what’s brewing seminar · 2020-02-25 · heineken what’s brewing seminar thursday, 7th november...
TRANSCRIPT
Transcript produced by Global Lingo
London – 020 7870 7100
www.global-lingo.com
What’s Brewing Seminar
Thursday, 7th November 2019
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 2
Federico Castillo Martinez: Good afternoon everybody and thank you very much for joining
us today in Amsterdam for our 14th What’s Brewing Seminar. Thank you very much for those
that have travelled to join us here physically and also to those who are listening to us remotely
via our webcast. I’m joined here today by Jan Derck van Karnebeek. The theme of our What's
Brewing Seminar is superior top line growth and I know that you will appreciate it and its
importance and its relevance at this moment in time. He will also be supported by some of his
team members. At the end of his presentation we will have space to take your questions and
with not any more ado, I leave you with Jan Derck van Karnebeek.
Jan Derck van Karnebeek: Federico, thank you. Welcome everybody, good to have you here.
I will do the customary apology for the Amsterdam weather but we will be inside all afternoon
so you should be fine. Let me see if I get the right button: yeah, the customary disclaimer.
We will talk to you about our ambitions; we will give you our vision. What we’re not doing in
this session is making commitments or forward projections. But I think you'll be familiar with
that.
A little bit about myself: I'm a Heineken lifer. I've been with this company since I started to
work. I've done various functions in the commercial arena; I've managed operations in Central
and Eastern Europe. I've been president of our East European region; and the last four years
I've headed up our commercial function responsible for top line growth. That remit covers
marketing, it covers sales, it covers innovation, it covers our digital agenda. So pretty broad
scope. And after 26 years in case you were wondering, I'm still having a lot of fun, and probably
even more fun today than ever before because in our 150-year-old company, there's probably
more change than we have seen in the last 50 years. We’ll talk about that in the presentation.
But also, in the beer industry, very traditional, it’s been around for a long time, this is a time
of massive change. And that’s what makes it exciting to all of us and to me personally as well.
That’s enough about me: I've got a picture of another guy. Now, I'm taking a bit of a risk here,
I realise that. Can I see hands of how many Englishmen or Englishwomen do we have here in
this room? So this is a bit fraught, because you realise this picture is from the locker room
after the final South Africa – England. Fantastic feelings for the South Africans here in this
room; little bit less of the English, but this picture so well epitomises what the Heineken brand
should be about. This is about us connecting people and connections are at the core of our
business. We’ll get back to that later on. In a digital age, especially relevant. We’re about
connections.
And importantly, this is hugely aspirational. What the Heineken should be as well. So I could
not resist sharing this picture with you at the start of the presentation.
Now, what are we going to talk about today? Indeed. Top line growth. Do we deliver superior
top line growth, how do we deliver top line growth, and is it credible that we will continue this
trend. Do we have the fuel to continue from where we are today? That’s it.
Let me start with the top line growth we are delivering today because that grounds the
conversation and the facts. This is our track record over the last three years on delivering on
the top line, compared to our brewer competitors, but also compared to a wider set of
competition in the staples industry. And I think the picture speaks for itself. You see us fairly
consistently outperforming both our brewing peers but also the wider staples industry. What
is also nice to share is a bit of a time perspective. This is our organic growth seen over a longer
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 3
time period. You see here two time periods: 2008-13 and 13-18, and you see us actually
accelerating our organic growth quite significantly. What you also see is a changing profile of
the Heineken company from being mostly a developed market company to a quite balanced
company between developing and developed.
And if you look at the numbers and you see the acceleration of growth, what is missing here is
an FX – FOREX effect of about €3 billion I think it is, Federico, of revenues we've lost through
for exchanges. So without that, the bar would have been significantly higher. How has that
been possible? A lot of that does have to do with some pretty sizeable deals we've done in the
last few years. You see there some of the bigger ones where you see especially FEMSA, APB,
Brasil Kirin, and the last one, CRB, give us significant exposure to new growth markets and
growth platforms. For china specifically, the growth we see, not so much the beer market
overall, but the premium segment, that’s where it’s at.
If you look at the total beer market worldwide, total beer growth as forecasted by global data
is only about 1%. Not huge. But there's two important things to understand about the growth
of world beer: it is not evenly distributed. So there are two pockets or sources of growth that
are more important than the others. The first is developing markets compared to developed
markets, but also very important to understand the development of the premium segment
compared to beer as a whole. So both developing markets and the premium segment set to
outgrow the world average in beer.
The nice thing is, Heineken is over-exposed to both. So strongly exposed to developing
markets – this is by volume, previous slide was revenue – this is volume – and obviously very
strongly exposed to premium beer. I see everybody very diligently taking notes. You're also
allowed to ask questions in the middle of the presentation, not to make it too boring. Everybody
okay with that? Good.
That’s very shortly our track record in growth. Now we move to how we get the growth which
I think is probably the more interesting story, and I'm going to start by giving you a very
simplified view on what our growth model is. How do we deliver this growth? It starts
fundamentally by getting the trends. Getting the big consumer trends out there which allow us
to accelerate. You surf those waves, you grow. You Miss those weaves, you fail. It’s as simple
as that.
There are a lot of big consumer trends out there. I'm just going to highlight the three biggest
ones which we think make a meaningful difference for beer. First of us – all of us – first of all,
all of us are leading increasingly digital lives. And you hear me saying not just digitalisation,
but it’s digital lives. Look in front of us here: half of you are watching me; the other half of you
are watching your screens. My children, it’s even worse. They're watching their screens 90%
of the time. But getting the fact that people live digital lives and that their connections therefore
are increasingly made through digital means is crucial in understanding where our business will
head next. If we’re about connections and people are connecting digital, this is for us, crucial
to master. First very big trend. The second big one: health and wellness. And this is
multifaceted as well. there's an element here of alcohol moderation which, on the one side you
can argue is a threat to our business. On the other side, we very clearly see it as an opportunity
because beer, contrary to other alcohol categories, has a remit to compete and win in
non-alcoholic beverages. So we see opportunity here.
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 4
Health and wellness also has another aspect because people are looking for natural products.
The beauty here is beer’s brewed. Now this comes from a brewer, but it’s fundamentally
different from manufacturing something: it makes it more natural and it gives people the feeling
it is natural. Very important in our right to compete and win.
And the third, the big sugar debate, where the good thing is also their beer wins compared to
a few other categories. The third big trend we see out there – yeah. Go ahead.
Speaker: [Inaudible] health and wellness trend you can mention that beer’s a natural product.
But aren’t the other alcoholic products also natural? Where do you see that [Inaudible]?
Jan Derck van Karnebeek: Depends who you want to compete with. In this particular case
I was looking more to competition with soft drinks and the like which is a big source of volume.
We’ll get back to it later. So, I see that more towards the soft drinks.
Third big trend is, in the past, both consumers but also manufacturers operated very much in
gardens; in categories. Your beer or your wine or your soft drinks, and these things are distinct.
This is beginning to blur very rapidly where these borders are increasingly meaningless for both
consumers but also for us. And this is crucially important that the ability to operate across
categories is much more strongly there than it would have been ten years ago. Three very big
trends.
Then we see five fundamental sources of growth which we can access to grow our business.
The first is obvious, is per capita consumption. Still with us, opportunity today, opportunity
tomorrow. Not everywhere: in certain geographies. Second: new market entries. Big profit
pools where we’re simply not present. Third: not completely coincidentally, in the middle,
premiumisation. We see a massive opportunity still in making people drink better at a slightly
higher price. That’s probably the biggest opportunity.
Then we see a possibility into adjacent beverage categories, which we just discussed. And
lastly, driven through digital lives and digitalisation, also the ability to expand into adjacent
business models. Different parts of the value chain.
Now those are the five sources of growth we see, and then on the how of the growth,
fundamentally, our model is around doing something around one particular geography, learning
from that, learning what you can reapply, how you can reapply it, and then scaling it at speed
into other geographies. That’s the advantage of having a decentralised business with lots of
local opportunity to experiment, do, learn, share, reapply.
Ed: [Inaudible] what would you say has changed?
Jan Derck van Karnebeek: In this whole model –
Ed: From the first model, yes.
Federico Castillo Martinez: You probably have to repeat the questions because the questions
cannot be heard in the webcast, or we can wait till the end so that then we can circulate the
microphone.
Jan Derck van Karnebeek: That was Federico’s helpful way of saying you're not allowed to
ask questions. I will repeat the question, I will answer the question. The question was, on the
slide you see now, what has meaningfully changed. Correct, Ed? The trends at the top first of
all. Those weren’t there in this force five years ago. That also means that the last two sources
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 5
of growth are also new to us – last two out of the five. In our own way of working I would
argue we've got much stronger at this do, learn, and reapply at scale and speed. This is
something where we really accelerated, and I think we’re best in class. And then to answer the
last part of your question I think there's also a very important thing here about being both
global and local at the same time; in the same market at the same time. And this people find
really hard, because in their minds these are two opposing thoughts. Right? You're either
global or you're local but you can’t be both. The whole point is to be both, and to do that well
at the same time in the same place, that is a key part of the way we grow. And I'm going to
illustrate it with some cases later on. That crucial. And to answer your question I think we've
also got better at that last thing: being global and local at the same time.
This is very simplified our growth model. And I spent a lot of time on that slide; I realise it,
but you should see these themes recur as we cycle through the rest of the presentation.
I'm going to talk first a little bit about our footprint. This is the world, and this is where we are
in the world. And it’s split into three big buckets, where we have what we call ‘operating
companies’, our own feet on the ground; where we have joint ventures – usually quite big
operations in which we do not have a controlling interest; and lastly licensed. And you do not
need to be an astute observer of geography to realise we’re in most of the places that matter,
and we’re certainly in the places with lots of people and potentially lots of upside through
different models.
A pretty impressive footprint, and the important thing to realise around the footprint is the
footprint is advantaged in terms of growth. If we stay where we are today and we maintain
our share, we will simply outgrow the world average in beer, simply because we’re in the right
geographies. It’s as simple as that. So we’re skewed towards growth markets.
So, I’ll talk a little bit about new market entry, second plank of growth. This is again a world
map with some of the new market entries we've done over the last few years. Here you see I
think Heineken at its best where we use a composite of strategies to enter new markets. In
some cases, we’ll actually do a greenfield: there will be nothing there. We will start with a
permit and we will build a brewery. Some cases we will buy a small operation; some cases
we’ll do a very big deal with a local player in partnership. Different strategies for different
markets but it has allowed us to access new markets, quite a lot of them in the last few years.
And this is a source of growth, certainly also for positions which until that point in time were
not contested, be it the total market, be it the premium segment.
For illustration we've also put up here the Ethiopia case because it’s sort of again a practice
we've learned which we’re now reapplying. What did we do in Ethiopia? We at the core of our
business understand that our business depends on scale, and brands both. So you need scale
the mainstream in order to get through to market in order to have enough sales force coverage.
You need brands. So we created a brand, Walia. On top of that we’re now marketing the
Heineken brand, the Sophie[?] and a fuller portfolio. We’re replicating the same approach into
Myanmar, which is Bawdar; into the ivory Coast, with Ivoire; into Mozambique with Txilar –
struggling to pronounce it – and into Colombia with Andina. Basically, always the same pattern.
Now I move to premiumisation which as I said is probably the single biggest driver of growth
in the model and we’re going to spend therefore a bit more time on this particular driver. First
interesting thing around beer premiumisation is, once you go premium, you never go back in a
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 6
market. What we've seen which I think is quite compelling, is that premium continues to grow,
also in times of economic headwind. So contrary to what people would think it is not as if in
times of recession premium suffers more than beer on average: in fact, it does quite well. Now
we can theorise about that a bit, that people put off their bigger expenses and afford themselves
ten minutes of luxury as a beer, whatever it is, but premium also does well in recessions. This
is the first point. Why is that? Because underneath the growth of premium are some very big
forces at play.
The first big force is urbanisation. As people move to cities, premium becomes more accessible,
more interesting. Big driver. Second big driver is obviously the growth of the middle class
worldwide. And as long as these two things keep marching in the same direction, premium
beer will continue to grow. And it’s not done. We think there's a lot more upside in premium.
First, also maybe good to highlight, premium is not just a game for developed markets.
Premium is as relevant if not more so, in developing markets. So you don’t have to get rich
first as a country in order for premium to grow. You see it in the growth rates behind me and
you see the upside there is in developing markets for premium.
Second, I have anecdotally put a few markets up here where we see some big growth
opportunities, but it’s anecdotally because the growth is everywhere. But they're interesting
to discuss. Mexico, because premium at the moment is only 5% of our business; very big
upside. UK, interestingly, you would think a very developed beer market. If you see the growth
of premium compared to average beer, very impressive.
South Africa I don’t think I need to tell you much about but huge motive for premium growth
and China, quite obviously, the total market is not showing a lot of growth, but you zoom in,
into the market: premium has very good upside for growth still.
How do we do this? We’re not a one brand company. We go into Heineken but we believe that
winning at premium is a portfolio game, and the portfolio game includes a global brand called
Heineken; it includes what we call international brands which have a remit to operate in more
than one market but are not global; and in many cases very local brands. You see a mix of
these brands up here and we play that full piano everywhere where we access premium
according to the opportunity. Global, international or local. All three strategies are right
provided that they deliver.
Now, let’s talk Heineken a little bit. Heineken at the moment is getting very close to being a
€5 billion revenue brand. That’s big. And I would argue that there are not that many brands
of that size out there today growing at 7% a year. So, this is very big brand growing at very
high speed. Because it’s one thing to get something of a few hundred thousand equity just to
grow 7%, it’s quite something else to get something which is €5 billion revenue to grow at 7%.
So here we’re onto a good thing and we seem to have really cracked the growth algorithm. I'm
going to say a few things about it. Also, there for illustration purposes a few geographies to
talk about.
Sub-Saharan Africa, nice uptick. Right? What's at play there? Two things. First of all, the
way we've developed the brand through global sponsorships make it have a ‘green shadow’ we
call it around the world which is sometimes ahead of its distribution. We’re already in the minds
of people everywhere even if the product is not. And importantly what we've done in
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 7
Sub-Saharan Africa is to make sure that we get premium also accessible to the average moment
of consumption.
And now some of you are going to light up and say, ‘Wait, wait, wait; this was about premium.
It cannot be average.’ The important thing to understand about premium beer is you want to
always be 100% premium in quality; you want to be premium priced; and you want to have
outstanding communication and activation. No buts and whys, right? That does not mean that
normal people do not have a right to drink you. And that will not mean that you cannot be
widely distributed. So here the thing to understand is, be premium in price, be premium in
quality, be premium in your communication, but be accessible to all. And the big uptick in
Africa is around that. And there's lessons there way beyond Africa: that is what drives growth
in premium, getting that right.
Brazil, I think you'll be aware of the fundamentals and the growth we’re showing there. We
see no reason why that can’t continue. Also there it’s around making sure you make a premium
product accessible. The game in Brazil is still about gaining distribution and expanding into
pack types where we are not yet at fair share. And there's there also a lot of upside for growth.
China, on the left you see the distribution we had in our own system; on the right you see the
distribution universe CRB has. Now if you take what I just said about making premium products
available more broadly, you could imagine that there's opportunity here; big opportunity. These
are just three geographies and I'm happy to have with me today, Gianluca, the senior director
of the Heineken brand. Gianluca, may be nice to say a bit about the other geographies as well.
Gianluca Di Tondo: Yeah. Good afternoon. The growth is way beyond this geography; the
brand is currently growing in 65% of our market. In 50% of the market, is growing above 5%,
and in 38% of the market is growing double digit. So is very solid growth and the growth is
spread across geographies, so is developing market but is also developed market. In UK we
are growing 8.9%. That is quite an achievement.
And also the beauty is we are growing in big market and we are growing also in smaller market,
so it’s not the head only but it’s also the tail of our market that are growing, that is also a very
good signal for the future growth of the brand.
Jan Derck van Karnebeek: And in case you have very intelligent questions about the
Heineken brand later today, Gianluca is the man. Hey, here’s the first one.
Speaker: Is Heineken brand fixable in the United States?
Gianluca Di Tondo: This is the question.
Jan Derck van Karnebeek: You have to repeat the question. You have to repeat the question.
Gianluca Di Tondo: Sorry. The question is, is the Heineken brand fixable in the United States.
I give you my personal answer: I believe yes. For what Jan Derck was saying at the beginning
I think we are start seeing new consumer popping up also in the US, and new trend. If you
look at the beginning of the journey of Heineken Zero, it is I would say more than promising.
It is a complete new relationship with the consumer in a category that was not existing and is
getting a lot of traction. So I am very positive. It’s going to be easy? No. But I think there is
an opportunity to do.
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 8
Jan Derck van Karnebeek: And we have some factual evidence beneath that [Inaudible] so
we see better trends. Also, important, because not everybody realises that: what is the biggest
market for the Heineken brand today? What do you think?
I heard the right answer. The answer is Brazil. So the received wisdom always is that the
Heineken brand is very dependent on the USA. That’s less and less the case. Brazil is now our
biggest market and that growth rate of 7% up there includes the US. So in the total momentum
of the Heineken brand we’re in a good space and as we discussed also, we see that the launch
of Heineken 0.0 in the US is getting traction and reflects very positively on the mother brand.
So we’re fairly confident.
Important thing about this slide is also to look at the bottom, all the nice pictures. These are
our global sponsorships. So we have the Champions League Worldwide; Formula 1; World Cup
Rugby; new James Bond movie coming out. This is an essential part of our growth model
because only the Heineken brand – and I repeat, only the Heineken brand – has the distribution
and availability to invest in these properties and actually monetise the results. Because these
properties are watched around the world. You pay for the whole world. The point is you have
to be available in the whole world to make money from them, and the Heineken brand is. So
this for us is a virtuous circle whereas we become more available we can afford these properties
and they drive our results. Very much at the core of our growth model.
We’re going to make a little jump here. This illustrates also what I said also about being global
and local at the same time. Same company, same guy presenting you, arguing that for the
Heineken brand, we are unapologetic. It is one quality, one design, one set of brand assets
around the world. No buts and whys. And then the same guy says for the Amstel brand, I’ll
give it to you in whatever taste you want, whatever labelling you want, with whatever comms
you want. Both of these things are true at the same time: it just depends on which consumer
you're talking to. And the art we have mastered is to have these two contradictory things in
mind at the same time, execute them in parallel, and neither or or nor. Does that make sense?
Which brings us to a first little video I think which gives you a feeling for how we localise the
Amstel brand. Do I click for the video or – video please.
[VIDEO]
– in play. Our other international brands. You know these brands. I'm not going to talk in
detail about the brands but I’ll give you a bit of a flavour of how we do, learn, share and
reapply. So let’s take Desperados. What have we learned around Desperados? Desperados
makes beer just a little bit more edgy. Desperados is sweet and Desperados hits that party
moment. Very successful for us in Europe. What's the obvious geography to go to next? I
see you're smiling. It’s – no, it’s Africa. Sub-Saharan Africa. Bit edgy, mixing beer and spirits,
bit sweet, and a party. And we see very good first traction that this works very well for Africa.
Maybe counterintuitive but you have to understand the algorithm of growth beneath it, because
in Vietnam, the idea of mixing stuff, for Asia, is still a little bit alien. Strange. Africa, that goes
down very easily. Birra Moretti. Where does that travel? I see you're thinking.
Speaker: [inaudible]
Jan Derck van Karnebeek: Sorry?
Speaker: [inaudible]
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 9
Jan Derck van Karnebeek: It probably will. Not yet, but it’s a good point. It tends to follow
wherever Italian kitchen cuisine has an outsized reputation. In fact, that’s a lot of the world.
It follows the footprint of where Italy conveys quality and authenticity. So, expect us to follow
that footprint.
Tiger. This is the hardest one. If you look at the label you think this is Asia, right? And if you
go a bit deeper you think it’s about tigers. Where’s the place where we’re getting nice traction
with Tiger? Nigeria. Ever seen tigers in Nigeria?
Speaker: Not recently.
Jan Derck van Karnebeek: Not recently, right. But the interesting thing to know about Tiger
is it’s about the positioning. The positioning is around uncaged. Uncage your courage. It
appeals to young men who want to express themselves. Where does this resonate? Nigeria,
big time. So again, it’s about understanding the pattern of growth. And last, Sol is very much
around sessionability. Easy to drink; refreshing, not overly bitter. I do not need to explain you
where that goes.
So here again it’s not just understanding the brands, but it’s understanding what makes them
travel. And then reapplying them to the right place and not pushing them into places where
they don’t succeed. That’s the key art here.
Craft. Something you all have talked about a lot, debated a lot. The key thing to get with craft
is the economic model. Craft is beautiful for the beer category because it brings talkability back
into beer, it brings quality into beer, it brings differentiation. All of this is fantastic. But from
an economic model perspective if it isn’t scaled, it doesn’t really deliver. So this is about getting
scale into craft. There are three strategies to do so. One is, make the stuff travel. This is
something we actually know a bit about because the story of the Heineken brand is about
making beer travel. This is exactly what we plan to do with Lagunitas. The IPA segment if you
look at it across multiple geographies is a big segment. Make it travel. The second thing we’re
discovering is that craft does not need to equate small provided that you bring authenticity.
And there the best-case study is a brand called Ichnusa. I think there are one or two Italians
here in the room. Which is deeply authentic, right? If you look at the island[?] it stands for
authenticity, but you can scale it. It doesn’t need to be small to be authentic. So scale and
authenticity, the second game.
The third game is extending scaled brands. That also is a source of meaningful growth and
profit. We've done it on Żywiec, Trombrond[?], Cruzcampo, Moretti, Gösser, you name it.
Craft.
Now we move to the –
Speaker: On craft, how much is authenticity linked to local brewer?
Jan Derck van Karnebeek: It is –
Federico Castillo Martinez: Can you repeat –
Jan Derck van Karnebeek: Sorry? Oh, thank you, Federico. How much is authenticity linked
to local production? The answer is it can be important. Can be. Not always. If you position
something on Sardinia, probably wise to produce it in Sardinia, right? Because important thing
also here is to be true. Don’t bullshit. If you look at for example Lagunitas, Lagunitas is around
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 10
an experience, around dry hopping – does not need to be produced only in Petaluma California.
We now produce it in the Netherlands and Brazil. And this is not contrary to the brand DNA
because the brand DNA is not about being produced in Petaluma; it is about being Lagunitas.
So the answer is, it depends. But be truthful. That’s the one thing you can never mess with.
Okay for that?
We move onto the adjacent categories. Up here you see a slide of beverage categories. Left
to right, how close to beer is it, and top to bottom, the levels of growth we see. You see in
dark green the categories which are key to our business which we have always been in or which
we’re in at the moment and which we have a strong right to win. The light green chunks are
businesses we think we can actually access, and these are sources of volume for us. We’re
strongly convinced we have a right to compete for the consumers in these categories. This is
true of wine, with cider or beer mixes. It is true of energy drinks because energy drinks give
you a boost but are not completely natural. We see opportunity. It is true of iced tea and
coffee, true of carbonated soft drinks where we think we have a right to win because we’re
more adult, we’re more natural – in fact we are natural, and lastly, we’re low in sugars. And
we even think we can take a slice of waters especially in the on trade. So increasingly we think
of our business as competing in a wider beverage landscape and competing for volume beyond
our core categories.
This also means as a company we’re moving from being a one-category company to being a
multi-category company, because winning in non-alcoholic is not the same as winning in beer.
And this is important.
Speaker: [Inaudible].
Jan Derck van Karnebeek: The question was around what do we think about hard seltzers.
Let’s first contextualise designs. It is 1% of beer now about. It is about 10% of craft beer in
the US. So we also have to realise it’s a lot of noise about still a fairly limited volume. That
does not mean it’s irrelevant, because what is beneath hard seltzers if you look at it, it’s health
and wellness again. Because it’s basically stripping the calories and the carbohydrates out of a
low ABV beverage. Certain to be successful in the US. Whether it is successful beyond the US
we still have to see. Remember the first growth of light beers never really made it beyond US
shores. So the jury is still out. I think it would be wrong to ignore it, but we also should not
make the mistake of thinking this has changed the world yesterday. It hasn’t yet. Adrian.
Speaker: Just from the previous slide, are you saying that you are [inaudible]
Jan Derck van Karnebeek: Thank you for that question. The question Adrian asked is, are
you moving from a mono-category company to a multi-category company? And the answer is
yes.
Speaker: [Inaudible].
Jan Derck van Karnebeek: Yeah. That’s why –
Speaker: [Inaudible].
Jan Derck van Karnebeek: Ah but that’s exactly – that’s why it’s a good question and why
we’re going to spend a bit of time to articulate my response. I see sources of volume coming
from wine, coming from carbonated soft drinks. That does not mean we will participate in wine
or carbonated soft drinks ourselves tomorrow. We just think we can get the volume using our
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 11
existing brands and assets in beer, near beer and ciders. So there's an important thing to
understand here: you can access volume beyond your core volume if you understand these
adjacencies. It does not equate buying a wine company. We can take a lot of that volume by
doing cider well.
In carbonated soft drinks it does not mean we’re going to start making soft drinks ourselves
tomorrow: it means that we think Heineken 00 can take a sizeable chunk of adult soft drinks.
Am I being more clear then? And it’s an important question then because implicit in your
question is you need to be very clear on what is your right to win as a company.
Speaker: [Inaudible].
Jan Derck van Karnebeek: Exactly. So if you look at what gives us a right to win in our
volume, it’s our brands, our route to market strength, our R&D capabilities, and our Sales Force
coverage. If I cannot bear these things to leverage in this game, I'm not going to do it. So
we’re always looking for leverage and for a right to win when we access these opportunities.
So we access them from the dark green bubbles but the source of volume is in the light green
chunks. Am I being articulate and clear enough then? And it’s a very important question
because if you were to go too far too fast in this, you'd just lose focus.
On the other side – again this is idea of keeping two things in mind at the same time, the source
of volume is there, but use your brands, use your assets to access it. Thank you.
Speaker: [Inaudible].
Jan Derck van Karnebeek: Another good question. The question was, if you access soft
drinks you must price at soft drinks in order to access it. What we've seen so far, not entirely
true. In fact, there's a big opportunity for example with Heineken 00 which we tend to line
price with Heineken original to still take meaningful share from soft drinks and waters. So
that’s fantastic because if you talk about premiumisation of an occasion, this is the ultimate
way to premiumise an occasion, right? What is true is that if you price zero alcohol beer
significantly above 5% beer, that’s wrong. Consumers rightly aren’t stupid so they don’t want
to pay a price premium, but they’ll pay parity or close to parity and that’s very, very meaningful
economically as I probably don’t have to explain you because the difference between
non-alcoholic beer and alcoholic beer is excise duty. And importantly we do believe there –
and I'm stealing a bit of thunder from later slides, is make sure we share these benefits. So
yes, there is more profit to non-alcoholic beer; make sure distributors and retailers get their
share of it, and that makes it into a meaningful economic engine.
First, cider. One of our core adjacent categories. What do we like so much about cider? Even
though it’s just a small part of our business. What we like about it fundamentally is it gives us
additional penetration. About 20% of alcohol drinkers just don’t drink beer. They don’t like
the taste of beer. Cider allows us to access half of those and we fundamental do so using the
assets we have, so this is very helpful especially on our return on assets because we have to
make almost no extra investments in order to access this additional penetration. We produce
cider in our existing breweries and then we drive it through our existing route to market
systems. The existing sales reps, fridges, own premise contracts. So it give you a lot of
leverage on the asset based you have to access consumers we did not have before. That’s why
we like cider.
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 12
Radlers. Radlers is beer with natural lemonade. Consumers love; we also love it. Why?
Because it’s a meaningful business. So worldwide about 13 million hectolitres. We have about
25% share in it. The world is growing by 5%, we’re growing by more than 8%. And there's
another interesting little lesson here, also very relevant to what we discuss later about
non-alcoholic beer. If you lead, you have an opportunity to maintain your lead so the whole
theory about first mover advantage in this case is actually true. If you look at the shares of
Gössa and Warka in the respective markets, I can assure you they are nowhere near the share
we have in Radlers. And these are sustained shares. This is not the first year. This is
after years of competitors trying to get this lunch back and not managing.
I also have with me today Ilaria, our director of Low or No, because there's also an interesting
non-alcoholic story behind Radlers. Radlers at their origin when we started were 2.5% alcohol.
But that’s changing.
Ilaria: Good afternoon everyone. So yes, as Jan Derck said, Radler is growing and is growing
single digit. We are selling Radler in more than 40 markets and we have more than 40 brands
with a line extension of Radler. Radler 00 is driving the growth, and actually Radler 00 with
double digit strong growth is actually one of our fastest growing segments. So why Radler 00
is an element for us? First of all because we can enter in new consumer occasions; in occasions
where we cannot enter with an alcoholic product even if the level of alcohol is quite low. So
with a 00 Radler, we can enter in occasion like office or like when people need to drive or after
sport. So it open ups a lot of new occasions for us.
The second reason is that Radler is a very low cannibalisation. And going back to what Jan
Derck said before, 70% of our Radler volume, 70%, are source from known beer categories.
Radler is natural, is refreshing, and is more sophisticated than most of the CSD in the market.
And then thanks to Radler 00 we can add variety to our 00 portfolio. So this is a way to make
our 00 beer portfolio even more exciting than it is today with only the 00 beer. And last but
not least already mentioned by Jan Derck is a 00 product, so we don’t need to pay the excise
duty. And this is also very good for our P&L.
Jan Derck van Karnebeek: Thank you very much Ilaria. Very clear. Now talk about first
mover advantage. The non-alcoholic beer category is not new. It has been in existence in
many markets for 25-30 years. Right? We still believe fundamentally we have first mover
advantage here not because the product category is new but because our approach to it is new.
We’re actually the first to really go for it. To unapologetically hit for a home run and to swing
a baseball bat. We’re spending 25% of our global brand spend on Heineken 00. This has never
been done before. So what does that do? It actually legitimises the product in the eyes of the
consumers. We’re making moderation cool; as simple as that. And we’re making sure that
people feel confident holding a Heineken 00 in public. Makes a huge difference.
Second thing, maybe I should have said it first, is around product. Make sure it tastes good.
Sounds very trivial: it is not. You need a winning taste in 00. This is an area of competitive
advantage. Third, what we said earlier: master the pricing and the value game. Don’t price it
up too far: price it close or align price with your original product and you access real volumes.
Why are we so passionate about this? Because we realise how big this opportunity is. More
than half the world does not drink alcohol at all. 92% of consumers if you ask them tell you
that they want to work on their health and wellness. Now whether what they tell you and what
they do is the same thing is a question mark, but at least they profess it. And Heineken 00
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 13
plays bullseye to this. And it importantly allows us to access occasions we weren’t accessing
before or occasions where beer has lapsed. Beer used to be very normal at lunch; last 25 years,
beer has lost its place at lunch. This is getting beer’s place back at lunch. So we’re passionate
about it. And recurring theme of today, we’ve learned to move at speed on this. So Heineken
00 did not exist three years ago: today we’re in 52 markets. And this within our beer category
is moving at speed. Real speed. And again, this is Heineken at its best because here we drive
a global concept. We’re unapologetic on how it looks, how we market it, what’s on the bottle.
Always the same. It’s up to the local operations to decide the timing and the approach, and
this is where it works together perfectly. And importantly, what you see on the right, we
complement it with a whole portfolio of extensions on our local brands. In fact, in 66 different
variants today.
And that’s an important thing. Because what that allows – there's a question back there. Sorry.
Speaker: I was just going to ask, on those local brand variants in the 00 format, you talk a lot
about the quality of the product on Heineken 00. Are you using similar sort of techniques in
terms of improving the quality on those other brands or – I'm just interested in the
manufacturing process, how it varies. How unique it is in terms of [inaudible].
Jan Derck van Karnebeek: So am I. I’ll repeat the question. The question was, Heineken
00 – that was the implicit question – is an outstanding product. Are you using that technology
for the other products as well, right? And it’s fun to talk about because this is about brewing
in a new age. The answer is yes. There is real product technology at the core of this because
what we do here is we take a beer, a full strength beer, and we de-alcoholise it using quite a
sophisticated centrifuging technology. Won’t go into details of it but we spin beer at thousands
of revolutions per second. That draws the heavier particles out, the lighter particles in, and
you suck the alcohol out. It’s a fantastic system. That technology we also use for other beers,
but we never, ever use the same recipe. So, every beer has to find its own space in
non-alcoholic beer, its own taste segment. And we believe that’s right because beer should
have a signature. So yes, quality matters for every one of them, no, we do not copy Heineken
00. Does that give you a clear answer?
The zero zone. Why does this matter? What we do here is we fundamentally, to answer your
earlier question, marketing into a different category here. This is a category paly; it’s no longer
a brand play. We’re driving a category. So what we do in 21 markets across Europe is offer
our retail partners a full category offer. Why does this matter? It matters to the retailer
obviously because it makes it nice and simple for the retailer. But more importantly for the
consumers what this does, it changes the decision-making process. If you see an isolated bottle
of Heineken 00, you're thinking, why should I buy this product? If you see it in a range of 00
offers, the question becomes, which one do I buy? And it’s a very subtle but important
difference. By creating that category you're getting people to that point where they're making
their choice within the range rather than choosing to go non-alcoholic. Crucially important.
That’s why we've seen that putting a zero zone into place drives the whole thing
disproportionately quickly.
And again this is a practice now replicated in Europe which we’re replicating beyond Europe as
we speak.
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 14
Speaker: [Inaudible] – sorry, just a question on pricing. A lot of categories that you’ve talked
about were where beer was once relevant and has lost relevance and is now taking it back. But
over time, as you go into new categories like sports, whatever, is there a thought process
around what the right price points might be? Just a bad example from the UK, I would drink a
lot more zero beer if it didn’t cost so much, in new occasions where I would have drunk a glass
of water before or whatever. How far can you push the category?
Jan Derck van Karnebeek: Well UK is a particular case in point because excise duties in the
UK are very high by global averages, so that you feel the pain more pronounced than other
people is factually true, because in the UK beer is very expensive. Fact. The world is bigger
than the UK so this extreme difference isn’t applicable everywhere. That’s why you hear me
being quite quick on my answer to say I don’t think we need to price down to the level of soft
drinks to access meaningful volume pools. And so far based on the evidence we have we think
that pricing at beer levels or close to beer gives us already massive scale provided – and I
repeat – that we’re willing to share the benefits also with our trade partners.
Finally, I get an opportunity to drink. It’s about time. On premise and Heineken 00. What
have we learned here? We have learned that if you make Heineken 00 visible your rate of sale
basically what is it, more than triples. Very simple dynamic. If you don’t see it you don’t order
it. If you see it, you order it. Right? And the nice thing is that this is so bloody easy to use
that for every bar or restaurant it’s actually a very limited effort. Not sure this is going to be
my perfect pour – not entirely – but it’s nicely refreshing, and it is 0% alcohol, so I can actually
have this in the middle of this presentation without losing credibility, right? Important. Here
too there's an element of scaling. You saw earlier the map of Heineken 00 in the world. Here
you see the map of Blade.
Blade is that machine up there which has the magic of making it visible in the on-premise, has
the magic of being able to control the quality, and thus makes on-premise 00 consumption a
real opportunity. This we scale very rapidly as well now into 25 markets. Best try button[?].
time for videos again. Question?
Speaker: [Inaudible] I have a question around the economics. So if excise duty you don’t
have to pay on 00 and you price roughly alongside beer, obviously the margin you make on 00
is higher. Implicit within that, are you happy to substitute alcohol beer for 00 and is that
something you would market?
Jan Derck van Karnebeek: The question was, considering that the margins on 00 beer are
better that on 5% alcohol beer, are we content with cannibalisation. The answer is first of all
cannibalisation is very limited. In a given market, given the position of the Heineken brand,
given the source of volume, cannibalisation is only single digit. This is hugely meaningful from
an economics point of view. You source about 75% of your volume outside of beer full stop
and then you source disproportionately also from other beer brands. So this is a fantastic
growth play. So we do not mind that last bit of single digit cannibalisation because it’s actually
more profitable as well. So this is win-win. And there's a third win here which is also a little
bit – what's the word for it? Maybe not ‘obvious’. We've seen it does magic for your mother
brand.
Let me explain this and Gianluca will correct me if I'm talking nonsense. What we see this
does, it gets Heineken into the hands of more people on more occasions and strong brands are
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 15
brands which are relevant and meaningful on multiple occasions. Makes your brand stronger.
Second thing it does, it leads people to reappraise their relationship with the brand. Say, ‘Hey,
I like Heineken 00. That tells me something about Heineken original.’ So you see we’re in a
virtuous circle now where we’re relevant for more occasions, getting into more hands, getting
more people to reappraise their relationship with the brand. So this is hugely meaningful, not
only for the economics, but also for what it does for your brand equity.
[Inaudible].
Gianluca Di Tondo: And just to compliment, it’s incredibly relevant for millennial consumer.
So this is also coming back from the point of US. People that were maybe in some geography
not used to the brand can back or start reappraising the brand thanks to Heineken 00, because
it’s closer to their lifestyle and closer to what they're looking for in – in beverage today. So
what we say everywhere, very low level of cannibalisation and a high positive impact on the
equity of the mother brand. So it’s really for us win-win everywhere we launch it.
Jan Derck van Karnebeek: In case you were in doubt, we like Heineken 00. Let me show
you a little bit of commercial work. Video please.
[VIDEO]
Jan Derck van Karnebeek: Gave you a feeling for what we are doing with the brand. This is
quintessentially also Heineken. This is just Heineken advertising. So we don’t see this as a
distinct brand over there somewhere: this is part of Heineken. Which also means the
advertising we do on Heineken 00 works for Heineken original. It’s not a different thing over
there somewhere. And this is just a sample of, I don’t know, what we have, thousands of
assets like this, which we make relevant to occasion, place, type of consumer. And that’s
personalised marketing at scale. We can talk about that alter.
Last one: adjacent business models. And it’s on purpose on the right and it’s the youngest part
of our growth strategy. So this is earlier days than the other things we've discussed today.
First one actually not so early days; been around for a while. Here you see various draught
solutions. Why do I talk of draught beer in this case being an adjacent business model?
Because fundamentally it is a different business. What we do here is use technology to make
draught beer quality perfect, always, everywhere – you just saw it. Make sure we make it
convenient – you just saw me draughting my beer – and make it affordable. That thing is only
€400.
Now that combination of quality, affordability and convenience drives what is nowadays a pretty
big business. You see some numbers at the top; we do about €300 million worth of revenue in
the space. It’s growing at 15% per year. It’s now more than two million hectolitres. If you do
the quick math it means it sells at a very significant premium compared to the rest off the
business. And because these are bespoke systems, the keg only works with the machine, this
of course is a very compelling business model. It stretches from very big – very big 20L kegs,
all the way down to 2L kegs, which cover the on premise and we cover the at home
consumption. And this is a success which has been 20 years in the making, but we've learned
along the way to master the technologies around costs, quality and affordability which now
make this a very meaningful business to us. In its own right but as we just discussed it also
creates fantastic visibility and a great point of entry into consumer homes and outlets.
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 16
At the start of this presentation I said to you that I was with Heineken for 26 years. It’s a long
time, right? But it’s more fun now than it’s been ever before because we are at a moment of
inflexion. And to illustrate that moment of inflexion it makes sense to go back a bit in time.
And up here on the slide you see what I would say are the three big ages in brewing.
The first one was all around just simply mastering high quality at scale production. It is
production. You're here right now. This used to be a brewery; these used to be fermentation
cellars. What we mastered in our first spurt of growth was around scaling that, getting to great
quality, first in kegs, then in bottles, then in cans. Scale in production. First age of competitive
advantage.
Second age of competitive advantage was around being there in consumer minds and in every
channel. Mass marketing and sales. And that has driven a lot of our growth in the last 25,
30 years. In fact most of my career with Heineken. I would argue we’re now at a moment of
inflexion where the game will change again and if we get this right we’re onto a very good new
growth curve. But it’s going to be a different business. Going forward it’s going to be about
being connected: being deeply connected with consumers and customers.
Why are we profitable? Fundamentally because of those connections. What sets us apart from
private label brewers or commodity producers? Because we are better connected. This holds
true with our consumers and it holds true with our customers. And this is the thing which is
changing because our connections are increasingly moving to this thing. They are no longer
just physical. Getting that right is going to be crucial going forward. That also means that our
source of competitive advantage and scale will change again.
The scale going forward is around connections which equates, by the way, data. People always
talk about big data. What at the end of the day for Heineken is really data? It’s having the
right connections to be meaningful and relevant to our customers and our consumers. And it’s
going to be around learning in ever quicker loops. You just saw some Heineken advertising
made for digital. Right? We now test in real time whether the ad with the teacher works better
than the ad in the hospital. We know within a day. Used to be we would run these campaigns
for half a year, then look back and say, that works, that doesn’t work. Now we adjust within
days. So fundamentally our business is going to change and this is the business to master.
If you look at this slide importantly you see there's little pluses between the different boxes,
right? And it’s important to understand that as well because the other stuff still matters. We
just spent a bit of time talking about producing a great non-alcoholic beer. Quality still matters.
TV is still the biggest medium around. So it’s not or-or, it’s and, and, and. And it’s also
important to emphasise that we see this ourselves as being part of our day job. I spend about
30-40% of my time on this agenda every day.
We decided not to put it in a digital pillar over there somewhere to say we have a chief digital
officer; now, that’s me. And if I look at Gianluca, Ilaria, Ruud, spending close to half their time
on our digital agenda. So it’s at the core of our jobs; it’s not something over there.
Now that sounds pretty esoteric and abstract. How do we bring that back to earth? For our
sales reps, for our customers? What is going to be fundamental still about our business going
forward? It’s still going to be about the consumer journey, the customer journey and the
moment of truth. That is not going to change. What do we do with Heineken? Very simply
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 17
I'm working on consumer minds as they make their way to the point of sale. Influencing them,
getting them ready for the product the moment they enter.
On the other side I’m working with the customer, making sure I’m in his considered set, or her
considered set, making sure I'm shelved and I'm visible at the point of sale. And then at the
moment of truth we make the transaction. That’s as simple as our business is. That is
fundamentally not going to change. What changes is the point of contact and how we contact
with our consumers and customers. And you see a – what is it? A sample of the different ways
people contact there at the bottom, but increasingly, those connections are made through
mobile phones and no longer just by the sales rep.
So mastering consumer and customer journeys in a digital age is where it’s at. And we have a
pretty complete and compelling agenda around that. And that agenda is at three levels. And
it’s all seen against our consumer and customer journeys. First of all at the high light green
level it’s around building capabilities. Different ways of actually doing business in a digital age.
Second level is around transacting differently, actually making your transactions and your
business in a different way. And third there's actually an opportunity to access completely new
business models.
I'm going to say a little bit about individualised data driven marketing. You just saw an example
and we’ll see another video at the end. Very quickly we are moving our spend in marketing
towards personalised, digital marketing at scale. And this is the important thing to register.
Because a lot of people think that if it’s digital it must be niche-y. That’s not the point. The
point is to continue to reach large numbers of people. But with messaging that is relevant. If
Chelsea is lucky enough to get to 4-4[?] against IUX[?] – and that was complete luck, for any
avoidance of doubt – it’s very important that post match the Chelsea fan gets the right ad and
the Heineken guy gets the right ad. If you mix that up, you're toast. Global platform, two
different teams, different supporters. Reaching them both with the right messaging. That’s
digitalised marketing at scale. Transactional platforms: how do you sell in a digital age direct
to consumers? That’s on the left. The answer there is not huge. For beer to be profitable
direct to consumer it needs to be very high value and high priced. Because simply the cost of
the last mile is too big to do lots of bulk beer home. It doesn’t work economically. What does
work is specialty beers or the bespoke systems we talked about earlier. That you can do in
ecommerce direct to consumer. We have a business called Beer Wolf[?] which does that
throughout Europe, accesses close to 500 million European consumers. We have a customer
base of about 500,000 people, which is not bad. But it’s not a huge business. That’s on the
marketing side.
On the sales side also change is underway at a capability level. And maybe Ruud nice if you
say a bit about that? Ruud is our Senior Director of Global Sales. Ruud, the floor is yours.
Ruud van den Eijnden: Good afternoon. Welcome in Amsterdam. Data driven sales is a
relatively new capability in Heineken which is very much about how can we use data, the
increased availability of data, and increased availability of digital connections we have with our
customers to serve our customers faster, better, and make better informed sales decisions at
actually every level of our sales organisation which is around 30,000 people worldwide.
Now despite all our differences, most of our sales organisations face the same decisions almost
annually, daily. And some of them are very basic. This is about how many blades do I need in
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 18
my market, how many coolers should I place in my market. How often should I visit my
customers. What is your optimal price for certain brands. How many brands do I need to put
on the shelf, and is there a difference between Tesco and Morrisons?
Roughly there are 15-20 decisions that are relevant for every sales organisation in the world
and we developed a quiet, robust methodology that helps our operations to one, identify what
are my most relevant decisions that I need to make; second, what data do I need to gather,
how do I gather them, and more importantly, how do I analyse them and translate them into
insights. Third, how do I test certain hypotheses and have quick learning cycles, and if positive,
how do I scale very fast?
Now that methodology has been piloted in Poland in the last year with great learnings and more
importantly, great results. And we are now scaling up that methodology all over the world
which will help us to build a kind of a library almost of best practices, which as Jan Derck already
said, we will learn, share, reapply all across the world. So that is in highlights our DDS
programme.
Jan Derck van Karnebeek: Good. Danke vor, as they say in Dutch. Thank you. Gave me a
bit of time to remember one thing I didn’t tell you about digital marketing – two things actually.
Both relevant. One, it’s a must simply from a screen time perspective. If you look at where
people are spending their time on the screens, meanwhile the mobile phone has basically won
from the TV in terms of the number of hours people spend on it. Second, we see that the
efficiency gains you can make in digital marketing in no longer reaching people who will never
drink beer, are massive. So the waste you can reduce is tremendous.
Then ill talk a little bit about business to business. If we do not talk about geographies but in
channels, where do you think we make most of our money. You know? In fragmented trade.
That is obvious is that if you have lots of fragmented small customers, that’s more profitable
than negotiating with Tesco or with [inaudible], right? That’s why this is so crucial. Because
business to business is how do we transact in a digital age to fragmented trade? Because that
owner of a mom and pop store in Vietnam or a shebeen in South Africa is also living his or her
life mostly on his phone. Which means that increasingly, the commercial dialogue, and right
after that the commercial transactions, will move here.
So where it used to be our sales rep which was the source of the best connection, the best
connection of the future will be also very much this phone. And winning in that space is
fundamental to keep winning in fragmented trade and that’s not going to be that we take leave
of the sales rep; the sales rep will remain important. But it will be complemented by a digital
dialogue which needs to work seamlessly with what the sale rep does.
This is for us a crucial arena to win in and if there's one area where we’re driving very hard to
scale our capabilities, it’s in transactional B2B platforms to traditional trade customers.
Absolutely crucial going forward. Last thing on the slide is what I alluded to, the new business
models. What is becoming possible in the age of digital, and primarily through what we call
EPOS – electronic point of sale systems. These are basically cash registers connected to the
cloud. They basically allow us to scale our presence in selected retail salons[?]. You're aware
of what we do with six[?] in Mexico. That’s basically taking fragmented trade, equipping it with
an EPOS machine, and in a sense giving them access to some of these scale elements. There's
possibilities to look at this also beyond Mexico. We’re doing the same with Drinkies[?] in Egypt;
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 19
we do the same thing with Stars bars and pubs in the UK. So there it is digital giving you
access into fundamentally new business models, usually one step down in the value chain.
Early days but for us a relevant source of growth. Want to go back to [inaudible] point around
competitive advantage. Why we would have a right to win in this area. We do because we’re
already fundamentally deeply connected with these fragmented trade outlets. We know the
outlet owner, we know the transactional model. In many cases we are either the wholesaler
ourselves or we have a good connection with the wholesaler. So we believe that in selected
geographies here we have also a right to win. So expect us to look into this space going
forward.
This is again a slide on scaling. The map on the right is more for illustrative purposes. This is
not the exact map of any of these initiatives but with any one of these initiatives, be it
capabilities, be it transactional models, be it new adjacent businesses, we’re driving as hard as
we can to expand as fast as we can, but always making sure that we have the relevant model
for the right market. So don’t go mindlessly here: go fast but go targeted with the right
capability of the right model into the right market. Brings me to a last video because – and
this is again an IDDM video which gives you a bit of a feeling of what is digitalised marketing
at scale. Video please.
[VIDEO]
– for illustration. And this is nice because this is the core of our marketing today. Going digital.
You see also here a global brand on the one side, being able to be hugely local and relevant to
different places and occasions, so globalisation, localisation in the right measure and still staying
consistent. This is the last bit of what is it, visual material we have for you. We’re coming to
the wrap up and Q&A time. So basically what we've shared today is first, get the trends.
Digitalisation, wealth, health and wellness, and blurring categories. We see five big sources of
growth, still per capita consumption, number one; accessing new markets, number two;
probably the biggest of them all, premiumisation. We see in adjacent beverage categories a
right to win volume, using or leveraging our core categories, and lastly digitalisation is allowing
us a bit further down in the value chain to access new business models.
Those are the five sources of growth. And why do we get the speed and the leverage in our
growth is because we’re getting very good at doing, learning and sharing, reapplying at real
speed. This is going much faster than it was five or ten years ago. And lastly what I think is
unique to the Heineken model is this ability to be global and local at the same time. We’re not
centralised or decentralised: we’re centralised and decentralised. Both these things are true.
It just depends on the opportunity. And the art of mastering that is something we’re particularly
good at. I think that brings me to the end of the formal part of the presentation and I think we
open the floor to questions. We've had a few good ones already but maybe there's more.
Questions and Answers
Federico Castillo Martinez: Thank you very much, Jan Derck. So, we have some people with
microphones, so for the sake of the webcast, if you can speak into the microphone and we can
–
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 20
Ed Mundy (Jefferies): Yeah, I've got two. Ed Mundy from Jefferies. Might have got some of
the n umbers wrong but I think you highlighted that your – based on your footprint you could
probably do volumes of 2.1. I think you also highlighted that premium’s going to grow between
2.4 and 2.8, so let’s call it 2.6. Times that by 0.4, which is 40% of your business. That gives
you another 1%, so we’re at 3.1%. There's probably going to be a bit of price, there's probably
going to be a bit of market share. And I appreciate that superior top line growth is a relative
as opposed to an absolute, but I was hoping whether you could draw it all together relative to
your growth the last two years, three years, which was between five and six. Do you feel that
is defendable? That would be my first question.
Jan Derck van Karnebeek: That’s a great attempt to try to put a guidance on top line.
Ed Mundy: It’s just my logic anyway. Then the second question is, I think the short-term
incentives for management evolved the last two years so that 35% of the STI is top line organic
sales growth. I was wondering whether you could give any examples of how that has changed
behaviours?
Jan Derck van Karnebeek: It’s a good question. Thank you Edmund first of all for doing a
bit of math which I didn’t do for the audience but it is your math and it stays with you and I
leave it with each of you to draw your own conclusions based on the story I gave you. But you
should be able to wrap the strands together and make your own conclusions on the growth on
that. So I'm not going to do any forward projection regretfully, but I hope I gave you at least
the view that we have a very clear eye on where we think the growth is coming from and where
we can get it. Now your second question I can say something more tangible about. Yes, we
have rebalanced our short-term incentive schemes more towards growth. And yes, that has
worked for us, and it works for us in an interesting way, because as I said we put our managing
directors in charge of our local businesses. And we then give them a fairly stretching target on
growth, then the team which has given you a bit of the content today serves up a very nice
menu on how to get the growth. And you’ve seen the menu today.
And then we leave it a bit up to these managing directors to decide which growth levers to
access when. And that gain works beautifully because you create enough focus on top line
growth, but you give local management the right of judgement to see what's going to work
there. That is the balanced model. Do prioritise growth, but make sure you keep decision
making close to market, and this balances it out really well. Does that answer the question?
Ed Mundy: Going from 25 to 35, what essentially changes?
Jan Derck van Karnebeek: It’s a bit more than that. In fact, in the targeting set, about 50%
of the bonus is focused on the top line. So it’s half/half. And that has worked for us very well.
Laurence Whyatt (Barclays): Hi, Laurence Whyatt, Barclays. You talked a lot about volume
growth. I was wondering if you could give us some colour on what's happening on the pricing
ability across the world and whether it’s – the real question is, have you noticed a change in
the global pricing dynamics? We’re hearing a lot more from some of your competitors around
more aggressive pricing coming in from the global beer market. What are your feelings on how
the pricing is going?
Jan Derck van Karnebeek: If you look at the five sources of growth, I presented to you, I did
not present a bucket of growth increased prices everywhere. And probably on purpose, because
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 21
yes, pricing continues to play a role, but we believe in our growth model we need to increase
revenue by adding value as well, and premiumisation is around changing mix more than pricing
by itself. So, we do believe in taking pricing when and where we can. We do believe in taking
of course inflationary pressures into account. We are however not naïve and pricing in this day
and age is not simple. This I will acknowledge, but that’s also why you see a growth strategy
which is not dependent on just taking price: it’s much richer than that and I hope I was clear
on that.
Tristan.
Tristan Van Strien: Hi, it’s Tristan Van Strien from Redburn and Partners. Maybe two
questions on the Heineken brand specifically. So, in China you got incredible availability of
distribution, but how do you prevent CRB to expand too fast? Because normally it’s about
velocity before distribution, and now suddenly you get all these distribution points. So maybe
that’s a first question around that?
Jan Derck van Karnebeek: Balanced answer I hope Tristan. First of all what is important and
I hope I referred to that clearly in the presentation, we should also not be too – what is the
word for it – precious on distribution. If you keep your quality up, your price up, and you have
outstanding activation, broader distribution doesn’t hurt your brand. In fact it strengthens your
brand. So it’s not an issue from a brand quality perception contrary to what we may have
thought historically or some people think historically. It doesn’t affect your brand quality.
Where you have a point is you have to be very careful on how you build distribution. If you
drop too much Heineken into a new outlet you have velocity problems. So the real art is to
work with CRB to make sure the drop sizes are right for the outlet. That would be my answer.
Don’t go mindless, don’t go too fast. But the upside of course is huge. And it is bigger than
just the premium outlet universe.
Speaker: Maybe just a follow up on that. Do you feel you have the governance system in the
venture with them to prevent them from going overboard?
Jan Derck van Karnebeek: Yes we do. And this is of course not something which is new to
Heineken. We have worked joint ventures for a long time and we've worked Heineken brand
governance for a long time so yes we do believe we’re equipped for that and we have a rich,
open dialogue with our partners on it. Yes. Confident.
Speaker: Maybe just a follow up on the US question earlier. When Heineken light was launched
in 2005, 2006, it was of also a declining brand. The [inaudible] stabilised brand was ex-growth
at the end of the day and Heineken Light was the solution, which obviously did not necessarily
help the Heineken brand for the long term. And I guess it goes to the core of marketing, never
extend off a weak brand. Seems like you're doing the same thing now, 15 years later. Or what
is different this time using 00 to enhance a brand that’s a bit weaker at the moment in the US?
Jan Derck van Karnebeek: It’s a tough question but good luck with it. I think I have an
answer as well but let’s do a duo act. Gianluca usually interrupts me if I go off the track. I
think first of all, let’s be clear. Heineken light has not done it for us in the US. Fair point. What
I think is different this time around. First of all, timing. We went into light already way after
light was big, and we’re a niche player in the UK and we came with a follower product too late.
Timing is crucial in business. And here I believe we have timing just right and we’re first. First.
A very important point. Second is something very basic around product. Heineken Light was
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 22
a 4% ABV product with a high bitterness. The Light market was 3% ABV with a low bitterness.
I think we were too Heineken centric in how we looked at that product and we were off the
main market in terms of product characteristics. Seems very basic: it is not. With Heineken
00 we believe we have a fabulous product.
The third element is in terms of marketing support behind it. I indicated 25% of our marketing
budget. We spent a significant amount of money behind it. And now I'm going to check whether
I passed my exam.
Gianluca Di Tondo: You passed the exam because you take all the things that I will said. I
would just add one more point that is the consumer. With Heineken Light, what we – again
looking internally what we were thinking was there is a humungous wave of light beer, let’s
create the premium light beer. There must be out there consumer that are interested in
premium light beer, and as [inaudible] say, we went with – also with the wrong product. Here
is the fact that we know that the millennial consumer are interested in this kind of product, and
we see the same pattern occurring in every market. So this is why US was not our first market.
We had been thinking a bit before going [inaudible] in the US. And we are not pushing while
Heineken Light went way faster. If you look at the first year of Heineken Light it would have
been bigger success almost, but it was just us pushing Heineken Light into the distribution
system and into the distributor. Heineken 00 is growing much more organically and is much
more driven by the consumer pool. So this is the other element that I think is very different.
Speaker: Maybe just one little follow up on that one just in terms of that excise benefit, are
you sharing that with your distributor network as well at this moment?
Jan Derck van Karnebeek: Thank you to allow me to reiterate that point. That is crucial. It
is not only crucial in the US; it is also crucial everywhere else. Make sure everybody wins from
this: consumers win, and the trade wins, and we win. Thank you. That was the complete
exam. At the end of the day, the trade margin is very important.
Andrea Pistacchi (Deutsche Bank): Thanks. Andrea Pistacchi from Deutsche Bank. Is the
point you're making about not being too precious with distribution of the Heineken brand a bit
of a change compared to the past? In the early 2000s you felt you'd probably over-distributed
Heineken in the US, so you were treading carefully in Vietnam a few years ago. Is this a bit of
a change?
Jan Derck van Karnebeek: These are very good questions because they do allow me to
reiterate indeed key points in my presentation. And you're right: if you take the longer arc of
history, when we started as an export business with the Heineken brand around the world we
very much targeted – I would almost call it the champagne occasions and bars. And maybe
I'm exaggerating but that was a bit where it was at when I started as a young export manager.
It was great fun, by the way. But what we've learned as I've said is that you can go much
more broadly in your distribution and maintain your premium image. What is true is what
Tristan said: it does not mean being mindless. So don’t drop masses of beer into mainstream
outlets: make sure you distribute according to rotation. That’s the mistake we made in the US.
And it does not mean we brand every mom and pop store in sight. So keep your visibility in
the right outlets. But yes, this is a marked change in how we work and it is a key force behind
what you see a 7% growth rate on a €5 billion brand. And we’re allowing – to get to the earlier
point we’re still taking price and value here, right? So this is good volume sold at a high price
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 23
in an increasingly broad universe. Key thing to understand about the Heineken growth model.
So thank you for the question.
Toby McCullagh (Société Générale): Hi, it’s Toby McCullagh from Soc Gen. just staying with
the Heineken brand in China, when you're talking about growth and winning in Premium you
talked about the importance of going with the portfolio. And in that case why aren’t you doing
that in China? I mean it does sound as if it’s when, not if. But why lead with Heineken
standalone?
Jan Derck van Karnebeek: The shortest answer I can give you, the best place to start is with
the Heineken brand and that’s what we’re doing. And that’s it for now, because indeed it’s now
a Heineken brand focused operation. There was a good earlier question around how do you
manage the partnership dynamic with a new partner which is so big with such a big route to
market. First thing is, be focused. Do one thing really right. And the Heineken brand is already
a big enough opportunity in its own right. That’s why we start with Heineken, do that right
first.
Speaker: Hi. [Inaudible]. You talked about the key consumer trends and then I thought
maybe you will mention it, but it didn’t come. Later on you talked about the age of connection.
I think that’s a fairly good point and that’s also where it could have come in. but the whole
world is talking about climate change and sustainability. And also investors are talking about
it, the market for green financing is increasing. Where does that – where does this come in
into your age of connection? And related to that, is it mentioned somewhere in your consumer
key trends how do you prepare for this? Because the discussions on this subject will increase
in the coming five to ten years more and more. And related to that is of course the water
strength – the water problems, the water scarcity. How will you incorporate that into this sales
tool?
Jan Derck van Karnebeek: It’s a very good question. In a presentation like this it already
seemed long to you probably, yeah? So I could not mention everything we’re doing in our
company at this moment so I chose a bit. And I chose in this presentation not to highlight
sustainability and our footprint in the planet, but it is crucially important. And in Heineken it’s
a fairly broad range., if you look at what our responsibility to society is, it starts also with the
fact that we’re an alcohol producing company, which puts a responsibility in its own right on
us. We have a very sizeable environmental footprint, CO2, plastics, water, just to mention a
few. And we have a responsibility to our employees. So, this is a big subject, worth an hour
and a half by itself. We’re not going to go into the hour and a half here: what I can tell you is
what our view on it is. We have a quite detailed programme specifically on the area you
mentioned, is environmental sustainability, CO2, our water use, increasingly also plastics,
where we are driving to step by step decrease our impact on the planet. And we put some very
clear numbers on this.
We have chosen for now not to message this yet at grand scale through our brands. Why not?
Because we believe you have to first walk the talk before you start talking too much. And I
think we have work to do and we are working on it before we start messaging this as a main
communication stream on our brands, and today’s presentation was very much commercially
brand oriented. That’s why you didn’t hear me talking about it. But as a company this is
crucial. Crucial for our right to operate as well. You mentioned water: in quite a few
geographies, if we are not able to water balance, we lose our right to brew beer. It’s as simple
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 24
as that. Plastics, we are not blissfully, a big plastic player. But even for us if we continue to
sell what we call ‘high cones’, these little plastic wrappers on the top, we will have problems
with individual customers. And to your point, for our millennial consumers, they don’t only look
to the surface of the brand, they look to the practices of the company behind the brand. But
here the point is, walk the talk first before you start to make a lot of noise. It’s a subject I
could go on for a long time, but I didn’t have no sheets on it today. Yeah?
Simon Hales (Citi Bank): Hi, yeah, thanks, it’s Simon Hales from Citi. You talk about your
growth model being simplified, but arguably it’s more complex now than it’s been in the past
to deliver this growth. How do we think about the trade-off between complexity and margin
development in the business going forward?
Jan Derck van Karnebeek: That is a fair question. So growth is not as easy to come by as it
was. Fair point. And you see us accessing multiple levers to get to the growth and your implicit
conclusion is, more levers brings more complexity. That is true to a point. Everything I've said
today is around scaled opportunities. So with everything we do, we do always look, is this
scalable, and does it therefore drive our economic model. And there are certain thresholds in
our business which we understand quite well, below which something can be very interesting,
but it does not add meaningful economic profit because the complexity of it is too big for the
margin incremented gifts. And this is a balancing act. We’re quite good at that. And the whole
thing is around being able to size opportunities to be big enough to make it to these sheets.
And these are that they feed into our economic model. Everything you see we do in our existing
business system. Existing breweries and trucks, and we do it at a level that the incrementality
of the gross profit outweighs the complexity cost. It’s a bit of a theoretical answer. The tension
you mentioned is real. Our job is to make sure we stay on the scaled side of that tension.
Richard Wthagen: [Inaudible], Kepler Cheuvreux. I just want to ask about similar to what
Simon was asking on the cost of growth. I mean you gave the example of production to
connection. How is the cost of growth developed. Is the pay off more insecure now than in
the past?
Jan Derck van Karnebeek: You saw me presenting the slide with the – I call them the three
ages of brewing. Mass production, mass marketing and connecting in a digital age. Of course
this transition to being digitally relevant to consumers and customers comes at an initial cost
and we’re in the middle of that. So we’re making the investments today in order to win in that
tomorrow. And I would not be being truthful if this were not to come with some associated
cost: it does. We’re mastering and we’re taking these costs right now. We do believe over
time you see that very clearly also in our marketing, especially. If you get it at scale, it also
starts to drive efficiencies. The same is true on the B2B side: putting a platform into place
initially comes at cost. Once it starts to work for you, the cost of transaction goes down. So
yes, there is a hump to go over in terms of specially driving this digital agenda.
Speaker: And there may be a second question on Heineken in the Us. You're saying basically
that 00 is doing quite well. Can you talk a bit about what in the positioning is actually successful,
why you think it’s doing well, and then as a follow up to that, what is – what do you see in
terms of competition for 00? Or is everyone obsessed with hard seltzer?
Jan Derck van Karnebeek: Why not. It gives me time to get a 00.
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 25
Federico Castillo Martinez: So here is a lot of personal reflection because we don’t have yet
enough data to have – or research to have a scientific answer. But what I deeply believe is 00
is quintessentially Heineken. As Jan Derck has said, I think what we are doing, Heineken is
quite a unique case in the beverage industry. Is a brand growing at this magnitude with very,
very few line extension.00 altogether is still less than 5% the volume of the mother brand. So,
it means that we've been able to grow the brand starting from the mother brand.
00 is not a different brand. It is an extension of Heineken that share the same personality and
the same ability to communicate to the consumer. I believe that in the US where we lost in
the past a bit the track, we have been zigzagging and tried to present the brand in a different
way, we lost a bit of the core of the positioning of the Heineken brand – of the mother brand.
00 in a sense in the – and this is why the communication of 00 is by far the best tested
communication in the last five years in the US – is because problem is coming back to the
quintessential Heineken wheat. There is a story that force you to think something is happening
and the reality is different as the end. There is the Heineken twist at the end that resolve the
story, and of course the story is centred around the product. So I believe 00 is giving back to
the Heineken its own original positioning that was very successful in US till middle of the 90s.
So that’s the first step. So this is why I give a lot of hope in the launch of 00 to relaunch the
brand. This communication was the first step of a new communication strategy that now we
are applying across the board in all our campaign and this is why all the campaign that we will
air also US in 2020, for the first time in the [inaudible] are all in the top right corner. So the
rest of the brand, the mother brand, will follow 00 in term of positioning, and communication,
and tone of voice. So I believe that also the rest will continue on the same path.
Speaker: Any competition? Any competition?
Jan Derck van Karnebeek: If I don’t stop him now, we will never stop. I'm joking. But from
a competition point of view, we like competition in the 00 segment.
Federico Castillo Martinez: We hope.
Jan Derck van Karnebeek: We hope for competition. Bring it on. Because we believe that
competition will grow the segment, and we have the evidence for that form all the other markets
we’re in. and we believe we have a strong right to win and to keep our more than fair share
we have. We've seen enough evidence from other markets that we say bring it on. It’s good
for the category, good for us.
Tristan Van Strien: Hi, it’s Tristan Van Strien from Redburn again. Can I just ask you about
partnerships? Like some of them make a lot of sense. It makes sense to get the platform in
China. But why do you need to go with a partnership in Colombia when you're going on your
own to Ecuador? Why do you need a CFO FAOO when you go on your own to Mozambique?
What is the purpose of those and how should we think of those going forward, especially when
it’s just a greenfield?
Federico Castillo Martinez: In – allow me to step in here for this one. I’d like here to quote
something that John [inaudible] would say about these things which is that opportunity drives
strategy. And it can happen that we may find that at a particular moment of time entering a
particular market comes through the initiative of some of our – from partner that is interested
in doing it, we agree to it and we do it. So there's not much more science to that than
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 26
sometimes just the opportunity of it happening. Regarding the other opportunities where we
go at it by at our own, sometimes things will come available like it did in Ecuador at one point
in time and again, opportunity, or sometimes we are, you know, explicitly looking at where we
could go in terms of those limited white spaces where we’re not currently there.
Tristan Van Strien: I guess I'm really questioning your CFAO partnership more than anything
else because you had the competence in Africa. So what did they bring especially in a very
competitive environment against Castell[?]?
Jan Derck van Karnebeek: Shall I take that? CFAO, logical for West Africa for very simple
reasons that they're well networked and connected in these markets. Not necessary for
Mozambique. So I think it is a reflection of what Federico says: it depends on the setting, and
in West Africa we deemed it necessary. You're referring specifically to the Cote D’Ivoire where
we went alone in Mozambique, right? They had the network there in West Africa; in
Mozambique we had very big proximate market. South Africa which has a big halo effect into
Mozambique. So we judged we could go it alone. We do, and we’re successful.
How much more time do we have for questions?
Federico Castillo Martinez: Maybe one or two more? Any other? I think [inaudible] you
were first.
Speaker: I have two questions. One is the slide of the 0.0 and I see there, Buckler[?] 0.0, I
mean that looks to me like a contamination. If you [inaudible] see that one, he will make
another joke –
Jan Derck van Karnebeek: And he was in the hospital recently, so we need to be careful with
him.
Speaker: And my second question is, I didn’t see on the world map Egypt and Indonesia for
Heineken 0.0. Is the product – are you able to sell to Muslim countries, or is it – because there
is a very small content of alcohol is that still not allowed? Or are you still think about it, how
to position it?
Jan Derck van Karnebeek: He’s looking pointedly at you, Ilaria. You're going to have to take
it.
Ilaria: Okay. So on these two country that you just mentioned, so when we talk about these
countries there are different legislation in the different markets. So in some cases just because
your name is Heineken or a beer brand you cannot sell a 00 proposition. In other you cannot
because there’s still – it’s fermented so there's still a process where the alcohol is created. In
those specific, both Egypt and Indonesia, we are not there yet today. So they had other
priorities in these days. Potentially Heineken 00 or other 00 could play a role in Indonesia,
actually. We already have Banteng[?] 00 which is an alcoholic beer, so we are already playing
in those market with 00 proposition.
Jan Derck van Karnebeek: And maybe to add a little to what Ilaria said, specifically Egypt
and Indonesia, our route to market is very much the limited alcohol channel. So that by itself
does not make the opportunity immediately big or obvious. The opportunity is big and obvious
where alcohol and non-alcohol sell in the same channel. That’s I think a key thing to understand
as well. There's one more question over there, one over there. Whoever’s fastest with the
microphone.
Heineken What’s Brewing Seminar Thursday, 7th November 2019
www.global-lingo.com 27
Speaker: You mentioned a lot about the new systems you're doing like the Blade for both the
on trade and the at home products. One of your big European competitors is talking a lot about
the sort of large-scale pub apparatus they're installing into pubs at the moment which is giving
them an advantage. Do you see any benefit or for innovation in the sort of large keg systems?
Jan Derck van Karnebeek: The answer is yes and we’re doing that as well. We have cool
flow technology which is similar to what our competitors talk about. It’s just much less
meaningful in terms of its geographic reach because large scale pubs with those sorts of
volumes are a bit of a north west European affliction. Most other beer selling outlets, the
volume per outlet is much smaller, much more amenable to these other systems. That’s why
I chose not to message it in detail. But that too we have in our repertoire.
I think the last question. Oh dear.
Speaker: It’s actually [inaudible] so don’t worry.
Jan Derck van Karnebeek: I think I've made all of you so thirsty that I think we’re there, so
I’d like to thank you for your attention and your patience with us. I think we have a little bit of
time together at the bar?
Federico Castillo Martinez: Yes, but first I’d like to end the webcast at this point, so just to
thank everybody that has been listening in and we appreciate your continued interest in
Heineken. Thank you very much.
Jan Derck van Karnebeek: And Federico did that for a reason, right?
Federico Castillo Martinez: Yes, because…
Jan Derck van Karnebeek: Yeah, we have a bit –
[END OF TRANSCRIPT]