Heineken chief warns cost inflation is ‘off the charts’
It is impossible to predict if consumers will stomach further price rises as behaviour models break down, Dolf van den Brink says
Heineken expects input costs to rise by a ‘mid-teen’ percentage this year © REUTERS
Alistair Gray in London
6 HOURS AGO
Heineken’s chief executive has warned that “off the charts” cost inflation will further push up the price of a pint and said the risk of outright shortages was growing as brewers face persistent challenges delivering beer to pubs, restaurants and supermarkets.
Dolf van den Brink told the Financial Times that it was impossible to gauge how much consumers would reduce consumption in response to additional price rises, adding that the usual models the sector used to try to predict behaviour were breaking down.
“In my 24 years in the business I’ve never seen anything like it, not even close,” van den Brink said of the cost inflation. “Across the board we are faced with crazy increases.”
He added: “There’s no model that can handle this kind of inflation. It’s kind of off the charts. So it’s anybody’s guess . . . what the impact is going to be on volumes due to all these price increases.”
Heineken did not disclose how much it had increased prices per unit, although its so-called “price mix” — a metric that includes the effect of consumers choosing more expensive products — rose 8.8 per cent year on year in the six months to December 31.
Drinkers already face paying £6 for a pint of lager in London and $9 in New York.
Revenues for the full year increased from €23.8bn to €26.6bn as van den Brink said the company had enjoyed “a big bounce back” from the depths of the coronavirus crisis.
While the pandemic was not yet “behind us”, he added, “the direction of travel is indeed more positive”.
Gross annual expense savings of almost €1.3bn also supported the Amsterdam-based company’s net profit in 2021, which jumped from €1.15bn to €2.04bn.
However, Heineken said it expected input costs to rise by a “mid-teen” percentage this year and also said there was “increased uncertainty” about a midterm forecast for profitability. The company said it would update guidance for 2023 later this year.
Heineken, whose brands include Amstel, Tiger and Moretti as well as its namesake lager, joins rival Carlsberg in sounding caution over inflationary pressures, which threaten to hinder their recovery.
In the wider food and drinks sector dozens of companies, including Kellogg and PepsiCo, have also said they are passing on mounting commodity, energy and packaging costs to consumers, threatening living standards.
Van den Brink said there was rising concern in the industry about availability as the global supply chain crunch drags on.
“There’s a lot of focus on pricing and inflation, [but] there’s also this whole notion of ‘can you actually get it at any price’,” he said.
“There’s such shortages of truck drivers, everybody’s scrambling to get their products moved. Ocean freight is completely out of sync.”
So far, he said, there had only been “pockets” of shortages, although the risks were “going up daily because of the global supply chain disruption”.
There were some reasons to think consumers were prepared to stomach price rises, the chief executive said. Savings accumulated during lockdown could help some households cope with rising bills, for instance.
He also argued that Heineken’s well-recognised brands, which also include Strongbow cider, made it “less vulnerable” than rivals that sold more “commoditised” products.
Copyright The Financial Times Limited 2022. All rights reserved.
It is impossible to predict if consumers will stomach further price rises as behaviour models break down, Dolf van den Brink says
Heineken expects input costs to rise by a ‘mid-teen’ percentage this year © REUTERS
Alistair Gray in London
6 HOURS AGO
Heineken’s chief executive has warned that “off the charts” cost inflation will further push up the price of a pint and said the risk of outright shortages was growing as brewers face persistent challenges delivering beer to pubs, restaurants and supermarkets.
Dolf van den Brink told the Financial Times that it was impossible to gauge how much consumers would reduce consumption in response to additional price rises, adding that the usual models the sector used to try to predict behaviour were breaking down.
“In my 24 years in the business I’ve never seen anything like it, not even close,” van den Brink said of the cost inflation. “Across the board we are faced with crazy increases.”
He added: “There’s no model that can handle this kind of inflation. It’s kind of off the charts. So it’s anybody’s guess . . . what the impact is going to be on volumes due to all these price increases.”
Heineken did not disclose how much it had increased prices per unit, although its so-called “price mix” — a metric that includes the effect of consumers choosing more expensive products — rose 8.8 per cent year on year in the six months to December 31.
Drinkers already face paying £6 for a pint of lager in London and $9 in New York.
Revenues for the full year increased from €23.8bn to €26.6bn as van den Brink said the company had enjoyed “a big bounce back” from the depths of the coronavirus crisis.
While the pandemic was not yet “behind us”, he added, “the direction of travel is indeed more positive”.
Gross annual expense savings of almost €1.3bn also supported the Amsterdam-based company’s net profit in 2021, which jumped from €1.15bn to €2.04bn.
However, Heineken said it expected input costs to rise by a “mid-teen” percentage this year and also said there was “increased uncertainty” about a midterm forecast for profitability. The company said it would update guidance for 2023 later this year.
Heineken, whose brands include Amstel, Tiger and Moretti as well as its namesake lager, joins rival Carlsberg in sounding caution over inflationary pressures, which threaten to hinder their recovery.
In the wider food and drinks sector dozens of companies, including Kellogg and PepsiCo, have also said they are passing on mounting commodity, energy and packaging costs to consumers, threatening living standards.
Van den Brink said there was rising concern in the industry about availability as the global supply chain crunch drags on.
“There’s a lot of focus on pricing and inflation, [but] there’s also this whole notion of ‘can you actually get it at any price’,” he said.
“There’s such shortages of truck drivers, everybody’s scrambling to get their products moved. Ocean freight is completely out of sync.”
So far, he said, there had only been “pockets” of shortages, although the risks were “going up daily because of the global supply chain disruption”.
There were some reasons to think consumers were prepared to stomach price rises, the chief executive said. Savings accumulated during lockdown could help some households cope with rising bills, for instance.
He also argued that Heineken’s well-recognised brands, which also include Strongbow cider, made it “less vulnerable” than rivals that sold more “commoditised” products.
Copyright The Financial Times Limited 2022. All rights reserved.
