Beverage Industry

Stars Aligning

February 1, 2006

Stars Aligning
By Elizabeth FUHRMAN
With consumer trends pointed in the right direction, Heineken USA finds itself well positioned
2005 marked a year of change for Heineken USA. In the last year alone, the company took on the distribution of five Mexican beers, appointed a new chief executive officer, vice president of sales and vice president of marketing, updated a flagship brand and began to test market the first major U.S. line extension of the Heineken name in more than 125 years. The trademark red stars seem to be aligning for Heineken USA in 2006.
Heineken USA’s new CEO as of October isn’t exactly new. As of Jan. 30, the first U.S.- born president for the company, Andrew Thomas, had been with Heineken for 11 years, with his tenure almost equally divided domestically and internationally. Returning to the U.S. market after being in the Netherlands since 2000, Thomas noticed the significant transformation the business has undergone.
“Obviously, the market has gotten a lot tougher,” he says. “We’re in a period of more stagnation in the marketplace. As a result, you’ve seen us embark on more of a portfolio strategy, and a lot more emphasis on complementary brands to the Heineken franchise, as well as more focus on innovation from a business perspective.”
As Heineken USA has evolved, so has its senior leadership. As with Thomas, the new vice president of marketing, Ken Kunze, who took over the position in August, isn’t new to Heineken either, having served more than eight years with the company. Heineken’s new vice president of sales, Don Blaustein, who joined the company in March, is new to Heineken, but not to the beer industry, with previous experience at Molson Inc. and Diageo Guinness USA. For the first time in Heineken USA’s business, the entire management team consists of U.S.-born citizens.
“It’s a sign of the evolution of the company,” Thomas says. “Heineken will always be a company with Dutch roots. From my perspective, our marquee is our internationalism. The sweet spot is when you can couple an international perspective with local insight and local expertise.”
The Heineken USA team has the advantage of being a part of the 67,000 employees Heineken N.V. has working for it globally, with brands distributed in 180 countries. While Heineken philosophies, best practices and brands translate into any language, the U.S. company finds itself poised to address the challenges in the U.S. beer market with the launch of the “luxury light” category.
Debuting in on-premise accounts March 1 and off-premise by April 1, Heineken Premium Light Lager, along with Amstel Light, will make up Heineken’s luxury light portfolio. This portfolio strategy plays into Heineken’s goal to expand its product portfolio offerings to capture more of the premium import segment of the U.S. beer market. “Light beer is about half of the U.S. beer market,” Thomas explains. “If you look at premium [beers] – imports and specialties – they are well over 10 percent of the overall beer market, but basically do no business on the light side.”
While Amstel Light will continue to deliver the fuller-flavored light beer taste more traditional to an import, Heineken Premium Light offers a lighter taste that maintains the Heineken signature flavor, but with fewer calories and carbohydrates.
“If you go into a bar, coming back after being in Europe for five years, I’m almost amazed at how many people are holding mixed drinks,” Thomas says. “They are looking for a drink that has a lighter, more drinkable, smoother character from a liquid perspective, but they also want to make a bit of a statement about themselves. What you’re holding reflects on you.”
It might seem like it has taken the premium beer category a long time to develop the light beer concept, but Thomas says consumers have dictated the right time for a Heineken light product. “The industry needs Heineken Premium Light because we’re being challenged right now in terms of the way people are drinking,” he says. “With the way people are trading up and the way people are spending on simple, small indulgences on themselves, premium products right now are well suited in the industry. Secondly, you see with consumers that the taste profile continues to evolve. You’ve got people who want a light-tasting liquid, which is how they define light.”
Light is not necessarily a calorie message or a carb message or a mouthfeel or taste message, Thomas says. Consumers are looking for an upscale beer with a little bit of a lighter character. In the four test markets in which Heineken Premium Light launched in 2005, the light lager was well accepted by consumers with minimal levels of cannibalization, if any, and actually created a halo sales effect on the overall franchise.
“What we’ve learned is to make sure that we don’t force the cannibalization ourselves,” Thomas says. “The products are very different. Heineken is characterized by being a full-flavored, classic, traditional European lager. Heineken Premium Light is a smooth, drinkable light beer. As a result, different people are going to choose them for different occasions.”
Heineken USA plans a phased media approach to support the national launch of Heineken Premium Light, with $50 million allotted for advertising and trial-generating vehicles for the new product, Kunze says.
“Our goal is to build distribution as quickly as possible in terms of on- and off-premise,” Kunze says. “As we move into April, advertising will really ramp up in a significant way. You’re going to see us be very big and very visible with a lot of weight across televison, print and out-of-home.”
Not to be forgotten, Amstel Light underwent a label upgrade and a tagline change from “The Beer Drinker’s Light Beer” to “Live Tastefully.” The packaging upgrades include a more sophisticated, contemporary label, as well as a new look for its six- and 12-packs.
Amstel Light represents a 10 million-plus case business for Heineken USA. “If you look at the rankings and who it’s above, sometimes it doesn’t really get the credit it deserves,” Kunze says. The packaging changes are designed to reinforce Amstel Light’s full-flavored taste and European heritage, while connecting the brand to the upscale and premium lifestyle of luxury light beer consumers.
“The platform, ‘Live Tastefully,’ is really a rich area for the brand to play in as an invitation to live tastefully, as a complement to living tastefully and in terms of Amstel Light being an import specialty beer,” Kunze explains. “Within the portfolio, Amstel Light will continue to be an imported light beer with the fuller flavor.”
Mexican goes Dutch
The luxury light portfolio is just one of the ways Heineken USA is evolving toward a portfolio-oriented company. Beginning in January of 2005, Heineken USA entered into a three-year agreement with the Femsa Cerveza unit of the Mexican brewer Fomento Economico Mexican (CCM or Femsa) to head the sales, distribution and marketing of the brands  Tecate, Dos Equis, Sol, Bohemia and Carta Blanca. The move increased Heineken USA’s volume 28 percent – with Tecate selling an estimated 13.5 million cases a year and Dos Equis at more than 5 million – to give it a 26 percent share of the U.S. import market.
With the addition of the CCM portfolio, Heineken USA exceeded 100 million cases in 2005. While Heineken always will be the focus for the company, the advantages of evolving to a portfolio company have helped strengthen all brands involved. Geographically speaking, Heineken USA’s strengths are in the Eastern United States while the CCM portfolio is stronger in the Western part of the country. In terms of demographics, Heineken USA’s strengths are the general market, African American and Caribbean consumers, but not specific to Hispanic consumers as the Femsa brands are.
“Brands like Tecate and Dos Equis allow us to appeal to consumers who might not have been drawn to the overall portfolio before,” Thomas says. “From a consumer perspective, it has really helped us to round off our portfolio. From a trade perspective, it has also allowed us to be a little more service oriented to our partners because we have a much broader portfolio.”
Obviously, from an organizational standpoint it does create more complexity in the organization. “When you’re selling one brand, the way you operate, the way you behave, and what’s important is different than when you have multiple brands,” Thomas says.
Heineken has been pleased with the relationship with Femsa and the sales growth and opportunities the five brands are creating. While Heineken understands the premium import category, the Femsa brands are providing the company with broader insight into Hispanic beer consumers.
Each brand plays a slightly different role within the portfolio. Amstel Light maintains more of a general market consumption base, and appeals to both genders more than other brands for the company. “It really has a nice female part of the franchise and tends to be very upscale in terms of consumption,” Kunze says.
Tecate’s marketing, with the tagline “Welcome Home,” is focused on the Mexican consumer and first-generation immigrants. Dos Equis’ focus falls on the general market, with the slogan, “The Flavor of Mexico,” to tap into imagery of Mexico and the beer’s fuller flavor.
Amstel Light won’t see much ethnic marketing, focusing instead on sponsorships such as ski events and the Professional Golf Association of America. On the other hand, almost 100 percent of Tecate’s marketing is focused against Spanish-speaking Mexican consumers, which has led the company to debate whether or not to do more general market advertising.
“Different brands have different levels of development, and you need to be smart about how you bring the brands forward on a geographic basis,” Kunze says. “Tecate is a huge business in Southern California. Distributors and retailers in other parts of the country may not even realize that. We’re looking at tapping into that kind of success in Southern California and begin to bring it to different markets … Part of it is prioritization and part of it is where the biggest growth opportunities are for each brand.”
With sponsorships of the Grammy’s and the Latin Grammy’s, music is a way Heineken USA has identified to leverage Heineken’s broad appeal and connect with consumers. Last summer, Heineken hosted AmsterJam, a day-long music festival in New York City, with the Red Hot Chili Peppers and Snoop Dogg headlining and an interactive music lounge. More than 30,000 consumers who were the legal drinking age attended the inaugural event.
Heineken also is appearing in trendy media advertising, with media buys during shows like “Nip/Tuck.” In January, Heineken also renewed its longstanding advertising agreement with Howard Stern, as he made his move to Sirius Satellite Radio. “These shows do an incredible job of really delivering an audience,” Kunze says. “Within the context of loyalty of viewership, people really tend to pay closer attention to what’s going on because they are really engaged with the program. Hopefully it carries over with the advertising.”
Portfolio performance
During the past decade, Heineken USA’s 300-plus sales force, focused on Heineken and Amstel Light, realized in order to increase sales, it would need to move more heavily into off-premise accounts. “We then became great at off-premise,” says Don Blaustein, vice president of sales. “We also became great at focusing on a couple of brands. But what’s happened in the last few years is that No. 1, we have a broader portfolio, and now all alcohol companies – beer, spirits and wine – are focusing more on the on-premise because they recognize there is a need to build brands in the on-premise.”
Over the past few years, Heineken USA created a specialized sales organization focused against each of the channels. The company was spending a disproportionate amount of its time in off-premise accounts, but that was fine, Blaustein says, because that’s where its business was. What’s changed for the sales department is the addition of the CCM brands and Heineken Premium Light. As well, Heineken USA provides back office support for Star Brand Imports, which includes specialty beers: Paulaner, Hacker-Pschorr, Birra Moretti, Murphy’s Stout, Murphy’s Red Beer, Zywiec, Affligem Starobrno, Edelweiss and Fischer.
“We’ve got to be more flexible, more nimble and all encompassing, both in the off-premise and on-premise,” Blaustein explains. “If you want to grow a brand like Heineken Premium Light, you have to go back and establish it in the on-premise.”
The specialized sales team, set up by trade channel, now has the opportunity to sell an entire portfolio. “We’re focusing more on category management, where we’re going to go in with this portfolio, both in the on-premise and the off-premise, to really be a one-stop shop for our distributors and retailers,” Blaustein says. “…We have to excel in selling in the portfolio. Whether it be to grocery chains, bar staff, restaurants or convenience stores, we have an opportunity to go in with a legitimate portfolio of brands.”
Performance management orientation, through which Heineken USA and distributors know exactly what to expect from each other, has to be more in tune now. For example, Heineken has an annual business plan with distributors at the beginning of the year. Heineken keeps distributors informed of how they are doing each month and what their priorities are within the month.
“It’s certainly not to play a policing role, but to actually build our business and their business together,” Blaustein says. “They want to know how they are doing and how we feel about how they are doing. I think Heineken Premium Light and the CCM portfolio have given us an opportunity to go in and force us to be that much more disciplined with what our priorities are because we have so many more priorities.”
In addition to focusing on selling portfolios, going forward the company plans to emphasize innovation. It recently improved upon its 4.75-liter draft keg, by advancing the packaging and technology and changing the size to 5 liters. The DraughtKeg is a pressurized, disposable mini keg system with tap components in a 12.1-pound steel keg that allows beer to stay fresh for 30 days. Heineken plans to expand distribution of the 5-liter Heineken DraughtKeg to 26 states in the United States, representing 80 percent of the annual volume.
For the Mexican portfolio, Heineken launched a 24-ounce can of Tecate in convenience stores in the West last year. With the success of the item, Heineken plans to roll out the product nationally. The company also is distributing a Dos Equis variety-case for club stores.
From the second half of 2005, Heineken’s trends doubled from where they had been during the first half of the year, both on the Mexican and Dutch portfolios. “The stars seem to be aligned for our company,” Blaustein says. “We’ve got all the trends going in the right direction. We’ve got imports growing, light beers growing, the [Hispanic] population and the trends toward Mexican beers growing. We’ve got a new management team in place. We’ve got a very structured sales organization who are very hungry. You put all that together, we think we’re really well positioned to go to the next level as a company.”
Thomas agrees. “We’re about growing our business,” he says. “We’re about growing the segment. We’re about growing the category and the image of the category. We’re about growing the image of the brand and growing our people in terms of their development – professionally and personally. I would say growth is the central theme of Heineken USA.” BI
Enjoy Heineken Responsibly
In July 2005, Heineken USA became the first brewer in the United States to work nationally with a healthcare system on underage drinking prevention and its related issues, forming the Health Alliance on Alcohol. The company is funding this three-year program with a $600,000 grant to the New York-Presbyterian Healthcare System and White Plains Hospital Center. The healthcare systems, along with partner members, will develop the program materials to address subjects including providing guidance to parents and other influential adults on how to talk with children about alcohol and preventing underage consumption. The materials are broadly distributed and are available on Heineken USA’s responsibility Web sites: ResponsibleMeans21.com and EnjoyHeinkenResponsibly.com.
Another important first for the company was the placement of a responsibility message on all of its advertising. The “Enjoy Heineken Responsibly” message is now on all its brands’ TV, radio and print ads. Then last year, the company went the extra step of putting a responsibility message on all its bottles and cans. The U.S. market became the first market in which Heineken N.V. distributed the message, EnjoyHeinekenResponosibly.com, on its containers, following suit in more than 100 countries globally where Heineken is sold.  
“We figured there is no better way to inform our consumers than to inform them directly on the product we sell to them,” says Dan Tearno, vice president of corporate affairs.
Heineken USA also is the first alcohol supplier to require its employees to be certified in the TIPS (Training for Intervention Procedures) program. As well, the company conducts a program called SafeCall through a partnership with 1-800-Taxicab, which allows consumers to place a free call for a taxi ride home.  
“The cumulative total of what we’ve been doing on responsibility really puts us in a leadership position,” Tearno says. “…We have an ongoing objective as a company to ensure the responsible promotion, consumption and sale of our products.”