Heineken: A Case (Or Six-Pack) Study in Climate Threats to Beer
Waleed HUSSAIN – Jorge MARTINEZ-BLAT – Miguel SALAS CAM
Heineken’s Business Model and Risk Profile
Heineken’s business model has many moving parts and is thus exposed to many different kinds of risk induced by a changing climate.
Beer is 95% water, meaning that a lack of water spells disaster for this beverage industry. With droughts, wildfires, and other climate disasters reducing the amount of fresh water in the world, water may very well transition from a relative commodity in industry to be one of the world’s costliest and most precious resources. Furthermore, brewing beer requires lots of barley, malts, hops, and other essential crops. Unfortunately, these ingredients grow in geographies that have been and are going to be very hurt by climate change, putting these ingredients in the same situation as water: their scarcity will result in a price increase, adding to Heineken’s costs. Studies suggest that consumers are not willing to pay the higher price for beer caused by inflated grain prices, and as consumers try alternatives, they might change their habits and preferences which could result in a difficult to reverse shift away from beer consumption.
Stronger and more frequent climate disasters induced by climate change are also testing the resilience of infrastructure such as bridges, airports, and factories, affecting not only production facilities but also the means for distributing Heineken’s beer. Energy shortages caused by damage to power generating infrastructure is also a challenge, especially in areas where . These phenomena pump up costs and put distribution channels under serious pressure, potentially reducing margins.
In addition, climate change has caused many governments to begin implementing changes in their regulations regarding the generation of both energy and pollution. It is not far-fetched to predict that at some point regulation may require breweries to operate with a 100% electric distribution fleet, or impose new standards for refrigeration coolants and energy generation and pollution. Such regulations will increase Heineken’s costs, maybe overnight, and force them to change their business model quickly or risk exiting the market.
How Heineken is Fighting Back
Sustainability at Heineken has been a priority and is exemplified with their sustainability strategy ‘Brewing a Better World’ and their vision for the ‘Drop the C’ programme. With ‘Drop the C’ Heineken has ambitious plans to shift their energy mix from 14% to 70% renewables by 2030. Moreover, the idea is to address the carbon footprint through the entire value chain by setting new emissions targets for every step along the way. Starting from sourcing, production, packaging, cooling and distribution, the company has embarked on a journey to becoming a leader in safeguarding the future and has partnered with suppliers, governments, research institutes and customers to achieve their goals.
Heineken has already made great progress with numerous projects all over the world. Pilot project breweries in Singapore and the Netherlands are running on solar and wind, while the Goss brewery in Austria is completely carbon neutral. A large part of the energy requirements at breweries in Vietnam are being met with biomass and biogas, which utilises waste from the community turning it into energy and a source of income for locals.
Another area Heineken has focused on is sourcing sustainably and protecting water resources. The quality and supply of water is of major importance. Heineken’s brewery in Zoeterwoude, Netherlands uses local river water which is stored and purified by the dunes in South Holland before it reaches the brewery. The company has partnered with various research institutes to employ satellite observations and meteorological data in parallel with biophysical analyses to predict future water levels and ultimately better manage the water resources. Natural purification methods such as this cost less, have ecological benefits, create a pleasant environment, and will provide a store of water in times of drought.
Next Steps for Heineken
Heineken is well on its way to mitigating the risks of climate change on its business model, but there are still ways for it to innovate and be a pioneer in reducing emissions and deeply rooting environmental sustainability into its DNA. Water is a crucial component of any beer, and while Heineken has made great strides in reducing the amount of water it consumes per litre of beer to just over three litres per litre of beer, we think that it could go even further. Could it be possible to brew a beer using even less water? A “One-to-One” beer using a single litre could be a fantastic marketing campaign, and while the taste of this beer will surely be vastly different from anything that exists currently, it provides the opportunity for a blue ocean strategy in which consumers can interact with something totally new which they know is also much better for the environment.
R&D will be essential moving forward. Using less water means using less energy to treat wastewater, and with shortages of crops resulting as an inevitable consequence of climate change it may also be in Heineken’s interests to vertically integrate at least part of its grain production and sourcing. For this, we would recommend experimenting with growing their barley, malts, and hops in vertical farms in LEED certified buildings, where the use of robots would be a further step in ingredient optimization. Minimizing the resources consumed to make beer, whether water or energy, will be vastly important in the mitigation of emissions and contributions to climate change.
Lastly, we would also recommend that Heineken form partnerships with local agricultural producers to find ways to obtain biomass which can be fed into anaerobic digestion reactors to produce the thermal heat necessary to produce beer and thus reduce their thermal energy emissions. This could even be extended to partnering with local restaurants and obtaining food waste which could be used as either biomass in the AD reactors or as compost for their vertical farms.
Heineken’s measure of their global carbon footprint, 2018
Interesting article about the initial efforts and strong ambitions of Heineken to address climate change. I am also curious to see whether they will take a more active global stance on this topic. Another issue I am curious to see what Heineken will do about is the societal dilemma around the overconsumption of alcohol leading to addiction and cardiovascular diseases. Zero-percent beer is seen as one of the ways to mitigate this debate, but there has been a lot of discussion on this in the Netherlands after Heineken faced severe brand damage in the early 2000s when a well-known Dutch comedian made a joke about the zero-percent beers of Heineken. Since then, they have reintroduced and rebranded the zero-percent beers in the Netherlands and I’m curious to see how the global rollout of this will unfold and whether Heineken wants to take an active global stance on this societal dilemma.
Really interesting blog – thanks! It is interesting to note that the biggest area of Heineken’s carbon footprint is in its packaging – given this, it would be interesting to see to what extent they may leverage their scale and bargaining power to both invest in and perhaps even pressure their packaging suppliers to be producing in a more sustainable fashion. Packaging poses a real challenge for all beverage companies, so it would be interesting to see more cross-company collaboration in this, as noted by van Boxmeer when this campaign was launched in the first place (https://www.theheinekencompany.com/media/media-releases/press-releases/2018/02/2167930)
I wonder how Heineken will shift its energy mix globally. The energy resources and government’s incentives vary from country to country, making this shift less scalable.