Heineken USA, the American division of Dutch global beverage manufacturer Heineken International – the world’s second-largest brewer – is gearing up for a business restructuring that will involve cutting 15 percent of its total workforce.
Honestly, did anyone not see this coming?
US Beer Giants are Downsizing en Masse
Beer companies are taking a beating in the US, which explains why a number of them are undergoing cost-cutting measures. Heineken USA is not alone in the downsizing spree. Other major beer companies that have chosen to initiate job cuts in recent months include MillerCoors, Pabst brewing, AB InBev, and Constellation Brands.
Oregon-based Deschutes, the 10th largest craft brewer in the US, also eliminated 10 percent of its total staff last December. The brewer had made expansions to its workforce after initiating some growth strategies, but they eventually resorted to the layoffs after growth outcomes failed to match their projections.
Bjorn Trowery, a spokesperson for the firm, confirmed the job cuts, saying:
“We are modifying our sales team structure to align with our strategy and to enable more efficient ways of working. This will help Heineken USA be more cost effective, and allow us to reinvest behind our brands and business in the US. While change that impacts our people is always difficult, we believe these changes will better position Heineken USA for the future.”
US Millennials are Drinking Less Beer
Last year, Heineken-owned Lagunitas slashed 12 percent of its total workforce, 17 months after it was acquired. At the time, Lagunitas had said the cuts were necessary for the company to adjust to the needs of a dynamic and significantly more challenging market.
To put that more bluntly: millennials just don’t drink beer like their parents did.
Last month, Diageo CEO Ivan Menezes noted in an interview with CNBC that consumers are moving from beer to spirits and cocktails.
According to data released by the Distilled Spirits Council, a trade group based in the United States, spirits (including vodka, rum, and gin) gained even more market share in the alcohol market for 2018, as compared to wine and beer.
The data showed that the share of the alcohol market owned by spirits rose 0.7 percent to 37.4 percent within the last calendar year, showing a marked increase in the consumption of spirits in the country.
Distilled Spirits Council President and CEO Chris Swonger said that younger consumers were the driving force for that shift:
“These robust results show adult consumers are continuing to favor spirits over beer and wine, particularly among millennials. The spirits sector is benefiting from millennials who demand diverse and authentic experiences, and desire innovative and higher-end products.”
The group revealed that supplier sales of spirits rose to $27.5 billion, an increase of 5.1 percent. The volume of spirits produced in the year also surged to 231 million cases, a whopping 5 million case increase from 2017.
Millennials Were Born to Drink Wine & Spirits
Millennials are just not into beer anymore, and this is quickly pushing many beer companies to the brink. Molson Coors saw sales slump in four straight quarters in 2018, and the volume of Heineken cases sold has decreased drastically – even while wine and spirits sales are on the rise.
From 2006 to 2016, beer lost 10 percent of its market share to hard liquor and wine. US millennials consumed nearly 160 million cases of wine in 2015 alone, according to Wine Spectator, which was roughly 42 percent of all US wine consumption.
What’s more? Millennials actually drink more frequently than previous generations. These consumers are the imbibers the beer industry have been dreaming of, and they seem to be growing in numbers. From 2005 to 2010, young high-frequency wine drinkers went from making up 8 percent of drinking-age adults to over 13 percent.
And yet, this group seems uninterested in big beer brands like Heineken or Budweiser. Millennial drinkers picked beer just 49.7 percent of the time when deciding on an alcoholic beverage to consume, per a Wall Street Journal report.
Heineken Ditches Alcohol in Last-Ditch Bid to Revive Ailing Business
To close the gap and get in on this free-spirited and high-frequency drinking market, big brand names have swooped in on the nonalcoholic beverage business to make up for the loss in beer sales.
The parent company of Budweiser, AB InBev, rolled out a range of non-alcoholic beverages including the Bud Light Orange and the Budweiser Reserve series in 2018.
Heineken also jumped on the bandwagon, pushing out Heineken 0.0 in 2017 and launching it in the US last month. Heineken 0.0 is the cavalry that would help revive the Dutch brewer’s ailing business in the US.
Despite the recent layoffs, Heineken CEO Jean-François van Boxmeer claims to see many prospects in the US, and one has to wonder why it took them so long to join the party.
He explained on the company’s earnings call:
“We try it out with a belief that also in America there are moments where you don’t want to drink alcohol, if you have people who never drink alcohol, and you have people who love beer and don’t want to have alcohol in sight[…] or want to have a glass of beer and be able to take their automobile back home.”