their respect for people and for the society (The Heineken Company, 2017).

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Key partnerships: In order to boost the international marketing, Heineken has sponsored a lot of entertainments activities all around the world. For example, Heineken is a major sponsor of tennis championships such as “Wimbledon” and is an official partner of the “Uefa Champions League“, the world's most prestigious club football competition (The Heineken Company, 2017). Partnerships like these, benefit Heineken by helping them get their name out to potential consumers as well as reinforce their brand image. These partnerships contribute to their competitive advantage by not only helping to reinforce their brand image but by providing their loyal customers with unique experiences through these partnerships. For example, Heineken will provide their customers an opportunity to win free tickets to UEFA matches. This opportunity contributes to the ‘Heineken Experience’ and raises the brand image in the eyes of their target market.

2.2 Product system The products and related services offered: Heineken is active in the alcoholic beverage sector, more specifically in the brewing industry. The company’s product portfolio consists of more than 250 global premium beer brands. Next to that, the company offers a variety of innovative products, such as the The SUB, Heineken igNITE, Club Bottle and numerous other innovations.

The product’s features: Heineken’s products and brands are mostly (alcoholic) beverages. The products range from beers to ciders and alcohol-free beverages. The company is not active in e-commerce, which means it does not sell its products over the Internet. Heineken sells to retailers, who then sell to consumers. Heineken aims to be successful as the undisputed leader in the premium segment, through building their portfolio with premium branded products (The Heineken Company, 2017). With the premium brand comes the premium price Heineken charges for their products. Premium pricing is a pricing strategy that establishes a higher price than average. Heineken strongly promotes health and safety when it comes down to drinking responsible. This can be considered an intangible feature of their product, since they actively market their product with a campaign that promotes health and safety (The Heineken Company, N.D.).

2.3 Stakeholders system Heineken communicates and engages with stakeholders through reputation research, roundtables and ongoing stakeholder dialogue. In order to get the desired satisfaction and to be sustainable, the company should use the Stakeholders System for social consensus and has to balance the expectations of the different stakeholders. First, the main stakeholders of a firm have to be analyzed: the shareholders, suppliers, financial partners, labor unions, the employee, government and the local community. The company has to build strong relationships with each stakeholder, especially in the economic, environmental and social areas.

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Employee expectations: The employee expects job satisfaction (in terms of remuneration) and career development. The Heineken company journey begins and ends with 73,500 employees (FTE) in more than 70 countries who make every effort to brew a better world. In 2016, Heineken invited almost 70,000 employees from 78 operating companies to participate in a job satisfaction questionnaire. They accumulated a response rate of 86%.

Heineken is one of the most culturally diverse companies in the world, with 53 nationalities represented among their senior management. They also aim to build gender diversity, which currently is at 17%. The Heineken corporate culture promotes a stimulating work environment supported by a clear Code of Business Conduct and Employees’ and Human Rights policy, which guides the employees and their interactions with stakeholders.

The Employee Engagement Index score, which assesses the motivation, commitment and willingness of Heineken employees to apply discretionary effort, rose by 1% to 78%. This is 7% above the externally benchmarked norm and marks Heineken out as a high-performing organization in relation to engagement.

Government expectations: One of the most important goals of Heineken is to be a sustainable business by addressing issues, such as alcohol abuse or water consumption. The company has met with the European Transport Safety Council, FIA and EuroCare to discuss the “When You Drink, Never Drive” campaign. This was to raise awareness on drunk driving. Heineken leads to fight against alcohol abuse and environmental issues as well as contributing to the local economy.

Supplier’s expectations: Heineken never stops working with their suppliers to reduce emissions in the design and production of their packaging. For example, Heineken and one of their most important suppliers, Ardagh Glass Moerdijk, created a lighter 330ml Heineken brand bottle, which they introduced in the Netherlands in 2015.

Throughout 2015, they significantly increased the number of suppliers signing their Supplier Code to more than 60,000. Since the start of the rollout in 2011, more than 2,000 suppliers have been invited to join the EcoVadis sustainability-monitoring platform identifying areas for improvement.

Investor expectations: The investors of Heineken can find all the information they need in order to perfectly know the company at http://www.theheinekencompany.com/investors. First of all, the performance of Heineken does not stop growing. Since 2012, Heineken’s revenue increased by €2,410 million.

Per share of €1.60:

9 The cash flow from operating activities grows annually. In 2013 the cash flow per share of €1.60 was 5.07, to finally be at 6.53 in 2016. The dividend proposed by Heineken is 1.34 in 2016. The dividend percentage payout was about 36.4%. • Market capitalization of Heineken: €44.9 billion • Shares outstanding: 569,683,655

The current price of the share (HEIA:NA AMSTERDAM) is now at €85,10 with a growth rate of 0.37%. Dividends are paid in the form of an interim dividend and a final dividend. The interim dividend is fixed at 40% of the total dividend of the previous year. Annual dividend proposals will remain subject to shareholder approval.

Consumer: Heineken tries to engage consumers on responsible drinking with their brand campaigns. On 16 September 2016, they held the second annual HEINEKEN Enjoy Responsibly Day, as part of the Global Beer Responsibility Day. The day aims to shine a spotlight on responsible consumption activities across the business, through partnerships, brand campaigns and innovations. In total, 62 markets participated, engaging 25,000 employees, 50,000 retailers, 39 NGOs and thousands of consumers through #EnjoyResponsibly. They see their consumers who embrace a moderate and healthy lifestyle and they keep working on innovating for fight against alcoholism.

NGOs and Internationals organizations: Meeting with big NGOS such as Greenpeace, WWF, World resources institute, Action Aid and Care. Discussions about renewable energy, responsible tax, packaging, human rights and transparency in reporting are held.

2.4 Structure This subchapter will give an answer to the question of what activities Heineken runs for them to have distinctive competences and achieve the competitive advantage in the brewing industry. This all can be achieved by having a good structure that is based on primary activities and support activities.

Primary activities: This part is regarding the primary activities Heineken is running to product realization, sales, transfer to the customer and after-sale service. The company sets goals, which they call “business priorities”. These goals are mainly focused on their products and how to achieve desired success in the market. A couple of their business priorities that translate into primary activities are (The Heineken Company, N.D.): • Shaping the cider category. • Leading by cool marketing and innovation. • Winning in the premium segment.

10 Support activities: This part is regarding the support activities Heineken is running to supplying materials, technology, human resources and general services. As mentioned before, the company has business priorities. A couple of their business priorities that translate into support activities are (The Heineken Company, N.D.): • Being commercially assertive. • Brewing a Better World (Heineken’s approach to sustainable brewing).

2.5 Prospects offered Heineken’s mission is clear: they aim for sustainable growth as a broad market leader and they aim for segment leadership. In both cases the brand plays an important role. Heineken wants to establish broad leadership by acquiring strong brand, which is combined into a new, larger company. Their business mission is guided by the following three core principles: strong brand portfolio, strong local market position, corporate social responsibility with regard to policies on alcohol abuse and social and environmental issues. The company’s mission is supported by strong values, which makes Heineken unique and competitive. First of all, enjoyment of life is what Heineken stands for. Consumers fully enjoy Heineken’s products, they sponsor music, art, sports and other events bringing people together to enjoy themselves. Respect is the second pillar of the company. In fact, they respect individuals, the society and the environment by promoting responsible alcohol consumption and by embracing diversity. Last but not least, passion for quality drives the company. They are passionate about what they are doing and how they are doing it. They are committed to make Heineken a great place to work and invest in people working there.

One of the differential advantages the company has is its strong brand, which has earned them loyal customers. Heineken’s marketing and its long activity in the market have created this strong brand. Through smart marketing and positioning, Heineken has branded themselves and their products as a premium brand producing quality beer with an original and authentic formula descending from 1864. Another differential advantage is that Heineken is available everywhere around the world. If it is not with their beer, it will be under another brand that they have acquired in their product portfolio through brewery and brand acquisitions. Through acquisitions, Heineken has found itself active in every part of the world and that is how it has been keeping its market share high.

3. Analysis on a business unit The beer industry as a whole can be separated into two main strategic groups. The first strategic group being premium and sub-premium beer, which consists of major brewers primary product and functions on a more commercial level product, hold the vast majority of the beer industry's market share. The second strategy group is classified as higher quality beer and is therefore considered as premium and super-premium beer by the market. Premium and super-premium beers include a variety of companies with small market share, but due to the quality and unique characteristics are able to constitute a high retail price. Heineken operates under the first strategic group and is classified as a premium beer. This sector is high in

11 competition, but through a few distinct traits Heineken has been able to keep its prosperity and market share.

One distinct trait being Heinekens strong advertising investments in product awareness advertising and sponsorships. Through the building a holistic marketing strategy around the themes of interaction exposure engagement and relationships and in combination with traditional thematic marketing communications channels such as TV spots and activation channels, such as The Champions League, The Rugby World Cup, Formula 1 and James Bond Spectre Heineken uses interactive ways to integrate its exact target group, males between the ages of 23-35. Heineken is also investing more in experiential activities locally, in a bid to bring its tagline to life and to get consumers engaging on a physical level with its brand message. It's doing this through events and festivals that include international food, music, art and entertainment.

4. Evaluation of the Entrepreneurial Formula at a Strategic Business Unit Level The Heineken Corporation is a multinational corporation, which has penetrated many different markets around the world. Each of these markets requires different strategies in order for Heineken to be successful within the different cultural, economic, and political environments. According to the information provided by Heineken’s 2016 Annual Report, Heineken has divided their operational basis between the following four categories: Europe, Americas, Asia Pacific, and the Rest of the World. In the following section, we will analyze Heineken’s Entrepreneurial Formula in each of these key markets from the perspective of a Strategic Business Unit.

Europe: Being the continent where Heineken Corporation first took roots as well as the source of nearly half their revenues, Europe is clearly the most important market in which Heineken operates. Here Heineken focuses of producing a top-quality beer for consumers in their 20’s and early 30’s. In order to differentiate themselves from their competitors Heineken has not only implemented the strategy of premium pricing but has created new and innovative ways to interact with their consumers. One instance of this can be seen through the production of igNITE bottles, an interactive beer bottle that lights up in response to different musical beats. So how has Heineken’s Strategy held up on both a competitive and profitability perspective?

Through a competitive perspective, Heineken has remained competitive within the European Market. As it stands Heineken has retained top positions in 3 key European Markets, the French, Italian and Dutch markets. Their market shares within these three markets goes as follows: 28% market share in the Italian beer industry, 32% market share in the French beer industry, and 38% market share in the Dutch beer industry (Euromonitor, 2015). With high market shares in these major industries, Heineken continued to be competitive in the market. They have also have created quite a brand loyalty surrounding their products. The fact that they have retained such high market shares within these countries shows that customers who have had their products have been satisfied and continue to consume Heineken products.

12 Through a profitability perspective, Heineken has been moderately profitable within the market. Between the years 2015 and 2016, the EBIT for Heineken’s operations in Europe rose by 5.15% (Heineken Annual Report, 2016). This growth in EBIT comes after another strong growth year for Heineken, in 2015 Heineken’s EBIT grew by 7.27% from its 2014 level (The Heineken Company, 2017). This consistent growth indicates that Heineken’s strategy in this area has consistently generated profit for the company. For the last four years, Heineken’s ROI has remained stable between the values of 7.72% and 8.50% (GuruFocus, 2016). While the lack of continuous growth in these numbers is concerning, the company manages to remain in range of the industry benchmark for ROI which is 8.75% (Investing.com, 2017). Clearly, Heineken has remained a profitable company within Europe and has successfully kept pace with the Industry as a whole. Considering both the profitability and the competitive perspectives, Heineken’s strategy would fall into the first quadrant, consistent competitive formula, at this SBU level.

America: The American market, including countries such as the United States, Canada, Mexico, etc., is arguably the second most important market to Heineken. According to their annual report, 24.3% of their total revenues come from this region of the world (Heineken Annual Report, 2016). Within this market, Heineken has put special emphasis on their premium portfolio strategy in order to promote their product lines. They’ve had their product lines associate themselves with a cause to create goodwill within the market, such as their campaign against gender violence in the US (Heineken Annual Report, 2016). How has this strategy performed within this region?

From the perspective of competition, Heineken has had some competitive success in certain markets while others could be improved. Within this region there are three key markets in which Heineken mainly does business, the United States, Mexico and Brazil. Heineken’s market share within these countries helps determine whether they are competitive in this industry. Their strongest market share within this region can be found in the Mexican beer market where their market share is 44% (Euromonitor, 2016). This strong performance whoever starts and ends within the borders of Mexico. According to the Market Realist, Heineken’s reported market share in the United States in 2015 was 27% lagging behind major competitors like AB InBev, MillerCoors, and Crown imports (Marketwatch, 2015). Last but not least Heineken reported that their market share within the Brazilian beer industry was only 10% in 2017 (Heineken Company, 2017). With such mixed results in different countries of this region, Heineken appears to be having mixed results with their strategy in the Americas.

From the perspective of profitability, Heineken has excelled within this market. One area where you can see their success is through the growth in their EBIT within this region. Heineken’s Regional Report shows a 11.5% growth in their EBIT between the years 2015 and 2016. They attribute this growth to the strong performance of Tecate within the United States and Mexico as well as the introduction of Amstel into the Mexican market (Heineken Annual Report 2016). Another inspiring figure is the Asset Turnover within this region. Heineken’s ratio for Asset Turnover has remained below the industry benchmark by .05, which means

13 that Heineken has utilized their assets to generate revenue better than their competitors (Investing.com, 2017). Furthermore, Heineken’s Asset Turnover ratio has steadily declined over the 9 years which signals that Heineken has improved their efficiency throughout the years. Considering both the profitability and the competitive perspectives, Heineken’s strategy would fall into the first quadrant, consistent competitive formula, at this SBU level overall. The only exception within this region would be in the U.S. where their strategy could be rated as an insistent competitive formula.

Asia Pacific: Being Heineken’s smallest market, the market in Asia Pacific holds the most potential for growth out of all the locations we have discussed thus far. This particular market makes up about 13.6% of Heineken’s current revenues, the lowest out of all their markets, but has shown tremendous growth in countries like Vietnam, Sri Lanka, and Malaysia (Heineken Annual Report, 2016). Within this market, Heineken has focused on investing in new breweries and entering new markets as well as promoting differentiating their products to better fit consumer needs. For example, their product portfolio within the Asia Pacific includes well-known brands such as Tiger as well as regional and local brands, which have been crucial for Heineken’s strategy in this market (Heineken Annual Report, 2016). How has their strategy paid-off in the long run?

Through the lens of competitive performance, Heineken has been performing well within this growing market. The three key markets in this region in which Heineken operates are Malaysia, Vietnam, and Cambodia. According to their own research on this region, Heineken has positioned themselves number 2 or 3 in Cambodia and Vietnam with a market share of 34% and 20% respectively. However, Heineken has managed to dominate the Malaysian market by acquiring a market share of 57% (Heineken Company, 2013). The strong consumer base that Heineken has developed within these developing markets has fortified their position and bolstered their economic success within the region. Of course customer satisfaction within this region is another important measure to determine the competitive success of Heineken in this region. According to the Popular Brand Index, Heineken was ranked number one overall popularity for Vietnam in 2016 (Popular Brand Index: Alcohol beer, 2016). This index calculates the popularity of the brand among consumers taking into account brand awareness, customer loyalty, and purchasability. Heineken outperformed all other competitors within this index scoring a 39.5, which far outranks the nearest competitor, who scored only a 13.8. Having a high score on this index shows that Heineken has been excelling within this particular market.

Through the lens of profitability performance, Heineken has experienced tremendous growth within these developing markets. Out of all of their markets, the Asian Pacific market has experienced the greatest rate of growth in EBIT with a gain of 32.1% from 2015 to 2016 (Heineken Annual Report, 2016).This growth has continued from a similar spike last year when their EBIT in the region grew by 27.6% in 2015 (Heineken Company, 2015). These numbers are fueled by the recent boost of sales of Heineken’s major products in the region such as Tiger and Bir Bintang (Heineken Annual Report, 2016). Another margin that

14 showcases the growing profitability in the region is their net margin ratio. For the past three years, their net margin has increased from 7.10% to 9.22% between 2014 and 2015 (Gurufocus, 2015). The growth of this margin signifies that this region is becoming more profitable year after year. Considering both the profitability and the competitive perspectives, Heineken’s strategy would fall into the first quadrant, consistent competitive formula, at this SBU level.

5. Evaluation of the need to innovate the entrepreneurial formula Regarding innovation in the beer sector, Heineken’s product is positioned in the customer's mind as a high quality premium beer. Apart from the actual quality of the beer, a big part of the brand image is that the beer has been produced since 1864. This creates brand value, because of being a classic product in the industry. Therefore, Heineken should not innovate its product regarding taste and looks. Overall, Heineken’s entrepreneurial strategy both on a firm level and on a SBU level puts them into the category of consistent competitive formula. Therefore, their business strategy is still performing well so it is not necessary to change it immediately.

However, Heineken should keep on innovating its marketing activities in order to increase its awareness and grow as a brand. Heineken can do this by continuing to sponsor and stay involved with events that are aimed at their target group. Furthermore, they should create their own events that reflect their image and culture, which will strengthen its interaction with the end consumer. By continuing to innovate, they can ensure that their strategy remains current and to keep the company at the forefront of the industry.

6. Conclusion To conclude the analysis on Heineken’s current strategy, it can be stated that that Heineken’s competitive system, which is a strategy to retain a competitive advantage, is well structured. First of all, Heineken investments in company’s brands, premiumisation and innovation in Asia Pacific, has been showing successful results. Furthermore, Heineken has great insight in their target market, which makes it easy for them to fulfil the needs. The company invests (technological) innovations and in environmental issues, such as drinking restrictions and campaign. They work closely with governments to help increase awareness on these matters. In Italy, Heineken is the current leader with 28% of the market share. To keep this position in the brewing industry, Heineken has to make sure to be greater than its competitors. This is done through acquisitions of small breweries worldwide. Some of the key success factors that drive Heineken are: differentiation, marketing, premium quality, cost, customer experience. They also highly valuate creating a strong brand image and having and preserving premium quality. Heineken uses a premium product strategy to better position themselves against other brands that market themselves premium. Furthermore, the company makes a lot of investments for future growth. These investments are done in the following areas: products and (technological) innovation.

Heineken communicates and engages with stakeholders through reputation research, roundtables and ongoing stakeholder dialogue. In order to get the desired satisfaction and to

15 be sustainable, the company should use the Stakeholders System for social consensus and has to balance the expectations of the different stakeholders. The cash flow from operating activities grows annually. In 2013 the cash flow per share of €1.60 was 5.07, to finally be at 6.53 in 2016.

Heineken is engaged in multiple activities to have distinctive competences and achieve the competitive advantage in the brewing industry. These can be divided in primary activities and support activities. Shaping the cider category, leading by cool marketing and innovation and winning in the premium segment are considered primary activities. Being commercially assertive and brewing a Better World (Heineken’s approach to sustainable brewing) are the support activities.

Heineken’s goals are to strive sustainable growth as a broad market leader and becoming segment leader. Their business mission is guided by the following three core principles: strong brand portfolio, strong local market position, corporate social responsibility with regard to policies on alcohol abuse and social and environmental issues. Furthermore, their differential advantages include its strong brand, which has earned the company loyal customers, and Heineken’s global availability. Heineken operates under the premium and sub-premium beer strategic group, which consists of major brewers primary product and functions on a more commercial level product, hold the vast majority of the beer industry's market share. This sector is highly competitive, but Heineken has been able to keep its market share and position through strong advertising investments in product awareness advertising, sponsorships and investments in local experiential activities.

From the perspective of a Strategic Business Unit, Heineken’s Entrepreneurial Formula has been analyzed in the key markets the company operates in, which are: Europe, Americas, Asia Pacific, and the Rest of the World. Starting off with Europe, their most important market. Here, Heineken has the highest market share, which is how they continued to be competitive. Heineken has also created a strong brand loyalty and this all paid off in revenues and profitability. Next is the American market, which is the second most important market. Here, Heineken has had some competitive success in certain markets while others could be improved. Furthermore, the strongest market share can be found in the Mexican beer market, with a market share of 44%. Overall, the company has seen great success from operating in America, as sales, profitability and revenues have been outstanding and sti growing. When it comes down to Asia Pacific, it is the smallest market, but it holds the most potential for growth. The company has been performing well, slowly but surely creating brand and customer loyalty in this region.

As far as innovation of the entrepreneurial formula goes, the company should not innovate its product regarding taste and looks, because of the brand image they created over the years of the authentic beer that has been produced since 1864. However, Heineken should keep on innovating its marketing activities in order for it to grow as a brand.

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