Premiumization will help Heineken to weather inflationary pressures, says GlobalData

Following today’s release of Heineken’s figures for Q1 FY2021/22; Amira Freyer-Elgendy, Consumer Analyst at GlobalData, a leading data and analytics company, offers her view: “Net profit of €417m far exceeded the €168m achieved last year and surpassed pre-COVID levels (Q1 2019: €299m), largely due to premiumisation across all regions, revenue growth and recovery of on-trade in Europe. However, the net profit declared excludes the exceptional cost of €400m related to its decision to halt and transfer ownership of its business in Russia. Rivals of Heineken are likely to face similar costs and a more challenging revenue performance in the eastern Europe division during 2022, with Carlsberg expected to be particularly hit hard with Russia being one of its key markets.

“Organic net revenue growth was supported by an outperformance in its European division, where growth hit 46.1% and beer volume tripled compared to last year. Lockdowns and hospitality closures meant for weak comparatives, but improved consumer confidence will have also boosted volume recovery. According to GlobalData’s Q1 2022 global consumer survey, 32% of consumers in Europe are extremely concerned/quite concerned about the visiting restaurants/bars because of COVID-19 risk – the lowest of all regions and notably lower than the global average of 42%.

“GlobalData forecasts the value of the European beer market value to grow 2.1% in 2022 and we expect Heineken to gain share this year. However, while Europe has had an exceptionally strong start to the year, we expect volume growth will become tougher over the course of 2022, as household budgets are squeezed and consumers cut back on non-essentials, entertaining and their spending on eating and drinking out – hitting beer consumption.

“Premiumisation and assertive pricing have supported revenue growth over the quarter, and we expect these to continue to be a focus for Heineken, as illustrated by Heineken® Silver being introduced to its European division. This is said to be an extra-refreshing variant using an ice-cold lagering process, and is marketed as a premium beer. Since the company is expecting inflationary pressures to drive up costs throughout the supply chain, with the brewer reporting in February that input costs would rise by a mid-teens percentage rate, premiumizing its proposition and product diversification is a sensible strategy to help justify, and disguise, higher price points – and protect margin performance. While, its optimism in achieving modest growth in operating margin this year is unchanged since the last update, intensifying market and economic headwinds has potential to unsettle this forecast.”