A Better World Through Brewing

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Brian Kenny: Today we’ll hear from Professor Forest Reinhardt about a case he co-authored with his colleague, Jose Alvarez, entitled, Heineken: Brewing a Better World. I’m your host Brian Kenny and you’re listening to Cold Call. Professor Reinhardt teaches in both the MBA and executive education programs at Harvard Business School. He’s authored numerous cases, articles and papers analyzing the challenges of environmental and natural resource management and he co-founded the School’s Business and Environment Initiative all of which relate directly to the case we’re going to talk about today. Forest, thank you for joining us.

Forest Reinhardt: Thank you for having me.

BK: So, I’m going to ask you the same question I ask all faculty when we first sit down. Can you please set up the case for us?

FR: So most people have heard of Heineken. It’s easier in some ways to write a case about beer than it is about, say, titanium dioxide even if the economics are equally interesting. And so I teach in the agribusiness seminar, which is an executive program that we run every January for about 200 executives from all over the world. We write new cases for that program every year and it had been some time since we wrote a beer case. We understand that brewing while it’s a marketing-driven business has a big complicated upstream supply chain with environmental impacts in the agricultural sector, in water, in the energy it takes to get the beer to the consumers and so on, and we thought it would be interesting to see how a big sophisticated company is trying to cope with those challenges.

BK: Can you just as setting things up describe a little bit about what the challenge is, the protagonist is in the case? The protagonist here is the CMO and sort of what his challenge is as he’s thinking about what he’s about to face.

FR: His fundamental challenge as he puts it in the case is how to make sustainability relevant and interesting to his consumers. So at one level we all understand that sustainability is important, that our social systems are constructed atop and embedded in natural ecosystems that need to function properly if the social systems are going to work. That’s an abstract formulation. It seems long-term, it seems distant, it seems difficult. How do you make that interesting to a 23-year-old kid walking into a nightclub?

BK: What are the ways in which Heineken’s thinking about sustainability as an organization?

FR: So when a company engages in a sustainability initiative, the first question has to be why, right? So if the 23-year-old walking into the nightclub doesn’t necessarily think first, second or even fifteenth about the sustainability of the beverage he or she is ordering, why should a big firm with lots of other things to worry about spend time on this particular aspect of its business? And the answer is going to depend on the business and on the geographic setting and on the demography of the customers and so on. But Heineken like many firms has found a lot of investments that it can make that pay environmental benefits that also have some other short-term tangible, strategic business rationale. For example, it’s made its trucks more efficient. So that means that’s good for the environment, fewer air pollution emissions in the cities in which the trucks are driving, but it also means it’s saving money on gasoline or diesel. It’s developed some very beautiful refrigerators that it’s willing to install in convenience stores and liquor stores all around the world that are substantially more energy efficient than the preceding generation of refrigerators. And, by the way, they’re bright green and they say Heineken on them in big letters and they’re the first thing that the consumer sees when he or she walks into the retail establishment. So there are lots of things that creative marketers can do to wed the sustainability messages with traditional fundamental business imperatives.

BK: And I was surprised to see in the case that sustainability sort of touches multiple departments at Heineken and it was funded out of the innovation budget.

FR: Yes. And that’s I think, well, to a more general point that without innovation we’re not going to solve our environmental problems. And we need to think hard and imaginatively about how we can do things differently. We can’t abandon the fundamental structures of capitalism. We’re not going to abolish private property rights. If we did it would be a catastrophe for the environment. But we do need to think creatively in our organizations about how we do things and how we can do them better.

BK: They faced some real challenges in certain parts of the world, but as they got into Africa, in particular, the case describes some of the challenges specific to operationalizing sustainability in Africa.

FR: Well, Africa has been a difficult place for many western firms to do business. At the same time Heineken recognizes in Africa one of the key markets of the future and the question is how it’s going to produce its beverages at a price that African consumers can afford. And the answer in the long term has to do with sustainable and local supply chains.

BK: One of the things that the CMO and his team are eager to be able to demonstrate is local sourcing. What are some of the challenges with them being able to do that in a credible way?

FR: Well, the problem that they’re trying to solve with local sourcing is itself extremely difficult, right? So right now Heineken has a beautiful state-of-the-art brewery in suburban Addis Ababa, which is supplied largely by malt grown in France, moved through the Mediterranean in the Suez Canal, put on trucks in Djibouti because Ethiopia is landlocked, and moved up to this brewery. In the long run that doesn’t make sense. In the short run it’s actually the cheapest malt supply. And that’s because Ethiopia lacks the infrastructure and its farmers lack the working capital and the risk management systems to grow barley to be malted in a cost-effective way. So Heineken needs to fix that problem. Ethiopians have been growing barley for thousands of years and they have done so in the least capital intensive manner you could imagine, right? So they saved the seed from year to year. They don’t buy anyone’s seeds, they just save part of the barley crop from last year and sow it again as farmers have done for millennia all over the world. They don’t use fertilizers, they don’t use herbicides, they don’t use pesticides, and maybe they get a couple of tons per hectare of barley and that makes them poor. So if someone can provide them with some improved seed, not very expensive, and a little bit of fertilizer, not very much, and maybe a liter of herbicide, really a very small amount, they can get four tons instead of two and that means that the entire environment and ecosystem gets transformed.

BK: Including the standard of living of those farmers.

FR: Absolutely, right.

BK: We’ve got a new generation of people coming of age, these are the millennials. They care about these kinds of causes. Heineken recognized that they have a coolness factor and they had leveraged that coolness factor before in other campaigns that they did. How does it factor into their thinking about sustainability?

FR: Well, they think, and I think they’re correct, that 20-year-old people throughout the world, not just in the rich world, take for granted that we need to change our attitudes toward the natural systems on which we rely, and they expect firms to behave properly and whether they will pay five cents extra for the beer is not really the question in a way. The question is whether they’ll want to consume the beer at all. And so Heineken, Heineken’s executives think they need to be ahead of that, and I think they’re right. Whether it will work for them in the short run is a difficult question. They are very, very good marketers but it’s a very, very difficult marketing problem.

BK: Absolutely. Forest Reinhardt, thank you for joining us today.

FR: Thank you very much.

BK: You can find the case, Heineken: Brewing a Better World, in the HBR case collection at hbr.org. I’m Brian Kenny and you’ve been listening to Cold Call, the official podcast of Harvard Business School.

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Brian Kenny: Today we’ll hear from Professor Forest Reinhardt about a case he co-authored with his colleague, Jose Alvarez, entitled, Heineken: Brewing a Better World. I’m your host Brian Kenny and you’re listening to Cold Call. Professor Reinhardt teaches in both the MBA and executive education programs at Harvard Business School. He’s authored numerous cases, articles and papers analyzing the challenges of environmental and natural resource management and he co-founded the School’s Business and Environment Initiative all of which relate directly to the case we’re going to talk about today. Forest, thank you for joining us.

Forest Reinhardt: Thank you for having me.

BK: So, I’m going to ask you the same question I ask all faculty when we first sit down. Can you please set up the case for us?

FR: So most people have heard of Heineken. It’s easier in some ways to write a case about beer than it is about, say, titanium dioxide even if the economics are equally interesting. And so I teach in the agribusiness seminar, which is an executive program that we run every January for about 200 executives from all over the world. We write new cases for that program every year and it had been some time since we wrote a beer case. We understand that brewing while it’s a marketing-driven business has a big complicated upstream supply chain with environmental impacts in the agricultural sector, in water, in the energy it takes to get the beer to the consumers and so on, and we thought it would be interesting to see how a big sophisticated company is trying to cope with those challenges.

BK: Can you just as setting things up describe a little bit about what the challenge is, the protagonist is in the case? The protagonist here is the CMO and sort of what his challenge is as he’s thinking about what he’s about to face.

FR: His fundamental challenge as he puts it in the case is how to make sustainability relevant and interesting to his consumers. So at one level we all understand that sustainability is important, that our social systems are constructed atop and embedded in natural ecosystems that need to function properly if the social systems are going to work. That’s an abstract formulation. It seems long-term, it seems distant, it seems difficult. How do you make that interesting to a 23-year-old kid walking into a nightclub?

BK: What are the ways in which Heineken’s thinking about sustainability as an organization?

FR: So when a company engages in a sustainability initiative, the first question has to be why, right? So if the 23-year-old walking into the nightclub doesn’t necessarily think first, second or even fifteenth about the sustainability of the beverage he or she is ordering, why should a big firm with lots of other things to worry about spend time on this particular aspect of its business? And the answer is going to depend on the business and on the geographic setting and on the demography of the customers and so on. But Heineken like many firms has found a lot of investments that it can make that pay environmental benefits that also have some other short-term tangible, strategic business rationale. For example, it’s made its trucks more efficient. So that means that’s good for the environment, fewer air pollution emissions in the cities in which the trucks are driving, but it also means it’s saving money on gasoline or diesel. It’s developed some very beautiful refrigerators that it’s willing to install in convenience stores and liquor stores all around the world that are substantially more energy efficient than the preceding generation of refrigerators. And, by the way, they’re bright green and they say Heineken on them in big letters and they’re the first thing that the consumer sees when he or she walks into the retail establishment. So there are lots of things that creative marketers can do to wed the sustainability messages with traditional fundamental business imperatives.

BK: And I was surprised to see in the case that sustainability sort of touches multiple departments at Heineken and it was funded out of the innovation budget.

FR: Yes. And that’s I think, well, to a more general point that without innovation we’re not going to solve our environmental problems. And we need to think hard and imaginatively about how we can do things differently. We can’t abandon the fundamental structures of capitalism. We’re not going to abolish private property rights. If we did it would be a catastrophe for the environment. But we do need to think creatively in our organizations about how we do things and how we can do them better.

BK: They faced some real challenges in certain parts of the world, but as they got into Africa, in particular, the case describes some of the challenges specific to operationalizing sustainability in Africa.

FR: Well, Africa has been a difficult place for many western firms to do business. At the same time Heineken recognizes in Africa one of the key markets of the future and the question is how it’s going to produce its beverages at a price that African consumers can afford. And the answer in the long term has to do with sustainable and local supply chains.

BK: One of the things that the CMO and his team are eager to be able to demonstrate is local sourcing. What are some of the challenges with them being able to do that in a credible way?

FR: Well, the problem that they’re trying to solve with local sourcing is itself extremely difficult, right? So right now Heineken has a beautiful state-of-the-art brewery in suburban Addis Ababa, which is supplied largely by malt grown in France, moved through the Mediterranean in the Suez Canal, put on trucks in Djibouti because Ethiopia is landlocked, and moved up to this brewery. In the long run that doesn’t make sense. In the short run it’s actually the cheapest malt supply. And that’s because Ethiopia lacks the infrastructure and its farmers lack the working capital and the risk management systems to grow barley to be malted in a cost-effective way. So Heineken needs to fix that problem. Ethiopians have been growing barley for thousands of years and they have done so in the least capital intensive manner you could imagine, right? So they saved the seed from year to year. They don’t buy anyone’s seeds, they just save part of the barley crop from last year and sow it again as farmers have done for millennia all over the world. They don’t use fertilizers, they don’t use herbicides, they don’t use pesticides, and maybe they get a couple of tons per hectare of barley and that makes them poor. So if someone can provide them with some improved seed, not very expensive, and a little bit of fertilizer, not very much, and maybe a liter of herbicide, really a very small amount, they can get four tons instead of two and that means that the entire environment and ecosystem gets transformed.

BK: Including the standard of living of those farmers.

FR: Absolutely, right.

BK: We’ve got a new generation of people coming of age, these are the millennials. They care about these kinds of causes. Heineken recognized that they have a coolness factor and they had leveraged that coolness factor before in other campaigns that they did. How does it factor into their thinking about sustainability?

FR: Well, they think, and I think they’re correct, that 20-year-old people throughout the world, not just in the rich world, take for granted that we need to change our attitudes toward the natural systems on which we rely, and they expect firms to behave properly and whether they will pay five cents extra for the beer is not really the question in a way. The question is whether they’ll want to consume the beer at all. And so Heineken, Heineken’s executives think they need to be ahead of that, and I think they’re right. Whether it will work for them in the short run is a difficult question. They are very, very good marketers but it’s a very, very difficult marketing problem.

BK: Absolutely. Forest Reinhardt, thank you for joining us today.

FR: Thank you very much.

BK: You can find the case, Heineken: Brewing a Better World, in the HBR case collection at hbr.org. I’m Brian Kenny and you’ve been listening to Cold Call, the official podcast of Harvard Business School.

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