Heineken's journey to emerging markets is a tale of strategic expansion, cultural adaptation, and commercial success, offering valuable insights for the Pharma industry. Let's explore how the Pharma industry can tap into Heineken’s global access model.
Cycling past the historic Heineken brewery in Amsterdam daily, I am fascinated by its evolution from a local gem founded by Gerard Heineken in 1864 to a multinational giant with a market capitalization of 52 billion USD. The Dutch brand is Europe’s top-selling lager, but a significant portion of its revenue comes from the African continent.
My work on global health system strengthening in low- and middle income countries (LMICs) made me see firsthand the crucial connection between economic development and the improvement of healthcare. Now working in global market access, every time I ride past Heineken’s inaugural brewery, it sparks a sense of curiosity: can pharmaceutical companies emulate Heineken’s commercial success, by contributing to economies and access to healthcare in LMICs?
Let’s dive into the lessons can pharmaceutical companies draw from the Heineken journey.
How Heineken went to Africa
In 1928, global sales data made Heineken’s board recognize local market saturation on the horizon. This realization served as a catalyst for early geographic expansion —a crucial step in laying the groundwork for future commercial success.
As economies, populations, and the urban middle class continued to expand, Heineken increasingly viewed the African continent as a relevant new market. Rather than waiting for markets to mature, the company chose to develop its presence by buying stakes in local breweries as of the 1930s.
Heineken increasingly utilized local breweries and brands to leverage existing infrastructure, distribution networks, and market knowledge. Using local brands generated savings related to transport and importation. It also helped Heineken establish a more culturally relevant presence, fostering stronger connections with consumers and enhancing brand loyalty.
Making the link to pharmaceutical companies, perhaps this localized approach allowed Heineken to differentiate prices while mitigating the risk of parallel trade; to maintain control over pricing and distribution within each market…?
By the 1970s, sales data started showing an actual decline. At that time, Heineken was active in 6 African countries.
Heineken in Africa today
Heineken today operates across 13 African markets, employs almost 6,000 people and Africa represents a top 5 operating company. In these markets, the company supports local suppliers, building the barley value chain and making a positive impact in communities. Together with the Middle East and Eastern Europe, Africa generates around 15% of the total revenues of Heineken.
The role of the region is to transform to a profitable growth model to create more value from the long-term potential in Africa and deliver balanced and profitable growth. Strengthening our position in the five largest African markets is a strategic priority. – Heineken Annual Report, 2023
Key success factors and pitfalls
Keys to the Heineken success: 1) Early geographic expansion seeded future prosperity; 2) Corporate social responsibility (CSR) projects bolstered Heineken’s reputation; and 3) Collaboration with local breweries spurred economic growth.
Lessons for pharmaceutical companies
Early engagement with emerging markets sets the stage for sustained expansion and market penetration.
Embracing emerging markets enables pharmaceutical companies to broaden their reach and contribute to global health and sustainability efforts.
Investing in emerging markets fosters economic development, benefiting both companies and local suppliers and value chains.
While Heineken’s journey to global success is undeniably impressive, it is important to recognize that it has not been without its controversies. Heineken has faced scrutiny for its involvement in various unethical practices. This should serve as a continuous reminder of the need to prioritize ethical business practices and social responsibility initiatives in the pursuit of commercial success.
International reference pricing as a barrier to global access
Although there are many parallels to be drawn between the Dutch brewery and pharmaceutical companies, there is one significant difference between the beer market and the pharmaceutical market: International Reference Pricing (IRP).
Based on the Heineken experience, a key recommendation for expanding into LMICs would be to file for local marketing authorization using a dual branding approach. This would prevent parallel trade resulting from a tiered- or equity-based pricing strategy.
However, the practice of governments in high-income markets to apply IRP to the molecule rather than the brand presents a significant challenge for pharmaceutical companies looking to expand into LMICs. It limits a company’s ability to apply differentiated pricing strategies tailored to local economic conditions and healthcare needs, and therefore hampers the shared objective of enhancing global access to medicines.
This means that companies need to become more adept at finding solutions to overcome the challenge of IRP. The topic of IRP might be one to move up on the Access Policy Shaping Agenda (we will keep the topic of Access Policy Shaping for one of our future blogs).
Let’s Discuss
Heineken's journey serves as an inspiring example for pharmaceutical companies considering geographic expansion, driven by the 'why' of long-term growth, impact, and economic prosperity.
By understanding Heineken's success and learnings, pharma can unlock new avenues for sustainable growth and positive societal impact.
However, the 'how' of implementing such strategies will depend on several factors, including the company's portfolio, geographical footprint, sustainability and investor priorities in terms of the ‘Environment, Social and Governance’ (ESG) framework.
Interested in discussing how your geographical expansion or global access strategy could take shape? Leave us a message, and we will be in touch with you shortly!