Exhibit 11.12 shows the average revenue growth rates for companies in selected industries. (These are average growth rates for a sample of companies in the industry, not total industry growth.) These numbers will tend to be higher than the industry growth because of survivorship bias (only surviving companies are in the sample) and because they include the effect of mergers and acquisitions. Nevertheless, they do provide some clues about long-term performance.

With few exceptions, growth rates will decline as the industry matures. Exceptions always make this interesting. Trucking and air couriers growth increased because of deregulation and innovation (overnight delivery). Pharmaceuticals growth increased because of innovative new drugs. In most industries, though, growth tends to slow to rates not much greater than overall economic growth. Once again, you can see how fundamental analysis can help you predict how growth rates will behave.

You are now ready to put the finishing touch on your valuation, by adding the continuing value. Heineken Case

In this section, we develop a forecast for Heineken's financial performance, following the approach laid out in the chapter. First, we offer a strategic perspective on Heineken and describe several scenarios. We then translate the base case scenario into a financial forecast.

For this case, we use a five-year detailed forecast, followed by a summary forecast for the next 10 years. The continuing value follows after the 15-year forecast (discussed in the next chapter).

Develop Strategic Perspective

Heineken's recent success can be linked to its globalization strategy (as described in the last chapter), where it seeks to leverage its brand and manufacturing skills worldwide. A business system analysis provides a useful framework for describing how Heineken blends global brand consistency and use of best practices in manufacturing and marketing with catering to local markets (Exhibit 11.13).

• Product development. Heineken adopts a global standard for the recipe of its main brands. In doing so, the company not only minimizes product development costs, but also ensures consistent quality worldwide.

• Brewing. Heineken controls quality by using a roving staff of brew masters, who employ best practices in production sites worldwide. This helps to lower brewing costs in developed markets and to add value to sites purchased or

Exhibit 11.13 Heineken—Business System Analysis

Heineken ownership

Local versus global


Produ rt development


Heineken uses a relatively constant set of recipes worldwide Adjusts some recipes to account for differences in alcohol content and local taste


Combined local and global

Brews significant portion of beer in Netherlands for export

Relies on local licensed breweries to penetrate new markets rapidly Establishes full production locally as volume grows


Local with global image

Introduces new packaging types based on local competitive situation Utilizes standard green image with red star worldwide for recognition


Combined local and global

Switches between owned and partner distribution Recently took back control of distribution in U.S. from Van Munching & Co.


Local tailoring/ execution to capture premium

Heineken markets product outside of Europe to higherend clientele Recently look back control of marketing in U.S. from Van Munching & Co.

developed in new markets. To maximize penetration into new markets, Heineken combines exports, licensed brewing, and acquiring production capacity and local brands.

• Packaging. Although Heineken standardizes images on beer labels to support brand awareness, it also tailors packaging to satisfy local customers' tastes. This may add variable costs, but the impact is more than offset by the success it enjoys penetrating markets.

• Distribution. The ownership of distribution varies by country, depending on market maturity and Heineken's strategy there.

• Marketing. Leveraging its brand is an important part of Heineken's success. Heineken is the most global player in the market; its beer can be found in over 170 countries. Heineken bills its major brands (Heineken and Amstel) as premium products in non-European markets, and as mainstream products in European markets. It segments marketing and advertising campaigns to capture as much premium as possible. Finally, it reinvests much of its retained earnings in advertising and brand development in each country.

Heineken enhances this business strategy with an aggressive acquisition program. The company has purchased various producers and distributors since its major expansion in Europe during the 1980s. Its acquisitions since Van Munching & Co. (its U.S. distributor and marketer) in 1991 include Sorgyar (Hungarian brewer), Interbrew Italia, Zalty Bazant (Slovakia), Birra Moretti (Italy), Fischer and Saint-Arnould (France), and Zywiec (Poland). It has enjoyed more growth through acquisition than any other major brewer except Interbrew (Exhibit 11.14).

Exhibit 11.15 shows that this globalization and acquisition strategy has helped cement Heineken's place as a solid competitor in all major regions around the world, though it enjoys top market share only in Europe (1997 market shares).

Given that two or three players usually dominate each regional market (or country), we can see that Heineken is strongly positioned in Europe and Africa, and

Exhibit 11.14 Percentage of Current Volume Achieved through Acquisition Since 19901

more weakly positioned in the Americas and Asia-Pacific. Although Heineken has enjoyed faster growth than its domestic U.S. competitors, it is still far behind the big three: Anheuser-Busch, Miller, and Coors. In addition, in 1999, the Mexican import Corona surpassed Heineken's position as the leading imported beer in the United States.

Develop Performance Scenarios

The beer industry is slow growing, fragmented on a global basis, and concentrated on a regional (or country) basis. Growth opportunities in the emerging markets outpace those of Europe and North America. We also observe that there are two strategies in the offing: global integrator and value chain specialist. It seems from the size and reach of the largest players that many of them, including Heineken,

Exhibit 11.15 Market Share and Position by Geographic Region

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