Heineken warned it is facing the worst inflation in a decade and said consumers might cut back on beer, threatening the industry’s recovery from the pandemic.
The brewer said it will raise prices for its beer by “courageous” amounts as it seeks to offset rising raw material and energy costs and “crazy” shipping rates. This is likely to dent demand for beer in households already strained from the rising cost of heating, food and clothing.
“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 macroeconomic thing happening here,” chief executive Dolf van den Brink said in a phone interview.
Heineken delayed updating its guidance for 2023 until later in the year amid the increased uncertainty about economic growth and inflation. It’s the latest consumer goods company to warn of the impact of rising prices. 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.
The stock traded 1% higher Wednesday morning in Amsterdam, erasing an earlier decline. The company’s forecast for stable to modestly improved margins this year is better than recent warnings by companies like Unilever, said James Edwardes Jones, an analyst at RBC Europe said. Consumer-goods giant Unilever said last week inflation will weigh on profitability for two years.
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 weakness 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. CEO van den Brink said the brewer isn’t seeing consumers trading down to cheaper brands.
Heineken said it’s continuing to target a 17% operating margin in 2023, though signaled that may become more difficult.
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.