[Ed. note: This blog was originally written for us by our research intern Tristin Young.]
Heineken, the Dutch beer company, has faced unwanted attention over the last several months due to their on-going operations in Russia, and things do not appear to be improving for them. When Russia invaded Ukraine last year, international companies faced a moral and business choice: remain in Russia and inadvertently support the regime that was engaging in unprovoked violence or leave the market and lose millions of dollars invested with little hope of ever reclaiming them.
Across almost every industry, companies made the hard choice of either suspending sales in Russia or leaving the country altogether generally at great loss. In retail, Adidas, H&M, and Nestle all cut sales. In the energy sector BP, Shell, and ExxonMobil all withdrew investments. The financial sector saw even more action with most major international banking and financial institutions suspending operations. The list goes on.
In March of 2022, Heineken announced they would halt “new investments and exports to Russia” and that they would leave the country once they established an “orderly transfer of our business to a new owner in full compliance with international and local laws.” This was widely applauded and was in step with other companies. Heineken reported that it took this path to avoid nationalization.
Almost a year later on February 23, 2023, Follow the Money (FTM) published a report that not only was Heineken still operating in Russia, but that they had actually expanded business by launching 61 new products in Russia in 2022. In fact, according to a retrospective on Heineken Russian website, “2022 has become a turbulent period for all market players, but at the same time it has presented many opportunities and opened up new ways to develop and expand our business […] We are proud to announce that we have achieved record levels in several segments at once.”
Globally, Heineken top executive Dolf van den Brink attempted to explain (p23) the company’s continued presence in Russia by stating the sale process was more challenging than originally anticipated and would cost the company over 300 million pounds. However, according to FTM’s research, Amstel Brewery (owned by Heineken) more than made up for the losses by launching three additional brands in the Russian market. Additionally, in a now-removed statement on their website, Heineken sees plenty of opportunities in the Russian soft-drinks market, stating that “After the withdrawal of Coca Cola and Pepsi products, we decided to enter the non-alcoholic carbonated drinks market and launched several lines at once in the fall – Royal Cola, Tony Lemony, Botanic Secret and the updated Solar Power.”
Earlier this month, Heineken released a statement commenting on their continued commitment and approach to leaving Russia. The company indicated they do not want to disenfranchise their local employees or allow nationalization. They additionally described the reports that they failed their commitments as “absolutely untrue and misleading.” Simultaneously the Russian subsidiary of Heineken is far from being an independent company, despite Heineken’s attempts to make it appear otherwise. In fact, annual reports show that it is 100% consolidated.
In Heineken’s most recent statements, they have reaffirmed their intentions to leave, blaming local paperwork for the delays. This could be true, but it may be too little too late to avoid consequences in the forms of both profit loss and loss of public goodwill. Only time will tell.
What This Means
Other companies can learn from Heineken’s actions. This is clearly a difficult situation for Heineken. They aren’t the only company struggling to make good on their original commitments to withdraw from the country. However, Heineken appears to want to have its beer and drink it too. Its actions seek to both avoid reputational damage and maintain (or potentially even increase) profits. Many view Heineken’s behavior as duplicitous and public outrage, boycotts and negative media coverage are growing.
Heineken certainly is not alone on the hook here. According to a new analysis by the Business and Human Rights Resource Centre, a majority of French, German & Swiss companies still continue operations in Russia, over a year since the invasion. A major reason for the slow withdrawal is the lack of forward planning that would have anticipated this situation and created plans to address it preemptively. But Heineken could have better handled their situation by being candid, transparent and with a stronger communications plan – and the determination to aggressively follow through with their commitments. It may have mitigated the appearance of insincerity and the resulting backlash.
Looking ahead, even as tensions rise between China and Taiwan, another beverage company (Starbucks) plans to invest $220 million in China just over the next 3 years. It would be good idea for them to have an exit plan supported by clear communications and a definitive commitment to follow through with it. Other companies with investments and operations in areas of increasing geopolitical risk should be evaluating how to manage – or withdraw – their business in those countries in a worst case scenario.