Heineken has reported a substantial fall in UK sales for 2008. In particular, some brands acquired from Scottish & Newcastle have not fared well, with the Foster's brand suffering a decline of 10%. The company is looking to cut back sharply on costs, but will need to ensure that it retains a visible market presence, otherwise it risks alienating loyal consumers.
Heineken has announced that it is to undertake a major re-evaluation of its costs after sales for 2008 showed a sharp decline. The brewer acquired UK-based Scottish & Newcastle in a joint deal with Carlsberg, but brands acquired from this move have not fared well in the UK. In particular, sales of Foster's declined 10% in 2008 year-on-year, while the Kronenbourg and John Smith's brands each suffered 5% decreases.
As a whole, Heineken's sales in the UK on-trade were hardest hit, with a year-on-year decline of 10%. Off-trade sales, however, showed a slight rise of 0.5%. This illustrates the challenges currently being faced by pubs and restaurants in the UK, as many consumers cut back on going out, choosing to purchase cheaper drinks from the off-trade to consume at home.
The price differential has grown substantially between on- and off-trade, as higher taxes have contributed to a sharp increase in the on-trade, while heavy supermarket discounting has lowered the price of beer in the off-trade. The UK alcoholic drinks industry has traditionally been focused on on-trade sales, but that has changed markedly in recent times and the off-trade is now starting to account for the majority of alcohol sales. The slight rise seen in this sector offers some hope for Heineken and the brewing industry.
During recessionary times, cost-cutting becomes inevitable for many companies, but severe cutbacks in marketing efforts are not advisable. Elaborate campaigns may well be frowned upon as 'a waste of money', but consumers will remember brands that have helped them through the bad times and will be more inclined to remain loyal when the economy begins to recover.
Heineken's cost-cutting exercise will be necessary in the short-term in order to stabilize the company. However, many consumers will still look to enjoy the escapism associated with moderate alcohol consumption during recessionary times, and the company must ensure that it is not seen to be abandoning consumers by severely reducing marketing spend. Once economic conditions improve, this approach could leave the company at a distinct disadvantage in the market.