Heineken announces further £420m in spending cuts

Posted on 16 Feb 2012

Heineken, the third largest brewer in the UK, said it has been forced to make close to £500m in cuts in the face of rising input costs. 

The brewer already cut spending by around £510m over the past three years as the price of malted barley increased, but chief executive Jean‑Francois van Boxmeer said that while the industry experienced a fall in sales of beer of 3.5% in 2011, Heineken experienced a more forgiving decrease of 2.8%. The slump in sales was attributed to a relatively cool summer. The recently announced cuts may endanger British jobs.

Like most brewers, Heineken try and predict how much raw materials needed for their products will cost. The firm is predicting a 6% rise in input costs in 2012, primarily reflecting higher prices for malted barley.

Brewers tend to buy their raw materials in advance; similar to the way in which customers buy their electricity at a set rate. In a similar way, Heineken will be hit by a sharp increase in commodity prices from last year when the price of malted barley was 40% higher.

Mr van Boxmeer confirmed that a programme would be put into action whereby sites would be closed, leading to job losses in the UK. He was positive about the prospects for increasing efficiency however, and pointed out that “you can always go faster,” once you implement an efficiency programme.

Last year the Heineken-owned brewer Scottish & Newcastle laid off 100 workers, but van Boxmeer told the local press that this year job losses would be more modest.

Although Heineken is growing fastest in emerging markets such as Africa, Asia and Latin America, the company claims it is committed to its established markets in Western countries.

“Thirty of the 39 acquisitions we have made over the past decade have been in emerging markets, and the lion’s share of capital spending will go to Africa,” van Boxmeer said.

He added: “We are not going to abandon Europe. It’s thanks to the good cash flows we generate in Europe that we can finance acquisitions.”