It’s been a momentous few weeks in British history. What’s your reaction to Brexit? Clearly there is a lot of nervousness in the industry post-Brexit. Big retailers and suppliers will be conscious of how the consumer will be feeling and whether there will be a backlash. We’ve never seen such a split in society as we’ve witnessed in the past two weeks - across age, region, urban/rural and even family. Marketeers need to think about the impact on brand choice and how you choose to communicate your brand. As a supplier and drinks producer, one of the things we will think about now is what Britishness means and to what extent are consumers going to embrace British brands versus international brands. Are the Brexiteers going to be defiant and support British brands, cask ales made locally for example? We don’t have the answers today but certainly there is a lot of emotion out there in the market and emotion invariably translates itself back down into brand choice. More than ever in periods of uncertainty, strong brands can be a real lighthouse in the market. This is a time when brands can come in to their own.

How do you think your customers in retail will cope with the Brexit shock? It’s been a nightmare two weeks for the big four supermarkets. They have been battling gamely for the past two years. And just when you think the economy is recovering there is this hit from the EU referendum and you are now looking at three more years of incredible pain. The UK is an unusually competitive market and lacks a concentration you would see in most markets. There may be one player too many but certainly the model has been exposed severely in the past three or four years, with the last 18 months showing how difficult it is to turn it around.

How has Heineken reacted to the crisis? It’s dangerous to describe Brexit as a crisis; it is certainly not a crisis for Heineken. It is a tremendous challenge in the short and medium term for the UK because frankly no country has ever unwound its position from a trading block like the EU. But it’s been a political crisis more than an economic one. Officials in government are only beginning to get their heads around the potential impact, ramifications and challenges that lie ahead. A new government, new cabinet and new PM has to go to Europe to negotiate a complex exit with a counter party that is not enamoured with what Britain has decided to do.

How much strain does the currency volatility caused by Brexit put on Heineken? We produce the vast majority of all our beer and cider in the UK. If you make your product in pounds and you sell it in pounds it doesn’t automatically become harder. Heineken has lived with currencies going up and down for decades. We have a spread of mature and emerging markets, which is unparalleled in the global brewing industry, so our balance of earnings is very solid. We have exposure to a broad basket but are not reliant on one. But currency volatility is a huge issue for retailers and suppliers, particularly importers. Most are hedged for 12 months so will be somewhat insulated for a period. However, the pain will be felt at some point and there is a big deficit in the UK so even when the economy was doing well the chancellor still had a huge problem. Now Osborne’s 2020 can be torn up and thrown in the bin as there is zero chance of getting to a balanced budget in the next four years so there is a tremendous risk of sterling devaluing further - and business hates risk.

What are the key things you will be looking for from the new Theresa May-led government? She needs to articulate a plan that people understand. She has to demonstrate she can select the appropriate team for the challenges of the next three to five years. And she has to facilitate the recruitment of a tremendous number of officials who will navigate the UK through Brexit negotiations.

What should be the priorities of those negotiations? You want a sense of stability with the economic outlook, access to markets, and to be able to trade internationally without complexity - undue red tape is very dangerous. We also need to make sure the fantastic talent pool in the UK remains as vibrant and fit for purpose as it is today. A business without talented people doesn’t survive.

Should Theresa May invoke Article 50? I don’t know if she knows what she will do yet as she is in uncharted waters, but she has to invoke it because that is the mandate she has been given by the citizens of the state. How you translate the invoking into a Brexit and what that actually means for the country, nobody knows at this time. I think there is big difference between a hard Brexit and a soft Brexit - and I would expect the latter.

What other policy areas would you encourage the new PM to address? We would welcome a more rounded discussion around obesity. A sugar tax is not a silver bullet. It might make the headlines but it doesn’t solve the problem. Having someone who has a deeper understanding of how you address these issues would be particularly useful.

What’s in your inbox right now? As well as a big beer and cider business people don’t tend to realise we have 1,100 pubs, which always takes up a lot of time and is a very important part of the company. A huge percentage of our workforce in these are EU nationals, so were there to be a ban, it will present huge problems. We are also concerned about this issue further down the supply chain. We buy a third of the UK’s apples and are reliant on migrant labour. In the off-trade, innovation and premiumisation are a really big thrust of the company, both in beer and cider. That has been underpinning the growth of our company in the grocery area in the last few years. You continue to see consumers trading up in all categories and beer and cider are very affordable luxuries.

Does the merger of AB InBev and SABMiller pose a threat to Heineken? From a UK perspective, fundamentally it is not a combination; there is no merger. The SAB business has been sold to Asahi. The primary asset was the Peroni brand, which has done well in the UK in the last few years. So from a competitive position there is no major change there. It is a new market for Asahi And I’m not clear how Asahi will want to configure their position, but it is entering the UK at a moment in history that has never been more uncertain.

Has the strategy of AB InBev owner 3G Capital of massively stripping out costs to focus on margins put pressure on Heineken to do the same? You have to employ a model that fits your company and strengths. Our great strength is our brand building capability. Whether it is a local brand or a global brand we are very much committed to investment in building the equity in these brands longer term. You can see that in the recently announced Formula One investment for Heineken brand. We also have the Champions League investment and last year we had the Rugby World Cup. There is also the investment behind Fosters with English cricket and behind Strongbow with Team GB at the Olympics.

With all these multinational deals, and now Brexit, will the UK still be a major focus for global brewers? The UK is a major focus for Heineken and we are a global brewer. It is one of our most important markets globally. London is a truly global city; it’s a flagship city. Having a strong presence in the UK market for global brands is incredibly important. That said, every brewer under the sun wants a presence. It’s just not sustainable. It wasn’t before, as we’ve seen.

Did any standard lager brand benefit from Carlsberg being delisted by Tesco last year? It is difficult when you lose that distribution and the mainstream brands such as Carling and Foster’s have gained as a consequence in those stores. There is also a knock-on impact in the market. When you see a major retailer lose faith with a brand it does inform other customers, not just in the off-trade channel but also in the on-trade. The range resets in the supermarkets is just the start of a process of getting back to a more normalised offer in this market. You are seeing weak brands and weak line extensions come out of the market as the retailers look to simplify.

Do you support the range resets being conducted by the supermarkets? Supermarkets like and support big brands and go out of their way to help us. We have to collaborate with them on the journey. I want to see a reset be a success. If it is good for Tesco, or any big retailer, then it is good for Heineken. We as a supplier are under more pressure than ever to give them great category advice. The suppliers who can do category captaincy really well and push through value-creating innovation are those that big retailers want to engage with. If you can’t help them grow their category and excite their shoppers you’re not going to do sustainable business with them moving forward.

Innovation clearly plays a big part in Heineken’s range in the UK. Is there scope for your own rationalisation? There are 13 variants of Bulmers in the market for example. We started with a single variant of Bulmers a few years ago and then we entered this world of flavouring where you are only limited by your creativity. Inevitably, there are flavours that work and those that don’t. Consumers are always looking for something new and seem to have an insatiable appetite for variety but that also adds tremendous complexity in your supply chain. Strongbow Dark Fruit was the biggest hit in the market last year, with revenue twice the size of the next 100 innovations in alcohol. If you curtail your organisation and don’t stretch the boundaries, you won’t win in innovation. If you start cutting it early you will lose out on a Dark Fruit. So we are constantly pushing the boundaries. The losses don’t concern me. You’re not going to have every innovation be a runaway hit. Nobody gets it right all the time. The question is do you get it more right more often than you get it wrong - and more importantly do you learn from it.

Where do you see Heineken’s portfolio heading over the next few years? There is a consistent trend toward a broader portfolio of smaller brands, which insulates you as you’re no longer as reliant on one or two mega brands. There was a time when we would have a narrow portfolio of Foster’s, John Smith’s and Strongbow but over the last four years we have expanded the premium propositions, with Amstel, Birra Moretti, Desperados all doing remarkably well.

Craft is a massive growth area, how much has that fragmented the market? It is hugely attractive for a lot of new entrants and we have seen an explosion in the number of breweries in the UK and the number of brands imported over the last 18 months. There is no doubt that craft is good for the beer market and has given consumers a fresh perspective on the naturalness of our category. The question is to what extent will it continue to grow? As the growth softens you will invariably start to see the emergence of stronger of brands within that segment. Your distribution strength, access to your market and your ability to deliver quality consistently at scale, particularly, to large customers, will dictate who the winners and losers will be. And within that a portfolio from Heineken UK of local craft brands combined with imported brands will give us the potential to win. Heineken will compete aggressively in the craft part of the market. Our acquisition of a stake in Lagunitas, which is one of top-performing craft brands in the US, last year is a great example of a clear brand that has captured the imagination of US consumers and stands for something. Is there a danger giant brewers are seen as inauthentic because of their scale in the craft space? You have to respect consumer perceptions and sometimes accept them but be willing to challenge them. We’re at a very early stage in the craft revolution; and there are a lot of fantastic products out there but there is also a lot of mediocrity frankly. And that is an education process that the UK consumer is going through. There is nothing harder to brew than a classic, crystal clear lager. Once you can do that you can produce any type of beer. Not everybody who can produce a craft beer can produce a crystal clear lager.

Heineken just announced a deal to sponsor Formula One - isn’t alcohol and fast cars a match made in hell? A big part of our F1 activation will be around driver responsibility. People will be pleasantly surprised by the conviction with which we employ the don’t drink and drive message. In a few years’ time people will look back and say the Heineken and F1 relationship was a force for good.

Heineken preaches a message of moderate drinking. How do you convince cynics it’s genuine? Through your actions, not your words. If you look at our whole moderation strategy, no brand in lager has touched us. We also have removed some of the higher abv Strongbow brands from the market. We have offered lower alcohol alternatives with Foster’s and introduced schooner glasses in vast swathes of the market. And we work extremely closer with addiction charity Addaction. Alcohol consumption is reducing in the UK in the last few years so we are moving in the right direction but we recognise there is more to be done. And wepart of the conversation but not the whole conservation.

Topics