Heineken N.V. (HEIA) Earnings Call Transcript & Summary

Welcome to our 2:00 p.m. panel with Heineken, which will be hosted by Simon Hales . Simon, you are now live. You can now commence. Thank you.

Brilliant. Thank you, Grant. Good afternoon, everybody, or good morning, depending on where you are joining us from, and welcome to this open meeting session with Heineken. I'm Simon Hales from Citi's beverage research team, and I'm delighted to say that joining us today to answer your questions is Laurence Debroux, Heineken's Group CFO. So welcome, Laurence.

Good afternoon, Simon, and good morning, good afternoon, everyone.

[Operator Instructions] So perhaps while we wait for your questions to come in, maybe I could start and get the ball rolling a little bit. I wonder if you could just talk a little bit about your sort of recent and current trading, Laurence. Obviously, the recent backdrop has become a little bit more challenging over the last couple of months as the second wave of restrictions have come into a number of your markets. I'm wondering what have you been doing differently as a business as we've entered that second round of lockdowns? And what are your plans to really make sure you get your fair share of the upcoming holiday season volumes?

Thank you, Simon, and yes. Indeed, if I start with Europe, after the first wave of the virus, we were so happy to see a strong improvement during Q3 with about 90% of on-trade, reopening and staying open over the summer, albeit that lower capacity, of course, with respect to the social distancing rules. But recently, as you know, we have seen European countries impose new restrictions to contain the second wave, the second wave of the virus in Europe. In October, we had 60% to 70% of the on-trade opened. But since November, we are -- now we're at less than 40% now. So of course, this has a negative impact on the business. It's less than in April because some countries like Spain or Italy, for instance, are having a more regional approach to the implementation of lockdowns, but it's still quite significant. It's also important to note that, of course, the outlets that are open today have less capacity than during the summer months because they were kind of like using the streets or [indiscernible] and then expanding the capacity outside, which really [ complicates ] today. So that's what we're seeing in Europe and an outcome for a reaction to the way we act. And outside of Europe, fortunately, at this stage, we're not facing any major national lockdown. We do see restriction in specific areas. For instance, I can give you an example. Malaysia, we experienced partial on pay closure. South Africa, we continue to have restrictions on trading hours. Mexico, there are restrictions by city or state and, of course, in the United States as new COVID cases have reached a record level. We also continue to see impacts in markets that are heavily reliant on international tourism. And here, especially in Southeast Asia, the Caribbean and, of course, Egypt, which is an important country for us. To answer your question on what is different this time, well, everyone came in much better prepared. So if I start by what's different for bar and restaurants for the owners, that means they have lower inventory level, they have takeaway solutions ready to be reactivated even from Michelin star restaurants. And as far as what we are doing differently, well, mainly understandably, we also were better prepared. So first and foremost, what we're doing is leveraging on everything we've learned and we've experienced and we've -- in the first lockdown. So working remote is nothing new anymore, so very efficiently doing that as everyone, unfortunately. And we make the most out of the digital tools, and then the teams are very quick and decisive in resource allocation to pacify the mitigation and still support the brand. So that might be one thing that is a bit different. We are definitely investing more than in the first wave. In H1, we took significant immediate mitigation action at the end of -- start at the end of Q1. And we reduced in H1 EUR 500 million of net cost. Many of these savings were coming in really naturally. Logically, for instance, if your on-trade closed, you don't do activation. You do less advertising. You do promotion. If you are unable to sell, you just stop a number of expenses. But when activity resumed in Q3, then marketing spend followed to maximize the recovery. And in Q4, a significant part of the on-trade is still open. So we are continuing with some weekly advertising and marketing and some activations. So same way, we have stopped all the non-committing CapEx -- noncommitted CapEx investment in the first phase. And then we started looking at things in a more granular way, and then we actually validated the restart of a number of things where we felt we really needed to be ready for the recovery moving forward. I'll give us an example. I'm investing in CapEx in Vietnam, which we decided to continue. And then we have continued to work on external business development. And of course, in the beginning, it was a bit of an hesitation will things happen or not. But in September, we've announced our entry in Peru. In October, we announced the acquisition of Strongbow in Australia. So all in all, I would say, we'll also become better in allocating resource and then continuing with some spend while heavily mitigating as well, of course, the losses that we naturally have. Did you have a question on fair share of holiday as well season moving into the end of the year?

Yes. [indiscernible]

At the end of your question, bare with that. Yes. And then well, it's funny because we've released a campaign that's called I think Holiday as Usual. I'm not sure what will be usual in this holiday for many of us in -- it actually looks good if you watch it on YouTube. Maybe -- yes, there is -- I think there is something about burning the turkeys that should be usual if at my place. But apart from that it's not. So more seriously, well it's definitely -- our teams have been super agile. And holiday plans, of course, vary across markets. You put different dynamics. If I give you an example in Vietnam, to move away a bit for the lockdowns that we have in Europe, Tiger has released a 6-cap multipack sold exclusively in e-commerce channels. So that is also showing the acceleration of some trends, which you can send to friends and families in Vietnam for beer. Beer is very important in the gifting season, and gifting is very important with the family in the season. And I would say one thing that all our countries have in common around the holiday season is the activation of the Heineken brand, which we've been activating the brand in very adaptive ways throughout the whole thing. I mean we kind of like to socialize responsibility as the on-trade closes, when they countries close and then get the back to bars when the on-trade reopens, and we are in continuing to do so. I would have really liked to count [indiscernible]. We had the whole activation ready for that. But on that one, we'll have to wait. I hope it answers. Sorry, a bit long.

No. That's brilliant. And that's really interesting answer. I mean you talked about sort of stepping back up sort of reinvestment as we've gone into the second half, and I'm sure you're still quite agile with where that is going in, given the stop-start in terms of restrictions in some markets. But you also mentioned things you've been doing around sort of e-commerce and sort of the -- the sort of the newly-expanding digital channels, if you like, that we've seen rapidly develop through COVID. You've obviously been making a lot of investment into your IT systems in recent years. Now are you happy with where you are now? Are you capable? Do you think of dealing with this new normal environment we find ourselves in from a digital standpoint, given the systems that you have? Or are there areas that you think require sort of more work and more investment, a step-up investment maybe over the next 2 to 3 years?

Maybe to say that one thing we've learned is to maximize the use of what we already have, because it is about the investment. I'll come back to that. It's also about the capabilities and really using everything we have to its max. And that, of course, I mean, teams have been super agile and then looking at instead of concentrating on where we have to do better and looking at how we can really make use of what's already in place. And we saw our B2C platform significantly accelerate, and they've served us very well. If Mexico, for instance, seeks to receive 10x the number of orders versus last year in the first half. And we have plenty of other examples like that. Now if you ask me if I'm happy to know that all these moves, what happened this year, only proves that we need to continue in this strategy of digital and technology that we have started to implement a few years ago. It is progress. And where I'm happy is that it hasn't posed or frozen this year. Look, and I'm going to start with the backbone, and then I'll move more to the consumer base. But 4 years ago, we started a program we called Base to standardize our ERP platforms and our processes in Asia Pacific, in Africa, Middle East and in the Caribbean. And I'm really particularly proud of the progress this year. We continued uninterrupted. We've managed 8 go-lives, so 8 countries, including large countries like Ethiopia, in total this year, everything done remotely. We would not have thought this would be possible. And early in 2021, we're going to implement the last 5 that are in the program, and there, we will be 29 countries completely moved to standard processes and ERP systems. And by the way, the way we've done it is becoming the norm on how we deploy the program in the future. So this is the example of a program that, by the way, was also pretty much on budget and where we are. We've started, and we're finished. And we know that all these big ERP programs, it's easier to open them than to close them. So that is closed successfully and really enabling the processes in the region. And we took -- we started with that one, and now we're moving to like the big element, which is the SAP-enabled Of course, we're starting with Europe. We started in 2018. It's the implementation of S/4HANA. We start with the finance capabilities. And here as well, we were able, just a couple of weeks ago, we've started 5 countries, 5 markets with our first set of capabilities. Everything remote. And that is going. And so that is something that we're really happy about, and I think we even got better at it, and we will take the lessons into the future years. That backbone is super important. We're not early in that backbone. We're a bit late. So the fact that it hasn't frozen, it hasn't stopped, and we even saw how we could accelerate it in future years is important. If I move closer to the customer, of course, over the past year, we've invested In the B2B, in our 70 markets deployed, and we have to continue. And the ones where its deployed have been used at max this year. There is a lot to do. Our IT infrastructure remains too fragmented. It leads to incremental cost every time we need to deploy new solution. We need to adapt to countries. So this is a long road, but at least we can build on some successes and the market, the operation are fully convinced that they need it. So if anything, that also brings that aligned commitment. One thing we did in early 2020, completely independent from COVID because that was planned and in the making before, is elevate the digital and technology function to the executive team and appoint Ronald den Elzen, who was a former Finance Director in a number of our countries and then a former GM. He's been GM in a number of our countries, including large countries to lead that. And I must say I am really proud of it. Having looked after technology for years and seen how you can't approach it only from the backbone. You can't approach it only from the front office. You need to actually -- in our case, you need to modernize and you need to bring it close to customers and consumers at the same time. I was absolutely convinced that the other way, the only way was to bring it to the executive team. So this is something I heavily sponsored. And when I see the work that we've been doing on defining the strategy this year and on continuing to deploy, I mean, the signs are super positive. So this is also something that we accelerated this year, and it helps us prioritize because that will be the name of the game in coming years. We can't invest less. We will actually invest more. We will free up resources from other places to invest there. But we need to prioritize what is really enabling the business and the strategy. So happy, no, never. But there is somehow some progress. And again, in a year where we could have seen the whole thing freeze, and we cannot afford to freeze because we're late, we saw it accelerate. So that's good.

Understood. I've got some questions coming in. So I'm going to try and collate those. But maybe before I get into that, just while we're thinking about sort of trading and me talking about obviously COVID and the impact, I wonder if I could ask you -- I know you haven't got a better crystal ball than the rest of us necessarily. But how are you thinking about how consumer behavior may evolve into the new normal? Or do you think we will see permanent changes next to the way sort of beverages and alcoholic beverages are consumed. I mean do you see any risk that maybe your gross margin structures for you or the industry may be permanently impaired as we recover from COVID? Or do you think we'll return to some form of a near pre-pandemic type of levels of operating?

Yes. I think it's worth saying it and we saying it's really, in many respects, the Pandemic has accelerated trends that were already [Audio Gap] be already a player. So what we've seen, first, of course, the consumer change buying pattern, the embrace e-commerce, that's a given. And that's where we saw our B2C e-commerce, the B2C platform accelerates. We also saw the other trend of health and wellness concerns that were top of the agenda. They were already becoming top of the agenda but that has really accelerated this year, also a link to the factors that make COVID worse. So that is something that, for me, easier to say. And then the most dramatic effect of the pandemic is really the massive channel dynamic, not only the switch from on-trade to off-trade in Europe but also if you look at the emerging markets, there's a switch in traditional and modern trade in a number of those markets. So many of the challenges the consumer underlying trends, I think, are here to stay. Many of the channel switch will revert. People are social beings. We saw after the first lockdown that in the summer, people were so happy. We're also happy to come back to the bars and restaurants. And obviously, the vaccine that has become widely available will help give consumer more confidence that it's not only a stop and go and stop and go and so on. On the other hand, some sub-channels will be affected for a longer period of time. Crowded nightlife, for instance. And unfortunately, well, it is highly likely that some of our customers will have to close their doors permanently. So there will be some impact. And the final picture will take time to be clear. For us, it does mean focusing on consumers and customers more than ever, be agile, that will -- and being a growth company bias towards premium. That is a completely concern and [indiscernible] offsets that is really what will carry us.

Got it. I mean, maybe building on from the way you're thinking about the midterm and agility in moving the business. I mean unsurprisingly, sort of questions here around the strategic review, which I know you highlighted the Q3 trading update was ongoing within the business. You've obviously already announced with those Q3 -- with that Q3 update 20% sort of cut to head office personnel coming in early 2021. But I'm sure, obviously, the process is about much more than just appropriate staffing levels within the business. I wonder if you could just share a bit more detail as to the scale and the depth of the strategic review, what the main motivations and driving principles are behind the processes that you're engaged at the moment.

So we'll discuss that more into the new year. So -- but definitely, we've come forward with that statement, and then we have explained that this starts with changes at the head office. And that's what these changes were. We are quite essentially a growth company. That's what we are organized for. That's what we are geared to be. And that is something that will remain. Now when you approach a strategy review, you want to stay true to really what is in your DNA, and this is to be a growth company and the local operation at the core of this growth algorithm that has been working. Now you need to make sure that you renew, that you fuel, that you actually stimulate your consumer and your customer obsession. You also need to make sure you're very alert on trends, and you constantly benchmark yourself. Now when you look around, you also see that there will be investments needed in coming years, more invested between our consumer and customer-centric programs, also our digitalization or digital and technology agenda, sustainability. And definitely, you need to free up and reallocate resources. And it's about resources. It's also about agility and simplicity. Everything that can be simple must be, because the world is complicated enough that we don't actually, with our own process, add complexity. We need to make things as end-to-end as seamless as possible in our integral process. So this is what Heineken does, this growth DNA and how to continue to actually sustain that superior growth. And then, of course, and we've actually stated in the Q3 press release to accelerate the return to profitable growth towards lower margins and the ability to generate operating leverage while investing in our priorities. If you look at -- we are really going through a review of our organization, to have them nimble, to have them agile, to have them simplified and also free up some resources. And the example of the head office, and we're going through that right now. First of all, we're completely keeping our commitment to no restructuring in 2020. That was an essential commitment to the people inside Heineken and working in it. So we are looking at redesigning into 2021. And if you look at head office and we benchmarked that against a large benchmark of international company, we are at average. So we would say not so bad. But we're pretty far from -- in terms of -- we're pretty far from best-in-class, and we want to be best-in-class. And by actually reducing personnel expenses by about 20%, that is getting us close to [ 20% investment ]. We don't want to just like do a rebasing and then start growing again. What we want is to rebase the way we work to avoid duplication, to really become more focused on strategic priorities and leverage also what we built in our shared service center in Krakow, in Poland to make sure that everything transactional or as much as possible, transactional activities are transferred there. We are also building the big hubs in terms of digital and technology over there. We are hoping to do that early next year. So there is a whole process going on. But the underlying is, yes, we have some resources to reinvest, but even more important, get the agility to move forward and have like a permanent agile and cost-driven mind setup.

Understood. So I mean, obviously, the original and overarching guiding principles within Heineken about a focus on superior top line growth versus perhaps, many other sort of global FMCG companies remains really at the core of the way the businesses perhaps continues to think. But there is -- it sounds like a degree of acknowledgment that maybe there's an opportunity to strike a better balance between that reinvestment to sustain top line growth and margin deliveries. Is that how I should read that, Laurence?

Well, the company is shaped for growth. You're absolutely right. The footprint, the premium brand portfolio and that you can expect to continue. And growth, when it's combined with the premium buyers, should lead to more profitability now. As you described it is absolutely fair to say that in the past 2 years, after a significant catch-up, our margins have been stagnating and even a bit slipping. And there is always a number of explanation, high growth from countries where the margin still needs to catch up. And we're really happy about that growth, and we will be working on the catching up. Rising input cost, incremental IT investment, that's all understandable, but nobody wants margin deteriorated for a long time. So we also need to address that. So -- and you do that by an increased focus on cost. We've been very clear. I think we've really -- we've employed those exact terms. So there is no denial that we need and we are gearing ourselves to doing that and also sharpen the allocation process, the resource allocation process because as you free up resources, you want to really reinvest a good part as well in your growth and your priorities. So that's what's driving us.

Understood. I mean I know you can't say much more about this, but just to give us some help in terms of the time line, I mean, obviously, you said you hope to update us early in 2021 on this. And is this something we should perhaps expect to hear more about with the full year results? Or is it something you might maybe prefer to do at a separate sort of capital markets type event?

We will be continuing that conversation in 2021, obviously -- hopefully not too late, Simon.

Okay. Okay. Maybe I can sort of move on a little bit towards talking a bit more about sort of the brand portfolio. And maybe talk a bit about some of the newer areas that you've been involved in. And right now perhaps the hard seltzer sort of category. A few questions that I have -- that I'll try to amalgamate here around that. I suppose, first and foremost, you've announced that you're launching your Pure Piraña in Mexico and New Zealand. Why are you targeting those markets? And what are the brands, I suppose, core USPs? And perhaps related to that, I know it's early days, but can you share any early insights from either customers or consumers with regards to those brands?

Yes. It's indeed early day, and that's the beauty of having so many markets is that you can actually try it in a few markets and then expand it if it works. And that's what we did with the Heineken 0.0. Or -- so if I look at Pure Piraña, I love the name, it's a light and refreshing new brand for the hard seltzer market. And that's all. It's created with carbonated pure mineral water, natural fruit flavors, and it contains 5% purified alcohol. From what I understand, we will possibly make it with 9 flavors, and that depends, of course, on the market. And then -- and it's big and friendly, low in carbs everything you hear about on seltzers. So low in sugar, low in calories. So in Mexico, we've launched grapefruit. We've launched peach, and I think we've launched red fruit flavors. But in New Zealand, we've launched 2 of them. I think it's raspberry and lime. I was checking this today. Yes, lime is my favorite. So I can only share at this moment that the first signs are positive. And for example, in Mexico, it's the first hard seltzer to enter nationwide in all channels. And in terms of numeric distribution, where it matters, we're now leading the rates. We are the only hard seltzer in [ Oxford ] the most important customer, of course, and half of the ready-to-drink category in Mexico. It also represents half of the RTD category in Mexico. So the first part of repurchase is looking good, and I'm choosing my words because it's the first round of repurchase. So it's quite too early to say. Now it is, of course, always global concentration, the operation being ready for it, the consumer in our view, being ready for it. So I'm not going to go with the detail of why Mexico and New Zealand, but we feel it's a good choice to really pet it out and sharpen a bit our marketing as well and our [indiscernible] over there and then see if we can accept it there. But very excited about the first results. It's an exciting step. We're going to explore the potential of this category. And again, with [indiscernible] you have a huge potential to grow if that's working.

Understood. I mean, obviously, a lot...

For the integration, you have to be careful about the first positive signs. So it's exciting, but it's still very early.

Understood. I mean obviously, there's obviously lots of sort of competition coming into the hard seltzer category in lots of markets around the world. I suppose not least, we're seeing, obviously, Coca Cola, and they're sort of getting in on the act with the launch of Topo Chico at the moment. Do you think that the long alcoholic drink segment is at risk of becoming even more competitive sort of going forward?

European markets, in particular, are extremely competitive with a high level of fragmentation in general, very demanding modern retailers, high number of new product introductions every year. So that's -- I mean, that's a fact of life. And in general, the variety of choice to consumers moving forward is fast and a good thing.

Yes. Maybe I can just sort of move on to Heineken 0.0 because obviously, that brand has continued to do very well through the pandemic. And overall, I think the first low in the alcohol category generally appears to be a bit of a beneficiary perhaps of COVID and the stay-at-home measures. What do you think has been driving those robust trading trends we've seen for the brand in 2020?

Yes. It's super interesting. And 69 markets now, I mean, this trend -- and we talk about low and no, but if you look really, the 0 alcohol has gained momentum. It's a very interesting category. And the main consumer trends that sit behind is moderation but also health and wellness, and both things have gained momentum during the pandemic. We continue to see what we have seen, that is the cannibalization of the beer volume has been relatively low. It's winning in traditional softdrinks, water occasions, and it's a lot of incremental volume for the beer category, which is always good. So that is something that we see continuing. And again, once you pass the launching movements, I designed the 0.0 volumes fully margin accretive due to the exciting [indiscernible] more than offsetting the slightly higher reduction cost. So it does require some initial investment but it's beautiful from the consumer trend and also from a margin cushion point of view moving forward. So if you look at the largest 0.0 market, we've already achieved really some scale, Russia, U.K., the Netherlands. We can already see a healthy margin acceleration. And I would say one of our most recent large launches in the U.S. where there, as well, I refrain very as long as possible to claim success because you need to wait for the reorders and the reorders. But right now it's going to be our largest 0.0 market by the end of this year. So -- and we continue to invest quite heavily there. So 0.0, it's Heineken, but in general, we see 0.0 version of a number of our brands picking up very nicely.

Understood. And just picking up on your comments there about, obviously, the profitability and the margin accretion that you're seeing from the brand. Are you -- correct me if I'm wrong, if I misinterpreted your comments there. But in those early launch markets where you initially rolled out Heineken 0.0, is it actually margin accretive now? Or is it actually -- or is profitability and margins just increasing? So I'm just trying to define accretion versus a build in profitability, if you like.

Well, if you look at those markets that I gave you, so Russia, U.K., the Netherlands, like the larger Heineken Georgia market, at this stage, it is healthy [ margins ]. Of course, at the beginning of the launch, overinvestments, but it is [ margin accretive ].

Perfect. I've got quite a few questions to come too shortly on specific markets. But just maybe while we're just sort of staying a little bit more higher level at the group level. Just a couple of things just briefly to touch on. One question here is around the input cost environment as we look into 2021. Are there any particular sort of pressure points on doormats that are concerning you and also, I suppose, in broader question around transactional FX sort of headwinds?

Yes. And then it's true to say that we've seen commodities move from a decline to a steep increase for a number of them over the past few months. And it's actually driven by a big demand from China on nearly all commodities that we are looking at and that are important for us. Barley, especially, has been impacted because China has imposed taxes on the Australian barley. And that means that they have been looking more at other origins like Europe, Argentina or Canada. And that's really resulted in significant higher prices. And on top of this 22 European barley crop has not in great, particularly in France where we source -- where we have quite a bit of the Barley coming from France. So that's for barley. Even aluminum, that has been going down for very obvious reasons, it's been affected by speculation. And also good to mention that there is in the world today a capacity constraint or canned production, which can also have inflationary pressure on our prices, on prices as we secure the supply for the next years. Well, so we're not expecting the volume mix per channel to return to 2019 level yet. And still, we expect some -- we expect that this year on gross margin, there will be pressure from commodities moving on into next year. So -- and then you mentioned transactional. Of course, that is a challenge, mostly on Mexican Phase 1, the Brazilian rias. So basically, mix -- the mix pricing, mix and cost restructure will continue to be super essential and mitigate for that. We're not expecting a particularly easy year in 2021 on that front, either on commodities nor on transactional FX. So we are gearing ourselves to bring mitigation.

Perfect. And then just one, which I suppose is around capital allocation sort of really. And specifically, someone asking about the FEMSA has obviously been acquiring assets itself in the U.S. over the last sort of 12 months, and the tax rules in relation to its dividend income from their equity stake in Heineken has clearly changed this year. How does Heineken think about the possibility if there was a further equity placing by FEMSA? Would you be looking to deploy the balance sheet to buy back some of that potential placing?

So FEMSA, of course, is a highly valued shareholder and a highly valued member of -- members of our Supervisory Board at Heineken. And we -- the relationship as it is continues to be a very important and an excellent relationship at different level in the organization. So of course, we are fully aware of the tax environment in Mexico. And of course, it's naturally understood that FEMSA as any wise investor would factor a number of things in the decision that they're making. I would say, we tend to concentrate on what we can influence. And definitely continuing the hard work to be the best company possible is what we can do best to make sure that investors have the best reason to stay invested in our shares. Now on the use of the balance sheet, which is what's underlying in your question, you know that we prefer to invest directly in operation than buying back our shares, and that means -- that always continues to be true. This being said, in terms of solidity, I mean, our balance sheet is strong. We have good liquidity. We have undrawn revolving credit facility. So it's not a limitation of that's. It is a preference in terms of what we invest in.

Perfect. Maybe I can sort of move on to a few individual sort of market questions. And maybe -- and then sort of start of in Brazil where there's quite a lot of interest given what we've seen in terms of performance in recent periods. You've clearly seen very strong volume growth as the wider industry. Can you just talk a little bit about your dynamics there. Your pricing strategy, obviously, you priced early in Q3. But -- and I think your pricing again at the end of December. There's some commentary around what you're doing there as well as your relative share performance given the slightly lower volume growth you saw in the third quarter as versus your biggest competitor.

I want to say we continue to be extremely, extremely proud of the performance of the businesses in Brazil. It's been really an amazing growth that transformation that this team is delivering. And particularly, the growth of about 50% of Brand Heineken on top of already a very mighty base is quite impressive. The focus in Brazil for us remains on rebalancing our portfolio over time, building the premium and mainstream position with Heineken, Eisenmann, Devassa Amstel and, at the same time, managing the economy brands who are naturally declining to have the very kind of like control decline and then twisting the portfolio over time really in a very sensible way. And the brands have the momentum. So what we did this year, which is quite revision on the market leader, is lead the market was a price increase in September. So in the economy brand, what we took was twice inflation. And despite that, the volume grew slightly in the third quarter, so breaking a trend of close to 2 years of double-digit declines every quarter. So that's really a testament for me to how strong the third quarter of our operation was within Brazil. We are putting through another price increase in Brazil this month as the growth of Heineken has, by far, has far exceeded our expectations. And our new contract growth or capacity will come online only in Q2 of 2021. So this is what we do there.

Got it. I wonder if you could just sort of talk about the strength of -- the drivers, the strength of the market itself. Obviously, things like the corona voucher, support payments, have undoubtedly provided some broad support to lots of sort of consumer products through 2020. I mean do you have a feel as to how much of a benefit do you think that may have been? I suppose more importantly, what's the risk when those payments fall away? Theoretically, at least as things stand at the end of this year that we start to see some slowdown in volume growth also potential impact on sort of consumers' willingness to trade up in the market.

Yes. So as you know, Simon, it's a bit early -- it's early to say that what will happen after the fallout of the -- after the end of the corona voucher support. But -- and we believe anyway, there will be a lingering economic impact globally of what's happening now, and not just in Brazil. Historically, volume growth has been closely correlated to GDP and particularly the mainstream and value segment. So we can't assume that there will be no impact. If I look more specifically at Brazil where we've seen 5 years of low declining economic growth and throughout those years, our portfolio has performed very well with the Heineken brand, of course, leading it by growing double digit every year. So that is, I would say, quite encouraging.

And just looking a little bit further ahead in Brazil. When you talk about the potential transition we may see in 2022 to a fully controlled distribution network as you'll be able to sort of terminate those bottle of contracts. If you decide to move down that route, what further areas do you need to sort of invest in ahead of those potential changes? Is that something we need to be looking out for in 2021?

Well, as you can imagine, we are very busy preparing detailed plans, related assessments and then including some investments that are necessary. But at this moment, I prefer to not comment. We will be sharing in due course information, but we're very busy on that.

Fair enough. Understood.

Sorry, I understand how frustrating my answer must be.

No. I completely understand. I wonder if maybe we could just sort of move slightly further north in the Americas and just talk a little bit about Mexico sort of then. We're obviously 18 months now into the gradual fall away of the exclusivity in the OXXO store network. How is your share been evolving in those stores where exclusivity has been lost? How do we think about the impact over the next sort of 12 to 18 months as maybe that exclusivity starts to roll off in areas where you've tend to over-index in terms of share in the market?

So the reassuring thing is that under the renewed agreement, OXXO, for us, has continued to perform in line with what we had expected when we discussed this agreement. So of course, the share in mixed stores reduces. But as OXXO actually grows, we capture share from other channels where we previously underindexed. So that trend is happening. At the start of July this year, 4 sales of stores have been incorporated as we incorporated into the new agreement. So still mainly in the center but starting to come to the Northeast. And so the loss of exclusivity to represents certainly a drag in our volumes, but that is less of a drag on our profits due to the relaxing lower profitability of this channel as been discussed in the past. And at the same time, we've continued to ramp up our own retail, 6 offerings, all 6. Today, we have more than 13,000 stores over the country, and they do serve as a backbone of our B2C platform in Mexico. So that's also important. We actually really leverage that network to deliver on the B2C. And that's really served us well during the pandemic. So as of today, waves continue to happen with, I would say, no significant surprises and as we had anticipated.

Great. I'm going to jump across to Asia now, if I can, sort of we have quite a few different markets that people would like me to sort of touch on with you if possible. And I suppose Vietnam, in particular. It's been a little bit more challenging of late. It seems to be 'cause looks like it's got a bit of share back. I wonder if you could just talk a little bit more about the operating environment you're seeing on the ground there, how the business is evolving into the year-end and the outlook for 2021? And I suppose perhaps more interesting for me, what do you think is the right sustainable level of volume growth rates in that market in the medium term?

So it's true to say that in Vietnam, we have been kind of defying gravity for most of the year. It's been quite a challenging market throughout -- in terms of markets throughout 2020. So of course, the drink driving low in January and then before we could actually really assess any specific effect that the COVID breakout came impacted since January as more stores in the North closed and then the second wave of COVID resulting in lockdowns in Q3 in the center, which are now lifted. Most recently, Vietnam, has been severely hit by the [indiscernible] season this year. And on top of that, we are likely to see any benefit from that in Q4, as it is later in January in 2021. And so that's kind of like combined a lot of, I would say, of headwinds. So in that context, we have continued [indiscernible]. So we are the market leader in that market. By the way, we have been for 12 months at least, but we waited to claim it as we knew that the end of 2019 was a bit flattered by a number of challenges that our main competitor had so -- that they have now, what we understand, largely fixed. So what we've continued to build momentum around newly launched brands, Heineken Silver, Heineken 0.0, Beer Viet, which is a new national mainstream brand that we launched in Q1. And the expansion strategy, which we described a few years ago is mainstream offerings and into rural areas out of the big cities continues to give, to reap rewards and to really solidify our presence in regions where previously we were underindexed or even had a very, very limited presence. Well, the sustainable level of volume growth in the market over the medium term, that is, of course, an excellent question. It remains. If you look at all underlying fundamentals, it remains one of the most attractive beer market globally. The fundamentals are really good. The market grew in high single digits, consumption per capita doubled and 1 million new consumers enter the category every year over the past decade. And if we look going forward, well, demographics will continue to help. We expect urbanization to continue to and the growing middle class to be the main driver of the increase at this stage. And consumption per capita will continue to increase, we believe, as the category sources from the illicit trade, which still exists to a significant level in Vietnam from what we are -- it's difficult to give numbers of what numbers, but it is still significant in Vietnam. So there is this pocket that's transferring to the official market benefit us and will continue for us in the years to come.

You mentioned Heineken Silver there. And I wonder if you could just maybe talk about Heineken Silver maybe in relation to China, where clearly, the Q2 launch looks like it's gone sort of very well. Just talk about the consumption occasion that's targeting, I think it's much more targeted around the meal occasion. In China, who's it sourcing share from? And I suppose that would just lead into a broader sort of question around how you're doing in China with the whole brand portfolio now.

And I'll try to give you some color here. I mean, bearing in mind that CRB is also listed organizations. So on detail, I recommend that to get that from them. They have a very helpful and responsive IR team. So -- but staying on what I can tell you. First, we're very pleased with the relationship with CRB, how it is evolving. And we are especially pleased with the way that they are executing on building on the premium capabilities, which was really the plan. They've made great strides in building the route to market, the premium focused route to market. And our local team in China have been working alongside CRB in building the capabilities, are very complementary on how the CRB organization has been open to taking, I would say, cross learnings and conversations to really take on board what we know, which is how to build the international premium brands and can bring to them. So coming to your question on Heineken Silver, we are very encouraged by the early performance. It was launched in April 2020, and it's priced at the same price point as the original and due to the lower bitterness, it appeals to a consumer more in an everyday type of consumption where original was sometimes a bit limited and skewed towards more, I would say, gifted occasions. China, I've said it in previous conversation, and we're really convinced about that can become the world's largest market for the Heineken brand. Currently, it's #7, #8, according to global data. So clearly, a very exciting prospect. And we are very, very happy about the way this is being executed. Well, you might have noticed that we have also announced recently the launch of Amstel. So it's a less bitter variant of Amstel with a 4% ABV. It will be priced as a premium brand. So that's -- we're very much looking forward to that as well. And that shows you as well that we have the confidence given what we've seen on Heineken to build on the relationship and to bring more brands of the portfolio in that.

Perfect. Well, look, we're coming up on time. But maybe just one final one, maybe from me on. If you look at in the longer term to 3, 5, 10 [Audio Gap] What category or growth opportunity or market perhaps are you most excited about internally within the business that perhaps is -- doesn't get its fair share of attention when you talk to investors and analysts? What's the[indiscernible]

It's difficult to talk about what we're underestimating in such a difficult year, but you're right. We have to be positive and look forward. So I'm really super excited about the work we're doing in Brazil. It takes time. It takes time also to ramp up the profitability. It takes doing the right thing, not also sacrificing the long term to the short term. I think we're doing it right. I mean, this portfolio is really good, and I'm really very excited about the potential there. In [indiscernible], a country like Ethiopia, we continue to be really, really excited about our process in the country. It's been a difficult country this year with the excise tax tripling at the beginning of the year. It's not been easy year, but it's really, really, really great potential. In South Africa as well, we've -- I think we've taken back control of our operations. We have demonstrated that we can really cover a larger scope and our premium portfolio has been doing very well. So I think there is some potential over there. And then Europe has not said it. It's last 2 positive words. There is still a lot to do in Europe, continuing to premiumize becoming also -- becoming more nimble and agile in the organization that will also put new dynamics into the Europe region. So I'm really positive about the number there as well. And then we've seen a premium very successful in a number of countries and new proposal work, innovation work very well in Europe with 0.0 developing, starting there with brand like Ichnusa coming in Italy from the Sardinia Island into the continent and then really bringing a lot of growth in the past 2 years. So yes, lots of places to be really excited about. And I think you know as well. So I'm not sure you're underestimating any of those, but it's good to reiterate the fact that, yes, we are all in this difficult tunnel right now, but it's -- yes. And then I would -- a country that was really difficult in terms of growth in the past 4, 5 years, Nigeria. Nigeria is back to solid, more than solid growth. So doesn't mean the country is without challenges. But it's good to see that with great management, great brands, I should say, great brands, great management, but I love to talk about [indiscernible] one of the distinctive strength of Heineken, then you can turn around situation, and you can get back to growth. So that's -- we're super happy about that plan as well. So perspective, nice perspective there as well.

Well, Laurence, that's fantastic. Nice to sort of hopefully finish on a positive upbeat longer-term notes. So I think we've slightly overrun our time. So I just going to say thank you ever so much for joining as well as taking time out of your day to be with us and to thank everybody online, virtually and for sending questions and being part of the day today. Thank you.

Thank you so much, and all the best for the remaining weeks of this year and into the new year. Talk to you soon. Bye, Simon.

Thank you. Thanks a lot. Bye-bye.

Bye-bye.