‘Refreshing’ Heineken

Selecting the most suitable strategic option through ranking.

Dutch brewing giant Heineken, the world’s third largest brewer, faced many challenges
in 2016. The world beer market was slowing down with the rise of alternative beverages,
tighter regulations and global economic slowdown. Craft beers were also on the rise.
Nevertheless, the developing countries still offered significant growth opportunities –
areas in which Heineken was already strong. Heineken was also threatened by AB
InBev’s bid for SABMiller that would create the world’s largest brewer (three times
Heineken’s size with much higher margins). Heineken’s controlling family was fiercely
protective of the company’s heritage and believed growth and value could continue for
shareholders. Nevertheless, how could Heineken ‘refresh’ its strategy?

Heineken could grow organically, increasing marketing at premier sports events to

complement its promotion of world-class tennis at the US Open and Wimbledon.

A second option might be to expand its cider and Weiss beer production and distribute
globally to address new consumer tastes. Neither option though might be sufficient to
compete against a new industry giant.

Option three could be to merge with family-owned Carlsberg, the fourth largest brewer in
the world. A merger would result in 40 per cent of the European market, significantly
strengthen their combined Asian presence and build on their joint venture, and achieve
sourcing and operations synergies. Although Carlsberg might not be so expensive due to
recent poor performance, a merger might not address the rise in beer alternatives and be
acceptable to the Carlsberg family.

Option four, to merge with Diageo, would give access to a wide range of liquors, spirits
and whisky to complement Heineken’s beers and provide opportunities in the new mixed
drinks sector. However, there could be ownership concerns as Diageo was twice
Heineken’s size.

This would be less of a problem with a fifth option, merging with Moulson Coors, that
would play to Heineken’s strengths in brewing and greatly strengthen its US presence
with synergies in supply, logistics and distribution. But this would not address the market
slowdown or the rise of craft brewers.

Option six therefore might be to invest in craft brewers. Heineken could supply capital
and distribution as well as brewing know-how. It would keep Heineken close to
consumer trends and possi- bly provide new products. However, this might take time and
also being associated with Heineken might make a craft brewer immediately lose their
status. It might also set back Heineken’s industry-leading efforts in corporate
sustainability.

Question 1
1. Distinguish specific and general environment of an organisation are
2. Analyse two elements of Heineken’s specific environment.

Question 2
Present 1 change in the general environment of Heineken which could have a positive impact
on its activity (3 points) and 1 change in its general environment which could have a negative
impact on its activity (3 points). Explain Why.

Answer
Question 1.1:
 The general environment encompasses broad and global factors that indirectly affect all
organizations to some degree, typically beyond the control of any single organization.
These factors include political, economic, sociocultural, technological, environmental,
and legal conditions, collectively referred to as PESTEL.

 The specific environment encompasses factors and forces that directly affect an
organization's operations and performance. These factors are more immediate and have a
direct impact on the day-to-day activities of the organization, including suppliers,
customers, competitors, government agencies, public, and other stakeholders.

Question 1.2:
Two elements of Heneiken’s specific environment:
 Competitive landscape: Heineken was also threatened by AB InBev’s bid for
SABMiller that would create the world’s largest brewer (three times Heineken’s size with
much higher margins)
 Increased competition in the global beer market.
 The increased scale of the combined entity might provide cost advantages,
making it more challenging for Heineken to compete on pricing and
operational efficiency.
 Higher margins for the merged AB InBev and SABMiller could potentially
allow for developed marketing and innovation investments, making it crucial
for Heineken to differentiate itself in the market.
 Family-controlled dynamics: Heineken’s controlling family was fiercely protective of
the company’s heritage and believed growth and value could continue for shareholders.
 The controlling family impact decision-making processes, emphasizing the
importance of maintaining the company's traditions and values. This emphasis
results in a cautious approach towards potential mergers, acquisitions, or
innovations that could undermine the company's heritage or values.
 The belief in the potential for growth and value for shareholders reflects a
long-term orientation. Specifically, they might prioritize sustainable growth
over short-term profit maximization.