By Michelle Toh, CNN
Hong Kong (CNN) — People in Asia aren’t guzzling as much beer as they used to.
Dutch brewer Heineken (HEINY) announced disappointing earnings and cut its financial outlook Monday, posting a 9% drop in net profit in the first half due to a downturn in what is normally its most profitable region, Asia Pacific.
Demand in Asia Pacific in the first six months of 2023 was worse than expected, with a 13% drop in the volume of beer sold compared to the same period last year.
Sales were particularly weak in Vietnam, where the world’s second biggest brewer is working to hook more customers through other beverages, such as a South Korean-inspired, soju-infused beer.
“Demand in APAC was considerably softer than foreseen, due to an economic slowdown and our own underperformance in Vietnam,” CEO Dolf van den Brink said in a statement.
Best known for its eponymous beer label, Heineken is home to more than 300 brands, including Tiger beer, Amstel Lager and Strongbow cider. Heineken branded beer did continue to see growth in the first half, both overall and within Asia Pacific.
In addition to weak sales in Vietnam, the company said it was hit by “socioeconomic volatility” in Nigeria, which has struggled with a cost-of-living crisis following the end of fuel subsidies in late May.
A slump in both countries “accounted for over half of the decline in the first six months,” Heineken said.
The company’s shares fell 7% in Amsterdam Monday.
‘Unprecedented’ price jumps
Like other food and beverage makers, Heineken has been raising prices as it grapples with “unprecedented levels of commodity and energy inflation,” the company said in its statement.
Though its revenue rose 6.3% in the first half, that was “more than offset” by inflationary pressures and reinvestment in the business, it added.
To cope, the company’s recent price hikes have been “often leading the market,” it noted. That, in turn, has clearly driven some consumers away.
The brewer also blamed a drop in premium beer sales on a decline in Russia, a market the company has said it’s trying to exit.
According to Yale research, Heineken still had seven breweries and 1,800 employees in Russia more than a year after it announced its plan to exit, even launching new brands there.
Heineken responded to CNN saying it had stopped selling the Heineken brand in Russia and found a prospective buyer of its Russia business. However, that potential deal, submitted to Russian authorities this April, is still pending regulatory approval, according to the company.
As of Monday, the status had not changed, and “recent developments in Russia demonstrate that it is even more challenging for businesses to secure exit approval,” the company said.
“We do not accept any financial gain from the ongoing operations [and] will not profit from the sale of the business,” it continued.
“We remain fully committed to leaving Russia, however the timing of our exit is not in our control.”
Moving forward, the company expects inflationary headwinds to ease in the second half of this year, albeit not enough to maintain its earnings guidance.
Heineken now expects “stable to mid-single-digit” growth in operating profit for the full year, compared with the “mid- to high-single-digit” growth it outlined in April.
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