How to Get Beer Across the Border

The CFO of Heineken USA recently faced a tough challenge: getting enough Dos Equis stocked in time for Cinco de Mayo.

HeinekenUSA CFO

How did you cope with the trucking issue?

We leveraged three things; one we had to pay for. One, we had to start matching produce-trucking costs, which are quite expensive. Two, we relied on FEMSA to secure additional truck capacity. We were renting vans and moving trucks. It wasn’t pretty, and we did whatever we had to do. Three, we used our scale in the U.S. to get our freight forwarder to free up about 10% more trucks to get down there from Dallas, Houston, and Austin.

As CFO, what was your specific role in this crisis?

Since I have operations reporting to me as well as finance, I was in the middle of this. And at the time it happened I was in Mexico, because I am working on the FEMSA integration. Aside from helping my team be in the right places to make the right decisions, the biggest thing I did was to define success as getting the product to the trade, not as lowering cost or increasing efficiencies. The team needed to be told that the most important thing right now for the next six days is this, and we’ll figure out the collateral damage later. This isn’t the time to pinch pennies.

How do you forecast demand?

Under U.S. alcohol regulations, Heineken can’t sell directly to a consumer. Because we’re selling to the wholesaler, who’s then selling to a retailer, who’s then selling to a consumer, our demand curve can get difficult to see. When you walk into a 7-11 and buy Heineken, we’re three levels removed from you. That creates an added challenge for us in pure demand forecasting. We ultimately have to account for consumer demand mostly through information purchased from A.C. Nielsen, IRI, and the like.

To do proper demand forecasting, we also have to look at our own internal systems, where we record sales and have visibility into the wholesalers that we’re selling to. We have to triangulate all of those sources of information to get a true demand picture.

What’s the relationship of your finance team with the home-office finance team in Amsterdam?

Heineken is organized by region. Heineken USA reports into Heineken America, and there are Western Europe, Central Europe, and Asia. I functionally report to my boss, the CEO of Heineken USA. I have a dotted-line report to the finance function in Amsterdam, but we are governed and managed by the regional office.

What implication does that have for your relation to the capital markets?

The capital market management process is done out of Amsterdam. We’ve centralized core functions like corporate relations, investor relations, treasury, and equity markets there. But because of the strength of the U.S. capital market and given its sensitivities, we play a strong role in supporting them through investor-relations work. Although financing vehicles like those involved in the FEMSA acquisition and in items like building a new brewery, for example, are managed by Amsterdam, they are done in conjunction with us from a treasury and tax point of view.

Here in the United States, we have independent relationships with our banks. We have full autonomy to set up revolving lines of credit and debt facilities, absent Amsterdam.

It’s been reported that even in a downturn in the beer markets, Heineken is committed to maintaining — or even increasing — prices. What’s the company’s pricing strategy?

We took a 4% national price increase in the heart of the recession. One reason is that we are a premium brand, and part of the way “premiumness” is defined is price position. Also, we look at top-line growth as a huge business enabler for us. Our chairman often says that you can lose market share and get it back, but you can’t lose margin and get it back. Once you’ve lost it, you’ve lost it.

You’ve talked a lot about your Cinco de Mayo crisis. What’s the next hot issue for you?

Integrating the FEMSA acquisition is front and center for us right now. That will consume us for the rest of this year and will be ongoing. Beyond that, it’s growing these premium brands in a beer market that is declining in the United States. Those are the headlines on what we’re focused on right now. — Sarah Johnson contributed to this article.


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