Heineken's hopes for the future

By The PMA Team

- Last updated on GMT

Related tags: Heineken, Scottish & newcastle

As Carlsberg and Heineken buy S&N, Heineken chief executive Jean-François van Boxmeer reveals his plans Heineken chief executive Jean-François...

As Carlsberg and Heineken buy S&N, Heineken chief executive

Jean-François van Boxmeer reveals his plans

Heineken chief executive Jean-François van Boxmeer has promised to retain Scottish & Newcastle (S&N) pub-management business. The Dutch brewer will take over S&N's UK business when a recommended 800p-a-share bid by Heineken and Carlsberg for the company goes through.

Of Scottish & Newcastle Pub Enterprises, van Boxmeer said: "We find it a very interesting and essential business model - it's a competitive advantage. It's a model we discovered here and one that is unique to the UK. We want to develop it and to see whether that business model is exportable."

Van Boxmeer also indicated that the company would pursue a dual-focus policy in relation to Kronenbourg 1664 and Heineken. He declined to say how the two beers would be priced. "I'd prefer to tell my customers first," he said.

Van Boxmeer added there were no immediate plans to brew Heineken in the UK - at the moment it's brewed in Holland and imported. Heineken has negotiated a 50-year licence with Carlsberg to sell Kronenbourg in the UK, but declined to give further details of the arrangement.

Asked about how the company felt about the UK market having four major brewers, van Boxmeer said: "I'm not buying a licence to close the fourth player."

Heineken is also picking up S&N's businesses in Portugal, Belgium, Ireland and Finland as part of the takeover. But Van Boxmeer stressed the importance of the UK operation.

"The UK is our single-biggest operating unit and will receive a disproportionate amount of time going forward." He also referred to the potential of the UK cider business in markets where Heineken is already strong - and the profitability of the Newcastle Brown Ale export business in the US.

S&N owns a 30% stake in the Caledonian Brewery, which makes award-winning Deuchars IPA.

Caledonian Brewery managing director Stephen Crawley said: "I've always been a Heineken fan. I don't think it means anything other than more opportunity. We will carry on with our strategy and Heineken will add to the opportunity. I don't think there will be an awful lot of change. Heineken is now the sign above the door."

Camra wants real-ale reassurance

The Campaign for Real Ale (Camra) is seeking urgent reassurances over the future of S&N's real-ale interests. Camra chief executive Mike Benner said: "The relentless obsession with pushing global lager brands is a failing strategy in the UK beer market - and this is fuelling consolidation and hitting profits hard.

"Consolidation inevitably results in brewery closures, brand losses and less choice for Britain's consumers. The deal raises many questions for real-ale drinkers in the UK.

"What impact will this have on traditional real ales such as John Smith's and smaller regional brands such as Magnet?

"We will be seeking reassurances from the new owners that they will be investing in their real-ale brands and breweries to meet the needs of today's beer drinkers, who are increasingly demanding real ale.

"Camra is concerned about the impact the takeover could have on WaverleyTBS, a major distributor of real ales, the contract brewing of Theakston's Best Bitter and the partnership with the Caledonian Brewing Company.

"The takeover is expected to be considered by the European Commission, and Camra is calling for an in-depth review of competition and consumer choice in the EU beer market."

Benner added: "The lager-led approach of the global brewers has been flawed for years. Consumers demand choice, quality and provenance. Fortunately the increasing numbers of small and independent real-ale breweries in the UK are rising up to fill the void in the market where demand for local and regional beer continues to grow."

Heineken/Carlsberg Q&A

Why does Heineken want to buy S&N?

S&N has 30% of the UK market, but 60% of the profit-pool. Heineken sees growth in the UK lager market and S&N provides access to the booming cider market, which could be leveraged across its existing European markets. The deal also means Heineken gains useful number one or number two market position in Portugal, Belgium and Finland. "Being number one or number two means you are in a position to extract more value out of each market going forward,' says Heineken boss Jean-François van Boxmeer. Heineken also picks up a 37.5% stake in Indian brewer United Breweries, which saw sales rise a third last year to be worth £125m. "India is the promise of tomorrow," van Boxmeer told analysts last Friday. Heineken is also a fan of S&N's super-chilled technology.

Will there be job cuts in the UK?

Job cuts are likely, although Heineken has a limited UK presence, with 1% of the beer market. S&N's group headquarters in Edinburgh, with 150 employees, will be "redundant", according to van Boxmeer. Another 600 employees in Edinburgh would "integrate into our Western Europe division", he added. Heineken has given no indication of its plans for S&N's four UK breweries, although S&N has already indicated its Berkshire site could close.

Will Heineken take cask-ale seriously?

Heineken is a lager company. But it has indicated it regards John Smith's as one of S&N's key brands. However it also brews Theakston's Best Bitter on behalf of T&R Theakston, and owns 30% of Scottish brewery Caledonian's brands. Heineken could move further by off-loading ale brands, a process started by S&N. Marston's brewing boss Alistair Darby noted: "Will (Heineken) really be interested in ales? If not, John Smith's Bitter will be sold - and that, and other brands, might be interesting to us and Greene King."

What difference will licensees notice?

Heineken has talked about pursuing a "dual-focus" policy with its premium lager products, Heineken and Kronenbourg 1664. Heineken boss van Boxmeer said the company would not "abandon" Kronenbourg - "a very valuable brand in the UK". Nevertheless, Heineken has a 50-year licence for Kronenbourg and observers will think Heineken lager will be given some sort of priority. After all, the company has stated that the rationale for the deal is, in part, about using S&N's distribution platform on which to increase sales of Heineken.

What's in the deal for Carlsberg?

Carlsberg will remain the fourth player in the UK lager market, behind Heineken, Coors, and InBev UK. For the Danish brewer, the S&N deal means it gains full ownership of Baltic Beverage Holding, which is doing increasingly well in the booming Russian beer market. Carlsberg forecasts beer sales in eastern Europe growing 30% from 2006 to 2012, while western European sales stagnate. Average consumption is expected to reach western European levels by 2012.

MPS call for clarification

Six MPs have urged Heineken to clarify its intentions for production and jobs at S&N.

The MPs signed an Early Day Motion (EDM) that "recognises the major contribution of the workforce at Scottish & Newcastle Breweries to the success of Scottish & Newcastle and their attraction to Heineken".

The EDM from Labour MP Tony Lloyd, of Manchester Central, "calls upon Heineken to clarify its intentions, with respect to production [and] to give guarantees to the existing workforce with respect to the security of their jobs".

It "further calls upon Government to ensure that the public interest in this takeover is seen as more than just that of

the shareholders, and act to secure that public interest."

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