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Heineken Rises as Premiumization Keeps Cost Pressures at Bay

Published 02/16/2022, 05:06 AM
Updated 02/16/2022, 05:46 AM
© Reuters.

© Reuters.

By Geoffrey Smith

Investing.com -- Heineken (OTC:HEINY) stock rose 1.8% in European morning trading on Wednesday, outperforming the broader market, after releasing quarterly figures that suggested pent-up demand for socializing more than compensated for rising costs last year.

However, it warned that “the speed of recovery remains uncertain and we face significant inflationary challenges.”

Brewers around the world are facing increased cost pressures from various sources, not least barley, energy and transportation. In an interview with the Financial Times, chief executive Dolf van den Brink expressed the issue much more starkly, saying:

“In my 24 years in the business I’ve never seen anything like it, not even close…Across the board we are faced with crazy increases.”

Van den Brink was also more cautious than many industry colleagues about current trends, saying that risks of product shortages are “going up daily because of the global supply chain disruption.”

As such, the company said it will put off giving guidance for 2023 until the second half of this year. For 2021, net profit rebounded by 80% to 1.15 billion euros, after a 2020 scarred by heavy one-off charges. Operating profit rose by 44% and net revenue rose 12%.

Heineken, the world’s second largest brewer, has managed to offset that in part by ‘premiumization’: average revenue per hectoliter sold last year rose by 8.3%. That strategy, which is a response to the long-term decline in beer demand across the developed world, predates the pandemic. It is set to continue this year, as the company makes “fewer, bigger bets on premium local brands.”

However, the strategy faces a stern test this year from the squeeze on consumer incomes. With prices rising across the board, consumers may increasingly think twice before buying a premium beer over one that satisfies the same demand for less money.

Despite problems with rising input costs, the company said it managed to achieve 1.3 billion euros ($1.5 billion) of running cost savings last year, keeping it on track to meet its 2023 target of 2 billion euros.

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