Heineken weighs ‘off the charts’ inflation impact

Global brewer Heineken is braced for cost increases and anticipates consumers reducing their consumption in an attempt to save money – is this a sign of much darker economic clouds to come?

Why it matters

Inflation at these levels is not just rare, it pushes models to breaking point.

“There’s no model that can handle this kind of inflation”, Heineken CEO Dolf van den Brink tells the FT. “It’s anybody’s guess…what the impact is going to be on volumes”.

What’s happening

The Amsterdam-headquartered firm has reported strong revenue growth over the full year, as pubs bounced back from Covid-induced lockdowns.

It’s not just that people returned to pubs, people are paying more. Heineken’s price mix saw an 8.8% increase in the two quarters leading up to December 2021. Price mix includes both price increases as well as consumer preference switching to more premium products.

Van den Brink’s comments buck an emerging trend among FMCG earnings reports that show companies across the board passing on their increasing costs onto consumers in prices by noting that it’s all actually driven by shortages of materials and labour.

As a result, the question of how to navigate rising prices is only part of the equation. “Can you actually get it at any price?” is a bigger question. With prices of essential materials like aluminium having grown by half.

Inflation

The risk that rising prices will stop people spending money is well-documented with inflation diminishing people’s buying power. With energy and food costs – essentials – rising, it’s likely that such cutbacks could hit more discretionary categories like beer.

Sourced from the Financial Times, Sky. Image: Pexels