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Jean-François Van Boxmeer Of Heineken

This Belgian native is aiming Dutch brewer Heineken toward emerging markets for future growth.

Jean-François Van Boxmeer Of Heineken

Growth on Tap

The Dutch brewer’s new light beer is making inroads in the slow-growing U.S. market, but this Belgian native is aiming Heineken toward emerging markets for future growth.

As a young man growing up in Belgium, Jean-François van Boxmeer longed to travel the globe and experience different cultures. Today, as chief executive of Heineken, the affable 45-year-old is again seeking to embrace the world.

A little more than one year after taking the helm of the Amsterdam-based brewing giant, van Boxmeer is making a big push into Southeast Asia and Central and Eastern Europe, where beer consumption is growing faster than in the company’s core U.S. and Western European markets.

Diversifying Heineken geographically is just one of the challenges van Boxmeer faced upon succeeding Thony Ruys as CEO. During Ruys’s nearly four-year tenure, the falling U.S. dollar and a blown hedge on the currency’s value cut some $350 million from profits. Heineken, which under Ruys derived 61 percent of its bottom line from Western markets, stood pat as rivals InBev of Belgium and the U.K.’s SABMiller flourished by snapping up emerging-markets breweries. The Dutch beer maker suffered from a bureaucratic culture and high costs. Its share price fell by a third under Ruys.

Van Boxmeer has streamlined the company while rolling out new products in developed markets and making acquisitions elsewhere to spur growth. He replaced Heineken’s 36-member executive committee with a 13-person group to speed decision making and vowed to cut E360 million ($473 million) of costs by 2008, under a program dubbed “fit to fight.” In March the company launched low-calorie Heineken Premium Light in the U.S. The new brew has captured 0.4 percent of the American beer market, siphoning share from brands such as Anheuser-Busch Cos.’ Bud Light and Michelob Ultra. The 22-year Heineken veteran also has acquired breweries in fast-growing China, India and Vietnam, and benefited from a more stable U.S. dollar.

His strategy is working. In the first half of this year, net profits grew by 13.7 percent, to E433 million, compared with a 5.4 percent increase during the same period in 2005. Since van Boxmeer took over in October 2005, Heineken’s stock price has risen 38 percent on Euronext Amsterdam, to about E38, valuing the brewer at some E23 billion. (The Heineken family controls more than half the company through a separate class of shares; van Boxmeer is only the third CEO in the brewer’s 142-year history whose name isn’t Heineken.)

Van Boxmeer still faces obstacles. For one, the company’s Amstel Light brand lost 5 percent of its U.S. market share this year, possibly because of cannibalization by Heineken Premium Light. In addition, the chief executive’s cost-cutting plan will generate short-term charges against earnings. Meanwhile, Anheuser-Busch and SABMiller are heavily discounting prices to retain share in mature markets like the U.S. and Western Europe.

Van Boxmeer, who joined Heineken in 1984 after earning a master’s degree in economics from Belgium’s University of Namur, relishes a challenge. As a student, he worked one summer selling Belgian brew Stella Artois in Gabon. After two years with Heineken in the Netherlands, he spent more than a decade turning around the company’s flagging Central African business. Next came Poland, where he doubled Heineken’s sales in four years. The company made him a director and head of Central and Eastern Europe in 2001. Two years later he oversaw Heineken’s biggest-ever acquisition: the $2.13 billion takeover of Austria’s BBAG.

Fluent in five languages, van Boxmeer says he loves to drink Heineken but is also partial to the company’s Polish-brewed ˙Zywiec beer. He spoke recently in New York with Institutional Investor Staff Writer Pierre Paulden.

Institutional Investor: How can you overcome slow growth in beer consumption in developed countries?

Van Boxmeer: You can boost market share by increasing discounts, but that is not good to the shareholders. We are focusing on the premium end of the market. Worldwide the beer market is growing at 2 to 3 percent a year, but premium brands are growing at 6 percent a year. We want to grow in the region of 10 percent. We are growing at 12 percent at the moment. That is because of the introduction of Premium Light in the U.S. Imports account for 23 percent of the U.S. market for regular beer. For light beer it is only 2 percent, and Amstel Light is already 0.8 percent of this.

Is Heineken Premium different enough to not cannibalize Amstel Light?

The product profiles are different. Amstel Light is a heavier beer than Heineken Light. Amstel has been on a sliding slope, but that is more to do with a brand equity problem. Its core franchise is an East Coast, white, male beer connoisseur. Heineken has a brand franchise across all ethnic groups and is aspirational. Premium Light follows that route. I would not deny some cannibalization, because I am sure there is someone who used to drink Amstel and now drinks Heineken Light, but that is not the primary driver. We have to work on the Amstel core franchise to revitalize it.

What markets are most attractive to you right now?

We see very big potential in the developed world. But the next hot thing is Central and Eastern Europe. The sales of Heineken there are very, very low. For the next ten years, we have work to do to push Heineken in the premium end of the market. The source of growth will be Poland, Hungary, Bulgaria, Romania, Russia and Ukraine. In all these countries we have observed that consumers want an iconic premium brand like Heineken.

China is the world’s biggest beer market, but most big brewers aren’t making money there. What about Heineken?

We are making very little money in China. It’s probably break-even. The Chinese market is plagued by very low selling prices. We can grow in China by targeting Heineken at the superpremium end, but we have to recognize that at superpremium prices, the potential is not spectacular. You have to take a long-term view and focus on the promise of growth.

What about the rest of Asia?

We already sell more Heineken into Asia than we sell into Central and Eastern Europe. We are especially strong in Thailand, Cambodia, Laos, Vietnam, Malaysia, Singapore and Indonesia. We have invested more heavily in these countries than in China because the margins are much better. You can sell less than half the volume in Vietnam to make the same profits as you would make in China. You have competition in Vietnam, but the selling prices are good. In China you have competition, but the selling prices are awful.

Would you consider expanding into wine or spirits?

No. The synergies between the three are small. From time to time, we have expanded beyond our core beer business when it made sense locally. We have Coca-Cola franchises in Central Africa, which makes sense because there are production synergies. But our overall strategy is beer and only beer — and Heineken all the time.

Should Heineken stay under family control?

Family control is here to stay, and I am comfortable with that. You can be a superb growing company and a family company. Peter Coors and Eric Molson’s families control the votes of Molson Coors Brewing Co. It is not the case at Anheuser-Busch, where the Busch family does not have majority control. By tradition, though, the Busch family leads the company, because generation after generation they have proved to be the best leaders of the company, and the board and investor community have voted their confidence in the family.

How is your cost-cutting program progressing?

We aim to gross E360 million in savings to the company by 2008, 80 percent of that coming from Europe. All elements to get there have been identified in various countries. We will reach 10 to 15 percent of the savings this year, and we will reach half next year and complete the program by 2008.

What’s it like being Belgian at a Dutch company?

I never worked in Belgium and so have become a bit of a Dutchman myself. Belgians are a bit more decisive, and the Dutch culture is more consensual, so it’s easier for a Belgian to take quicker decisions. But the Dutch are great tradespeople. They are very internationally oriented and always develop a clear vision of where they want to go.

What is your favorite place in New York to grab a beer?

Smith & Wollensky. I like to drink and eat together, and I love American steak. It’s the best beef in the world — with a Heineken

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