Heineken's Brave Move

They say who dares, wins. It must be one of the most courageous changes of strategy ever by a major brewing company - the move in 2003 by Heineken to axe its long-standing, low strength, British-brewed version of its lager and replace it with the beer the rest of the world drinks. If the strategy had failed it could have spelt disaster for the Dutch group in one of the world's major beer markets. But it has worked, brilliantly. Rob Marijnen, managing director of Heineken UK, announced that sales of the beer had increased by 24% in 2006, marking the third year of spectacular growth for the brand.

The sales figures were backed by an announcement that the company will launch a new multi-million pound campaign this year that will include a return to television advertising. The brewer will continue to sponsor the UEFA Champions League, the Heineken Rugby Cup and the Rugby World Cup.

The campaign will specifically target drinkers who are prepared to pay more for a premium product. They are consumers, Heineken feels, who are concerned with such matters as lifestyle, the quality of ingredients and the integrity of the brand -- that it's a genuine imported beer brewed at its place of origin.

Rob Marijnen (right) joined Heineken 26 years ago and has masterminded the new British operation from offices in Wimbledon. He is, understandably, bubbling with enthusiasm over a change of course that has brought success while other leading British lager brands are at best stagnating or at worst in free fall.

"The old 3.4% Heineken cold filtered beer didn't fit our plans any longer," he said. "It was out of line - in the rest of the world, our beer is always 5%. It became a liability. In the U.S., South America and Europe, 5% Heineken always tastes the same. "We needed to address the problem. We have a flexible system in the Netherlands - the Dutch plant is the single biggest brewing plant in Europe with the capacity to brew beer for the British market."

Heineken turned its back on a brand that had become an iconic one in Britain. It was famous for its long-running advertisements in which the gravelly voice of Victor Borge assured us that "Heineken reaches parts other beers cannot reach". The problem was the beer was no longer reaching quite as many parts as before.

"It was in decline," Marijnen said. "There was a commercial need to make the change. And our licence partner was more focussed on Stella Artois."

For "licence partner" read InBev. In mainland Europe, Heineken and InBev are the major players and they slug it out for every new sales opportunity, every corner bar. It was incongruous that in Britain alone InBev should own the rights to brew and market Heineken. The reasons are historic. Heineken - which, says Marijnen, opened up the lager market in Britain - was at first an imported brand with the familiar 5% strength. But when it looked for a British partner, Whitbread advised that 5% was too heavy for a country where drinkers consumed milds and bitters between 3.2 and 4%.

The result was the 3.4% cold filtered brand that was brewed by Whitbread for around 40 years. But when Whitbread decided to leave brewing in 2000 it sold its breweries and brands to Interbrew, forerunner of the world's biggest brewer, InBev. It was clearly unsustainable that Interbrew, bitter rivals with Heineken in the rest of Europe, should continue to brew the British version.

"It was a brave decision by the board to pull the plug on the 3.4% brand," Marijnen said. "We were saying goodbye to sales of 1.2 million barrels a year.

"We started with a blank sheet. Britain is a very complex market with many big brands. In most European countries there are just two. We spent the first two years experimenting with the best route to market. In the on trade we had to learn to work with the pubcos. With companies like Enterprise we only want to put our beer in premium outlets."

Heineken is shy of talking about costs, volumes and profits but Marijnen can state one figure - 25 million euros were spent in 2003 to set up the British operation. Today it employs 125 people on its full-time pay roll plus technicians and other contract workers.

In spite of the rapid growth of the imported beer, it hasn't yet reached the volumes of the brand it replaced. But, says Marijnen, sales are "very good" and, in any case, he is aiming at a different sector of drinkers. Heineken is the world's biggest beer brand outside its domestic market. Anheuser-Busch's Budweiser sells more beer than Heineken because its domestic market is vast, whereas Heineken's Dutch market is tiny. But on a world scale, Heineken outsells Budweiser. "Last year we came off TV. We made better use of our money through sponsorship and getting the brand into the hands of the consumer. Our new campaign - including television -- will aim at people who are concerned with lifestyle, provenance and organics. We want to get away from the binge-drinking image of Britain with quality service and branded glasses in the best pubs and bars.

"We want to be the best value beer in the UK. Beer is in overall decline in Europe but premium brands are growing."

Sales of the new Heineken are split evenly 50-50 between on and off trade. Marijnen says the off trade will grow but he will not enter the discount game in supermarkets.

"It's a vicious downward spiral," he said. "The big brand owners have not been careful with their products. Being Number One doesn't mean you are the best - you are just dumping volumes. We won't participate in silly deals, even at Christmas. We want to stand out from the crowd."

And in the unique, complex and crowded beer market that is Britain, Mr Five Percent is making his mark.