Risk
44
Report of the Executive Board
management continued
Strategic risks
Heineken brand and Company reputation
As both the Group and its most valuable brand
carry the same name, reputation management
is of utmost importance. Heineken enjoys
a positive corporate reputation and our operating
companies are well respected in their region.
Constant management attention is directed
towards enhancing Heineken's social,
environmental and financial reputation.
The Heineken brand is key to Heineken's growth
strategy and is the most valuable asset of
the Company. Anything that adversely affects
consumer and stakeholder confidence in the
Heineken brand or Company could have a negative
impact on the overall business.
The Company reputation and sales could be
damaged by product integrity issues. Therefore,
production and logistics are subject to rigorous
quality standards and monitoring procedures,
which were further strengthened in 2007.
Brand perception is managed by strict marketing
control procedures and, increasingly, by centrally
managed marketing campaigns. A Code of
Business Conduct and Whistle-blowing Procedure
aim to prevent any unethical and irresponsible
behaviour of the Company or its employees.
Reference is made to Heineken's Sustainability
Report 2007 for reviewing Heineken's priorities
in the area of social responsibility supporting
Company reputation.
Pressure on alcohol
An increasingly negative perception in society
towards alcohol could prompt legislators to
restrictive measures. Limitations in advertising
could lead to a decrease in sales and damage the
industry in general. Sales of Heineken products
could materially decrease, in particular in Europe.
Heineken's Alcohol Policy is based on the principle
to brew, market, and sell beer in ways that have
a positive impact on society at large. With this
policy, Heineken promotes awareness of the
advantages and disadvantages of alcohol,
encouraging informed consumers to be
accountable for their own actions. Markets are
becoming more and more engaged to promote
responsible consumption, in partnership with
third parties. The 'Enjoy Heineken Responsibly'
programme (a responsibility message on back
labels directing consumers to a dedicated website)
is a key initiative in this respect. Heineken has
signed up to the Charter of the EU Forum and
posted commitments on actions in the area of
consumer information, alcohol consumption at
the workplace and commercial communication.
Alcohol policy compliance monitoring was further
strengthened in 2007.
Attractiveness of beer category under pressure
Heineken has many operations in mature beer
markets where the attractiveness of the beer
category is being challenged by other beverage
categories. In these markets, management focus
is on product innovation, portfolio management
and cost effectiveness in order to secure market
position and profitability. Since Heineken's
business in emerging markets is growing fast
(autonomously and through acquisitions), the
relative dependency on profitability from mature
markets will further decline over time.
Rising input costs
Input costs have accelerated to unprecedented
levels. The prices of raw materials (malted barley
and maize) and packaging materials (glass bottles,
aluminium cans and kegs) have risen significantly,
as has the cost of transportation and energy.
Inflation and pressure on labour costs are also
expected in many markets. In addition changes
in packaging mixes has put pressure on input
costs. Central Purchasing is tasked with securing
the best possible deals.
Our own prices also need to increase to limit margin
erosion. Pricing strategies are top priority in all our
markets. This includes assessments of customer,
consumer and competitor responses based on
Heineken N.V. Annual Report 2007
