In reporting full-year 2020 earnings today, Heineken NV announced plans to cut its global workforce by 8,000 full-time employees as part of a reorganization plan first announced in October.
The slashing of its global workforce across its organization, including 20% at its head office, will cost the company about $509 million (€420 million) and is part of a plan to get to $2.4 billion (€2 billion) in savings by 2023.
Heineken, the world’s second largest beer manufacturer, also recorded several impairment charges totaling more than $1.1 billion (€963 million) to “tangible and intangible assets in operating profit.” Among them, a more than $279 million (€230 million) write off associated with Petaluma, California-based craft brewery Lagunitas, which the global brewing giant completed the acquisition of in May 2017, bringing the total of the transaction to an estimated $1 billion.
“The impact of the crisis in developing economies and the on-trade restrictions in some developed economies triggered the need for impairment reviews,” the company explained in a press release. “These resulted in impairments in Papua New Guinea (€246 million), Lagunitas (€230 million), various individual UK pubs (€191 million), Jamaica (€100 million, net of reversal) and various other smaller impairment charges, of which €96 million in Africa, Middle East and Eastern Europe and €61 million in the Americas.”
Heineken isn’t the first major brewery to acknowledge that it overpaid for a craft brewery. Recall that Constellation Brands recorded several impairment charges related to its $1 billion acquisition of Ballast Point Brewing Company prior to the publicly traded company offloading the San Diego craft brewery to upstart Kings and Convicts for $41.1 million.
Lagunitas produced more than 1 million barrels of beer in both 2018 and 2019, growing volumes 6% and 3%, respectively, according to the most recent available data from the Brewers Association (BA). 2020 data is not yet available. Lagunitas, which is outside of the BA’s definition of a craft brewery, would have ranked among the top five craft breweries by volume in 2019.
For full-year 2020, Heineken recorded a loss, as net revenue declined 11.9% to about $24 billion (€19.7 billion) as the company struggled with the closure of the on-trade business and its pubs. Heineken’s consolidated beer volume declined 8.1% for the full year, although flagship brand Heineken declined 0.4%. The company pointed to “strong double-digit” growth for Heineken 0.0 in all regions, including “outstanding performance in Brazil, Mexico and the USA.” Heineken 0.0 is now available in 84 markets around the world.
As for Heineken’s U.S. business, Heineken USA beer volume declined mid-single digits, which the company attributed to the pandemic-caused suspension of production in Mexico for most of the second quarter and the closure of bars and restaurants. Nevertheless, the Heineken brand recorded its “best performance in more than a decade,” growing low-single digits, and Heineken 0.0 is now the top-selling non-alcoholic beer brand in the country.
During a question and answer session Wednesday, Heineken CEO and chairman of the executive Dolf van den Brink said the company “needs to do a better job” in the U.S. market, but he also expressed “a lot of trust” in HUSA’s leadership team.
Van den Brink laid out his strategy for delivering “super top-line growth” in the future within a multi-year initiative called “Evergreen.” The five pillar strategy focuses on strengthening its footprint, focusing and expanding its portfolio, strengthening its digital route to consumers, scaling commercial executions and driving intentional resource allocation.
Among the portfolio strategies includes expanding the availability of 0.0% beer and extending 0.0 options across its portfolio. The strategy also calls for a deeper dive into so-called beyond beer offerings, including hard seltzers. Heineken highlighted the launch of Pure Piraña in Mexico and New Zealand, the launch of Amstel Ultra Seltzer last month, and its partnership with AriZona Beverages on SunRise Hard Seltzer in the U.S.
Van den Brink said the company needs to do a better job of identifying trends earlier and jumping on them. The company also needs to improve on attracting women and younger consumers.
As for 2021, Heineken said it expects the pandemic to continue impacting its business in the first half of the year and market conditions to gradually improve in the back half of the year.