Heineken has defended its decision to make “unprecedented” price increases, despite a sharp fall in profits after volumes dropped.
The brewer, which owns drinks brands such as Birra Moretti, Strongbow and Amstel, as well as namesake Heineken, saw its volumes declined by 5.6% in the first six months of the year. It also experienced a steep profit decline of 22.2% year on year to €1.61bn.
The volume declines were largely driven by higher prices in the half, the company said. Globally, it increased prices by an average of 11.8%. In Europe prices increased by 14% in the quarter, while beer volumes fell by 6.4% in the half year versus 2022 levels.
Despite falling volumes, Heineken CEO Dolf van den Brink insisted the company has “no regrets” over its pricing action.
“We knew we needed that pricing… the volume is impacted but it will come back with a delay of one or two quarters. The margin would have never come back if we would not have taken the pricing, particularly in Europe,” he told investors during a call today (31 July).
Brand power today is pricing power tomorrow.
Dolf van den Brink, Heineken
The company said volume declines in Europe as a result of the increased pricing was largely “in line” with expectations. Across its portfolio, Heineken expects to continue to see “low single-digit volume decline” in the second half of 2023 but predicts this decline will then “moderate”.
It noted particular price-driven declines in the Desperados brand, which saw falling demand in its “core” European market. It also saw volume declines in its cider portfolio in the UK.
The brewer continued to increase marketing spend, despite the impact of inflation over this time. It increased marketing and sales spend by €200m (£171.63m) in the half. As a percentage of revenue, marketing and sales investment has now reached 10%. This represents a step up from its 2022 full-year levels, which saw it invest 9.5% of revenues into its marketing.
While the company sees marketing as a long-term investment, with Van den Brink stressing that the injection of the extra €200m will take time to have an impact on the topline, he did acknowledge the power of marketing in supporting price increases.
“Brand power today is pricing power tomorrow,” he asserted.
In 2022, despite the onset of inflation, Heineken avoided declining volumes, growing by 6.9% across the year. In the final quarter of the year, it grew volumes by 3%. However, by the first quarter of this year, it had slipped into volume decline.
Name-brand Heineken managed to buck the volume-decline trend, growing by 1.7%, excluding Russia, in the six months to the end of June. However, premium beer as an entire segment declined in terms of volume by 6.5%.
As well as Russia-related impacts, poor volumes in Vietnam were blamed for this decline. The company’s overall sharp profit decline was also attributed partly to a drop in the country. Heineken admitted it had overstocked in the market and that price increases it made early on were not followed by competition, leading to a drag on profits.