Beer

Heineken Finds Help South of the Border


Heineken’s namesake beer was the first foreign brew to come to the U.S. after Prohibition ended in 1933, and being first helped fuel its success for decades. The Dutch company ceded its No. 1 import crown to Grupo Modelo’s (GMODELOC:MM) Corona in the 1990s as more youthful drinkers were drawn to the lighter taste and fun lifestyle associated with the Mexican brand. Now Heineken is counting on its own champion from south of the border to bolster its U.S. standing: Dos Equis. The fast-growing Mexican beer, which Heineken picked up as part of its €5.4 billion ($7 billion) acquisition of Fomento Económico Mexicano’s (FMX) beer brands in 2010, is key to plans to revive its fortunes in North America. Dos Equis is “our shining star” in the U.S., says John Nicolson, head of the Americas unit. “We’ve got to be young. We don’t want to be part of the past.”

Sales of Dos Equis, named for the two Xs on its label, soared 17 percent in the third quarter, compared with the Heineken brand’s 1 percent sales decline and industry-wide drop of about 2 percent, according to research by Sanford C. Bernstein (AB) analyst Trevor Stirling. At the core of Dos Equis’s success is effective marketing, he says. That includes its “Most Interesting Man in the World” ad campaign, featuring 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 offbeat spots, which won a Titanium Lions award at the ad industry’s Cannes Lions International Festival of Creativity in 2009, have shown the character doing everything from jumping out of an airplane strapped in a kayak to arm-wrestling with heads of state including Mao, Stalin, and Churchill. All the while, the copy trumpets his cool. (“If he were to pat you on the back, you would list it on your résumé,” notes one spot.)

The ads, created by Euro RSCG Worldwide, a unit of Havas (HAV:FP), have gained a cult following on YouTube (GOOG) and Facebook. Such buzz has been crucial to getting the brand on the radar screens of younger beer drinkers, and sales of cases surged 21.5 percent soon after the campaign started. “Dos Equis has done well because of its very good advertising,” says Andrew Holland, an analyst at Société Générale (SCGLY). “[The brand] Heineken used to be the master of good, quirky advertising, and they don’t seem to have managed that” in the last few years.

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 first-half sales. There are limits to how much Dos Equis can boost the company’s momentum, however. That’s because the Mexican brew represents just 0.6 percent of U.S. beer market volume, vs. the Heineken brand’s 2.2 percent in 2011—down from 2.6 percent in 2006, estimates consumer researcher Euromonitor. Increasingly, the Heineken brand is thought of as a quaff for older American drinkers. It’s been scaling back some distribution outlets in the U.S. after it became “ubiquitous” during the 1990s, losing its aura of exclusivity, Nicolson says.

The company is trying to reposition the flagship brand to again appeal to young affluent drinkers. New television spots created by Wieden & Kennedy, which depict a young hipster’s bacchanalian whirls through parties and restaurants, look more like upscale fragrance or fashion ads than beer promos. “The new, much edgier global ad campaigns for Heineken appear to be working to arrest the decline,” says Sanford C. Bernstein’s Stirling. The Heineken brand’s volume grew 3.9 percent in the four weeks ended Nov. 26, Ian Shackleton, an analyst at Nomura (NMR), said in a note, citing Nielsen (NLSN) data. (Dos Equis Lager Especial bounced 25.6 percent and Dos Equis Ambar 18.1 percent.) The Heineken brand, which in December announced a global partnership with Facebook to collaborate on digital campaigns, now has over 5 million “Likes.”

Still, Banco Santander (STD) analyst Anthony Bucalo doubts the flagship brew can show much long-term improvement. “A lot of the big macro brands have about 25-year life cycles where they start to peak out and start declining,” he says. Heineken “hit that point in the middle of the last decade,” he says. “They can stabilize the business, but the future of Heineken USA is in the Dos Equis brand.”

The bottom line: Heineken, once the No. 1 import in the U.S., has stalled. It’s pinning its hopes on Dos Equis, which grew 26 percent in November.

Fletcher is a reporter for Bloomberg News in London.

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Companies Mentioned

  • GMODELOC:MM
    (Grupo Modelo SAB de CV)
    • $121.2 MXN
    • 0.15
    • 0.12%
  • FMX
    (Fomento Economico Mexicano SAB de CV)
    • $95.32 USD
    • -1.81
    • -1.9%
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