The producer of Heineken beer is only too happy to make room on U.S. store shelves for an upstart Mexican brand.
Heineken NV’s (HEIA) flagship beer has lost U.S. market share to the likes of Belgium’s Stella Artois over the last five years, according to Euromonitor International data. Now it’s getting a boost in its fight against the competition with its fast-growing Mexican beer brand, Dos Equis, which Heineken acquired in 2010.
Dos Equis is “our shining star” in the U.S., John Nicolson, the head of the company’s Americas unit, said in an interview at Heineken’s headquarters in Amsterdam.
Heineken, the ubiquitous Dutch beer sold in the U.S. since 1933, has been attempting to regain lost ground with a new global marketing campaign, and by pushing its brand more aggressively in bars and restaurants. The Americas, including the U.S. and Brazil, is Heineken’s second-biggest market after Western Europe, accounting for 23 percent of the brewer’s 8.36 billion-euro ($10.9 billion) first-half sales.
Dos Equis is on a tear. Sales of the brand, named for the two Xs on its label, soared 17 percent in the quarter through October, compared with Heineken’s 1 percent sales drop and industry-wide declines of about 2 percent, according to research by Sanford C. Bernstein analyst Trevor Stirling.
At the core of Dos Equis’s success is a highly effective marketing push, Nicolson said, including its “Most Interesting Man in the World” ad campaign, featuring the tales of one worldly man’s experiences -- and the catchphrase “I don’t always drink beer, but when I do, I prefer Dos Equis.”
The ads have been described as “one of the best advertising campaigns in the U.S.” by Anthony Bucalo, an analyst at Banco Santander SA. Created by Euro RSCG, a unit of Havas SA, they have gained a cult following.
Heineken stock has dropped about 7 percent this year, compared with a 3.3 percent decline for larger competitor SABMiller Plc (SAB) and industry leader Anheuser-Busch InBev NV’s (ABI) 4.4 percent gain. The shares fell 7.6 percent on Aug. 24 after the Dutch brewer said full-year profit is unlikely to grow amid tough economic conditions in western Europe and the U.S.
Dos Equis represents just 0.6 percent of the U.S. beer market by volume, compared with Heineken’s 2.2 percent in 2011, Euromonitor, a London-based consumer-research company, estimates. Heineken acquired the brand, along with Tecate among others, when it bought Fomento Economico Mexicano SAB’s beer unit in a takeover valued at 5.4 billion euros.
Dos Equis is an “awesome brand,” Santander’s Bucalo said. Its “very broad consumer base” may aid the brand’s popularity, he said. “It’s not limited to hipsters in Vermont drinking microbrews, or blue-collar workers drinking Bud.”
The little Dos Equis engine, though, can’t pull the entire Heineken train up the hill. The Heineken brand’s U.S. market share slid from 2.6 percent in 2006 to 2.3 percent in 2010, according to Euromonitor data. The company has been scaling back some distribution outlets in the U.S. after becoming “too ubiquitous” during the early 1990s, Nicolson said.
Fortunately, Heineken, too, which accounted for 18 percent of the consolidated volume of beer sold last year globally, is benefiting from some effective repositioning and marketing.
New television ads this year, created by Wieden+Kennedy and depicting Bacchanalian whirls through parties and restaurants in “The Entrance” and “The Date,” have improved the beer’s image over the last nine months, Nicolson said.
‘Marketing Got Lost’
“Dos Equis has done well because of its very good advertising,” said Andrew Holland, an analyst at Societe Generale SA in London. “Heineken used to be the master of good, quirky advertising and they don’t seem to have managed that” in the last few years. If the company continues to invest time and money on promoting the Heineken brand, they could start to see growth again, he said.
“We’ve got some momentum back” for the Heineken brand, Nicolson said. “Our marketing got lost, and we changed tack too many times.” The pace of decline in Heineken sales has slowed and consumers are viewing the brand more positively, he said.
Still, competitors are continuing to threaten Heineken’s market share, including Stella Artois, which AB InBev has been promoting to Heineken’s traditional strongholds in urban centers. AB InBev, one of the largest beer makers in the U.S., was formed when InBev NV took over Budweiser maker Anheuser- Busch Cos. in 2008 for $52 billion.
“There’s still a lot more that AB InBev can do with Stella in the U.S., and that’s got to be an ever-constant threat to brand Heineken,” Holland at SocGen said.
The Heineken brand grew 3.9 percent in volume in the four weeks ended Nov. 26, Ian Shackleton, an analyst at Nomura, said in a note, citing AC Nielsen data. Dos Equis Especial bounced 25 percent.
Still, Bucalo at Santander is skeptical that Heineken will show much improvement. “A lot of the big macro brands have about 25-year life cycles where they start to peak out, and start declining,” he said. Heineken “hit that point in the middle of the last decade,” he said.
“They really let Heineken go and they’re paying the price for it,” he said. “They can stabilize the business, but the future of Heineken USA is in the Dos Equis brand.”
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