Heineken’s proposed takeover of Scottish & Newcastle beer brands looks messy

Heineken’s proposed takeover of Scottish & Newcastle’s UK brewing interests, announced last week, would create an unwieldy beer giant saddled with conflicting brands, according to some observers.

Heineken’s proposed takeover of Scottish & Newcastle’s UK brewing interests, announced last week, would create an unwieldy beer giant saddled with conflicting brands, according to some observers.

The merged UK company would have to offload a number of leading properties to become workable, say sources. Heineken, which aims to become a top premium lager, would find itself having to promote rival Kronenbourg 1664, the UK’s number two.

A deal is not assured and S&N has long been the subject of buyout speculation. But analysts believe a deal is imminent, following last week’s announcement by Denmark’s Carlsberg that it has teamed up with Holland’s Heineken to buy and break up S&N. Under the proposals, Carlsberg would acquire S&N’s interests in Baltic Beverages Holding in France and Greece. Heineken would take control of S&N’s interests in the UK, Portugal and Finland.

Carlsberg’s desire to take full control of BBH, where it is a 50% partner with S&N, is a driving force behind the bid.

But a deal would also offer Heineken the chance to refresh its position in the UK. Its sales slumped by an estimated 80% when it axed the cold-filtered 3.4% alcohol by volume (ABV) UK lager in 2003 and relaunched with the 5% ABV Heineken drunk internationally. The sales dive was partly because Heineken pulled its distribution from brewer InBev and decided to go it alone, to avoid a portfolio clash with InBev’s rival premium lager Stella Artois.

Today, Heineken’s share of the UK beer market is just 1% and it is distributed in only 4,000 bars and pubs, compared to more than 30,000 where S&N brands are distributed and 10,000 stocking Carlsberg. The Dutch lager desperately needs to boost distribution.

Portfolio boost
Jamie Lister, a director at consultancy Drinks Works and a former Coors marketer, says: “It would make sense for Carlsberg and Heineken to sort out a deal for Kronenbourg to move, so it is managed by Carlsberg. It would give the Danes a better UK portfolio. Heineken won’t want anything it acquires to stand in the way of the brand’s growth.” 

Such a switch would make sense, as Carlsberg would already own Kronenbourg via its takeover of S&N’s French interests. Lister also believes Carlsberg UK could take on S&N’s Baltika niche lager – owned by BBH – and even Strongbow cider, which would not fit in with Heineken’s global strategy.

Tough climate
One observer agrees that some realignment of the combined Heineken and S&N portfolio would be likely. He says that consolidation of the UK beer market is driven partly by declining volume sales, and says that marketing has become tougher for all beer brands.

“Advertising beer is becoming ever more difficult. It used to be who told the best joke, but the problem is that today people aren’t brand loyal, not even with Stella Artois. They’ll buy standard or premium lager, they don’t mind. It used to be all about personality, but today it’s not the beer you choose that defines you,” the observer says.

He adds that S&N UK hired a marketing director (Tim Seager – now managing director) from Procter & Gamble, who wanted beer to be advertised as if it were a fast-moving consumer goods product, rather than a personality-led brand. Distribution is essential for Heineken, as it would be hard to build its brand through advertising, says the source.

Another observer disagrees and says that Heineken has a golden opportunity to capitalise on the changing nature of the UK beer market. “Heineken has a fantastic opportunity to pick up Stella Artois’ declining market share,” he says. “It will be a long, slow push for Heineken, but this deal would be one way of speeding up the process.” 

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