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I chose Heineken


Case
Analysis

Week 6

Outline and Grading
Guide (150 points)

Choose
a case from the textbook for this assignment from the following list.

Case
6 – AIG

Case
9 – Heineken

Case
11 – World Wrestling Entertainment

Case
14 – Johnson & Johnson

Case
19 – Fresh Direct

Case
22 – eBay

Case
23 – Matel

Case
26 – Pixar

Case
27 – Procter & Gamble

Case
29 – Ann Taylor

Case 36 – Green Mountain Coffee

COMPANY
NAME, WEBSITE, and INDUSTRY

State the company name, website address, and
industry.

BACKGROUND
and HISTORY

Briefly describe the company in the case
analysis. What is their primary business, who were the officers or key players
described in the case study? If the case study company is currently in
business, list the company’s current CEO, total sales, and profit or loss for
the last year where data is available. Identify key events or phases in the
company’s history. Describe the performance of this company in the industry. Visit
the company’s website and use http://finance.yahoo.com and/or some other
financial search engine to find this data. (15 points)

NOTE: Make sure to use
APA citations throughout the paper. The textbook should be cited if it is the
source of information. If you are not familiar with APA citation, check out the
tutorial APA
Guidelines for Citing Sources
at the end of the course Syllabus. There
are videos to help you with the APA format and business research in the Week 1
Lecture.

ANALYSIS VIA PORTER’S FIVE FORCES MODEL

Analyze the competitive environment by
listing the threat of new entrants, the bargaining power of buyers, the
bargaining power of suppliers, the threat of substitute products and services,
and the intensity of rivalry among competitors in the industry (Chapter 2).
Summarize your key points in a figure. (25 points)

STRATEGY
USED

How does this
company create and sustain a competitive advantage? What strategy from
the readings was undertaken by this company? Were they successful? Can all
companies use this strategy? How is the strategy affected by the life cycle in
the industry? Remember to reference Porter’s generic strategies identified in
Chapter 5 of the textbook, THIS IS CRITICAL. (40 points)

Specific STRATEGY(S)

Choose two specific strategies from this list.

Related Diversification (pages
206–214)

Achieving Competitive
Advantage (pages 256–267)

Entry Mode (pages 267–272)

Entrepreneurial Strategy (pages
292–311)

External Governance Control
(pages 340–347)

Linking Strategic Rewards (pages
366–372)

Creating Ambidextrous
Organization Designs (pages 383–387)

Leadership (pages 392–416)

Apply them in detail to the organization. Be
sure to think strategically and show the results clearly. Use the strategy as a
sub-header for each section so it is clear what is being applied. (40 points)

COURSE
OF ACTION RECOMMENDED

If you were in a position to advise this
company, what strategy would you recommend to sustain competitive advantage and
achieve future growth? Be specific and list the steps the company should take
for successful implementation of your course of action. (15 points)

OPINION

What do you think of this case study?
Describe what you believe are the lessons learned from this case. (10 points)

REFERENCES

When you have completed the paper using the
above sections, insert a page break and have a separate reference page. The
references should be listed in accordance with the APA guidelines as shown in
the tutorial. (5 points)

FORMAT

· 
Use
a title page.

· 
Font:
Use Times New Roman, 12 point.

· 
Place
your name in the upper left hand corner of the page.

· 
Each
section of your paper should be headed by the bolded, capitalized item
described above.

· 
Indent
paragraphs.

· 
Insert
page numbers bottom right.

· 
Paper
length should be four to six double-spaced pages not including title page,
references, or illustrations and tables.

· 
Use
APA citations throughout the paper. If you are not familiar with APA citation,
refer to tutorial, which is contained in the last section of our course Syllabus.

· 
Include
a separate Reference page at the end of the paper.

· 
Please
prepare reference page as follows.

References

Dess,
G., Lumpkin, G., & Eisner, A. (2012). Strategic
Management
(6e). Boston: McGraw-Hill Irwin.

 THE CASE AS FOLLOWS AND FOLLOW DIRECTIONS ABOVE

Case 9: Heineken*

In January 2011, Dutch brewer Heineken announced the acquisition of five breweries in Nigeria as part of its plan to expand in one of the world’s fastest growing beer markets and Africa’s second largest. The purchase will raise the firm’s market share to approximately 68 percent, giving it a substantial lead over its competitors. Nigeria’s beer market has grown at an annual rate of about 9 percent over the past 10 years, and growing sales in the country have provided a dominant share of Heineken’s profits in Africa.

The move came on the heels of the acquisition of a Mexican brewer, FEMSA Cervesa, for about $5.4 billion in 2010. The deal made the firm a stronger, more competitive player in the Latin American beer market, which has also become one of the most profitable and fastest growing markets in the world. It allowed the firm to add FEMSA’s beer brands, such as Dos Equis, Sol, andTecate, to its already vast array of offerings. Heineken had already been distributing these beers in the United States, under license from the Mexican brewery, to cater to the growing Hispanic segment of the population.

However, the firm made its most high-profile recent acquisition in 2008 when it bought Scottish-based brewer Scottish & Newcastle, the brewer of well-known brands such as Newcastle Brown Ale and Kronenbourg 1664.Although the purchase had been made in partnership with Carlsberg, Heineken was able to gain control of the Scottish & Newcastle operations in several crucial European markets, such as the United Kingdom, Ireland, Portugal, Finland, and Belgium, further solidifying Heineken’s position as the leading brewer in Europe. But the Dutch-based firm also took over the Scottish brewer’s ventures in far-flung places such as the United States and India.

These decisions to acquire brewers that operate in different parts of the world have been part of a series of changes that the Dutch brewer has been making to raise its stature in the various markets and to respond to changes that are occurring in the global market for beer. Beer consumption has been declining in key markets as a result of tougher drunk-driving laws and a growing appreciation for wine. At the same time, the beer industry has become ever more competitive, as the largest brewers have been expanding across the globe through acquisitions of smaller regional and national players (seeExhibits 1 and 2).

Exhibit 1: Income Statements (in millions of euros)

 Revenue EBIT Net Profit Dividend

Source: Heineken.

Exhibit 2: Balance Sheets (in millions of euros)

 Assets Liabilities Equity

Source: Heineken.

The need for change was clearly reflected in the appointment in October 2005 of Jean-Francois van Boxmeer as Heineken’s first non-Dutch CEO. He was brought in to replace Thorny Ruys, who had decided to resign 18 months ahead of schedule because of his failure to show much improvement in the company’s performance. Prior to the appointment of Ruys in 2002, Heineken had been run by three generations of Heineken ancestors, whose portraits still adorn the dark-paneled office of the CEO in its Amsterdam headquarters. Like Ruys, van Boxmeer faces the challenge of preserving the firm’s family-driven traditions while trying to deal with threats that have never been faced before.

Confronting a Globalizing Industry

Heineken was one of the pioneers of an international strategy, using cross-border deals to expand its distribution of its Heineken, Amstel, and 170 other beer brands in more than 150 countries around the globe. For years, it has been picking up small brewers from several countries to add more brands and to get better access to new markets. From its roots on the outskirts of Amsterdam, the firm has evolved into one of the world’s largest brewers, operating more than 125 breweries in over 70 countries in the world, claiming a little more than 8 percent of the worldwide market for beer (see Exhibits 3and 4).

Exhibit 3: Geographical Breakdown of Sales (in millions of euros)

 Western Europe Central & Eastern Europe Americas Africa & Middle East Asia Pacific

Source: Heineken.

Exhibit 4: Heineken Brands: Significant Heineken Brands in Various Markets

 United States Heineken, Amstel Light, Paulaner*, Moretti Netherlands Heineken, Amstel, Lingen’s Blond, Murphy’s Irish Red France Heineken, Amstel, Buckler, Desperados‡ Italy Heineken, Amstel, Birra Moretti Spain Heineken, Amstel, Cruzcampo, Buckler Poland Heineken, Krolewskie, Kujawiak, Zywiec China Heineken, Tiger, Reeb Singapore Heineken, Tiger, Anchor, Baron’s Kazakhstan Heineken, Amstel, Tian Shan Egypt Heineken, Birell, Meister, Fayrouz† Israel Heineken, Maccabee, Gold Star§ Nigeria Heineken, Amstel Malta, Maltina, Gulder Panama Heineken, Soberana, Crystal, Panama *Wheat beer. †Nonalcoholic beer. ‡Tequila-flavored beer. §Minority interest.

In fact, the firm’s flagship Heineken brand ranked second only to Budweiserin a global brand survey jointly undertaken by BusinessWeek and Interbrand a couple of years ago. This premier brand has achieved worldwide recognition, according to Kevin Baker, director of alcoholic C34C35beverages at British market researcher Canadean Ltd. A U.S. wholesaler recently asked a group of marketing students to identify an assortment of beer bottles that had been stripped of their labels. The stubby green Heineken container was the only one that incited instant recognition among the group.

But the beer industry has been undergoing significant change due to a furious wave of consolidation. Most of the bigger brewers have begun to acquire or merge with their competitors in foreign markets in order to become global players. Over the past decade, South African Breweries Plc acquired U.S.-based Miller Brewing to become a major global brewer. U.S.-based Coors linked with Canada-based Molson in 2005, with their combined operations allowing it to rise to a leading position among the world’s biggest brewers. More recently, Belgium’s Interbrew, Brazil’s AmBev, and U.S.-based Anheuser-Busch have all merged to become the largest global brewer, with operations across most of the continents (see Exhibit 5).

Exhibit 5: Leading Brewers

 Anheuser-Busch InBev Leuven, Belgium SABMiller London, UK Heineken Amsterdam, Netherlands Kirin Holdings Co. Tokyo, Japan Asahi Tokyo, Japan FEMSA Monterrey, Mexico Carlsberg Copenhagen, Denmark Grupo Modelo Mexico City, Mexico Foster’s Group Melbourne, Australia Sapporo Holdings Ltd. Tokyo, Japan

Source: Beverage World.

Many brewers have also expanded their operations without the use of such acquisitions. For example, Anheuser-Busch had bought equity stakes and struck partnership deals with Mexico’s Grupo Modelo, China’s Tsingtao, and Chile’s CCU. Such cross-border deals have provided significant benefits to the brewing giants. To begin with, it has given them ownership of local brands that has propelled them into a dominant position in various markets around the world. Beyond this, acquisitions of foreign brewers can provide a firm with manufacturing and distribution capabilities that they could use to develop a few global brands. “The era of global brands is coming,” said Alan Clark, Budapest-based managing director of SABMiller Europe.1

Anheuser-Busch InBev is now planning to include Budweiser in its existing efforts to develop Stella Artois, Brahma, and Becks as global flagship brands. Each of these brands originated in a different location, with Budweisercoming from the United States, Stella Artois from Belgium, Brahma from Brazil, and Becks from Germany. Similarly, the newly formed SABMiller has been attempting to develop the Czech brand Pilsner Urquell into a global brand. Exports of this pilsner have doubled since SAB acquired it in 1999. John Brock, the CEO of InBev, commented, “Global brands sell at significantly higher prices, and the margins are much better than with local beers.”2

Wrestling with Change

Although the management of Heineken has moved away from the family for the first time, they have been well aware of the long-standing and well-established family traditions that would be difficult to change. Even with the appointment of non-family-members to manage the firm, a little over half of the shares of Heineken are still owned by a holding company that is controlled by the family. With the death of Freddy Heineken, the last family member to head the Dutch brewer, control has passed to his only child and heir, Charlene de Carvalho, who has insisted on having a say in all of the major decisions.

But the family members were behind some of the changes that were announced at the time of van Boxmeer’s C35C36appointment, changes that would support the company’s next phase of growth as a global organization. As part of the plan, dubbed Fit 2 Fight, the executive board was cut down from five members to three, all of whom are relatively young. Along with van Boxmeer, the board is made up of the firm’s chief operating officer and chief financial officer. Later, this board was further cut down to two members. The change is expected to assist the firm in thinking about the steps that it needs to take to win over younger customers across different markets whose tastes are still developing.

Heineken has also created management positions that would be responsible for five different operating regions and nine different functional areas. These positions were created to more clearly define different spheres of responsibility. Van Boxmeer argues that the new structure also provides incentives for people to be accountable for their performance: “There is more pressure for results, for achievement.”3 He claims the new structure has already encouraged more risk taking and boosted the level of energy within the firm.

The executive committee of Heineken was also cut down from 36 to 13 members in order to speed up the decision-making process. Besides the three members of the executive board, this management group consists of the managers who are responsible for the five different operating regions and six of the key functional areas. Van Boxmeer hopes that the reduction in the size of this group will allow the firm to combat the cumbersome consensus culture that has made it difficult for Heineken to respond swiftly to various challenges even as its industry has been experiencing considerable change.

Finally, all of the activities of Heineken have been overseen by a supervisory board, which currently consists of 10 members. Individuals that make up this board are drawn from different countries and cover a wide range of expertise and experience. They set up policies for the firm to use in making major decisions in its overall operations. Members of the supervisory board are rotated on a regular basis.

Maintaining a Premium Position

For decades, Heineken has been able to rely upon the success of its flagshipHeineken brand, which has enjoyed a leading position among premium beers in many markets around the world. It had been the best-selling imported beer in the United States for several decades, giving it a steady source of revenues and profits from the world’s biggest market. But by the late 1990s, Heinekenhad lost its 65-year-old leadership among imported beers in the United States to Grupo Modelo’s Corona. The Mexican beer has been able to reach out to the growing population of Hispanic Americans, who represent one of the fastest-growing segments of beer drinkers.

Furthermore, the firm was also concerned that Heineken was being perceived as an obsolete brand by many young drinkers. John A. Quelch, a professor at Harvard Business School who has studied the beer industry, said of Heineken, “It’s in danger of becoming a tired, reliable, but unexciting brand.”4 The firm has therefore been working hard to increase awareness of their flagship brand among younger drinkers. As part of a global campaign for Heineken, the company launched a video called The Entrance, which premiered on the firm’s Facebook fan page at the end of 2010 and then become a major successC36C37on YouTube. The average age of the Heineken drinker has been reduced from about 40 in the mid-1990s to about 30 as a result of such efforts.

The firm has recently introduced a light beer, Heineken Premium Light, to target the growing market for such beers in the United States. In 2010 Heineken also began to roll out a new design for the Heineken bottle that will be used across all 170 countries where it is sold. The firm has also introducedHeineken in other new forms of packaging. It has achieved some success with a portable draught beer system called DraughtKeg. About 20 glasses of beer can be dispensed from this mini keg. A BeerTender system, which keeps kegs fresh for several weeks once they have been tapped, also continues to grow in sales.

At the same time, Heineken has also been pushing other brands that would reduce its reliance on its core Heineken brand. It has already achieved considerable success with Amstel Light, which has become the leading imported light beer in the United States and has been selling well in many other countries. But many of the other brands that it carries are strong local brands that it has added through its string of acquisitions of smaller breweries around the globe. It has managed to develop a relatively small but loyal base of consumers by promoting some of these as specialty brands, such asMurphy’s Irish Red and Moretti.

Finally, Heineken has been stepping up its marketing to Hispanics, who account for one-quarter of U.S. sales. It obtained a license from FEMSA Cervesa to market and distribute its popular brands, which include Tecate andDos Equis within the United States. Benj Steinman, publisher and editor of the Beer Marketer’s Insight newsletter claims that the deal will give a tremendous boost to Heineken. “This gives Heineken a commanding share of the U.S. import business and … gives them a bigger presence in the Southwest … and better access to Hispanic consumers,” he stated.5 In 2010 the firm decided to acquire the Mexican firm, allowing Heineken to add their brands to its growing portfolio of beers.

Above all, Heineken wants to maintain its leadership in the premium beer industry, which represents the most profitable segment of the beer business. In this category, the firm’s brands face competition in the United States from domestic beers such as Anheuser’s Budweiser Select and imported beers such as InBev’s Stella Artois. Although premium brews often have slightly higher alcohol content than standard beers, they are developed through a more exclusive positioning of the brand. This allows the firm to charge a higher price for these brands. A six-pack of Heineken, for example, costs $10, versus around $7 for a six-pack of Budweiser. Furthermore, Just-drinks.com, a London-based online research service, estimates that the market for premium beer will expand considerably to $230 billion by 2012.

Building a Global Presence

Van Boxmeer is well aware of the need for Heineken to use its brands to build upon its existing stature across global markets. In spite of its formidable presence in markets around the world, Heineken has failed to match the recent moves of formidable competitors such as Belgium’s InBev and the UK’s SABMiller, which have grown significantly through mega-acquisitions. In large part, it is assumed that the firm has been reluctant to make such acquisitions because of the dilution of family control.

For many years, Heineken had limited itself to snapping up small national brewers, such as Italy’s Moretti and Spain’s Cruzcampo, that have provided it with small but profitable avenues for growth. In 1996, for example, Heineken acquired Fischer, a small French brewer whose Desperados brand has been quite successful in niche markets. Similarly, Paulaner, a wheat beer that the firm picked up in Germany a few years ago, has been making inroads into the U.S. market.

But as other brewers began reaching out to make acquisitions all over the globe, Heineken was running the risk of falling behind its more aggressive rivals. To deal with this growing challenge, the firm broke out of its play-it-safe corporate culture to make a few big deals. In 2003 Heineken spent $2.1 billion to acquire BBAG, a family-owned company based in Linz, Austria. Because of BBAG’s extensive presence in Central Europe, Heineken has become the biggest beer maker in seven countries across Eastern Europe. The more recent acquisition of Scottish & Newcastle similarly reinforced the firm’s dominance in Western Europe.

At the same time, Heineken has made major acquisitions in other parts of the world. Its recent acquisitions in Nigeria and Mexico have allowed it to build its position in these growing markets. The firm has also made an aggressive push into Russia with the acquisition of mid-sized brewing concerns. Through several acquisitions since 2002, Russia has become one of Heineken’s largest markets by volume. Heineken now ranks as the third-largest brewer in Russia, behind Sweden’s Baltic Beverages Holding and Anheuser-Busch InBev.

Rene Hooft Graafland, the company’s chief financal officer, has stated that Heineken will continue to participate in the consolidation of the $460 billion global retail beer industry by targeting many different markets around the world. During the last decade, the firm has also added several labels to Heineken’s shelf, pouncing on brewers in far-flung places like Belarus, Panama, Egypt, and Kazakhstan. In Egypt, Ruys bought a majority stake in Al Ahram Beverages Co. and hopes to use the Cairo-based brewer’s fruit-flavored, nonalcoholic malts as an avenue into other Muslim countries.

A Break from the Past?

The recent acquisitions in different parts of the world—Africa, Latin America, and Europe—represent an important step in Heineken’s quest to build upon its existing global stature. In fact, most analysts expect that van Boxmeer and his team will make efforts to continue to build Heineken into a powerful global competitor. Without providing any specific details, Graafland, the firm’s CFO, did C37C38make it clear that the firm’s management would take initiatives that would drive long-term growth. In his own words, “We are positive that the momentum in the company and trends will continue.”6

Upon taking over the helm of Heineken, van Boxmeer announced that he would have to work on the company’s culture in order to accelerate the speed of decision making. This led many people both inside and outside the firm to expect that the new management would try to break loose from the conservative style that has resulted from the family’s tight control. Instead, the affable 46-year-old Belgian has indicated that he would be focusing on changes to the firm’s decision-making process rather than making any drastic shifts in its existing culture.

Van Boxmeer’s devotion to the firm is quite evident. Heineken’s first non-Dutch CEO spent 20 years working his way up within the firm. Even his cufflinks are silver miniatures of a Heineken bottle top and opener. “We are in the logical flow of history,” he recently explained. “Every time you have a new leader you have a new kind of vision. It is not radically different, because you are defined by what your company is and what your brands are.”7

Furthermore, van Boxmeer seems quite comfortable working with the family-controlled structure. “Since 1952 history has proved it is the right concept,” he stated about the current ownership structure. “The whole business about family restraint on us is absolutely untrue. Without its spirit and guidance, the company would not have been able to build a world leader.”8

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