00:00You talked about some of the strong markets like Vietnam.
00:03What numbers are you seeing right now?
00:04Is that sustainable going forward, given inflation impacting consumption?
00:11Yeah, so Vietnam is one of our evolving beer markets, as we call it.
00:16We've seen 30 years of incredible growth, and we continue to see that.
00:22But what is interesting is that consumers are not retreating from the category.
00:27They're just evolving.
00:29Consumers are shifting.
00:31And in Vietnam, it's quite stunning to see how rapidly, over the last six, seven years,
00:36the industry has changed from what we call full-bodied beers to lighter, lower ABV,
00:43and significantly less bitter beers that fit better with food.
00:48And what is interesting, in the West, we drink beer standalone, which we call wet-led occasions.
00:53In countries like Vietnam and China, 85% of beer occasions is actually with food.
00:59And in terms of consumption in Vietnam, what kind of sales growth numbers do you expect?
01:05What kinds of volumes are you going forward?
01:07Certainly, in the first half of the year, we've seen double-digit volume growth, revenue growth, and operating profit growth.
01:12Double-digit is 10, 99?
01:14Yeah, it's even more.
01:16So, the Heineken brand has been growing at rates of 20%.
01:20This year, it's even higher than that.
01:22We're growing in the 40s.
01:24I don't think that that is sustainable.
01:26But we see that with our breadth of our portfolio across economy, mainstream, and premium brands,
01:34we're very confident in the future of Vietnam.
01:37How about a market like China?
01:39Consumption has been pretty weak.
01:41Is that being translated in terms of beer consumption?
01:43Yeah, so China is very interesting.
01:46After 27 years of consecutive growth, there was a tipping point in 2015,
01:51whereby consumers are drinking less, but are drinking better.
01:54And actually, we see that the premium segment is really outpacing the mainstream and economy segments.
02:01And we've been disproportionately benefiting from that,
02:04predominantly with the Heineken brand and more recently with Amstel.
02:07So, what's the strategy going forward in terms of trying to tap that trend that's developing in China?
02:13Yeah, so we operate in China with our long-term strategic partner, China Resources.
02:19And there we combine system strengths, their route to markets, together with our brand strengths.
02:25And Chinese consumers are looking for quality.
02:28They're looking for choice and premiumization.
02:31And that's what we offer through our brands.
02:33And globally, I'm just wondering how you're looking at the trend where people are more health conscious.
02:39Are you looking at non-alcoholic alternatives?
02:43What's viable for that kind of trend in the Asia-Pac region?
02:47Yeah, so good question.
02:48It differs very much per market.
02:51You take a market like India, where consumption per capita is only 2 liter times 1.5 billion people.
02:57And we expect that to go up to 3, 4, 5 liter per capita.
03:01Consumers are moderating, but doing that, for example, through lighter beers, lower ABV levels.
03:10And it very much depends per market and depends per consumer.
03:14I think consumers are just evolving.
03:16They want more choice for different occasions, be in control and flexible for the next day.
03:22Might non-alcoholic beer or non-alcoholic drinks eventually become the bulk of your sales, given the changing habits of
03:32consumers nowadays?
03:34I think that in the foreseeable future, it will be a mix.
03:39Heineken Zero Zero is one of our key global growth drivers.
03:42We've been growing very, very fast with that.
03:45In Asia, less.
03:47But in Asia, it's more about the sweet spot of 4%, 3.5%.
03:52And I think that will be the future of beer in the foreseeable future.
03:55Yeah, let's take a look at operations and production.
03:59A lot of businesses are still concerned about the Iran war and the implications of higher oil prices, for instance.
04:05We have oil exceeding $100 a barrel.
04:09We have diesel spiking as well.
04:11How is that impacting your business in the Asia-Pac region?
04:14Yeah, it's certainly impacting us.
04:17We see that coming through in our input costs, predominantly in Asia.
04:22If I look across the regions, because here in Asia, we're more dependent on oil coming from the Middle East.
04:29And the reserves are somewhat smaller.
04:32And that means that we have to remain very disciplined on our productivity improvements, which we've been doing pretty well
04:39over the last couple of years.
04:41We've been improving productivity by 3%, 4% year on year over the last five, six years.
04:46In terms of costs, is it adding, what, 20% higher than what you normally would?
04:51We're not that high.
04:52And, of course, we mitigate the risk.
04:56We hedge.
04:57So, at least there's predictability for the year to go.
05:05But input costs are rising.
05:07And, therefore, productivity, but also revenue management are becoming more and more important to us.
05:12But it's real.
05:13It has been amongst us since COVID, I would say.
05:17We are seeing across the region differing very much per market around 3%, 4% inflation.
05:23I think that for next year that will go up a little bit.
05:26And we have to take into account devaluating currencies in this part of the world because we're a euro company.
05:32At what stage do you think you might just pass the cost on to your consumers?
05:36Well, we are passing on around 70% to 80% of inflation to our consumers and then compensating that
05:45with productivity gains.
05:48And, therefore, our productivity programs are so incredibly important.
05:53You talk about hedging.
05:54At what oil price might your margins be impacted?
05:58I don't know the answer to that question.
06:01We do that globally.
06:02So, we have a global procurement department.
06:05So, aluminium, malt are all procured at the global level, which also mitigates the risk for Asia-Pacific.
06:13Jakob, what's the biggest risk for the operations in the Asia-Pacific right now?
06:18Is it the fluctuation in currencies?
06:21I see two, three big risks.
06:23It's a region not without challenges.
06:25That's for sure.
06:27I think geopolitical tensions is impactful, not only because of the impact on input costs, but also consumer confidence.
06:38And consumer confidence in our industry is a very important indicator because it leads to changes in purchasing behavior.
06:45I think the other one is regulation, taxation, which in itself is not always an issue, but it's the predictability
06:53of that that is important to us.
06:55Those are the main risks that I see.
06:57And in terms of growth markets in the Asia-Pacific region, where would that be?
07:01Vietnam is a key growth market.
07:03India is a key growth market.
07:05China is a key growth market.
07:09So, globally, we have 18 what we call lead markets, where there are system strengths and a high profit pool
07:16yet to be gained.
07:17And six out of those markets are based in APAC.
07:20What can be done?
07:21What is the strategy for Heineken Asia-Pacific to perhaps be the leading region versus the others, like in the
07:29U.S. and Europe?
07:29Yeah, I think we have a big responsibility in shaping the category.
07:34And that's about growing the pie rather than taking just your slice of the pie.
07:39And that is something that we have been doing because consumer tastes are evolving.
07:44They want broader choices.
07:45They want to drink differently.
07:47And if you look at the big innovations that we have, they were born in Asia and actually now travel
07:52to the West, which used to be the other way around.
07:55So, for me, it's absolutely key that we deeply understand what consumers are looking for and adjust also our recipes.
08:03Beer has been around for over 5,000 years, but not always in the same form.
08:07And I think consumers want value, choice.
08:10And value is not the same as affordability.
08:13They can coexist next to each other.
08:15You talk about innovation.
08:17One of the things that have emerged in recent years is actually quick commerce.
08:20Is that changing the way people consume alcohol?
08:24Yeah.
08:25In China, it does, for example.
08:29Again, it depends per market.
08:31What we do see, the overall trend, is that there's a shift from the on-trade, so the horeca, to
08:36the off-trade.
08:38And that means that we have to be as strong in the off-trade as in the on-trade, while
08:44traditionally we would build our brands more in the on-trade.
08:47Before we let you go, Jaco, what's the plan for the Asia-Pac region?
08:52What kind of hiring are you planning to do, given you're optimistic about growth in this part of the world?
08:58Yeah, we continue to invest.
09:00We continue to expand.
09:02We're expanding in Vietnam.
09:03We have our biggest brewery in Vung Thau.
09:05That's the biggest brewery in APAC.
09:07It's one of the most sustainable.
09:09Is there a number in terms of headcount that you can share with us?
09:10I don't know the headcount or the investment.
09:15Headcount has been relatively stable over the years.
09:19But, yeah, definitely we're investing in our key growth.
Comments