Heineken: down in one? - FT.com If only alcohol were the answer to Heineken's problems. On Wednesday the Dutch brewer warned that its profits would fall slightly this year; its previous guidance was for them to be flat. What happened to the emerging markets growth that was supposed to offset a lack of thirst for beer in western Europe? The 1 per cent revenue growth Heineken achieved in its third quarter was well below expectations from a company that derives 60 per cent of its earnings in fast-growing regions. Like-for-like beer volume in central and eastern Europe suffered the most in the third quarter, falling 8 per cent from a year earlier. Restrictions on beer sales in Russia did not help towards the double-digit decline there. Nor did tough conditions in Greece and Romania. Performance was also weak in Mexico and Nigeria, Heineken's two largest markets by revenues. Ironically, western Europe was the only region in which volumes grew, albeit by just 2 per cent. The problem, however, is how Heineken is achieving that growth. The company has been pushing its premium drinks (such as Radler, a lemon-flavoured concoction), but revenue growth in western Europe was lower than volume growth. That suggests Heineken has been cutting prices for its mainstream products. The risk is that this will wipe out any margin improvement it expects from cost cuts. What is more, if beer drinking in Europe is in structural decline, as industry experts argue, the last thing the brewers need is a price race to the bottom. After the 5 per cent share price fall on Wednesday, Heineken trades on 15 times next year's earnings. That is a one-fifth discount to SABMiller and AB InBev. Yet both peers are doing better in emerging markets and make higher operating margins. Last year's acquisition of Asia Pacific Breweries should help Heineken in the former, but the latter is a bigger cause for concern. The Dutch brewer's investors will need more proof that its strategy is the right one before downing more of its shares.