BUSN412 Week 6 Assignment 2: The Heineken Company

Case analysis
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COMPANY NAME, WEBSITE, AND INDUSTRY
The paper focuses on the Heineken Company; the company operates in beverage industry. The Heineken company website is
BACKGROUND AND HISTORY
Heineken is a Dutch brewing corporation, established in the year 1864 by Heineken Gerard. The Heineken Company based in Amsterdam owns more than 160 breweries across the globe. Besides the company’s flagship, brand Heineken beer, the company brews, and trades over 240 other global finest, and local beers. In October 2005, Jean- Francois van Boxmeer was appointed as the Heineken Chief Executive Officer (CEO). Boxmeer replaced Thorny Ruys, who opted to resign 18 months earlier, due to his failure of achieving improvement in the company’s performance. Boxmeer still serves as the company CEO up to date. Family members have managed the company since its establishment. After demise of Freddy Heineken, the final family member to head the Heineken Company, Charlene de Carvalho, the only child of Freddy Heineken took control of all major decisions made by the company (Heineken, 2016).
The total beer volume sales of the Heineken in 2015 amounted to approximately 188.3 million hectoliters. The company announced organic revenue growth of 3.5 percent, operating profit up by 6.9 percent, and net profit rose by 16 percent to 2.05 billion of Euros. Some of the Heineken key events include its establishment in 1864 when Gerard Heineken purchased the Haystack brewery and gained full control of the company shares. In 1873, the Heineken Breweries was incorporated. Gerard Heineken was appointed the company’s president and the company name Haystack was changed to Heineken. In 1880, Heineken sales rose to 64000 hectoliters making the company, the biggest exporter to France and Paris. In 1900, the Heineken Company sales increased to 200000 hectoliters. In 1923, the Heineken was the initial company in Dutch to create employees pension fund paid by the employer. The Heineken University was opened in 1998. The institution was designed to increase knowledge and skills in the company. In 2010, the Heineken announced its acquisition of beer business of Fomento Economico Mexicano S.A.B de C.V. (FEMSA). Finally, in 2015 the Heineken Company was announced as the 2015 creative marketer of the year (Heineken, 2016).
The Heineken Company gross margin in 2015 was 36.60 percent, while, during the past 13 years; the Heineken highest gross margin was 37.64 percent. The lowest was 33.47 percent and the median was 36.09 percent. The Heineken Company net margin in 2015 was 7.05 percent, while, during the past 10 years, the Heineken highest net margin was 15.85 percent, and the lowest was 1.46 percent. The Heineken Company Return on Equity (ROE) in 2015 was 10.90 percent, whereas, during the past 13 years, Heineken highest ROE was 27.10 percent. The lowest was 4.23 percent and the median was 15.08 percent. In addition, the company return on Assets (ROA) in 2015 was 4 percent, whereas, during the past 13 years, the Heineken highest ROA was 9.76 percent. The lowest was 1.28 percent and the median was 5.11 percent (Heineken, 2016).
ANALYSIS VIA PORTER’S FIVE FORCES MODEL
Threats of new entrant
There beer industry has many entry barriers, making the threats of new entry low. There is high capital requirement of millions of US dollars required to construct brewery plants and equipments. Entering the beverage industry is risky, due to few substitute uses of breweries companies (Dess et al., 2012).
Competition from substitutes
Competition from substitutes exists in the beer industry. The growing appreciation of wine and increase in liquor consumption tends to fade beer market share. In addition, the non-existence of switching costs makes it easy for consumers to switch to substitutes such as liquor (Sankrusme, 2011).
Bargaining power of buyers
The Lack of loyalty to any particular brand and inelastic demand of beer makes the bargaining power of buyer to be high in the beer industry. However, the increasing power of distributors who have connection with consumers and retailers tends to reduce the power of buyers (Dess et al., 2012).
Bargaining power of suppliers
Suppliers have high bargaining influence in the beer industry. The supplier provides the brewing machinery and ingredients. The beer brewing industry relies a lot on supplier inputs. In addition, low concentration of suppliers tends to increase supplier powers (Dess et al., 2012).
Rivalry among competitors
Rivalry among competitors in the beer industry is strong. The beer industry competes on non-price based rivalry such as product innovation. Brewers differentiate their products through beer styles. The beer styles used by different brewers vary depending on color, flavor, production method, and origin of the beer. In addition, considerable barriers to exit increase the rivalry (Dess et al., 2012).
Low threat of new entrant

* High capital requirements
* Economies of scale
* Entry is risky due to few alternative uses for breweries

High bargaining power of buyers

* Low switching costs
* Lack of loyalty...