Heineken Company Case Study (Essay Sample)

Heineken Company Case Study
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Heineken Company Case Study
Background information.
Heineken is a multinational company, which deals with alcoholic drinks production. This company was founded by Gerard Adriaan Heineken in 1864. The Company is named after its founder "Heineken”. Although originally based on Amsterdam, it was closed 1988 and converted to a Museum called "Heineken Experience”. The company has over 200 breweries in various countries globally. Due to its globalization, it has provided job opportunitiesto over eighty thousand people. The company produces various brands of brew which include Beer, Zywiec, Staronrno, BirraMoretti, Ochota, Murphy’s, star and Heineken Pilsener.
Since its establishment, Heineken has gone through various transitions. In 1869, under the management of Gerard Adriaana Heineken, the company adopted bottom-fermenting yeast as a method of production process. With its massive growth, a new brewery branch was established in Rotterdam in 1874. The brewing formula, employed until today, was developed by Dr H. Elion in 1886, under management of Gerard Adriaan Heineken.
The Adriaantenure ended in 1917 and the management was delegated to his son, Henry Pierre Heineken, who managed the company since then until 1940. During his tenure, henry established various techniques of maintaining consistency in the quality of the company’s products. He also ensured a lot of export as a strategy of increasing the company’s productivity, and expansion.
Since 1940, Alfred henry Heineken, son to henry Heineken, took over the managerial position of the company until when he passed on in 2002. During his tenure, he ensured high rate of company’s globalization (Derdak, 2007). He also attempted to raise the company’s stock price by purchasing competing brewing companies and closing them down. This enabled him to be the only brew produce, hence competition was minimized. Alfred also merged the company with its competitor, Amstel in 1975, and established a new brewery firm inZoetrwoude.
Based on globalization and revenue income, Heineken is currently ranked the thirdlargestbrewing company. It bought the brewery division of Mexican giant FEMSA in 2010, and merged with the company. This enabled it toeasilymarket itsproductsthroughout Latin America. With FEMSA acquisition, Heineken is projected to grow strong by expanding its market share in the Latin America. The underlying reason to this projection is the fact that, FEMSA is possessing big distribution link in Latin America, therefore with its network, Heineken will expand.
Literature Review
The main objective of the Heineken’s management team is to expand the company in various fields. These include increasing the productivity, revenues, enter into new markets and make more global expansion. Since 2006 to 2011, the Heineken’s generalperformance has been fluctuating. The trend is shown in the table below.
Exhibit 1 Income Statements (in millions of euros)







 

2010

2009

2008

2007

2006

Revenue

16,133

14,701

14,319

12,564

11,829

DEBIT

2,476

1,757

1,080

1,528

1,832

Net Profit

1,436

1,018

347

807

1,211

Dividend

438

318

210

343

294

Exhibit 2 Balance Sheets (in millions of euros)









2010

2009

2008

2007

2006

Assets

26,549

20,180

20,563

12,968

12,997

Liabilities

16,321

14,533

15,811

7,022

7,477

Equity

10,228

5,647

4,752

5,946

5,520

In 2006, there was an increase in sales. This was greatly contributed by expanded markets in Eastern Europe, Africa and Far East. It was during this time, when a plan for constructing a brewery branch in South Africa was proposed. This was due to the increase in sales in Africa, specifically South Africa.
Towards the end of 2008, there was an organic growth in the company. At the same time there was a slowdown in the beer market globally. Due to this, the company’s management opted to deployeconomic policies, such as cost reduction measures in order to maintain profitability. In comparison to 2010 and 2006, the net profit in 2009 was low. This may have been contributed by the financial crisis experienced in 2008.
However, in the year 2010, Heineken recorded the highest level of profit. There is also increase in the size of assets, dividends and equities.
Evaluation
Political environment
With its expansion globally, Heineken is operating in various political environments. Different countries have different political systems which affects the investment companies in one way or another. Marketing, selling and distribution of investment products involvea lot of strategies that conforms to the country’s political policies and regulations. Various countries try to discourage their citizens from consuming alcoholic drinks. In an attempt to achieve this, various political policies have been set in place in order to minimize consumption. Some of these policies include imposing heavy taxes on alcoholic products, making it expensive hence not achieved by many. Also some countries have regulated the consumption of alcoholic products by certain groups of people for instance drivers. Due to such political regulations and policies, alcoholic product marketsare impacted negatively. Therefore, political environment brings threat to Heineken marketing strategies. Also some countries, with other breweries companies impose heavy tariffs to Heineken in order to salvage their local producers for competition. The heavy tariff increases the cost of production and reduces the profit. Also investing in some countries is associated with a lot of risks, which may impact the performance of company negatively. The risks emanates from issues such as civil conflicts, for instance the Kenya post-election violence in 2008, which affected the performance of investment companies.
Economic Environment
Heineken operates within various economic factors. Such factors include interest rates and inflation. Inflation has been a common phenomenon affecting investment companies. Inflation is measured by changes in the consumer price index. The two types of commonly experienced inflations are expected and unexpected inflation rates. Unexpected inflation always results in risks to the investments sectors. Therefore, high inflation rates increase speculations in the breweries markets hence increases price volatility (Graham, 2005). The 2008 economic crisis, which resulted from inflation contributed to the low performance in the company.
Another economic factor that brings threat to Heineken Company is currency fluctuations. Due to its globalization, it operates using various currencies and in cases of currency fluctuations, the company’s imports and exports are affected.
Another economic factor that causes lack of steadiness in terms of profitability is interest rate. Unstable Interest rate causes effects, not only to future firm’s cash flows, but also discounting rates. Interest rate is considered when calculating cost of capital to appraise the investment decision. Higher interest rates leads to increased debt service hence affect the company’s productivity performance. Also low interest rate reduces the investment cost.
Social culture
Most people from various cultural set ups consume alcohol during leisure time. The lifestyle is changing rapidly due commitments,hence people do not get free time to go to barduring leisure for alcohol consumption. Many people have found it easier to interact and socialize via social sites in the internet as part of their leisure. Therefore going to social club such as bars have been minimized hence decline in alcohol consumptions. Due to this,beer markets suffer including Heineken, leading to deterioration in the sales quantity.
Another social factor that affects the volume of beer consumption is the demographic changes. The population sizes and distributions of various countries vary. In countries where the population size is bigger, the beer market is wider hence increase in the volume of sale.
Technology
With high competition in the beer markets, various companies are striving to improve the quality of their products in order to gain competitive advantages (Riggs, 2007). The main strategy that ensures quality and mass production is the new technology deployment. Therefore,applicationof the new technological meansof production is inevitable in any investment sector. Technology is not only applicable in production, but also in marketing. New technology ensures attainment of profitability through low cost of production associated with it and also economies of scale due to the large volume of production which is supplied to the market. The modern technology employment in any production firm is very crucial since it ensures high quality of products, conforming to the current consumer preferences. The high production level, which led to the realization of the high profit, dividends and equities in the year 2010, was greatly contributed by the modern technological means of production
Competition.
Heineken is fighting for common market with other brewing companies. Some of these companies managed to get into the market fast (first mover) therefore gaining first mover advantage. Some of these companies include Anheuser-Busch InBev and SABMiller. These companies also deployed m...