The maker of one of the world’s leading brands is targeting tech-savvy younger consumers. It’s not your usual marketing campaign.
Dutch beer producer Heineken recently launched an innovative advertising partnership with Google for worldwide digital campaigns on YouTube and mobile phones. It’s an example of what Cees van Lede, chairman of Heineken’s supervisory board, describes as “a substantial shift” in the group’s strategy to build awareness for its global brands using social media.
“There’s no brewery in the world that has a brand like Heineken,”says Van Lede, “but you have to convey the message.” Heineken is now increasingly targeting social media for advertising, he says, “because that’s where the younger generation, today’s generation, spends their time”.
A tall and elegant man with a quietly analytical approach to business, Van Lede is highly sensitive to the importance of brand development. As executive chairman of Dutch paints company Akzo Nobel from 1994 to 2003, he had to balance spending on research to develop new products with shareholder demands for dividends. Now, as non-executive chairman of Heineken and a member of several other blue-chip company boards, he sees the same challenging trade-off between short-term shareholder remuneration and the cost of keeping the Heineken brand fresh and appealing to a new generation of consumers.
Advertising vs dividends
“If you take companies that have to spend a lot of advertising to keep their brands in a good position and to renew them from time to time, that may be at variance with shareholders demanding increased dividends,” he notes. “That is a struggle that you find very often. I’ve seen situations where the value of the brand’s eroded by insufficient support from the marketing spend because the pressure of the stock market was such that they increased dividends rather than upped the advertising.”
As a member of Heineken’s supervisory board in 2002 and its chairman since 2004, Van Lede draws on more than 40 years of experience in a wide range of businesses to provide the long-term view. Following a law degree from Leiden University and an MBA from INSEAD, he worked for two years for Shell International before joining McKinsey in 1969. Later, he served as president and CEO of a Dutch construction company, chairman of the Confederation of Netherlands Industries (VNO) and vice president of the Union of Industrial and Employers’ Confederations of Europe (UNICE). Today, he also sits on the boards of a number of other international companies, including Sara Lee, which owns the Dutch coffee brand Douwe Egberts, Philips, Air France-KLM and AirLiquide.
Expanding global brands
With more than 125 breweries in over 70 countries and a global network of distributors, Heineken is one of the most valuable global brands. The world’s third-largest brewer after Anheuser-Busch InBev and SABMiller based on revenues, it is also the world’s largest cider producer. As a family-controlled company, it is fiercely committed to independence in a market characterised by ongoing consolidation.
In Europe, where it is the market leader, beer sales are under pressure because of demographics and stagnating economies. In Europe’s ageing societies, acknowledges Van Lede, “the demographics are against you” because of a shift in the age pyramid away from the 16- to 40-year olds who are the main consumers of beer towards “a more pillar-like construction where more older people shift away from beer, so we have to refocus beer as a product relative to competing consumption possibilities such as wine.”
By contrast, Heineken is enjoying strong growth in developing countries, with more youthful populations and in many cases more dynamic economies. In 2008, it acquired a 37.5 percent stake in India’s United Breweries Ltd, the brewer of Kingfisher beer, as part of its carve-up with Carlsberg of the assets of UK brewer Scottish & Newcastle, and last year it bought Mexico’s FEMSA, producer of Dos Equis, Tecate and Sol, and Latin America’s second-largest Coca Cola bottler. It also has strong positions in a number of African countries.
In commercial terms, building growth in the developing world is a simple equation, says Van Lede. “We benefit from: number one, the age build-up of the population; number two, fast-growing economies; and number three – and that comes hand in hand with fast growth – that people change their consumption behaviour from local products to more branded products.”
The importance of being selective
Even so, Heineken is selective in the markets that it enters. It has taken a cautious approach to China, the world’s largest producer and consumer of beer, for example. Recently it sold stakes that it had acquired in two Chinese beer makers to CR Snow, a joint venture between SABMiller and China Resources Enterprise that is China’s largest beer maker, with more than a 20 percent market share. Instead, says Van Lede, Heineken is focusing more on India. “It’s a matter of picking your battles,” he says, noting that the market for beer in India “in our view is growing faster than it is in China”.
So how is Heineken handling the challenges it faces in mature markets such as Europe? In common with other major brewers, it is focusing on premium beers that command higher profit margins. However, Van Lede cautions against expecting radical changes in its products. “You do adapt” to changing tastes but “very, very little on a year-to-year basis”, he says.
More important, Van Lede says, is to keep in touch with changes in the way people are drinking beer. “In general,” he notes, “I think beer has become less bitter than it used to be. That’s an innovation in itself. The second innovation is the way in which you drink it. Now you have the ice-cold beer, which is a different sensation to the beer presented at 8°C.” What’s more, “you used to drink it in a glass. Now people drink it much more from a bottle”.
Keeping up with such shifts requires paying very careful attention to consumer trends and to marketing. “You really have to have an intimate knowledge of the social and drinking habits of the younger generation,” says Van Lede. “So your age pyramid within the company, particularly those who are in touch with the market and with the publicity, should be fairly young.”
You also need to keep up with new technology and communications trends, and that’s where the new joint venture with Google comes in. In addition to developing advertising campaigns on YouTube, the two companies plan to work together in emerging economies, where mobile Internet use already exceeds desktop access, on advertising campaigns using mobile phones. They also plan to exchange ideas and knowledge in other areas of marketing.
“You see a shift in advertising to the social media,” says Van Lede. “I’m not saying that we are abandoning television but you do see that it’s going more that way.”