Heineken’s outlook clouds up as inflation pinches consumers

Raising the risk that they’ll cut back on beer.
Image: Bloomberg

Heineken NV said the longer-term outlook has become cloudier as inflationary pressures squeeze consumers, raising the risk that they’ll cut back on beer.

Raw material, energy and shipping costs will rise by a mid-teen percentage this year, the world’s second-largest brewer said said Wednesday. Heineken also said it will update its forecasts for 2023 later this year amid increased uncertainty about economic growth and inflation.

Read: Distell shareholders ratify Heineken offer

The beer industry’s recovery from the pandemic is at risk of fizzling out as as higher prices threaten to weigh on consumption. Earlier this month, Danish rival Carlsberg A/S set a bearish tone for the industry, saying it’s possible that earnings might not grow this year.

“If you look at the inflation that we’re currently experiencing, it’s the highest in 10 years and it’s not just in our product categories — there might be a a macroeconomic thing happening here,” Chief Executive Officer Dolf van den Brink said in a phone interview. He said the strain on households from the rising cost of heating, food and clothing could also dent demand for beer.

It could take several years for the European bar and restaurant industries to fully recover from the impact of the pandemic given the number of outlets permanently closed by the crisis, van den Brink said. Still, the company’s premium brands, which include its namesake label and Amstel lager, have been especially resilient, the CEO said. Gains in Brazil and Nigeria have been helping offset some of the uncertainty in Europe.

Chief Financial Officer Harold van den Broek said the company aims to raise prices for its beer by “courageous” amounts across the world to offset soaring expenses related to aluminum, which has risen 50% from January 2021, barley, which has doubled in cost, and freight from China to the U.S., which has “been going absolutely crazy.”

Still, Heineken said premium beer has been performing strongly, with its namesake brand growing 17% in 2021 and higher-priced beers accounting for more than 60% of its sales growth.

Heineken said it’s continuing to target a 17% operating margin in 2023, despite the uncertainty on the long-term outlook.

This week, shareholders of South African wine and spirits maker Distell Group Holdings Ltd. voted in favor of being acquired by Heineken, which creates a new regional group to compete with larger competitors Anheuser-Busch InBev NV and liquor giant Diageo Plc.

© 2022 Bloomberg

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