Who would have thought that weakening the alcohol content and upping the price of beer would turn drinkers away?
Obviously, Heineken N.V. didn’t.
Raising prices by over 10% during the first half of the financial year may have offset the 5.4% lower volumes and helped revenues lift by 6.6% to €14.5bn, but it was not able to trickle down to profits, a first-half trading update revealed.
Underlying earnings fell by 8.8% to €1.1bn, operations in its most profitable region – Asia Pacific – worsened and inflated costs and an increased spend on marketing overrode any revenue growth.
Even reducing the alcohol content in brands like Foster’s, which Heineken owns the European rights to, was unable to improve performance causing the Dutch brewer to lower full-year profit growth guidance to a mid-single-digit.
Aarin Chiekrie, analyst at Hargreaves Lansdown believes Heineken's success depends on how many more cost-cutting exercises take place for leading brands such as Moretti and Beavertown.
“Where things move from here will depend on how well consumers can stomach further price hikes for their favourite beer brands,” the equity analyst said.
Shares in Heineken are down over 6.5% on Monday, having opened today at a little over €91 on the Euronext exchange.