Beer drinkers balk at Heineken’s prices

Heineken’s annual profit forecast has been cut after beer drinkers balked over higher prices.

The second largest brewer in the world said that its sales volume fell by 5.4 percent in the first quarter, and then worsened to 7.6 percent in the second. This was due to “the cumulative impact of pricing actions”.

Heineken’s revenues increased by 6.3 percent to €17.4bn, but its operating profit dropped 22 percent to €1.6bn. The company incurred higher input and energy cost and spent more money on marketing. It also recorded an impairment of its Russia division.

Heineken has said that it expects operating profit growth to remain stable at mid-single-digits for the entire year, down from its previous forecast of mid-to-high single-digits.

Heineken shares fell by 6.5 percent on Monday, wiping out most of the gains they had made this year.

James Edwardes Jones said that he was “bemused” by Heineken’s “unapologetic determination” to increase prices in a bad consumer environment.

He said: “This appears to be a massive test for the pricing power Heineken’s brand — a test which has not been wholly successful, if 1H volume decline of 5.4% is anything like it.”

Analysts are closely watching volumes to see if there is any consumer resistance against the price hikes.

Heineken, like its competitors, has raised its prices steadily to offset rising costs. Dolf van Den Brink, the chief executive of Heineken, said that he expects the price hikes to slow down in the second half.

Volumes fell across the board, but Vietnam and Nigeria were especially weak. The Dutch company claimed that it held its market share, and premium brands such as Heineken and Moretti grew.

Trevor Stirling, an analyst at Bernstein, said that the poor performance of the brewer was largely due to events outside its control. However he added that it could have responded faster to warning signs from Vietnam whose export-driven economic has been affected by the slump in demand.

Van den Brink stated that the company has written off its Russia assets at zero. “We want to get out.”

The Dutch group that also produces Tiger and Amstel said it has taken a loss of €201mn from its partial withdrawal from Russia.

Heineken made an announcement in April that it had found a buyer, and that they had submitted a request for approval with the Russian authorities. The company’s position in Russia has been further complicated by news that was released earlier this month, stating that Carlsberg and French consumer goods giant Danone had their Russian subsidiaries seized by the Kremlin.

Van den Brink said that the company would not be able to comment further pending an approval of a transaction, in case this had an effect on their chances.

We have no intention of cancelling our transaction. He said, “We still plan to leave the country.”