Cross fertilization of best practices between sites was a central component of
Interbrew’'s operations strategy. In the company’'s two main markets, Belgium and
Canada, each brewery monitored its performance on 10 different dimensions
against its peers. As a result, the gap between the best and the worst of Interbrew’'s
operations had narrowed decisively since 1995. Employees continuously put
forward propositions to improve processes. The program had resulted in
significantly lower production costs, suggesting to Interbrew management that
most improvements had more to do with employee motivation than with pure
technical performance. In addition, capacity utilization and strategic sourcing had
been identified as two areas of major opportunity.
Given that brewing was a capital-intensive business, capacity utilization had a
major influence on profitability. Since declining consumption in mature markets
had generated excess capacity, several of Interbrew’'s old breweries and processing
facilities were scheduled to be shut down. In contrast, in several growth markets
such as Romania, Bulgaria, Croatia and Montenegro, the opposite problem existed,
so facilities in other locations were used more fully until local capacities were
Interbrew had begun to rationalize its supply base as well. By selecting a smaller
number of its best suppliers and working more closely with them, Interbrew
believed that innovative changes resulted, saving both parties considerable sums
every year. For most of the major commodities, the company had gone to single
suppliers and was planning to extend this approach to all operations worldwide.
The underlying objectives of Interbrew’'s market strategy were to increase volume
and to lessen its dependence on Belgium and Canada, its two traditional markets.
Interbrew dichotomized its market strategy into the mature and growth market
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segments, although investments were considered wherever opportunities to
generate sustainable profits existed. One of the key elements of Interbrew’'s
market strategy was to establish and manage strong market platforms. It was
believed that a brand strength was directly related to a competitive and dedicated
market platform (i.e., sales and distribution, wholesaler networks, etc.) to support
the brand. Further, Interbrew allowed individual country teams to manage their
own affairs and many felt that the speed of success in many markets was related to
this decentralized approach.
Interbrew’'s goals in its mature markets were to continue to build market share and
to improve margins through greater efficiencies in production, distribution and
marketing. At the same time, the company intended to exploit the growing trend
in these markets towards premium and specialty products of which Interbrew
already possessed an unrivalled portfolio. The key markets in which this strategy
was being actively pursued were the United States, Canada, the United Kingdom,
France, the Netherlands and Belgium.
Based on the belief that the world’'s beer markets would undergo further
consolidation, Interbrew’'s market strategy was to build significant positions in
markets that had long-term volume growth potential. This goal led to a clear focus
on Central and Eastern Europe and Asia, South Korea and China in particular. In
China, for example, Interbrew had just completed an acquisition of a second
brewery in Nanjing. The Yali brand was thereby added to the corporate portfolio
and, together with its Jingling brand, Interbrew became the market leader in
Nanjing, a city of six million people.
In Korea, Interbrew entered into a 50:50 joint venture with the Doosan Chaebol to
operate the Oriental Brewery, producing the OB Lager and Cafri pilsener brands.
With this move, Interbrew took the number two position in the Korean beer market
with a 36 per cent share and sales of 5.1 million hls. The venture with Doosan was
followed in December 1999 by the purchase of the Jinro Coors brewery. This
added 2.5 million hls and increased Interbrew’'s market share to 50 per cent of total
Korean volume. Thus, the Interbrew portfolio in Korea consisted of two
mainstream pilsener brands, OB Lager and Cass, the two local premium brands,
Cafri and Red Rock, and Budweiser, an international premium brand.
In Russia, Interbrew expanded its presence by taking a majority stake in the Rosar
Brewery in Omsk, adding the BAG Bier and Sibirskaya Korona brands. Rosar
was the leading brewer in Siberia with a 25 per cent regional market share, and
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held the number four position in Russia. New initiatives were also undertaken in
Central Europe with acquisitions of a brewery in Montenegro and the Pleven
brewery in Bulgaria, as well as the introduction of Interbrew products into the
Yugoslavian market. Finally, although Interbrew had just increased its already
significant investment in Mexico’'s second largest brewer from 22 per cent to 30
per cent, Latin America remained a region of great interest.
A central piece of Interbrew’'s traditional brand strategy had been to add to its
portfolio of brands through acquisition of existing brewers, principally in growth
markets. Since its goal was to have the number one or two brand in every market
segment in which it operated, Interbrew concentrated on purchasing and
developing strong local brands. As it moved into new territories, the company’'s
first priority was to upgrade product quality and to improve the positioning of the
acquired local core lager brands. In mature markets, it drew on the strength of the
established brands such as Jupiler, Belgium’'s leading lager brand, Labatt Blue, the
famous Canadian brand, and Dommelsch, an important brand in the Netherlands.
In growth markets, Interbrew supported brands like Borsodi Sor in Hungary,
Kamenitza in Bulgaria, Ozujsko in Croatia, Bergenbier in Romania, Jingling in
China, and OB Lager in Korea. In addition, new products were launched such as
Taller, a premium brand in the Ukraine, and Boomerang, an alternative malt-based
drink in Canada.
A second facet of the company’'s brand strategy was to identify certain brands,
typically specialty products, and to develop them on a regional basis across a
group of markets. At the forefront of this strategy were the Abbaye de Leffe and
Hoegaarden brands and, to a lesser extent, Belle-Vue. In fact, both Hoegaarden
and Leffe achieved a leading position as the number one white beer and abbey beer
in France and Holland. The Loburg premium pilsener brand also strengthened its
position when it was relaunched in France. Further, in Canada, Interbrew created a
dedicated organization for specialty beers called the Oland Specialty Beer
Company. In its first year of operation, the brands marketed by Oland increased
its volumes by over 40 per cent. More specifically, sales of the Alexander Keith’'s
brand doubled and the negative volume trend of the John Labatt Classic brand was
reversed. The underlying message promoted by Oland was the richness, mystique
and heritage of beer.
To support the regional growth of specialty beers, Interbrew established a new
type of café. The Belgian Beer Café, owned and run by independent operators,
created an authentic Belgian atmosphere where customers sampled Interbrew’'s
Belgian specialty beers. By 1999, Belgian Beer Cafés were open in the many of
Interbrew’'s key markets, including top selling outlets in New York, Auckland,
Zagreb and Budapest, to name a few. The business concept was that these cafés
Page 10 9B00A019
were to serve as an ambassador of the Belgian beer culture in foreign countries.
They were intended to serve as vehicles to showcase Interbrew’'s specialty brands,
benefiting from the international appeal of European styles and fashions.
Although these cafés represented strong marketing tools for brand positioning, the
key factors that led to the success of this concept were tied very closely to the
individual establishments and the personnel running them. The bar staff, for
example, had to be trained to serve the beer in the right branded glass, at the right
temperature, and with a nice foamy head. It was anticipated that the concept of the
specialty café would be used to support the brand development efforts of
Interbrew’'s Belgian beers in all of its important markets.
The third facet of Interbrew’'s brand strategy was to identify a key corporate brand
and to develop it as a global product. While the market segment for a global brand
was currently relatively small, with the bulk of the beer demand still in local
brands, the demand for international brands was expected to grow, as many
consumers became increasingly attracted to the sophistication of premium and
THE EVOLUTION OF INTERBREW’'S GLOBAL BRAND STRATEGY
Until 1997, Interbrew’'s brand development strategy for international markets was
largely laissez faire. Brands were introduced to new markets through licensing,
export and local production when opportunities were uncovered. Stella Artois,
Interbrew’'s most broadly available and oldest brand, received an important new
thrust when it was launched through local production in three of the company’'s
subsidiaries in Central Europe in 1997. This approach was consistent with the
company’'s overall goals of building a complete portfolio in high growth potential
By 1998, however, the executive management committee perceived the need to
identify a brand from its wide portfolio to systematically develop into the
company’'s global brand. Although the market for global brands was still small,
there were some growing successes (e.g., Heineken, Corona, Fosters and
Budweiser) and Interbrew believed that there were several basic global trends that
would improve the viability of this class of product over the next couple of
decades. First, while many consumers were seeking more variety, others were
seeking lower prices. It appeared that the number of affluent and poor consumer
segments would increase at the expense of the middle income segments. The
upshot of this socioeconomic trend was that eventually all markets would likely
evolve in such a way that demand for both premium and economy-priced beers
would increase, squeezing the mainstream beers in the middle. A second trend
was the internationalization of the beer business. As consumers travelled around
the world, consuming global media (e.g., CNN, Eurosport, MTV, international
magazines, etc.), global media were expected to become more effective for
Page 11 9B00A019
building brands. A global strategy could, therefore, lead to synergies in global
advertising and sponsoring. In addition, the needs of consumers in many markets
were expected to converge. As a result of these various factors, Interbrew believed
that there would be an increasing interest in authentic, international brands in a
growing number of countries. Interbrew had a wide portfolio of national brands
that it could set on the international stage. The two most obvious candidates were
Labatt Blue and Stella Artois.
The Labatt range of brands included Labatt Blue, Labatt Blue Light and Labatt Ice.
To date, however, the exposure of these brands outside of North America had been
extremely limited and they were not yet budding global brands. Of the total Labatt
Blue volume in 1998, 85 per cent was derived from the Canadian domestic and
U.S. markets, with the balance sold in the United Kingdom. The Labatt brands
had been introduced to both France and Belgium, and production had been
licensed in Italy, but these volumes were minimal. The only real export growth
market for Labatt Blue appeared to be the United States, where the brand’'s volume
in 1998 was some 23 per cent higher than in 1995, behind only Corona and
Heineken in the imported brand segment. The Labatt Ice brand was also sold in a
limited number of markets and, after the appeal of this Labatt innovation had
peaked, its total volume had declined by more than 25 per cent since 1996. Total
Labatt Ice volume worldwide was just 450,000 hls in 1998, of which 43 per cent
was sold in Canada, 33 per cent in the United States, and 21 per cent in the United
STELLA ARTOIS AS INTERBREW’'S INTERNATIONAL FLAGSHIP BRAND
The other potential brand that Interbrew could develop on a global scale was Stella
Artois, a brand that could trace its roots back to 1366. The modern version of
Stella Artois was launched in 1920 as a Christmas beer and had become a strong
market leader in its home market of Belgium through the 1970s. By the 1990s,
however, Stella’'s market position began to suffer from an image as a somewhat
old-fashioned beer, and the brand began to experience persistent volume decline.
Problems in the domestic market, however, appeared to be shared by a number of
other prominent international brands. In fact, seven of the top 10 international
brands had experienced declining sales in their home markets between 1995 and
1999 (see Exhibit 3).
Stella Artois had achieved great success in the United Kingdom through its
licensee, Whitbread, where Stella Artois became the leading premium lager beer.
Indeed, the United Kingdom was the largest market for Stella Artois, accounting
for 49 per cent of total brand volume in 1998. Stella Artois volume in the U.K.
market reached 2.8 million hls in 1998, a 7.6 per cent share of the lager market,
and came close to 3.5 million hls in 1999, a 25 per cent increase over the previous
year. By this time, over 32,000 outlets sold Stella Artois on draught.
Page 12 9B00A019
Apart from the United Kingdom, the key markets for Stella Artois were France and
Belgium, which together accounted for a further 31 per cent of total brand volume
(see Exhibit 4). With these three markets accounting for 81 per cent of total Stella
Artois volume in 1999, few other areas represented a significant volume base (see
Exhibit 5). Beyond the top three markets, the largest market for Stella Artois was
Italy, where the brand was produced under license by Heineken. Stella Artois
volume in Italy had, however, declined slightly to 166,000 hls in 1998. Licensing
agreements were also in place in Sweden and Australia, but volume was small.
Stella Artois was also produced in Interbrew’'s own breweries in Hungary, Croatia
and Romania, with very pleasing 1998 volumes of 84,000 hls, 120,000 hls, and
60,000 hls, respectively. After only three years, the market share of Stella Artois
in Croatia, for example, had reached four per cent —- a significant result, given that
the brand was a premium-priced product. In all Central European markets, Stella
Artois was priced at a premium; in Hungary, however, that premium was lower
than in Croatia and Romania where, on an index comparing Stella’'s price to that of
core lagers, the indices by country were 140, 260 and 175 respectively.
Promising first results were also attained in Australia and New Zealand.
Particularly in New Zealand, through a “"seeding”" approach, Interbrew and their
local partner, Lion Nathan, had realized great success in the Belgian Beer Café in
Auckland where the brands were showcased. After only two years of support,
Stella Artois volume was up to 20,000 hls, and growing at 70 per cent annually,
out of a total premium segment of 400,000 hls. Interbrew’'s market development
plan limited distribution to top outlets in key metropolitan centres and priced Stella
Artois significantly above competitors (e.g., 10 per cent over Heineken and 20 per
cent over Steinlager, the leading domestic premium lager brand).
The evolution of the brand looked very positive as world volumes for Stella Artois
continued to grow. In fact, Stella Artois volume had increased from 3.4 million
hls in 1992 to a total of 6.7 million hls in 1999, a rise of 97 per cent. Ironically,
the only market where the brand continued its steady decline was in its home base
of Belgium. Analysts suggested a variety of reasons to explain this anomaly,
including inconsistent sales and marketing support, particularly as the organization
began to favor the rising Jupiler brand.
Overall, given Interbrew’'s large number of local brands, especially those in
Mexico with very high volumes, total Stella Artois volume accounted for only 10
per cent of total Interbrew volume in 1999 (14 per cent if Femsa volumes are
excluded). Interbrew’'s strategy of nurturing a wide portfolio of strong brands was
very different as compared to some of its major competitors. For example,
Anheuser-Busch, the world’'s largest brewer, focused its international strategy
almost exclusively on the development of the Budweiser brand. Similarly,
Heineken sought to centre its international business on the Heineken brand and, to
a lesser extent, on Amstel. While the strategies of Anheuser-Busch and Heineken
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