Rising fuel costs triggered by the conflict in Iran are pushing up Heineken N.V.'s (HEINY.US) brewing input expenses across Asia, according to Jacco van der Linden, the company's Asia-Pacific president.
"We see this reflected in input costs, especially in Asia," he said in an interview on Monday. "In Asia, we rely more on oil from the Middle East, and local oil reserves there are relatively smaller."
Van der Linden said the company is passing roughly 70% to 80% of the cost increases on to consumers, with the remainder absorbed through improved production efficiency. "Input costs are rising, so production efficiency and revenue management are becoming increasingly important for us," he said.
The mounting cost pressure comes as global brewers face structural challenges, including consumers drinking less and shifting toward healthier beverages. In its post-pandemic recovery, Heineken has fallen behind Anheuser-Busch InBev (BUD.US) and Carlsberg A/S. Incoming CEO Rafael Oliveira, the first external chief executive set to take over in October, will inherit weak sales in Europe and the United States. That makes growth in emerging markets increasingly critical. Heineken is capitalizing on rising demand in Asia, Africa and other developing economies to offset weakness in Europe and the Americas. In the second quarter, the company's Asia-Pacific volumes rose 13%, Africa and the Middle East gained 3.5%, while the Americas fell 4.1%.
Analyst Ignacio Canals Polo believes Heineken needs to keep investing in Asia, Africa and Latin America and push more premium products to counter soft sales in mature markets. In a research report published on September 10, he wrote that Vietnam and Mexico "show that this strategy can work." Van der Linden said the company is focusing on key growth markets, especially in Asia such as Vietnam, India and China, where consumers prefer lighter-flavored beers.
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