Heineken USA Grows Low-Single Digits; Dutch Brewer Records $231M Lagunitas Impairment Charge

Heineken NV reported its full-year 2021 earnings on Wednesday, giving a picture into the state of its U.S. business.

The Dutch brewing giant’s U.S. division, Heineken USA, posted low-single digit beer volume growth in 2021. The Heineken brand, Dos Equis and new offerings such as Dos Equis Ranch Water and Lime & Salt drove the company’s growth in the U.S., Heineken CEO Dolf van den Brink said.

“Heineken 0.0 strengthened its position as the No. 1 non-alcoholic beer in the market,” the company reported. “Dos Equis grew in the mid-teens, boosted by the success of innovations Dos Equis Lime & Salt, as well as variety packs and Ranch Water.”

HUSA CEO Maggie Timoney offered additional insights into the U.S. branch’s 2021 performance in a statement shared with media outlets.

“Total Heineken franchise grew, led by another strong year for alcohol-free market leader Heineken 0.0,” she said. “Dos Equis, which was heavily impacted by the closure of the on-premise in 2020, benefitted from on-premise growth in 2021 and also saw growth in the off-premise (+5%) despite a declining market. Dos Equis growth was fueled by its new creative campaign and innovation portfolio including Dos Equis Lime & Salt, variety pack and Ranch Water. Heineken USA also saw 11 consecutive months of share growth in a declining beer market. We are confident in our plans for 2022.”

In reporting its earnings, Heineken took a €203 million (nearly $231 million USD) impairment charge related to Lagunitas Brewing Company. This is the second write down on the value of the brand that the company has taken on Lagunitas. In February 2021, the company recorded a €230 million ($279 million USD) impairment charge on the value of the Petaluma, California-based craft brewery.

Those impairment charges amount to around half of the $1 billion purchase price of Lagunitas. Heineken completed the purchase of Lagunitas in May 2017, a two-year process to buy out the craft brewery that started in September 2015.

Lagunitas produced more than 1 million barrels of beer in 2018 and 2019, but its production declined -10% in 2020, to around 950,000 barrels, according to data from the Brewers Association. 2021 production data hasn’t been released, however, Lagunitas ranked as the No. 14 beer category vendor in the off-premise channel in 2021, according to market research firm IRI. The firm reported that Lagunitas’ off-premise dollar sales declined -10.4%, to $186.6 million, with sales of its top brand, Lagunitas IPA, declining -12%, to $92.8 million.

In the earnings report, Heineken stated that Lagunitas fell “short of our internal ambitions in the USA,” but “continued to grow internationally playing meaningfully in the IPA premium beer segment.” Lagunitas posted double-digit growth in Brazil, France, Italy, and the Netherlands, and “launched in Russia, Greece, South Korea, and with local production in Mexico” starting in October.

Heading into 2022, Lagunitas’s focus is on IPAs, non-alcoholic beer and its big bet for the year, Disorderly Teahouse, a sparkling hard tea. The company rationalized other parts of its portfolio to focus on these three areas, including discontinuing brands such as Sumpin’ Easy, 12th of Never, and Pils.

Additionally, Lagunitas and CannaCraft have reworked their THC-infused Hi-Fi Hops brand, moving from bottles to cans and adding aroma notes of citrus and berries, according to the Press Democrat.

Heineken International Earnings

Heineken NV reported companywide net revenue growth of 12.2% (8.3% per hectoliter) during its full-year 2021 earnings report on Wednesday. Among the highlights, consolidated beer volume increased 4.6%, while the Heineken brand’s volume increased 17.4%, which the company said was well-ahead of 2019 levels.

Heineken reported that inflationary pressures led the company to accelerate its pricing during 2021, which led it to “achieving about €1.7 billion of price mix during this two-year timeframe.”

Heineken CFO Harold van den Broek said the company expects “to be significantly impacted by inflation and supply chain” issues this year, and the company expects its input costs per hectoliter to increase in the mid-teens “given our hedged positions and the sharp increase in the prices of commodities, energy and freight.” The company will attempt to offset those input costs through pricing.

Van den Brink added that although Heineken took “a lot of pricing already in the second half” of 2021, “the volumes have been resilient.”

“The big question is a question of duration,” he added. “As we continue to take these quite assertive price increases as we’re seeing in the context of very high generic consumer inflation, energy bills, the big question is indeed whether disposable incomes will be hit to the point that it will dampen overall consumer spend and beer spend as well.”

How consumers will react to those increases is unclear, the company said.

During the Q&A portion of the call, van den Brink, who once led the company’s U.S. business, was asked if the import model still makes sense in the U.S. given the company’s environmental, social and governmental (ESG) focus. “Do you believe the strength of the Heineken brands in the U.S. rely on the fact that it’s imported or whether it’s just a good beer with strong advertising?”

Van den Brink said he’s given “considerable thought in the past” to the import model for the U.S. He said ocean freight “is quite painful” and passing on those costs in the U.S. given “market dynamics is low.” From the perspective of ESG, “it is a nuanced story,” he added.

“One mile transported on an ocean freight has 1/10th the carbon footprint of one mile in a truck,” van den Brink said. “The vast majority of our volume is actually sold in coastal areas from Boston to New York, to Miami, to Houston to Los Angeles, to Seattle. So if we were to replace ocean transportation by domestic production, you would basically need to build a brewery on the East Coast to West Coast to North, and the South to cover that. That and then still you would incur massive inland transportation. So it is not as intuitive and as clear as it looks. On top of that, you would have massive capital expenditure sitting idle on the European side and you would have to invest a lot of capital in the U.S.”

Notably, Anheuser-Busch transferred production of import brand Stella Artois from Europe to the U.S. last year.