The ultimate question is whether one strategy produces more effective results than the other in terms of gaining company name recognition, or whether the adopted strategies allow differentiation in corporate culture to influence consumer choice. The answers lie in current global trends.
The last five years has been the most active in the brewing industry ever in terms of massive change in the landscape from mergers and acquisitions to changing consumer tastes to different branding strategies. Such activity is likely to continue over the course of the next ten years. As Interbrew’s Executive Vice President and Chief Marketing Officer Paul Cooke pointed out, “there is a lot at stake, with real converging forces out there, and consumers everywhere are demanding more choice in beers, moving from a habitual level of choosing mainstream brands to having a repertoire of brands.” Consumer loyalty has changed to “occasion-based,” hence opening up more opportunities to leverage more brands but posing a greater challenge to marketing efforts.
Cooke further laid out several key trends shaping the global marketplace for brew. One is “premium-tization,” causing a polarization of different markets where consumers are “demanding and willing to pay higher prices for real and perceived quality,” while at the same time discounting in prices is taking place, hence squeezing out the middle range. Supermarkets and clubs are undergoing mass consolidation and internationalization, causing a tighter squeeze for shelf space and leaving the bigger brands as winners. It is for this reason that the “premise sector” (hotels, restaurants, cafes, etc.) is very important to Interbrew “because consumers can try brands at low risk and price.”
Most analysts forecast that brewing is a good business to be in, with a 2-3% compound growth rate in volume worldwide. Growth is being fueled by the motions of new countries that are not traditionally in the beer business. The current lifestyle trend is to reduce the rate of alcohol intake, making beer more attractive than spirits and wine particularly in developing markets.
Interbrew is seeing the same trends in country after country, allowing it to have an integrated marketing approach. According to Cooke, “90% of a market’s demand is satisfied by local brands, which is different from other beverage industries as seen with Coke.”
With regard to market segments, premium lagers and specialty brands with higher alcohol and higher prices have a disproportionate share of volume growth at 4-5% per year, versus the 2-3% growth rate overall. These rates correspond with both a rise in GDP in developing markets and consumer demand for higher value propositions which is dominated by international brands. Therefore, brewers need to increase their portfolio and go global to overcome the home market. Both Interbrew and Heineken pointed out that brewing is a relatively fragmented market, with the top four brewers accounting for 22% of global beer volume five years ago and about 28% today (as compared to packaged goods at 70-80%, and spirits at over 40%). Cooke predicts that the top four brewers will account for about 34% in the next few years. “Beer is rather under-concentrated, therefore brewers are looking at growing on an international perspective,” says Cooke.
In order to sustain growth on an international level, Interbrew builds its business on four strategy pillars.
The underlying strategic approach of Heineken is somewhat similar to that of Interbrew’s. As stated by their spokeswoman, Manel Vrijenhoek, “Heineken is consistent in branding itself internationally as a premium brand, while maintaining a specialties portfolio,” including the well known Murphy’s (a Belgian beer).
- The first is to build a strong local operating platform and then leverage it over time to drive profitable growth through the right brands and distribution structure to supply a local national market.
- The second is to broaden the portfolio to include international brands to give access to the 10% not supported by the local brands and to leverage global insights to help optimize both the local brands and global brands. By rounding out the portfolio, Interbrew can both “better meet the consumer’s needs and better leverage local infrastructure costs.” According to Cooke, Interbrew spends about 22% of revenues on marketing and sales.
- The third pillar calls for a balanced portfolio of countries between mature and growing markets, whereby the mature markets such as North America and Europe provide the funds to invest in markets such as Korea and Russia that have lower GDP and higher potential for growth.
- Lastly, market consolidation will help secure positions and create shareholder value. Interbrew strives to be the number one or two brewer in each market, and has achieved this position in 16 out of its 20 operational markets.
Heineken CEO and Chairman of the Executive Board Karel Vuursteen explained during the annual general meeting in April this year that Heineken has “a two-track policy. Broad leadership has preference. This means that we are the leader in a specific beer market in virtually all segments with a portfolio of prominent brands.” In specific markets where such an approach is not feasible, they “aim toward segment leadership in which the Heineken brand makes [Heineken] the leading brewery group in the premium segment.”
The Heineken brand, the brand with a higher margin over Interbrew, “is the main pillar of both strategies. In countries where we are striving for segment leadership the leading role is set aside completely for the Heineken brand,” said Vrijenjoek. Heineken’s overall strategy is “to have a mainstream beer that can be a local beer such as Amstel.”
Interbrew’s strategy is more focused on diversity of the brand portfolio, with a three-tier strategy including international (Stella Artois), specialty (such as Hoegaarden, Leffe, Bass ale and Belle-Vue), and local (such as Jupiler and Labatt Blue) brands. At the same time, Interbrew has created a menu of global brands for countries to choose from and ultimately all could be available in each market. From a total of 140 brands, five are designated global, including Stella Artois, Hoegaarden, Leffe, Bass and Beck’s (to be introduced early next year). Interbrew can cover nearly every key segment in the world through these global brands in addition to what they provide locally. The portfolio of global brands is different in brand image, price and profile, and allows Interbrew to offer a range of choice to the consumer.
A fine example of this strategy is seen through Interbrew’s recent acquisition of Beck’s. Although critics have questioned whether this acquisition indicates a lack of faith in the fizz of Stella, Cooke confirmed that such is not the case. Rather, Beck’s will provide a “local platform in Germany on which Interbrew can build other specialty and premium brands and then add other national brands, thus building a complete and leading portfolio.” Furthermore, “getting into Germany helps with attaining the overall balance of mature and growing markets” while providing a global brand. Beck’s, the number one export brand in Germany, is priced in the US 10% below Heineken, while Stella is priced 10% higher, allowing Interbrew to offer a price spectrum satisfying various consumer brackets.
Although similar to Heineken’s strategy with regard to going global, the way Interbrew brings these global brands to its operators is different from its competitors. Cooke outlined that “competitors such as Heineken come into it with international lagers, usually two of them (Heineken and Amstel), and offer one as a premium lager with premium price points, and offer the second as a mainstream or averaged priced proposition.” Interbrew on the other hand makes all international lagers premium and super-premium offered at higher prices. Competitors to Interbrew tend to buy equity in a local brewer and use it as a distribution vehicle for the global brand, while Interbrew sees acquisitions as an opportunity to combine local brands with global brands to offer a complete brand portfolio.
Although Heineken has “been a benchmark on how other companies rate their performance,” Cooke has observed Interbrew’s competitors beginning to veer toward a focus on the local level for the sake of increasing global reach. At the same time, Interbrew may be the “fastest growing among major global brewers” (both in volume and financially), but Heineken is better recognized as a global brand in itself. In fact it was recently ranked at 82 in Interbrand and Businessweek’s Top 100 Global Brands. However, branding the company name is a “non-event” to Interbrew. Rather, Cooke stated that “Interbrew is a trading name, a stock name and the brand we have to build for imagery in the financial community,” similar to Procter &Gamble’s position in relation to its individual products.
Stella Artois as Interbrew’s flagship label has been a success story in its own right. With a compound growth rate of just under 20% for the past five years, Stella has become the fastest growing premium lager in the world, is the 6th largest international lager in the world, and the fastest growing premium in the US since its launch there in 1999. Brand alignment happens naturally as Interbrew focuses on levering core insights across different countries where commonality in consumer demand allows for an integrated approach.
Hence, Interbrew believes in “the power of the portfolio,” where a strong portfolio beats single brands in a highly competitive global marketplace. The success of such an approach is easily demonstrated in the US and UK markets. The US is the biggest beer market, including premium and specialty, accounting for 15% of the overall global market. Heineken is the number two import brand and provides 25% of the international market, growing at a compound rate of 11% for the past 3 years. Meanwhile, Interbrew has four of the top ten import brands (Labatt Blue at number 3, Beck’s at number 4, Tecate at number 5 and Bass at number 8), and its label Rolling Rock is the second largest domestic specialty. With an import portfolio growing at 17% per year, in the US, Interbrew has 6.5 million hectoliters in premium volumes versus Heineken’s 5.2 million hectoliters.
In the UK, Heineken has been poured since 1961 and currently has a 4% market share, which has been declining at a rate of 5% for the past three years. Interbrew has been in the UK for about 34 years, during which Stella has become the key brand (ranking at number 3 in the market and number 1 in premium lager). Combined with other labels like Leffe and Rolling Rock, Interbrew is growing at about 18% in the UK as premium-tization has taken place. Interbrew’s U.K. premium brand volume is at 4.8 million hectoliters compared with Heineken’s 2.3 million hectoliters.