Heineken, the renowned brewer behind popular brands like Heineken beer, Strongbow and Amstel, has come under scrutiny for its “unprecedented” price increases, which resulted in a significant drop in profits due to declining beer volumes.

During the first half of the year, the company experienced a 5.6% decline in volumes, leading to a staggering 22.2% year-on-year profit decrease, totaling €1.61 billion. The sharp decline was primarily attributed to Heineken’s decision to raise prices globally by an average of 11.8%, with European prices soaring by 14% during the quarter, resulting in a 6.4% decline in beer volumes compared to the same period in 2022.

Despite these challenging figures, Heineken’s CEO, Dolf van den Brink, stands firm in defending the pricing strategy. He emphasized, “We knew we needed that pricing… the volume is impacted but it will come back with a delay of one or two quarters. The margin would have never come back if we would not have taken the pricing, particularly in Europe.” This unwavering confidence in their pricing approach reflects the company’s belief that the volume decline is temporary and that a rebound is on the horizon.

While Heineken anticipates a “low single-digit volume decline” in the second half of 2023, it remains optimistic that this decline will eventually stabilize. Certain product lines have been affected by the pricing adjustments, with the Desperados brand experiencing falling demand in its core European market, and the UK’s cider portfolio witnessing volume declines.

Notably, despite the challenges, Heineken continues to invest in marketing and sales efforts, boosting spending by €200 million (£171.63 million) in the first half of the year. This accounts for 10% of its revenue, surpassing last year’s investment of 9.5%. Van den Brink stressed the long-term nature of marketing investments, acknowledging that their impact may take time to materialize. He affirmed, “Brand power today is pricing power tomorrow,” highlighting the critical role marketing plays in supporting price increases.

In contrast to the overall declining trend, Heineken’s flagship brand achieved growth of 1.7%, excluding Russia, in the first six months of the year. However, the premium beer segment as a whole experienced a 6.5% volume decline, partially attributed to underperforming results in Vietnam. The company acknowledged an overstocking issue in the Vietnamese market, compounded by a lack of competition following early price increases, which contributed to the decline in profits.

Heineken’s strategic approach to pricing and marketing reflects its belief in the long-term potential of brand power. Despite facing short-term challenges, the company remains confident that its pricing strategy and marketing investments will pave the way for a stronger tomorrow.