Heineken has to go big!

Brand image, logistic operation and profitability, the main aspects for introducing a Heineken 600 ml bottle

Rijksuniversiteit Groningen Faculty of Management & Organization

Mentors:

Faculty of Management & Organization:

Dr B.J.W. Pennink Prof. Dr. J. Wijngaard

Heineken:

Michiel Verhagen

Author: Vanessa von Mühlen

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Preface The faculty of Management & Organization at the University of Groningen requires students to write their thesis on a practical problem within an organization. The thesis lying before you has been written in the period September 2003 until May 2004 and focuses on the introduction of a new packaging format, the 600 ml bottle for Heineken in Brazil. The period in which I have worked on this thesis marks the end of my career as a student. During this period I had a first working experience within an International company in Brazil. This gave me the opportunity to learn a lot about the practical and operational side of a business, develop my skills in an International business environment and improve my Portuguese. My experiences during this internship have made me more determined to pursue an International career. Apart from developing my business skills, I have also been able to develop myself as a person during a very enjoyable time in the great city of Rio de Janeiro. I owe Heineken and all the people I have worked with a big thank you for a very nice time. A special thanks goes out to Michiel Verhagen, for providing me with support during the project and his contribution to this research report. I would also like to thank Dr. B.J.W. Pennink and Prof. Dr. J. Wijngaard from the faculty for their input and guidance during this research.

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Management summary In 2003 Heineken developed a new strategy to strengthen its brand equity in Brazil. Besides strengthening its brand equity, Heineken also wishes to increase her 0,1% market share. At present, Heineken has a small market share in a large beer market, which has a high potential growth in its premium segment. One of the possibilities to grow market share is to introduce a 600 ml bottle, a packaging format that represents 82% of the on premise market (Horeca). Heineken has therefore signed a principle agreement with Cervejarias Kaiser S.A. (Kaiser), where Heineken has a 20% share, to investigate the opportunities to launch a Heineken 600 ml bottle. Part of this agreement is to research the main aspects of concern for the introduction of a Heineken 600 ml bottle and to use the results of a test in Rio de Janeiro in order to determine whether or not the 600 ml packaging format should be introduced nationwide. The objective of this research was: To provide insight in the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle for Heineken in Brazil and to give advice on how these aspects should be managed so that Heineken can make a strategic decision about a further roll out of the 600 ml bottle on the Brazilian market. During this research the results of a test market will be used. This objective has been achieved by answering the following research question: What are the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle in Brazil and how should these aspects be managed? The orientation phase of this research made clear what the three main aspects for the introduction of the Heineken 600 ml bottle were. 1. The effect of the introduction of a 600 ml bottle on the brand image of Heineken. 2. The organization of the logistic operation of the 600 ml bottle. 3. The profitability of the 600 ml bottle. Brand image The 600 ml bottle in Brazil is strongly associated with sharing and low prices. Heineken’s concern was that the introduction of such a bottle would have a negative impact on its premium brand image, where quality and price are important. After executing both a quantitative market research to investigate the current image of Heineken and a qualitative research to measure the influence of the introduction of a 600 ml bottle on the brand image of Heineken, the conclusion is that despite of the general prejudices, Heineken’s brand image will not deteriorate and even be strengthened when launching a 600 ml bottle. The bottle communicates high quality, innovation, modernity, elegance and is seen as a bottle to drink with your best friends. Logistic operation Heineken has introduced a green bottle in a market where all players use an amber bottle. Its concern was that, because of the uniqueness of the bottle, the percentage of loss of bottles and crates would be much higher then the other players in this segment. An efficient logistic operation was key to minimize the investment costs for the Heineken 600 ml bottle. The main stakeholders in this logistic operation are the brewery, the distributor, the truck that delivers the product, the Point of Sale and the consumers. All other players in the market use the same amber bottle. When crates with empty bottles arrive at brewery, it is indifferent which brand was used before. The bottles are washed, refilled and new labels are applied. Because Heineken has introduced a green bottle in an amber market, a decision had to be made where in the logistic chain the Heineken 600 ml

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bottle had to be separated from the amber bottles. The Point of Sale seems the best option to separate, as separation at this point hardly costs extra time or money in comparison separating at other points in the chain. The separation at the POS will have to be carefully managed by Heineken. The staff of POS will have to be informed that they will have to separate the bottles. The sales force is essential in this communication. Moreover, a crate cover will be used to communicate the need of separation. The truck and its staff form a second check up. Since their payment depends on the correct load on their truck (including the right bottles in the right crates), they have a direct interest in making sure the bottles are correctly returned. After having chosen the best option for separation, the loss and rotation cycle of bottles and crates will have to be carefully monitored during the test period to then decide how many crates and bottles are needed for the roll out of the strategy. Profitability Although a much higher loss of bottles and crates and longer rotation cycle then other 600 ml products was estimated, the Heineken 600 ml bottle seems to give profitability to the company. When comparing the contribution margins of all packaging formats in Heineken portfolio, the 600 ml has the largest contribution margin per hl. Conclusion Three months after the launch of the Heineken 600 ml bottle the first results are positive. Based on the results of the QQS and the first reaction of the POS owner and its consumers, the introduction seems to have a positive influence on the brand image of Heineken. Separation of the bottles at the POS seems to be working effectively. At present, the percentage of bottles lost is very low. Test results show that the majority of the staff at POS is indifferent about the fact that they have to separate the bottles. Furthermore, at this point the 600 ml has the highest contribution margin for Heineken, when compared to the other products in portfolio. It can be concluded that at present Heineken is not encountering any problems regarding brand image, logistic operation and profitability. However, Heineken needs to await the full results of the test market after one year before a decision for an eventual roll out across Brazil can be made.

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Index PREFACE .......................................................................................................................................................2

MANAGEMENT SUMMARY........................................................................................................................3

INDEX .............................................................................................................................................................5

INTRODUCTION ...........................................................................................................................................6

1 HEINEKEN IN BRAZIL .......................................................................................................................7

1.1 THE BRAZILIAN BEER MARKET .........................................................................................................7 1.2 HEINEKEN IN BRAZIL ......................................................................................................................8 1.3 PROBLEM DESCRIPTION ....................................................................................................................9

2 RESEARCH PLAN..............................................................................................................................11

2.1 OBJECTIVE AND MAIN RESEARCH QUESTION....................................................................................11 2.2 RESEARCH PROCESS .......................................................................................................................12 2.3 RESEARCH APPROACH ...................................................................................................................12 2.4 CONCEPTUAL MODEL .....................................................................................................................13

3 THE 600 ML MARKET.......................................................................................................................14

3.1 GENERAL INSIGHT..........................................................................................................................14 3.2 HEINEKEN STRATEGY TO ENTER 600 ML SEGMENT ..........................................................................17 3.3 IMPORTANT ASPECTS FOR A SUCCESSFUL INTRODUCTION.................................................................18

4 THE INFLUENCE OF INTRODUCTION OF THE 600 ML ON HEINEKEN BRAND IMAGE....19

4.1 IMAGE ...........................................................................................................................................19 4.2 DESIRED BRAND IMAGE HEINEKEN ................................................................................................20 4.3 RESEARCH METHODS .....................................................................................................................20 4.4 USAGE & ATTITUDE RESEARCH......................................................................................................21 4.5 U&A RESULTS; THE CURRENT HEINEKEN IMAGE.............................................................................24 4.6 QUALITATIVE QUICK SCAN RESEARCH............................................................................................27 4.7 QQS RESULTS; THE FIRST REACTION OF CONSUMERS ON THE HEINEKEN 600 ML BOTTLE ..................29 4.8 THE RESULTS OF BOTH RESEARCHES COMBINED ..............................................................................29 4.9 CONCLUSION .................................................................................................................................30

5 LOGISTIC OPERATION....................................................................................................................31

5.1 PHYSICAL DISTRIBUTION ................................................................................................................31 5.2 KEY ISSUES....................................................................................................................................32 5.3 THE DIFFERENT STAKEHOLDERS .....................................................................................................33 5.4 STRATEGIC OPTIONS FOR SEPARATION ............................................................................................36 5.5 COMMUNICATION AND CONTROL AT POINT OF SEPARATION .............................................................37 5.6 LOSS OF BOTTLES AND CRATES .......................................................................................................38 5.7 CONCLUSION .................................................................................................................................39

6 FINANCIAL PERFORMANCE..........................................................................................................40

6.1 VOLUME ESTIMATION ....................................................................................................................40 6.2 PROFIT & LOSS ACCOUNT ..............................................................................................................40 6.3 CONCLUSION .................................................................................................................................41

7 FIRST RESULTS TEST MARKET ....................................................................................................42

7.1 THE INTRODUCTION .......................................................................................................................42 7.2 PARAMETERS TO INVESTIGATE .......................................................................................................42 7.3 RESULTS FROM QUESTIONNAIRE .....................................................................................................43 7.4 FIRST VOLUME RESULTS.................................................................................................................45 7.5 CONCLUSION .................................................................................................................................46

CONCLUSION..............................................................................................................................................47

REFERENCES / LITERATURE..................................................................................................................50

APPENDIX....................................................................................................................................................52

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Introduction At present Heineken has a small market share of 0,1% in Brazil, a beer market with a high growth potential in its premium segment. To increase this market share Heineken has signed a principle agreement with Kaiser, where Heineken has a 20% share, to study the feasibility of launching a Heineken 600 ml bottle in Brazil. This 600 ml packaging format represents 82% of the total on premise market1 in Brazil. It is therefore a great opportunity to investigate the possibilities for Heineken in this segment. Heineken has decided to first execute a feasibility study in the city of Rio de Janeiro. In this study, the most important aspects of concern will be researched. Based on this research and the first results of a test market, Heineken will then decide whether it will roll out this 600 ml strategy to the rest of Brazil. This feasibility study has as objective: To provide insight in the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle for Heineken in Brazil and to give advice on how these aspects should be managed so that Heineken can make a strategic decision about a further roll out of the 600 ml bottle on the Brazilian market. During this research the results of a test market will be used. This objective will be achieved by answering the following research question: What are the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle in Brazil and how should these aspects be managed? The first chapter of this report will give an introduction of the Brazilian beer market in general and the Heineken strategy in Brazil. Then, chapter 2 will go deeper into the research plan for this research. Chapter 3 will introduce the 600 ml market in general, which can be used as a frame of reference for the rest of this research. In chapter 4 the first important aspect, the influence of the introduction of the Heineken 600 ml bottle on the brand image of Heineken, will be investigated. Chapter 5 will analyze how the logistical chain will have to be organized. The next chapter will show the estimated Profit & Loss account for this product. After investigating these three main aspects, the Heineken 600 ml bottle will be launched in a test market in Rio de Janeiro in February 2004. The first results of this test market will be shown in chapter 7. The last chapter will give an answer to the main research question by giving conclusions and recommendations of the introduction of the 600 ml bottle in Brazil.

1 Horeca

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67%

30%

2%

1%

600 ml Can Long neck Draught beer

82%

10%

4% 4%

1 Heineken in Brazil This chapter will give an overall introduction of the Brazilian beer market. At first the Brazilian beer market in general will be described (1.1), followed by the Heineken position and its strategy (1.2). Finally the main problem and reason of this research will be introduced (1.3).

1.1 The Brazilian beer market Brazil is the fourth largest beer market in the world after China, USA and Germany. Brazil has a population of 170 million people of which 80% is above legal drinking age. Based on the demographic variables and the (compared to other Latin countries) relative low consumption per capita (50 liters per capita)2 Brazil is a potential growth market. This, despite the fact that the total volume of beer sales has shown a decrease of two percent due to economic slowdown. In Brazil there are 24 brewing companies of substantial size. The three largest companies control 89 % of the total beer market3.

• Ambev 62 % • Schincariol 15 % • Kaiser 12 %

The total consumption of beer in Brazil is approximately 83 million hectoliters per year. 70% is sold via on premise (horeca) and 30% is sold in off premise market (hypermarkets, supermarkets, small grocery shops). With regard to the packaging portfolio, the on premise market is dominated by the brown 600 ml returnable bottle. This packaging format is only sold in the on premise market and represents 82% of this market4 (see figure 1.1).

Total market On premise market

Figure 1.1 Packaging split in total market and on premise market

There are two segments in the Brazilian market, a premium and a mainstream segment. The segmentation of the Brazilian market started around 10 years ago, which compared to other countries, is rather late. This is one of the reasons why the premium segment, with a 3,4% volume share is relatively small. In mature markets like Europe for example the premium segment is on average 10-12%. Nevertheless the premium segment in Brazil has shown a strong growth since 1998, due to an apparent demand of consumers for differentiation. Ambev perfectly tapped into this trend by repositioning their Bohemia brand as a high quality, traditionally brewed brand. Today Bohemia is the number one player in the premium segment

2 Consumption per capita in the Netherlands: 83 litre 3 Source: AC Nielsen December 2003 4 Source: AC Nielsen October 2003 and internal data

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with a market share of 80%. Other brands in this segment are Carlsberg, Miller, Bavaria Premium, Cerpa, Warsteiner and Heineken.

1.2 Heineken in Brazil Since 1992 Heineken beer is being brewed in Brazil. Until March 2002 Heineken had a 15% stake in Cervejarias Kaiser Brasil, the other 85% was controlled by Coca Cola International and its Brazilian Coca Cola franchisees. In March 2002 the Canadian brewer Molson5, acquired Kaiser. In this new brewery group Kaiser/ Bavaria (see figure 1.2), Heineken acquired a share of 20%. The new combination remained the second largest brewer with a market share of 17%. Besides Heineken shareholders position, both parties concluded a trade mark license agreement for the brewing, distribution, sales and marketing of the Heineken brand as a premium beer. Other brands in the Kaiser portfolio are: Kaiser, Bavaria and Xingu.

Figure 1.2 Structure Brewery group Kaiser

Heineken market share The current market share of Heineken within the total Brazilian market is 0,1%, from which 80% is on premise volume and 20% is off premise volume. The packaging portfolio of Heineken consists of cans (350 ml), long neck bottles (300ml) and draught beer. The target market for Heineken is the premium segment, in which it holds a share of 3%. The main reasons for Heineken’s low market share are:

• Distribution: until November 2003 the Kaiser portfolio, including Heineken, was sold by the sales force of the Coca Cola franchisees. Their priority and main skills are to sell soft drinks. As selling beer requires a different approach, sales and brand building of beer in general, let alone for a niche brand like Heineken, suffered severely when the market became more professional and competitive6.

• Taste: Brazilian beer has a lighter taste then European beers. Heineken is clearly considered as a stronger beer and therefore less popular7.

• Packaging: the 600 ml returnable bottle represents 82% of on premise market. Until now Heineken has no 600 ml packaging format and therefore misses the opportunity to grow volume and market share.

The 2002 merger between Kaiser and Bavaria also had a negative impact on the market share. In the period before and after the merger, the situation within Kaiser was chaotic and full of insecurities for all staff. Next to this the Heineken sales force (60 people) was eliminated. This clearly resulted in a lack of focus on the Heineken brand within Kaiser, which had a

5 The Canadian brewer Molson bought the Bavaria brand of Ambev in 2000 6 Source: Heineken management review 2002 7 Source: Heineken market research 1998

Heineken (20%)

Molson (80%)

Cervejarias Kaiser S.A.

Kaiser Bavaria Xingu Heineken

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great impact on the sales volume. On top of this the Heineken decreased its marketing budget with more than 50 %. The Heineken strategy Early 2003 Heineken reviewed its strategy for the Brazilian beer market. The main conclusion was that Heineken focused too much on growing volume while the brand was not yet established enough. Besides this the Kaiser/Coca Cola structure was not structured well enough for a niche brand like Heineken. In the new strategy, there is a focus on strengthening Heineken’s brand equity, to lay a foundation for quality volume growth in the future. It will be positioned as an International Premium brand with a unique taste, 100% natural ingredients, pure malt and will be sold in carefully selected top end on premise outlets. The target group is AB social class in the age of 20-35 years. Premium pricing, surprising promotions and innovative merchandising will be the main communication tools to differentiate the brand. To ensure the execution of this strategy, given the shortcomings of the Coca Cola and Kaiser Sales and Distribution system, a special merchandising team was inaugurated mid 2003. Their main objective is to market the brand in the Points of Sale (POS). In this role they support the sales function, by increasing availability and visibility with relevant packaging and merchandising, concurring excellence in operation of Sales & Brand Building activities in the POS and managing premium price positioning. They are in fact a link between marketing and the POS. Due to the geographical size of the Brazilian market, it was decided to test the new strategy on one area first, Rio de Janeiro. If this has a positive impact, Heineken will use the same strategy in the rest of Brazil. Rio de Janeiro was chosen for the following reasons8:

• Rio de Janeiro can be seen as a reference for the rest of Brazil. • Major Brazilian tourist attraction (inner and outer). • Concentration of top end On Premise. • Draught beer is well accepted. • No conflicts in Kaiser portfolio. • Proximity to brewer.

After the overview of the Brazilian beer market and the Heineken strategy in Brazil the next paragraph will give a first introduction to the research question for this report.

1.3 Problem description With its new strategy, Heineken is trying to strengthen brand equity. Heineken will also have to focus on increasing her 0,1% market share. At present Heineken has a small market share in a large beer market, with high potential growth in its premium segment. As mentioned before Heineken does not have a 600 ml packaging in portfolio, while this packaging format represents 82% of the volume in on premise market. Heineken has therefore decided to investigate the opportunities to enter this segment and signed a principle agreement with Kaiser to study the feasibility of launching a 600 ml bottle. Part of this agreement is the introduction of the 600 ml bottle in Rio de Janeiro as a test before a nationwide launch. There are three key aspects of concern to Heineken. The first being the effect of a 600 ml bottle on the brand image of Heineken. Can Heineken maintain its premium brand image by

8 Source: Heineken management review 2002

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introducing a 600 ml bottle, since this packaging format is perceived as social and value for money? Secondly there are concerns about the logistic feasibility of the operation since Heineken will introduce a green bottle instead of a brown bottle as is used by all competitors. Finally the profitability of the 600 ml bottle needs to be determined. It is very important for Heineken to obtain a further insight in these variables and how these will behave in a test market. Therefore Heineken has decided to further investigate these aspects prior and during the launch in a test market. This research and its results will be presented in this report. After evaluating the results of this report a decision will be made on a further rollout of the 600 ml bottle nationwide. The objective and central question of this research will be introduced in the research plan in the next chapter.

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2 Research plan After the brief evaluation of the market and a first description of the problem, the research plan for this paper will now be introduced. First the objective and main research question will be given, after which the research process will be outlined (2.1). In the research process the different phases of this research will be explained (2.2). The research approach will explain the steps that shall be taken in order to answer the main question (2.3). Finally the conceptual model for this research will be shown (2.4).

2.1 Objective and main research question The objective9 of this research is: To provide insight in the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle for Heineken in Brazil and to give advice on how these aspects should be managed so that Heineken can make a strategic decision about a further roll out of the 600 ml bottle on the Brazilian market. During this research the results of a test market will be used. The objective of this research leads to the following main research question: What are the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle in Brazil and how should these aspects be managed? The answer of this main question will provide Heineken with strategic input on a further roll out of the 600 ml bottle nation wide. The following sub-questions will be used as a guideline to find an answer to the main research question. 1. What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken

in Brazil? 1a. What is the desired Heineken image? 1b. What is the current image of Heineken in Rio de Janeiro? 1c. How will the consumer react to the 600 ml bottle?

2. How should the logistic chain of the 600 ml be organized in order to minimize the loss of bottles and crates? (under the provisioned 25%)?

2a. Which stakeholders can be identified? 2b. At which point in the logistic chain should the separation brown/green take place?

3. What is the estimated volume and profit potential of the 600 ml bottle for Heineken in Brazil?

4. What conclusions can be drawn after analyzing the first three months of the introduction period? 4a. How do consumers react on the Heineken 600 ml bottle? 4b. What is the percentage of loss of bottles? 4c. What are the actual results in terms of volume after three months?

9 Source: Verschuren, 1999: 23

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2.2 Research process This research can be divided in five main phases. First the orientation phase, where desk-research, observation and interviews will be used to get a better understanding of the 600 ml market. In the second phase this understanding of the 600 ml market will be used as an input to decide which aspects are important for the introduction of a Heineken 600 ml bottle. In the third phase these aspects will be further explored (sub-question 1, 2 and 3). Therefore desk-research, observation and interviews will be used. In the fourth phase the test market in Rio de Janeiro10 will start. This test market has to be used in this research because some sub-questions can only be answered by analyzing the actual results of the 600 ml bottle during the test (sub-question 4). The fifth and last phase will be used to make conclusions based on the first four phases. These conclusions will provide Heineken with a basic insight in the main aspects of the Heineken 600 ml bottle and how these should be managed. Heineken will then decide whether this strategy will be rolled out in the rest of Brazil. The research will take place from September 2003 until May 2004. The test market will start in February 2004 and will last until end of year. This report will cover the period from September 2003 until May 2004.

2.3 Research Approach In the next table the research types and methodology are summarized per sub-question, which gives an insight in the research approach for this research.

Table 2.1 Research approach

10 Given the status of Rio de Janeiro as being a test market for the new overall business strategy, this area is an obvious choice to execute this real life market test

Question Chapter Subject How to research Main 1 Understanding of

the market Analyze strategy documents, visit market and interview relevant stakeholders such as commercial management, bar owners and staff, to obtain a good impression of the beer market and its main drivers in Rio de Janeiro.

Main 3 Important aspects for introduction

Understand 600 ml market, investigate the important factors.

1a 4 Desired image Study Heineken’s global brand strategy, by interviewing Heineken management.

1b 4 Brand Image Set up execution of quantitative Usage & Attitude (U&A) research.

1c 4 Brand Image Set up execution of Qualitative Quick Scan (QQS) to estimate consumer reaction on 600 ml bottle.

2a 5 Logistic operation Evaluate and interview all important stakeholders of distribution channel 600 ml.

2b 5 Logistic operation Analyze how logistic operation for 600 ml should be organized. 3 6 Profitability Make estimation of volume and Profit & Loss for 600 ml by

interviewing Kaiser financial management. 4 7 First results Evaluate results after first three months.

Main 3 Introduction plan Combine all important aspects and describe/ evaluate the introduction of the 600 ml bottle

Main 8 Conclusions

Give conclusions and recommendations based on results of all research elements.

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2.4 Conceptual model The sub-questions can be visualized in a conceptual model. In this model11 one can see the influence of each element of this research on the final conclusions and recommendations whether Heineken should roll out her strategy of introducing a 600 ml bottle in Brazil. After describing the research objective and main question the general outline of this research should be clear. In the next chapter a brief introduction in the 600 ml market will follow. This will provide a better understanding of this market, which can be used as a frame of reference for the following chapters.

11 The numbers between brackets correspondent with the sub-questions in chapter 2.1

Input on a further roll

out of the 600 ml bottle

nation wide

Brand image

Logistic Operation

Profitability

Different stakeholders (2a)

Separating green from brown (2b)

Estimated Profit & Loss (3)

Desired image (1a)

Current image (1b)

Reaction on introduction 600 ml bottle (1c & 4)

Actual Profit & Loss (4)

Percentage of loss bottles (4)

Figure 2.1 Conceptual Model

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3 The 600 ml market After describing the Brazilian beer market and introducing the research plan in the previous chapters, this chapter will provide a better understanding of the 600 ml market in general. Hereby the Rio de Janeiro 600 ml market will be used as a reference. In the first paragraph (3.1) a general insight in the 600 ml market will be given. In the second paragraph (3.2) Heineken’s strategy to enter this market will be outlined. After this the important aspects for a successful introduction of a Heineken 600 ml bottle will be given (3.3). Figure 3.1 gives an overview of the structure of this chapter. 12

Figure 3.1 Build up of chapter 3

3.1 General insight As mentioned before the 600 ml bottle is the most sold packaging format in the on premise market in Brazil. Before going into the Heineken strategy for this segment, an insight in the 600 ml market as it exists today will be given in this paragraph. Consumer background For a Brazilian consumer, beer supports the Brazilian joy of life. Its low price makes it accessible for all social classes and usable in a great variety of moments and occasions13. Previous research revealed that beer has all characteristics that fit into local environment, climate, culture and mentality, which is mostly reflected in its essential of bonding and

12 see chapter 1 13 Source: Qualitative research Heineken April 1999

Total beer market12 & consumer insight on beer (3.1)

600 ml Packaging (3.1)

Other packaging formats

600 ml Market (3.1)

Antartica

Skol

Brahma

Antartica Original

600 ml Strategy of Heineken (3.2)

Product Promotional Support

Price Place

Bohemia

Important aspects for successful introduction (3.3)

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sharing. Especially the 600 ml bottle plays an important role in this bonding and sharing culture, because this bottle is bought to share among friends. On the other hand it gives more value for money then other packaging formats in the market. The consumers perceive the appearance of the bottle as ‘They all have the same ugly appearance, the only thing that changes is the paper label’14. 600 ml packaging All players in the 600 ml segment use the same type of bottle; an amber colored, so-called industry bottle. Because there is only one type of bottle it is unimportant which bottle is returned to which brewery. When crates with empty bottles arrive at brewery to be washed and filled it is indifferent which brand was used before, as new labels will be applied after bottles have been refilled. Position of the 600 ml bottle in the Brazilian on premise market The importance of this 600 ml bottle in the beer culture in Brazil is reflected in its 82% share in the on premise market. In the (recent) past, Brazil has known periods of hyper inflation, which made it impossible to work with a deposit system within the off premise. This has lead to the situation in which the 600 ml bottle is only sold in on premise outlets. To get a good understanding of the on premise 600 ml market, a broad description of the whole on premise market will be given. The total on premise segment can be divided in three sub-segments (see figure 3.2). 1. Price and Sharing; In the biggest sub-segment price and sharing play a very important

role. In this segment consumers are looking for an environment where they can share a beer with friends and at the same time get the most value for their money. The 600 ml bottle is the main packaging format that services consumers with this demand. The mainstream 600 ml brands play an important role in this sub-segment. For example: a small open bar on the pavement with plastic chairs and tables, where people gather at end of the day to drink a 600 ml mainstream brand bottle with their friends15.

2. Sharing and Image; In this upcoming sub-segment image and quality are important. At the same time consumers want to be able to share a beer with their friends. This is the most important sub-segment for the premium 600 ml players in the market16. For example: nicely decorated restaurant where people come for dinner or a drink and all sit together at a table sharing food and a 600 ml bottle.

3. Image and Individual; In this sub-segment image and therefore the individual is more important. Consumers want to see and be seen. Because of the more individual character of this sub-segment consumption is more focussed on long neck bottles and draught beer. For example: fancy bar where people come dressed up for a real evening out and drink while dancing or chatting at the bar.

14 Source: Qualitative research Heineken November 2003 15 Also known as ‘Boteco’ in Brazil 16The majority of POS for Premium 600 ml brands will be in this segment, there are also POS which belong to segment of price and sharing but because of its public (Celebrities, etc) are interesting for Premium 600 ml brands.

Figure 3.2 sub-segments in on premise market

Price and Sharing Mainstream 600 ml

Sharing and Image Premium 600 ml

Image and Individual Draught beer, Long neck

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The current players Almost all brands have a 600 ml returnable bottle in portfolio. The top three brands (all Ambev) in terms of market share in Rio de Janeiro are17:

• Skol 55% • Brahma 14% • Antartica 10%

These three top players, representing 79% of the market are considered mainstream brands, with Skol as a clear price leader. Next to these, two other brands in particular are relevant to this study as they are clearly positioned as premium brands:

• Bohemia 1% • Antartica Original 0,1%

As a reference, table 3.1 gives a resume of price per crate of 24 bottles, numeric distribution18 and total volume in on premise Rio de Janeiro for main players in segment (Skol, Brahma, Antartica), the biggest brand in Kaiser portfolio in this segment (Bavaria) and the two most relevant brands for this study (Bohemia and Antartica Original).

Brand Price (in R$ per crate)19

Numeric Distribution20

Volume on premise Rio de Janeiro in Hl.

Skol 37,00 74% 1.291.000 Brahma 35,84 57% 328.000 Antartica 32,00 54% 234.000 Bavaria21 39,00 17% 29.600 Bohemia 41,78 6% 23.000 Antartica Original

41,78 1% 2300

Table 3.1 Price, numeric distribution and volume

17 Source: ACNielsen November 2003 18 Source: AC Nielsen February 2004, average Aug 2003- Jan 2004: % of 600 ml outlets in Rio de Janeiro 19 Source: www.oanda.com: 1 Brazilian real= 0, 275 euro (Feb 2004) 20 Total number of 600 ml outlets in Rio de Janeiro is: 22.000 21 Note: Kaiser has a very small market share in RJ, but is a major player in Brazil. Because focussing on Rio de Janeiro, Bavaria is used as a reference

Figure 3.3 The competitors

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Figure 3.4 Heineken 600 ml bottle

3.2 Heineken strategy to enter 600 ml segment

Because of the size of the segment and the opportunities therefore to grow market share, Heineken decided to launch a green 600 ml returnable bottle. The 600 ml bottle can give Heineken more opportunities by22:

• Increasing distribution; availability and visibility. • Getting into POS where until now Heineken could not get in because it did not have

the right packaging format. • Giving (Heineken) consumers more occasions/opportunities to drink, because the

brand will now be sold in more types of outlets. • Getting more possibilities to generate trial. • Becoming part of the sharing culture, whilst remaining premium. • Ultimately increasing volume.

Product In all segments Heineken differentiates with its product, price, promotion and selective distribution. In order to differentiate in the 600 ml market, Heineken has developed a radical new bottle (see table 3.2). The bottle designed is made out of green glass, has a silkscreen label and is characterized by its distinctive shape as can be seen in figure 3.4 below.

Table 3.2 Heineken bottle compared to competitors 600 ml The dimensions of bottle and crate are conforming market standards. There are 24 bottles in one crate. Price In order to position Heineken as a premium brand, price is a crucial tool. The selling price to the trade will be at least 15-20% higher than mainstream brands and at least equal to the main reference in the premium segment, Bohemia. Price positioning to the consumer will be, although more difficult to control, at least on par with Bohemia. Due to the large variety in type of outlets this means that the consumer price can vary between 3 and 5 R$. Place In line with its strategy, Heineken uses selective distribution23. This means that the outlets are selected on several criteria defined by Heineken. With the 600 ml bottle Heineken wants to reach the sub-segment where sharing plays an important role, but image is also important (see paragraph 3.1). As this concerns a relatively small number of outlets an even more careful selection is required to get into the right outlets. The majority of these outlets will be new outlets where Heineken has not been sold yet, because Heineken did not have the right packaging format. To get in the POS, Heineken offers the outlets a special treatment with

22 Source: Heineken management review 2003 23 Source: Floor ea, 1998: 20

Heineken 600 ml bottle Competitors 600 ml bottle Green returnable bottle Brown returnable bottle Silkscreen (printed) label Traditional paper label Relief in bottle No relief

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special merchandising. The Heineken 600 ml bottle will give outlets another possibility to offer customers a premium 600 ml brand next to the mainstream brands. Promotional Support Heineken uses different, high quality merchandising, to distinguish from competitors. The promotional support for the 600 ml bottle also needs to be different. Therefore sophisticated, innovating merchandising has been developed for the POS. These merchandising items will be offered to POS which will sell Heineken 600 ml, whereby the quantities will depend on the volume they sell. Examples of the merchandising are: 200 ml glasses, fridge, poster, table tents and a cooler for the bottle.

3.3 Important aspects for a successful introduction There are three key aspects of concern to Heineken. To obtain a further insight in these variables and how these will behave in reality, a test market will be set up in Rio de Janeiro. These aspects will then be further investigated prior and during the launch in this test market. When successful the 600 ml bottle will be rolled out in the rest of Brazil. The main aspects for the introduction of a Heineken 600 ml bottle are:

• The impact of a 600 ml bottle on the brand image given the fact that the segment is strongly associated with Brazilian beer attributes as low prices. Will it contribute to the main brand objective to position Heineken as a premium, international, top quality product for the AB class?

• How to structure the logistic operation given the green color of Heineken’s bottle in a market that uses a brown, so called industry bottle? All suppliers use the same type of bottle. How should logistic operation be structured to reduce loss of crates and bottles to minimum?

• What will be the estimated profitability and main factors that influence the bottom line financial results?

After this resume of the most important characteristics of the 600 ml market and main aspects for a successful introduction of the Heineken 600 m bottle, the next three chapters will further investigate these main aspects. The next chapter will first go into the influence of the introduction of 600 ml bottle on the Heineken brand image.

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4 The influence of introduction of the 600 ml on Heineken Brand image In this chapter an answer to sub-question 1 will be given ‘What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?’. Figure 4.1 gives an overview of the elements involved in this question. First a definition of image will be given (4.1). Thereafter the desired Heineken image will be introduced (4.2). Then the two research methods used to find an answer to sub-question 1 will be outlined (4.3). The method and results of the first research method will be first given. This method will lead to a description of the current image (4.4 and 4.5). Then the influence of the introduction of the 600 ml bottle on the Heineken brand image can be explored (4.6 and 4.7). Finally the results will be combined to be able to give an answer to the sub-question (4.8 and 4.9).

Figure 4.1 Build up of chapter 4

4.1 Image To operationalize ‘image’ the definitions of Blauw, van Riel, van Alsem and Heineken will be used. These will be combined in order to come up with one definition of ‘image’ which will be used throughout this research. Blauw and Van Riel24 define image as ‘the representation of a company as it exists within the target group’. Alsem25 sees image as ‘the brand reputation that the target group actually has of a company’. Heineken refers to image as ‘what the brand ultimately stands for, in consumers minds’26. During this research, image will be defined as the brand reputation of a company (or product) as it exists in the mind of the target group. The image of an organization is formed by direct and indirect experiences with the organization27. Direct experiences are based on own experiences with products or services, its quality, the price/ quality relation and the delivered service. These are so called controllable factors. These direct experiences with Heineken will be influenced by the introduction of the

24 Source: Blauw, 1986 : 29 ,Van Riel, 1992: 54 25 Source: Alsem, 2001: 317 26 Source: Internal Heineken communication 2003 27 Source: www.communicatiecoach.com

Image (4.1)

Desired Heineken image (4.2)

Image measurement methods (4.3)

Conclusions (4.8 and 4.9)

Current Heineken brand image (4.4 and 4.5)

Influence of introduction on current image (4.6, 4.7)

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Heineken 600 ml bottle and should therefore be carefully managed. The indirect experiences are not influenced by the organization and form an uncontrollable factor.

4.2 Desired Brand Image Heineken Before describing the Heineken image as it is today in Rio de Janeiro, it is important to describe the desired Brand Image of Heineken. As a multinational, Heineken aims to achieve a global image. Heineken headquarters gives directives for a global brand image and proposition. As mentioned above, experiences of the consumer set the idea they have about the image of a brand. Therefore it is very important to keep the consumer at the focal point of a brand’s efforts. ‘The most constructive way to think about our brand is to think about our consumer’28. This desired brand image model is confidential and is therefore not included in this report. Link model and local markets As mentioned before the image of a company or brand is influenced by direct and indirect factors. To investigate how consumers think about a company or brand, research will have to be executed. The results of the research will show if the desired image is in line with the actual image. Heineken uses the above-mentioned model worldwide. When measuring image of Heineken in a country the main values of this architecture model are translated into attributes, which can be tested during research.

4.3 Research methods To find an answer to sub-question 1 ‘What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?’, two different types of research have been used; a quantitative and a qualitative research method. Two types are needed because before determining the influence of the introduction of the 600 ml bottle on the Heineken image, a research has to be executed to measure the current image. These results can then be used as a base to define the influence of the introduction on this current image. To measure the current image of Heineken in Brazil quantitative research29 has been used. Quantitative research is used because it is an efficient method to give a general description of the market. It is normally executed within big groups. Because of its large-scale approach a more solid scientific conclusion can be drawn. Nevertheless this type of research will not give an insight in the reasons of certain outcomes30. But for the purpose of this research, namely getting an overview of the current image of Heineken within the target group, quantitative research is the most appropriate research method. After having researched the current image of Heineken, the reaction of the consumers on the introduction of the 600 ml bottle has been investigated. As for this research an insight in the reasons of outcomes is needed, qualitative research31 will be used. Qualitative research is executed to analyze consumer behavior in a more in-depth way. Open questions are used, because it enables respondents to express their experiences, motivations and feelings regarding a product in their own terms32.

28 Source: Internal Heineken communication 2003 29 Source: Dekker ea, 1995: 144 30 Source: Alsem, 2001: 108 31 Source: Malhotra ea, 2000:157 32 Source: Malhotra ea, 2000: 158

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4.4 Usage & Attitude research Usage & Attitude (U&A) is a quantitative research method to investigate all aspects of the relationship between consumers and a specific product, service or market. It provides the basic fundaments for a great part of marketing activities by providing a full understanding of the market into which a product will be, or is already being sold33. Since the mid seventies, Heineken uses the U&A method to investigate the status of the Heineken brand all over the world. It is the only research that is obligatory for all Heineken organization to execute at least every two years. This method has therefore been chosen to investigate the current image of Heineken in Brazil. Objective of this U&A research The main objective of this research was to identify:

• Beer consumer habits. • The brands of reference for the target group. • Image of Heineken and most important brands.

The outcomes in this report will only focus on the image of Heineken. The other objectives have been used as a reference. Sample As mentioned above the U&A format is used in all countries. Because of specific market circumstances and brand stage of development, this format can, to a certain extend, be adjusted to the home country. In the case of this U&A a significant change was made in the sample. Normally the research is executed on a national scale, within all beer drinkers with an age between 20-40 years old. For this research an adaptation was made. As Heineken only has a 0,1% market share in Brazil, a national research within the above mentioned sample would not be useful, because the percentage which belongs to the Heineken target group would be so small that it would be very hard to base conclusions on these results. For this research the composition of the sample was carefully selected (see figure 4.2) 34. Beer drinkers35 in Rio de Janeiro were chosen as the universe of the sample. To get results that are useful for Heineken, the focus was on the target group of Heineken; research was conducted among an AB social Class36 population. Hereby a distinction is made between participants that had drunk beer in the last month (referred to as non-Heineken consumers) and respondents that had drunk Heineken beer in the last month (referred to as Heineken consumers). The participant have been selected by select drawing method, whereby social class, age and gender are used as a reference.

33 Source: www.business-advantage.co.uk 34 Source: Dekker e.a, 1995: 170 35 A person who drinks beer (alcoholic or not) at least once a month 36 A system whereby the population can be divided based on economic entities. It calculates the buying power of urban families based on several criteria36. In this system AB social class is used to describe the social class with the highest buying power, represents 29% of total population (Critério de classificação Econômica Brasil).

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The research was executed among 377 people, of which 248 non-Heineken consumers and 129 Heineken consumers. Because this research was only done among AB social class and a, in comparison to the reality, high percentage of Heineken consumers, the data were made more representative37, by weighting all outcomes to reflect its importance, relative to the total group of respondents. Method These respondents have been recruited by intercepts at points where a lot of people pass by. This can for instance be in a square in town in a neighborhood where a lot of young AB social class people live or work. The interviewer walks up to a possible respondent and asks whether he or she would mind to spare some time. Amongst these respondents, face-to-face interviews have been executed, which lasted for about one hour. Pictures of different brands and products were used to make it easier for the respondent to visualize these (See appendix 1 for questionnaire). The set up of the research and the actual execution was done in cooperation with a research agency. Attributes As mentioned in paragraph 4.2, attributes are used to test if image in a market is in line with desired Heineken image. These attributes are statements that can be measured during quantitative and qualitative research. There are attributes which can be used to describe the personality of beer. Hereby beer is described as if describing a personality of a person. Imagery attributes and satisfaction attributes are used to describe different aspects of the image of beer. The imagery attributes are more rational and the satisfaction attributes are more emotional. Not all attributes38 that have been measured are in line with the desired image (see paragraph 4.2). Therefore, in cooperation with Heineken International a selection has been made of the attributes that are most important for the Heineken image (from now on referred to as ‘core’ attributes); these core attributes have been derived from the core values and from the image definition. These attributes are confidential and are therefore not included in this report.

37 Source: Malhotra ea, 2000: 387 38 As used in the U&A questionnaire, see appendix x

Universe: Beer drinkers in Rio de Janeiro

Population: AB Social class

Stratification: Heineken consumers, non-Heineken consumers

Select drawing: social class, age, gender

Individuals: Men and women, AB social class, between 18-44 years old, residents of Rio de Janeiro, go out at night at least

once a week.

Figure 4.2 Universe, population, stratification, selection and individuals for research

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Sequence of research During the U&A study the information for the research has been obtained in the sequence shown in figure 4.3.

Figure 4.3 Sequence of U&A research To find an answer to sub-question 1b ‘What is the current image of Heineken in Rio de Janeiro?’ the focus of this report will be on image and personality. To measure image two types of attributes have been used; satisfaction attributes and imagery attributes. Using the satisfaction attributes the interviewees have been asked to describe their ideal beer. Then they had to give their opinion on other brands using the same attributes. These outcomes could then be compared to the ideal beer. This report will focus on the consumers’ evaluation of Heineken beer. Imagery attributes describe the image of beer in a more rational matter. These attributes are less qualified to describe an ideal beer, because in a description of an ideal beer more emotional factors will be used. The respondents have used the imagery attributes to describe three different brands. In the results the opinions of both Heineken consumers and non-Heineken consumers on Heineken beer will be compared. When describing the personality of a brand, characteristics to describe the personality of people has been used. As with the satisfaction statements the respondents had to describe their ideal brand using these personality attributes, to then compare the opinion on Heineken beer to this ideal brand.

Consumption of beverage

Consumption of beer

Reference of brands

Conclusions

Visibility Consumption Image Personality

Satisfaction attributes

Imagery attributes

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4.5 U&A results; the current Heineken image As mentioned above these results will focus on the image and personality of the brand. But as a background several results will first be given. Reference of brands During the quantitative U&A research, all participants were asked which brands they knew (without mentioning brands). The first three mentioned brands are considered as top of mind. Spontaneous awareness consists of all brands that participants came up with. Top of mind (total sample) Spontaneous awareness (total sample) Skol 67% Skol 90% Brahma 10% Antartica 64% Antartica 10% Brahma 60% Bohemia 4% Bohemia 16% Bavaria Premium 2% Heineken 15% Heineken 1% Bavaria Premium 14% Others 6% Conclusion These percentages show that there is a very low awareness of Heineken, even within Heineken consumers (3% top of mind, 31% spontaneous awareness). Heineken evaluated by Heineken and non-Heineken consumers To get an answer to sub-question 1 it is important to know how the respondents think of Heineken and whether this is in line with the desired Heineken image. Although the U&A showed results on several other aspects, this research will only go into how Heineken beer was evaluated by Heineken and non-Heineken consumers compared to the ideal beer. In the following graphics the black line (when shown) corresponds with the ideal beer. The green line corresponds with the opinion of Heineken consumers on Heineken beer and the red line shows the opinion of the non-Heineken consumer. During the interview the interviewees had to give their opinion on a five point scale from totally agree to totally disagree. In this figure, ‘%’ correspondents with totally agree39. For example, when looking at figure 4.4, 50% of the Heineken consumers, totally agree that Heineken beer shows that I know what I like about beer. The other 50% responded with a scale between agree- totally disagree. Only the core attributes were used in this graphics as these are the attributes which have to be in line with the desired image.

39 The Brazilians are described as easy graders, what means that the Brazilian in general agrees easily with what is proposed to him. Therefore for this results the highest agreement scale (totally agree) is used because it has the biggest sensibility.

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Satisfaction attributes Figure 4.4 shows that within Heineken consumers Heineken beer is evaluated with almost the same attributes as the ideal beer. Only two core attributes are evaluated less positive then the ideal beer. The non-Heineken consumers evaluated Heineken less positive then the ideal beer. Although the Brazilians do not find it important for a beer to have an International character (only 30% mentioned it) Heineken beer is considered as a very International brand, which is one of the important aspects within the desired brand image.

Imagery attributes Figure 4.5 shows the comparison between Heineken beer in Heineken consumers’ eyes and non-Heineken consumers’ eyes. As mentioned before imagery attributes are not appropriate to describe the ideal beer. From this figure it is also clear that Heineken consumers evaluate Heineken beer much more positive then non-Heineken drinkers.

%

0

10

20

30

40

50

60

70

80

90

100

Shows that I knowwhat I like in beer

Appreciate unique qualities of beer

Helps to have more pleasure

Makes mefeel alive

Feel differentand special

International brand

Makes me stand out from

the crowd

Ideal beer Heineken consumer Non-Heineken consumer

% = totally agree

Figure 4.4 Comparing ideal beer and Heineken using core satisfaction attributes

%

0

10

20

30

40

50

60

70

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100

Interna-tional brand

Distinctivetaste

Easy to

drink

Always same good

quality

High quality

Different from other

brands

For people like me

Innovative brand

Good value for

money

Worth the extra

money

Brings new

things to market

Good advertising

Good repu-ation

Heineken consumer Non-Heineken consumer

% = totally agree

Figure 4.5 Heineken using core imagery attributes

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Personality attributes Figure 4.6 shows that when using the core personality attributes to compare Heineken beer to the ideal beer, Heineken consumers consider Heineken beer far more positive then the ideal beer in all attributes except for Pleasurable. The non-Heineken consumers evaluate the ideal beer more positive on these core attributes. Conclusion The objective of this chapter is to find an answer to sub-question 1 ‘What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?’ As mentioned above first an overview of the actual image is needed to then discuss the influence of the introduction of the 600 ml bottle hereon. When using all three types of attributes to compare the opinion about Heineken beer of a Heineken consumer and a non-Heineken consumer, the Heineken consumer gives more positive values to Heineken beer as to its ideal beer (when appropriate). However, the results of the non-Heineken consumer when evaluating Heineken show a low resemblance with the ideal beer. Therefore it can be concluded that when a consumer becomes a Heineken consumer he becomes an ambassador for the brand. In other words when converted to a Heineken drinker, Heineken is evaluated almost as positive as the ideal beer and in case of the personality attributes even better. In the U&A research respondents gave their opinion on future intentions of drinking certain brands. From the total non-Heineken consumers group, 7% would definitely buy Heineken in the future, 51% would buy it, 33% does not know whether they would buy it, 4% would probably not buy it and 5% would definitely not buy it. This shows that there are enough opportunities for non-Heineken consumers to become Heineken consumers and therefore ambassadors of the brand. Heineken has however to create opportunities for these consumers to buy Heineken. One of the possibilities is by introducing a new packaging format, the 600 ml bottle, with which it will be possible to enter more outlets and therefore reach more consumers.

%

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30

40

50

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Pleasurable Active Modern Young Sexy Self confident

Ideal beer

Heineken consumer Non-Heineken consumer

% = totally agree

Playful Differen-tiated

Honest Familiar Stylish

Figure 4.6 Comparing ideal beer and Heineken using core personality attributes

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4.6 Qualitative Quick Scan research Heineken will use the direct qualitative research method to measure the reaction of the consumer on its new packaging, the 600 ml bottle. A special format was introduced, by the Corporate Marketing department of Heineken, the so called Qualitative Quick Scan. This is a research protocol that allows for rapid and consistent evaluation of the consumer reaction to new marketing ideas40. This format was adapted to the local market and has been used for this qualitative research. Objective The main objective of the QQS was to evaluate if the new 600 ml bottle:

• Is in line with principle values and brand proposition of Heineken • Will support a substantial growth in volume • Is competitive to other brands in segment • Is appealing enough • Supports, maintains and establishes the visual identity of the brand

Hereby Heineken wants to investigate whether Heineken can maintain its brand image when launching this 600 ml bottle despite all prejudices that exist about the 600 ml segment:

Prejudices 600 ml market Heineken brand image Social, to drink with friends Individual

Quality High quality Traditional Innovative National International

Table 4.1 Comparing prejudices 600 ml market and Heineken image

Sample The QQS has been executed within 6 mixed focus groups (see method below) in Rio de Janeiro during three days. For the same reasons as mentioned earlier only AB social class consumers have been interviewed.

Group Age Profile 1 20-26 50% Heineken consumers, 50% Bohemia consumers41 2 28-34 50% Heineken consumers, 50% Bohemia consumers 3 20-26 50% Heineken consumers, 50% Bohemia consumers 4 28-34 50% Heineken consumers, 50% Bohemia consumers 5 20-26 Premium brands consumers 6 28-34 Premium brands consumers

Table 4.2 QQS sample Method For this research focus groups have been used. A focus group is an interview conducted by a trained moderator in a non-structured and natural manner with a small group of respondents42. The main purpose of such focus groups is to gain insight in the thoughts of the respondents by creating an ambience where they feel sufficiently relaxed to reflect their feelings and behavior. Focus groups are mostly used in new product development, advertising development and image studies. A focus group generally includes six to twelve people. A 40 Source: Manual Heineken Packaging QQS – version 2.0, June2002 41 Bohemia is the main premium brand in Brazil and the main competitor for Heineken 42 Source: Mahlhotra ea, 2000: 161

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focus group should be homogeneous in terms of demographic and social-economic characteristics. The moderator plays a vital role in the success of a focus group43. During three days the focus groups were held in a special room. This room was equipped with several sound installations and a special mirror. This mirror made it possible to watch the respondents from the other side of the mirror without them noticing this. An independent moderator will be hired to talk with these 6 groups about the new Heineken 600 ml bottle. The script (see appendix 2) for the interviews was translated from the existing format but adjusted in some points. The earlier held U&A research was used as a guideline. Attributes The same attributes, where possible, used in the U&A have been used in the QQS. It was not possible to use exact the same attributes because in the U&A these attributes were used to give a description of overall brand image whereas during the QQS an opinion had to be given on the Heineken 600 ml bottle only. The core attributes are condiential and therefore not included in this report. Sequence of research The sequence for this QQS research is shown in figure 4.7. Hereby the focus was on the Heineken 600 ml bottle and how it was evaluated compared to its main 600 ml competitors. The next paragraph will give the results.

43 Source: Malhotra ea, 2000:162

Figure 4.7 The sequence of the QQS research

Different packaging formats

Heineken 600 ml bottle

Comparing to other brands

General design Brand value Brand Personality

Consumption of beer

Conclusions

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4.7 QQS results; the first reaction of consumers on the Heineken 600 ml bottle When the bottle was first shown to the participants their first spontaneous reaction was measured. Some of these reactions were:

‘Cool, nice, lovely, chic, sophisticated, delicate style, different, innovative, renewing, never seen before, calls attention’

General design Participants find it a bottle that calls attention, can be recognized as Heineken, is trustworthy, International, modern and innovative, daring, has superior quality, is different, attractive, stylish and elegant. However they do not think this packaging format will be easy to find, they expect the bottle will only be sold in more sophisticated bars and restaurants. The bottle transmits a feeling that it is a light not bitter beer. Brand value Participants find that the bottle gives the impression it is a brand with superior quality, distinctive from other brands, a brand for special occasions, to drink with friends, which has an international feel to it. Furthermore they state they would like to be seen with this bottle, it shows you know how to appreciate a good beer, it makes you feel different, special, better and finally they agree it is a beer for people like them. The respondents all agree that this is the first time Heineken takes something new to the market. Furthermore, although the bottle transmits a light, not bitter taste it does not communicate that it was made of 100% natural ingredients. When going deeper into some criteria the interviewees state that the new bottle shows: High quality: New and different presentation, distinguishes itself, looks better than

other brands. Modern/ Dynamic: Looks audacious, futuristic, a great advantage to other brands. Unique/ Different: Can not be compared to others, exclusive, completely different from

other brands. Seen with Heineken: The nice life I want, I feel good, nice sensation, everybody will think I

have money. When the Heineken bottle is compared to other important brands in this segment, Skol, Bohemia, Antartica Original and Bavaria, Heineken positively stands out from the other brands in all above mentioned criteria. Brand personality The brand personality of the brand looking at this new bottle can be seen as differentiated, unique, caring, honest, self confident, proud, stylish, young, playful, modern, sexy, pleasurable and familiar.

4.8 The results of both researches combined In this paragraph the influence of the results of the QQS on the brand image of Heineken (U&A) in Brazil will be given. It does however have to be taken into account that U&A is used to get an overall impression of the total brand image of Heineken and that QQS is only used to get impressions and reactions of the consumer on the new 600 ml bottle. Therefore it is not possible to directly link the outcomes of these two researches. It is however possible to

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make assumptions on the possible influence the introduction of the 600 ml bottle will have on the total brand image of Heineken. It is advisable to execute a second U&A research one year after the launch of the 600 ml bottle. This research can then directly be linked to U&A results of this research. But because of lack of time this will not be possible for this research report. U&A Heineken is seen as a beer with high quality from a brewery with a good reputation. It is seen as an international brand which is different from other brands. It is modern and elegant but it is less innovating than it would like to be. The interesting fact is that the Heineken consumers in most cases value Heineken beer very positive, even more positive then the ideal brand, whereas non-Heineken consumers evaluate Heineken beer much less positive then the ideal beer. QQS When considering the core attributes for the Heineken image, the results of the QQS show that the first impression of the 600 ml bottle is very positive. The bottle clearly stands out from its competitors in a positive way. It is a very unique and different bottle with high quality. It shows that it is a premium beer and will be recognized as Heineken. In line with its desired image it emits an International character. This bottle will give more modernity to the brand and will increase the brand awareness of Heineken in Brazil. The bottle will bring the brand nearer to young people.

4.9 Conclusion By executing both a quantitative and a qualitative research, this chapter had as objective to give an answer to sub-question 1 ‘What is the influence of the introduction of a 600 ml bottle on the brand image of Heineken in Brazil?’ The two researches were used to show in what way the actual image of Heineken in Brazil is in line with its desired image to then measure the influence of the introduction of the 600 ml bottle on the current image. After executing both the U&A and the QQS research, the conclusion is that despite of the general prejudices, Heineken’s brand image will not deteriorate and even be strengthened when launching a 600 ml bottle. The bottle communicates high quality, innovation and is seen as a bottle to drink with your best friends whereas the brown bottle communicates a sensation of low quality and price. Moreover the green color of the bottle and its transparency makes the product look clear and smooth. This might have a positive influence on the bitter image Heineken beer has now. The participants of the QQS feel that the introduction of the 600 ml bottle will have positive effects on the image of Heineken in Brazil. The next chapter will describe how the logistical chain will have to be organized in order to minimize the loss of bottles and crates.

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5 Logistic operation This chapter describes the logistical aspect for the Heineken 600 ml bottle. First a description of the physical distribution will be given (5.1), Hereby Rio de Janeiro will be used as a reference. After which the key issues will be described (5.2). Hereafter the different stakeholders will be outlined (5.3). Paragraph 5.4 shows the strategic options for the separation green from amber bottles ending with a decision. Then a recommendation will be given how to communicate that the bottles have to be separated (5.5). Finally a short note on the loss of bottles and crates will be given (5.6). This chapter will end with conclusions and recommendations, which answer sub-question 2 ‘How should the logistic operation of the 600 ml bottle be structured?’

5.1 Physical distribution With physical distribution is meant getting products on time, in right quantities, at right place44. In the physical distribution chain of all 600 ml products in Kaiser portfolio, there are five stakeholders. Each stakeholder will have different needs, demands and characteristics, which will have an influence on the organization of the logistical chain of the Heineken 600 ml bottle.

Figure 5.1 Physical distribution chain Heineken 600 ml Figure 5.1 shows the five important stakeholders in the chain. The arrows show the route a 600 ml crate follows through the chain. The arrows between the POS and the consumer is drawn with a dotted line because, however the bottle is only sold in the on premise market and therefore not physically leaves the premise, there are still a few occasions where this consumer can influence logistic operation. The organization of the logistic operation of the Heineken 600 ml bottle is very important for a successful introduction. This logistic operation will in general be organized in the same way as the other 600 ml brands in Kaiser portfolio. The only difference is that the Heineken bottle is green and therefore has to be separated from the other amber bottles somewhere in the logiscic chain. This research will focus on at which point in the logistic chain to separate the green bottles from the other amber bottles.

44 Source: Dekker e.a., 1995: 253

Distributor (5.3.2)

Consumer (5.3.4)

POS (5.3.3)

Truck (5.3.2)

Brewery (5.3.1)

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5.2 Key issues An efficient separation and organization of the logistic chain will lead to lower investment cost, because it will:

1) Reduce the number of bottles and crates lost. 2) Minimize the rotation cycle per crate.

1) Heineken will introduce a green 600 ml bottle as opposed to the amber bottle of the other players in the market. The other 600 ml products in Kaiser portfolio have a percentage of loss of bottles of 5% and crates 2%. Because of the attractiveness and uniqueness of the new bottle, and therefore different logistical chain, Heineken estimates a 25% loss of bottles and 5% loss of crates. 2) The rotation cycle of the bottles will have a big impact on the total investment costs, because it determines the total amount of bottles and crates that will have to be bought before the product is delivered. At this point in time Heineken assumes that the rotation speed of the bottles is 8 weeks. This rotation has a very large safety margin45. At present most amber 600 ml products have a rotation cycle of less than 1 week. Both reasons directly influence the number of bottles and crates needed, thus the capital investment costs. Therefore an efficient logistic operation is key in order minimize the total capital needed for the project. To make the importance of the logistical operation more clear, table 5.1 shows two scenarios, the first being the scenario with a maximum loss of bottles and crates per cycle and a rotation cycle of 8 weeks, whereas the second scenario shows a minimum loss of bottles and crates and a rotation cycle of 1 week which is similar to the amber 600 ml bottles in Kaiser portfolio .

45 The test market will be used to decide what rotation cycle should be used when rolling out the strategy.

Table 5.1: Capital investment year one depending on loss and rotation

HEINEKEN 600 ML Scenario MAX Scenario MIN Volume hl/yr 2.000 2.000 Crates 13.550 13.550 Crates per week 282 282 Rotation 6,5/8 weeks cycle 8 1 Crates per cycle 2.258 282 Loss in crates 5% 2% Loss per cycle 113 6

Total loss in yr 1 678 271

Crates needed 2.936 553 Bottles per cycle 54.201 6.775 Loss of bottles 25% 5% Loss of bottles per cycle 13.550 339

Total loss in yr 1 81.301 16.260

Total need for bottles 135.501 23.035 Cost per crate 8,26 8,26 Cost per bottle 0,52 0,52

Total investment year 1 94.982 16.595

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At present Kaiser has invested R$ 94.982 in crates and bottles. The actual loss and the actual rotation speed will have a major impact on the total investment estimated for an eventual roll out across Brazil. If the test market shows that Heineken can apply a 2% loss of crates, a 5% loss of bottles and a rotation of 1 week like its competitors, Heineken would only need 553 crates and 23.035 bottles, for which a total investment of R$ 16.595 will be needed. This shows that the investment for the Heineken 600 ml bottle is almost 6 times higher then a ‘normal’ situation. Both issues will therefore have to be carefully managed during the introduction period because the actual rotation cycle and loss of bottles and crates is very important in order to calculate the total investment cost needed for a later roll out in the rest of Brazil46.

5.3 The different stakeholders Heineken can best influence the rotation cycle and the loss of bottles by having an efficient logistic operation. The most important item that can positively influence these two issues is the point of separation of green from amber bottles. The next sub-paragraphs will describe the different stakeholders within the physical distribution as it exists within Kaiser. After the description of each stakeholder the advantages and disadvantages of the current organization of the chain47, for the Heineken 600 ml project will be introduced . In the next paragraph a decision will be made at which point in the logistic chain to separate the green from amber bottles. 5.3.1 Brewery The Heineken brewery is located in Queimados48. It is located approximately two hours from Rio de Janeiro. The brewery runs a regular daily service between Queimados and the distributor in Rio de Janeiro. It supplies crates with full bottles of beer for crates with empty bottles of beer. This system, in which full is supplied for empty, is used throughout the whole 600 ml logistical chain. The brewery supplies to its distributor Andina (Rio de Janeiro Refrescos), which is the distributor for all products in the Kaiser portfolio in Rio de Janeiro. Advantages

• There is a stable frequent service between the brewery and the distributor. • There is only one production center which does not complicate the logistical chain.

Disadvantage

• Only one point of production will have a negative impact on the rotation cycle of the bottles in the event of a roll out outside Rio de Janeiro, as the bottles will have to travel much further to arrive at certain destinations.

5.3.2 Distributor and truck Since January 2004 all Heineken products in Rio de Janeiro are being distributed by Andina. From its locations in Jacarepaguá and Bonsucesso it distributes not only Heineken but also other products from the Kaiser portfolio49 and Coca Cola. From the distribution centers Heineken is distributed to the POS.

46 In the event of a roll out other factors such as geographical spread and distance to distribution point will have to be considered. 47 The advantages and disadvantages are based on general observations and interviews with 2 logistical managers of Andina, several POS owners, 2 truck drivers and Heineken management. 48 This is the only brewery where Heineken is being brewed. Kaiser has 9 breweries in the whole country. 49 Other beers are Bavaria, Xingu, Kaiser and Santa Cerva.

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The actual delivery of products is outsourced to 3 third party truck companies. In total there are 270 trucks with about 660 employees. The employees on the trucks are only paid when all products are correctly delivered and picked up. When they return with an incorrect or incomplete crate they will not be paid. The drivers deliver and pick up 6 days a week, from Monday to Saturday. An overview of the complete workflow at Andina is given in Figure 5.2. The Kaiser (Heineken) sales-force enter the sales of the day into a computer system. This is done before 18:00 of that day. Then a route definition for the delivery for next day is prepared. After the emission of the bills, the preparation of the mixtures of products (soft drinks and beer) for each truck and POS can start. This so the trucks can be loaded early and they can leave Andina early in the next morning. In the morning the truck drivers50 check their load and leave the distributor at 7:00 at the latest to do their deliveries and pickups for the day. During one day a truck visits an average of 15 outlets.

Figure 5.2 The process at the distributor New returnable products can only be delivered when exchanged for empty similar products; this means an empty crate for a full one. After having delivered all products at clients, the trucks return to the distributor. They are obliged to sort and structure all products before arriving at Andina. This makes the discharge of the truck quicker and easier upon arrival. Advantages

• Other 600 ml brands in portfolio (Kaiser, Bavaria and Santa Cerva) do not have brand specific crates and all bottles have the same color, which takes more time when setting up order mixtures. To know which brand is in which crate the label has to be checked. As the label is the only thing that is different, a mistake is easily made. For Heineken

50 The crew on a truck exists out of a driver and two helpers.

Emission of bills and ordering loading

Pre sales (from 8.00-

18.00)

Enter sales in system

(after 18.00)

Route definition

Loading Setup order mixtures

(after 20.00)

Leave (before 7.00)

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there will be no confusion, as crate and bottle are green and will clearly stand out from other brands.

• The crew of a truck will only get paid when they deliver their products and return empty crates as specified by Andina. This means that they have a direct interest in a correct separation of bottles conform the specifications.

• The crew of a truck will organize their truck before they return to Andina. This means there is a special department in the truck for each product. Therefore no time is lost upon arrival at distributor and products (Heineken crates and other crates) will not be mixed up and easy to organize when unloading.

• Heineken is the only 600 ml brand with a green bottle and crate. This makes separation within chain easier.

Disadvantages

• Because of ‘full crate for empty crate’ procedure the truck will never accept a crate where bottles are missing and will therefore sometimes not be possible to deliver the orders of the POS.

5.3.3 Points of Sale As described before the Heineken 600 ml bottle will only be distributed in on premise market (horeca). Heineken will carefully pre-select the POS where the 600 ml bottle can be sold51. These outlets will meet the standards set by Heineken. In most of these outlets Heineken will be sold next to another (mainstream or premium) 600 ml brand. However there will be very few occasions where the other brand will be part of the Kaiser portfolio, because the other brands in the Kaiser portfolio have a different target group and strategy. Heineken has estimated that the first outlets will sell between one and three crates per week as shown in table 5.2.

Number of outlets Number of crates Total hl 75 outlets 1crate per week 518 hl 75 outlets 2 crates per week 1036 hl 25 outlets 3 or more crates per week 518 hl

175 outlets 14400 crates per year 2073 hl per year Table 5.2 Volume estimation year 1

Because this is a new operation with a new product Kaiser will set a minimum of selling two crates for the first buy. This minimum is set so POS can use extra crate as a buffer and as a back up for replacing broken and missing bottles. The first crates are delivered with a contract signed by both parties. In this contract is stated that the bottles and crates are property of Kaiser. When a crate is returned with a bottle missing the POS will have to pay this loss. At present most POS buy a number of different products from a number of different vendors. This means they have to separate different packaging formats. Practically this implies they have to separate, and return, soft drink bottles and 600 ml beer bottles. Longnecks (beer) and cans are one way packaging formats. When bottles return from tables or the bar they have to be placed in a crate or bin.

51 See also sub-paragraph 3.2.

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Advantages • POS does not have to pay for first crates bought. This means no rejection will occur

when buying an extra crate as buffer. A contract with the distributor proves how many crates the POS has borrowed from the company for the first demand.

• All bottles have to be placed in a crate or bin. The bar personnel therefore have to think where to put which bottle anyway.

Disadvantages

• With other brands, when braking or loosing a bottle in POS, owner can refill crate with other amber bottle when returning crate to company. For Heineken bottles this will not be possible, therefore a buffer crate will be provided.

• In the ‘full for empty’ process as it exists today POS will not be able to return crates when bottles are missing. Therefore a buffer crate will be provided. Nevertheless at one stage the POS will end up with an empty crate, which they will not be able to return unless paying the loss.

• The potential problems with the ‘full crate for empty crate’ might have such an impact on the stock keeping of the POS, that the POS will not want to proceed with the selling of the Heineken 600 ml bottle in its POS.

5.3.4 Consumer Heineken will focus on AB social class. Even though part of the logistical chain, the consumer does not play an active role in the logistical chain. This is because the product is only sold in on premise outlets where the bottle is delivered and picked up from their table by POS staff. However in some occasions the bar owners do sell bottles to consumers who live nearby and want to have some beers at home. Hereby they charge a little amount of money, which they will return when receiving empty bottle. The other occasion where these consumers can play an important role is when they want to take (empty) 600 ml bottle home because they find it such a beautiful and different bottle. Advantages

• Because 600 ml is only sold in on premise, it is much easier to hold track of loss of bottles and crates.

• If consumers take a bottle with them because they think it is beautiful and different they effectively become ambassadors for the 600 ml Heineken.

Disadvantages

• If consumer decides to drink Heineken 600 ml, which they bought at POS at home, the chance that this will exit the logistical chain is much higher.

• When a bottle is stolen or lost the POS will have a problem with returning a full crate to the distribution center.

5.4 Strategic options for separation After the description of the main stakeholders in the logistic chain, the choice will have to be made where the green bottles will have to be separated from the brown bottles. There are four points where the separation can take place; the brewery; the distributor; the truck and the POS. Since the consumers do not play an active role in the logistical chain they will not be enclosed in the strategic options.

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1) The brewery The brewery delivers and picks up products every day. In this situation the brewery would accept all crates (mixed and non-mixed). Upon arrival at brewery, after discharging crates, they will have to be separated. This action would require extra staff. Furthermore there might be a problem with green bottles which end up at other breweries if they are not put in the right crates for the Heineken /Kaiser brewery. In this scenario the different breweries would have to exchange green and amber bottles. 2) The distributor At present the distribution center only accepts full crates with bottles that are correctly separated. When comparing this with the soda bottles they only accept full crates with empty Coca Cola bottles, this to minimize handling time and cost. It is very unlikely that the distribution center would accept crates with mixed green and amber bottles, since the separation would require extra staff and cost. 3) The truck Since the truck driver and its staff are obliged to return to the distributor with an organized truck, they will have to have both green crates and other crates in the truck to be able to do separation. This will occupy more space in the truck and the separation will take more time and therefore the outlets visited per day will diminish. 4) The POS The staff of a POS will have to place the bottles in a crate when they are empty. Because Heineken has an own crate, the green Heineken bottles can be placed in the correct crate directly. This would not require extra staff nor would the POS encounter significant extra costs or time. Out of the four strategic options above, option one and two will increase the cost of distribution significantly, because these options require extra staff and in the case of the brewery an extra logistical step between the breweries. Furthermore the loss of bottles might increase due to bottles that end up at the wrong point in the logistical chain. The third strategic option, separation at the truck, will increase the time the truck crew will take when organizing their truck before they return to the distribution center and the space occupied by the empty crates they will have to take with them. Choice of separation Separation at the POS seems the most attractive option of the four. Separation at this point in the logistical chain will hardly result in extra cost nor time, because the empty bottles will have to be put in a crate anyway. However, if the staff of the outlet is not instructed to separate the bottles correctly, the separation might not be done as is required by the distribution center.

5.5 Communication and control at point of separation By resolving that the best place to separate green from amber bottles is at the POS, Heineken will need to give special attention to this stakeholder. Heineken will have to communicate to the bar personnel involved, that separation of the green from amber bottles will have to take place. This starts when opening an outlet. The sales force, when selling Heineken 600 ml for the first time in an outlet, will have to explain the separation procedure of the bottles. Then the bar personnel will also have to be informed that separation is crucial for this process. The

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crate cover52 (see picture X), can be used as an extra communication tool to the staff that they have to separate green from amber bottles. As a matter of control the truck drivers have to be instructed that they can only take green crates with green bottles. Since their payment will depend on this they should give enough attention to this separation process. During the introduction it is essential that the separation process is carefully monitored. This so that in the event of any unforeseen circumstances appropriate measures can be taken. For example in case of a very low commitment of bar personnel an incentive can be provided.

5.6 loss of bottles and crates Table 5.1 shows that Heineken estimates a total loss of 25% of bottles and 5% of crates. This percentage will not only have an impact on the profitability but might also create problems for the POS. This because Andina only accepts empty crates filled with empty bottles before they supply the POS with new crates with full bottles. When there is an actual loss of 25% this would mean that, a POS which would sell a crate per week and would have 1 crate as a buffer, would not be able to order any new beer after 5 weeks, because the POS would not be able to return a crate filled with empty bottles. Depending on the percentage of bottles lost this problem can become quite big. Even if the actual loss of bottles is lower then the estimation POS will end up with empty crates without bottles at a certain point in time. This problem is outside the scope of this research, because it is impossible to say something about the actual loss of bottles at this stage. When further in the introduction period, Heineken will have to come up with a solution for this problem. When the actual loss of bottles is as high as projected, Heineken will have to decide if this return system is effective. As the loss of bottles will probably be higher then the loss of crates Heineken will have to decide if it accepts empty crates and if so under what conditions. In Argentina53 1000 ml bottles are sold mostly in off premise (supermarkets). There, Heineken is also the only player with a green bottle in an amber market. In Argentina the distributor accepts Heineken crates with both amber and green bottles. Because the bottle is mostly sold in off premise, it becomes impossible to estimate when consumers will return their empty bottles. This results in a situation where the POS has to wait until a full crate is filled up with empty Heineken bottles, while the demand of other customers can not be fulfilled. Therefore Heineken has introduced a rule whereby the outlets can now also return a mixed crate with amber and green bottles when buying Heineken crate. At first, as Heineken is only sold in on premise market, this system does not seem interesting for the Brazilian beer market because POS will probably not order an extra crate when the first one is only half empty. But this system could however solve the problem of not being able to return a crate where a bottle is missing. It is however advisable to first start in the situation as stated above and control the actual loss of bottles. In the future Heineken can decide whether a return of green/amber combination will be usable to solve the problems.

52 A crate cover is a cover that is placed on top of a crate to protect taste of beer from influence of light. 53 During the research period a visit was made to Argentina, where Heineken had also introduced a green bottle in a amber market.

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5.7 Conclusion This chapter gives an answer to sub-question 2 ‘How should the logistic operation of the 600 ml bottle be structured?’ The best point in the logistic chain to separate the Heineken 600 ml bottle from the other amber bottles is at the POS. For the separation at this point hardly extra time or costs are needed, whereas the other 3 options all result in extra time and costs. The separation at the POS will however have to be carefully managed. The staff of POS will have to be informed that they will have to separate the bottles. The sales force is essential in this communication. Moreover a crate cover will be used to communicate the need of separation. If these two measures are not sufficient an incentive can be provided to the POS for a correct separation. Furthermore the truck crew from Andina will have to be trained about the new situation so they will check the crates they pick up to make sure the green crates are filled with green bottles only. Since their payment depends on the correct load on their truck (including the right bottles in the right crates) they have a direct interest in making sure the bottles are correctly returned. After having chosen the best option for separation, the loss and rotation cycle of bottles and crates will have to be carefully monitored. The actual loss of bottles is crucial for Heineken. If the loss is as high as is estimated in the P&L account then a lot of the POS will run into trouble with their stock keeping and their ordering of crates of Heineken. This has to be carefully monitored during the introduction and alternatives have to be thought of in case the loss is as high as estimated. As the volume per outlet and the number of outlets will at first be rather low, the rotation cycle can never be as short as for other 600 ml products. But in the future this cycle will most probably diminish which will have a positive result on the investment for crates and bottles. In the next chapter an overview will be given of the financial performance of the 600 ml bottle. Hereby an estimated Profit & Loss account will be shown.

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6 Financial performance In this chapter an overview will be given on the profit potential of the 600 ml project to give an answer to sub-question 3 ‘What is the estimated volume and profit potential of the 600 ml bottle for Heineken in Brazil?’. First an estimation of the volume for the project will be given (6.1), after which the estimated Profit & Loss account will be shown (6.2).

6.1 Volume estimation As mentioned in chapter 3, Bohemia will be the reference for the Heineken 600 ml test market in Rio de Janeiro.

Table 6.1 Volume and number of outlets in 600 ml segment Based on total Rio de Janeiro and Bohemia figures and the present Heineken outlets in Rio de Janeiro (450), Heineken decided to start with 175 potential, selected outlets. In the first months of the test market, focus will be to open 50 outlets. These outlets will closely be monitored during the first months before expanding to 175 outlets during the rest of the year. The assumption in term of volume per outlet is:

Number of outlets Number of crates Total hl 75 outlets 1crate per week 518 hl 75 outlets 2 crates per week 1036 hl 25 outlets 3 or more crates per week 518 hl

175 outlets 14400 crates per year 2073 hl per year Table 6.2 Volume estimation year 1

6.2 Profit & Loss account For the calculation of the P&L forecast for this project, several assumption and cost calculations will have to be made. This because it is the first time in the Brazilian 600 ml market, that such a different and unique bottle will be introduced. The test market will then show if these assumptions were correct or whether they will have to be adjusted. These assumptions are used to determine quantities of crates and bottles needed which directly determine investments needed55.

• Test market will only take place in Rio de Janeiro. • The rotation of a bottle is considered 8 weeks56. • Open 175 POS in one year. • Total volume for one year will be 2000 hl. • Estimated loss of bottles is 25%. • Estimated loss of crates is 5%. • Cost of bottle is R$ 0,522, cost of crate is R$ 8,26. • Marketing budget is R$ 100.000.

54 Source: AC Nielsen, Moving year, June 2002-May 2003 55 See figure 5.1 in paragraph 5.1 56 Rotation of other 600 ml bottles in Kaiser portfolio is less than a week.

Volume 600 ml in hectoliters 54 Number of 600 ml outlets Total Rio de Janeiro 2.347.958 22.017 Bohemia 23.000 1.926 Heineken intention 2000 175

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Based on these assumptions a profit and loss forecast for the Heineken 600 ml returnable bottle can be made. A Profit and Loss Forecast is designed to show the financial performance of a business and to indicate whether it will make or lose money57.

Table 6.3 Profit & Loss forecast Heineken 600 ml The Profit & Loss account is calculated based on a loss of bottles of 25% and a rotation cycle of 8 weeks. If the loss of bottles would be less than estimated and the rotation cycle would be shorter this will directly influence the Capital cost. In this calculation the Contribution margin for the Heineken 600 ml bottle is 94 R$ per hl.

6.3 Conclusion This chapter gave an insight on the profitability of the 600 ml bottle by answering sub-question 3 ‘What is the estimated volume and profit potential of the 600 ml bottle for Heineken in Brazil?’. Considering the high estimated roatation cycle of eight weeks and a 25% loss of bottles, the Heineken 600 ml bottle still seems to generate profit to the company. When comparing the contribution margins of all packaging formats in Heineken portfolio, it is clear that the 600 ml bottle has the biggest margin58.

SKU Heineken Contribution margin per hl 600 ml 94 Draught beer 85 Long neck 65 Can 57 Table 6.4 Comparing CM of several SKU’s in portfolio

It is however too early after the introduction of the 600 ml bottle to give an actual P&L for this project. It is advisable to do so after the first year of test, when the results of loss, rotation cycle and volume are known. After describing all important aspects for the introduction of a Heineken 600 ml bottle the next chapter will show the first results of the first three months of the test market. 57 Source: www.fastlinksolutions.co.uk 58 Source: Heineken management review March 2004

2000 hl per hl % Distributor Gross Sales Revenue 566.125 283 115 (-) Distributor margin, taxes and transport cost 83.301 42 15

Kaiser Gross Sales Revenue 482.824 241 100 (-) Taxes 161.950 81 34 Net Sales Revenue 320.874 160 66 (-) Variable costs 132.543 66 27 (=) Contribution Margin 188.331 94 39 (-) Marketing investment 100.000 50 21 (=) Brand Margin 88.331 44 18 (-) Depreciation 10.817 5 2 Earnings Before Interest & Tax 77.514 39 16 (-) local tax 19.379 10 4 Net Operating Profit After Taxes 58.136 29 12 Invested capital 54.083 27 (-) Depreciation 10.817 5 Depreciation saldo 43.266 22 (-) Capital cost 5.278 3 1 Economic Value Added 52.857 26 11

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7 First Results test market In this chapter the first months of the test market will be described which will give an answer to the last sub-question ‘What conclusions can be drawn after analyzing first three months of introduction period?’. First the introduction of the 600 ml bottle will be described (7.1), then the parameters that have to be investigated will be presented (7.2). After which the results from the questionnaire held one month after the launch of the 600 ml bottle will be shown (7.3). Finally the volume results of the first 10 weeks will be given (7.4).

7.1 The introduction The initial plan was to introduce the Heineken 600 ml bottle in November 2003. But due to several problems during the pre phase, the introduction was delayed until February 2004. Considering the duration of this research59, the actual results are based on a much shorter period then first planned. As mentioned before the objective of the test market in Rio de Janeiro is to observe the initial problems and difficulties when introducing a completely different bottle in the market. When the introduction of the 600 ml is successful, these observations will be used for an effective roll out of the strategy in the rest of the country. On 6 February 2004 the first outlets were opened. The idea was to open 50 outlets to start with. But due to internal problems the end result was 40 outlets opened after the first month. The objective of Heineken is to increase this number to 175 outlets until the end of the year.

7.2 Parameters to investigate To decide whether test market is a success, several parameters will be monitored. Because there are only a few months on which conclusions can be based, only the parameters that are useful after a short period will be monitored.

• Number of outlets opened • Weekly volume per outlet • Estimation of loss bottles in first month • First reaction bar owners and consumers on new bottle and process

What How Number of outlets Sales force reports which outlets opened Weekly volume per outlet System will give insight in the sales per week per outlet Loss bottles Visit by sales force after first month, to investigate how many

bottles per outlet were lost, and what is reason for loss First reaction bar owners and consumers

Questionnaire presented by sales force, measuring impression POS owner, consumer, reaction on separation of green from amber, average price. Table 7.1 Parameters monitored

59 From September 2003- April 2004

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7.3 Results from questionnaire To measure the first reaction of the POS owners and consumers and considering the lack of time to execute a second U&A research a questionnaire was set up (see appendix 3) and the first 40 outlets were asked to fill it in. The outlets were personally visited to have the possibility to further discuss certain issues. From the 40 outlets visited, 32 filled in the questionnaire. The results of this questionnaire are shown in this paragraph. First reaction of POS owners and consumers Figure 7.1 shows that from the 32 outlets that answered the questionnaire the majority (93%) of the POS owners considered the bottle as beautiful or very beautiful. When asking the POS owner about the first impression of the consumers, they state that 66% of the consumers found the bottle beautiful or very beautiful. Only 3% of the POS owners say they find it an ugly bottle. 88% of the POS owners stated the merchandising for this bottle is beautiful or very beautiful.

59%

34%

33%

3%

19%

47%

31%

3%

47%

41%

9%

3%

0

10

20

30

40

50

60

70

80

90

100

1 2 3

very ugly

ugly

normal

beautiful

very beautiful

60 Figure 7.1 First impression of consumer and POS owner Conclusion The overall impression of both the POS owners and the consumers is very positive. Only 3% of the POS owners interviewed considered both the bottle as the merchandising ugly. Because of the time scope of this research it was not possible to ask the consumers about their first impression. In this figure the impression of the consumers in the POS owners’ eyes is used. In the future it is advisable to execute another research to measure the opinion of the consumer on the bottle. All outcomes of this figure are in line with the QQS results from chapter 4. Separation of bottles Figure 7.2 shows that however Heineken expected that staff of outlets would have a problem with the separation green from amber bottles, the majority (91%) were indifferent, did not

60 First impression of consumer in POS owner Point of view

N=32 outlets Impression bottle POS

owner

Impression consumer60

Impression merchandising

POS owner

44

find it a problem or thought it was normal. 9% found it a lot of work or were negative about the separation.

41%

44%

6% 6% 3%

no problem

normal

indifferent

lot of work

negative

Conclusion Despite the fact that Heineken assumed that the separation of green from amber bottles would be a problem, 91% of the interviewees stated that it was no problem. This are however conclusions based on the opinion of the POS owner. It is advisable to in the future interview some employees of outlets to see what their personal opinion is about the separation. Loss of bottles In the previous chapter the influence of the quantity of bottles and crates needed on the investment, was shown. The only point in the logistic chain to investigate the first loss of bottles is in the POS itself, because the POS has to return a full crate of empty bottles to distributor. This loss can only be checked by counting the loss of bottles in the outlet itself. This question was therefore included in the questionnaire. As this questionnaire was conducted only one month after the launch of the product in the outlet it might be too early to base conclusions on these figures. Nevertheless it gives a first impression of the main reason and amount of loss. In the current strategy the POS has to pay for the loss of bottles.

Number of POS Loss of bottle Reason of loss 26 0 - 2 2 Consumer, braking 2 3 Braking 1 5 Consumer 1 24 Consumer

Table 7.2 Loss and reason of bottles Conclusion From the 32 outlets interviewed only 6 outlets stated that they had lost a few bottles and the other 26 had no loss until then. 50% of these outlets assigned their loss to consumers steeling the bottle because of its beauty. The other 50% stated the bottles broke. The average loss is of 1%.

Figure 7.2 Opinion of waiters on having to separate brown from green bottles, according to POS owner

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Average price of Heineken 600 ml In the questionnaire the POS owners were asked the price they asked for a Heineken 600 ml bottle and the price of the most expensive other 600 ml bottle in the outlet.

Lowest price Highest price Average Heineken 600 ml R$ 3,00 R$ 5,00 R$ 3,48 Most expensive other 600 ml bottle

R$ 2,70 R$ 5,00 R$ 3,44

Table 7.2 Average price Conclusion Heineken aimed to set a price for the consumer between R$3,00 and R$5,00 (see paragraph 3.2). As shown in the above table Heineken succeeded in this objective.

7.4 First volume results In the first 12 weeks after the introduction of the 600 ml bottle, the volumes per outlet were carefully monitored (see appendix 5). Until 24 April 2004 there are 83 outlets which have ordered in the past 12 weeks. From which 30 outlets show a steady buying behavior. 32 Outlets have not ordered anything in the last 3 weeks or only ordered once or twice during an event. 22 outlets were just opened and therefore it is hard to base any conclusion on these outlets.

Table 7.3 Volume first 12 weeks

Figure 7.3 Volume first 8 weeks

Week

Total number of outlets that

ordered

Total volume

(in crates)

Average volume per outlet (in crates)

31/1-7/2 4 7 1,8 7/2-14/2 22 56 2,5

14/2-21/2 30 109 3,6 21/2-28/2 24 80 3,3 28/2-6/3 16 40 2,5 6/3-13/3 25 90 3,6

13/3-20/3 23 92 4,0 20/3-27/3 33 105 3,2 27/3-3/4 38 120 3,2 3 /4-10/4 32 122 3,8 10/4-17/4 29 114 3,9 17/4-24/4 33 100 3,0

1035 3,2

020406080

100120140160180

31/1-7/2

7/2-14/2

14/2-21/2

21/2-28/2

28/2-6/3

6/3-13/3

13/3-20/3

20/3-27/3

27/3-3/4

3 /4-10/4

10/4-17/4

17/4-24/4

Total number of outlets that ordered Total volume (in crates)

Figure 7.3 Volume first 8 weeks

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The above figure shows there was a decrease of outlets and volume in the fifth week of the introduction. In the previous chapter an overview was given of the estimated volume for year one. This total volume (14400 crates), implies a volume of 276 per week. But this is when opening 175 outlets. Until 24 April 2004 84 outlets have received Heineken 600 ml in the last 3 months. An average of 30 outlets have a steady buying behavior, which means they keep on buying Heineken 600 ml bottle. The other outlets did only buy during a few weeks or even only one week, which was probably an experiment. The actual results within the steady buyers show an average of 3,2 crates per week per outlet, which is considerably higher then, the estimated average (1,6 crates). Conclusion From the outlets opened only 40% have a steady buying behavior. But these 40%, with an average of 3 crates per week, have a considerably high volume. Therefore, Heineken will have to focus on opening more outlets with a steady buying behavior. Moreover, it is advisable to carefully manage these outlets and investigate the reason for a decrease of volume per outlet.

7.5 Conclusion This chapter gave an answer to sub-question 4 ‘What conclusions can be drawn after analyzing the first three months of the introduction period?’. After three months of the operation the results seem very positive. All parties involved reacted very positive on the uniqueness of the bottle. The POS were interested in the bottle and the percentage of outlets positivated upon the first visit was high. Although Heineken assumed the separation of the bottle at the POS would be a problem, the first results showed that the majority of the staff of different outlets were indifferent about the fact that they had to separate the bottles. The loss of the bottles so far, although difficult to measure after one month, was significantly lower, with 1% then estimated. The predicted reasons for loss were however right, consumers steeling the bottle because of its beauty and bottles braking while handling. The total volume until now has not achieved the level it should have when wanting to sell 2000 hl in one year time. But this is due to the fact that there are little outlets that have a steady volume. The outlets that however have steady buying behouviour show a considerably high average volume per week. It can be concluded that the introduction of the Heineken 600 ml bottle has so far been a success when considering the most important aspects for this research. The last four chapters gave answers to the four sub-questions. With these results the next chapter will give an answer to the main research question.

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Conclusion After the description of all the important aspects for the introduction of the Heineken 600 ml bottle, this chapter will give an overall conclusion by answering the main research question: What are the important aspects for a successful introduction of a green Heineken 600 ml returnable bottle in Brazil and how should these aspects be managed? The orientation phase of this research made clear what the three main aspects for the introduction of the Heineken 600 ml bottle were.

• The effect of a 600 ml bottle on the brand image of Heineken. • The organization of the logistic operation of the 600 ml bottle. • The profitability of the 600 ml bottle.

Heineken has introduced a green, returnable bottle with silkscreen label which in all aspects stands out from the standard brown, industry bottle all competitors use. With this bottle Heineken wants to reach consumers who find quality and image important but at the same time want to share a beer with friends.. Brand Image Before determining the influence of the introduction of the 600 ml bottle on the brand image of Heineken, a research was conducted to measure the actual image of Heineken. Therefore a Usage & Attitude research was executed. Heineken is seen as a beer with high quality from a brewery with a good reputation. It is seen as an International brand which is different from other brands. It is modern and elegant but it is less innovating than it would like to be. The interesting fact is that the Heineken consumers in most cases value Heineken beer very positive, even more positive then the ideal brand, whereas non-Heineken consumers evaluate Heineken beer much less positive then the ideal beer. The Heineken consumers can be considered as ambassadors for the brand when enthusiastic about Heineken. It is therefore essential for Heineken to convert non-Heineken consumer to Heineken consumers. The U&A revealed that the majority of the interviewed are interested in buying Heineken in the future. Heineken will therefore have to create opportunities where these non-Heineken consumers can be reached. One of the possibilities is by being available in more outlets using more packaging formats. By introducing the Heineken 600 ml bottle, Heineken will be available in more type of outlets therefore it will be possible to reach more people. To measure the first impression of the consumers on the 600 ml bottle qualitative research was executed whereby respondents had to evaluate the bottle in focus groups. The general conclusion is that this introduction will have a very positive impact on the Heineken brand image. The bottle was evaluated very positive on all aspects. Whereby the respondents kept on saying this bottle was unique, different, innovative, modern and showed a high quality. Moreover they stated that this bottle communicates a light, smooth taste of the beer inside. Looking at the negative opinion consumers have had until now on the bitter taste of Heineken the introduction of this bottle could have a positive impact. Furthermore the target group stated that with this bottle the company emits a more innovative character. When comparing the bottle to the other players in the market, the green Heineken 600 ml bottle is graded much more positive. After the first month of the introduction a questionnaire was held within the first 40 outlets. The great majority, 93% of the POS owners, evaluated the bottle as being beautiful or very beautiful. When they had to give the first impression of the consumer they stated that they

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were also very positive. So not only the qualitative research held before the actual introduction gave positive results, but also after the introduction the majority of people regard the bottle as very positive. With these conclusions the concerns that the 600 ml bottle is a packaging format which is too standard for Heineken have been proven incorrect. Logistic operation The structure of the logistic operation has a direct influence on the investment costs needed for the project. Because of the uniqueness of the bottle, Heineken expects a greater loss of bottles and crates then other players. Moreover Heineken estimates that the rotation cycle of the bottle will be longer, because it is a new project. Because Heineken has introduced a green bottle in a market where all competitors use same brown bottle, the Heineken bottles will have to be separated from the others at one stage in the logistic chain. Heineken has to separate directly at the point of sale. Here the bottles will have to be put in a crate anyway. It is therefore a small effort to think in which crate to put the green bottle and which the others. The second advantage of separating at this point is that the truck staff that pick up the empty crates will only be paid when returning to distributor with correct crates. They will therefore form a second check-up point in the chain. All other options for separation cost extra money and time and are therefore less convenient. A questionnaire which was executed among the first 40 outlets showed that the majority of the POS staff had no problem with separating the crates. Profitability The Profit and Loss account showed that the 600 ml bottle will have a positive result on the profitability of Heineken, as this packaging format generates the most profit for the company. The investment costs for this bottle are influenced by the total need of bottles and crates. This is directly depended upon the total loss of bottles and crates and the rotation cycle. Because of the uniqueness of the bottle Heineken has estimated a much greater loss of bottles and a longer rotation cycle. The first months have however shown that the loss of bottles and crates was minimal. It is too short after the introduction to assume something about the rotation cycle. Advice for roll out strategy Three months after the launch of the Heineken 600 ml bottle the first results are positive. Based on the results of the QQS and the first reaction of the POS owner and its consumers, the introduction seems to have a positive influence on the brand image of Heineken.The logistical operation seems to be efficiently organized, which has resulted in a very low loss of bottles. Furthermore the 600 ml seems to have the highest contribution margin when comparing to other products in portfolio. This means all aspects of concern have so far not shown any problems. But when expanding the strategy to the rest of Brazil a few points will have to be kept in mind:

• These conclusions are drawn three months after the introduction. This is too short a period to draw definite conclusions. It does however provide a first impression. Further conclusions will have to be drawn during the length of the project.

• The total brand image will probably be positively influenced by the introduction of the 600 ml bottle, it is however advisable to test this by executing a second U&A one year after the introduction of the bottle.

• The rotation cycle and loss of bottles and crates have a great influence on the profitability of the project. It is therefore important to closely monitor these two factors, so when rolling out the strategy the results can be used to make a new estimation.

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• When really achieving a 25% loss of bottles there will have to be found a solution what to do with the empty crates. A possibility could be to accepts amber for green bottles.

• The separation in the outlets has so far not shown any problems, this will however have to be closely monitored. When it becomes a problem after all, a solution could be to give owner incentive when returning full crate of empty bottles.

• The only Heineken brewery is in the south of Brazil. When launching the product in the North of Brazil extra time for transportation will have to be taken into account, which will directly influence the rotation cycle.

• The bottle, when judged during a qualitative research without tasting, only shows positive reactions. Heineken will however have to monitor that the somewhat bitter taste of Heineken does not stand in the way for the brand to expand.

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References / Literature • Alsem, K.J., Strategische Marketingplanning, Wolters-Noordhoff bv, Groningen/

Houten, 2001. • Baarda, D.B and M.P.M de Goede, Methoden en Technieken, Educatieve Partners

Nederland BV, 1997.

• Blauw, E., Het corporate image, De Viergangen, Amsterdam, 1986.

• Dekker J, H.J. Kevelham and G.J.L Weusthof, Elementaire Marketing, Thieme, Zutphen, 1995.

• Floor, J.M.G. and W.F. van Raaij, Marketing communicatie strategie, Wolters-

Noordhoff bv, Groningen, 1998.

• De Leeuw, A.C.J., Organisaties Management, Analyse, Ontwerp en Verandering, Van Gorcum, 1997.

• De Leeuw, A.C.J., Bedrijfskundige methodologie, Van Gorcum, 1996.

• Malhotra, N.K and D.F. Birks, Marketing Research : An applied orientation, Prentice

Hall, New Jersey, 2000.

• Riel Van, C.B.M., Identiteit en imago; grondslagen van corporate communications, Academic Service, Schoonhoven, 1996.

• Verschuren, P.J.M., De probleemstelling voor een onderzoek, Het Spectrum B.V,

1999.

Documents

• AC Nielsen, Brazilian market research, monthly demographic and market update, 2002-2003

• Heineken management review, Brazil 2002

• Heineken management review, Brazil 2003

• Heineken market research 1998

• Heineken Qualitative research April 1999

• Heineken Qualitative research November 2003

• Manual Heineken Packaging QQS-version 2.0, June 2002

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Internet

• Heineken intranet

• www.heinekeninternational.com

• www.kaiser.com.br

• www.ambev.com.br

• www.bohemia.com.br

• www.oanda.com

• www.communicationcoach.com

• www.business-advantage.co.uk

• www.fastlinksolutions.co.uk

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Appendix

Appendix 1 : Questionnaire U&A research (confidential) Appendix 2 : Questionnaire QQS research (confidential) Appendix 3 : Questionnaire first results Appendix 4 : First results questionnaire Appendix 5 : First results volume