International -- Intl' Business: MEXICO
CAN CORONA BEER HANG ON TO ITS CROWN? (int'l edition)
Jacques Chirac has no idea just how happy he has made Valentn Diez. A recent issue of Paris-Match shows the new French President at lunch in Paris--with a bottle of Corona beer on the table. "We didn't pay for that photo," jokes Diez, senior vice-president of Grupo Modelo, which brews Corona, the best-selling Mexican beer. For Modelo, the cheap peso has helped exports rise 55% this year.
In contrast to its frothy export business, Modelo faces a fierce battle in the home market, which accounted for 90% of the brewer's $1.8 billion in 1994 revenues. Debt-free Modelo controls 54% of Mexico's market (table), the world's eighth largest. Its only domestic competitor, Fomento Econmico Mexicano (Femsa), wants to change that. Emerging from a decade of debt, the restructured Femsa has a single goal: "Everything we're doing is to improve market share," says Femsa CEO Jose Antonio Fernndez Carbajal.
PUSH FROM BUSCH. In Mexico's beer wars, both of the domestic brewers have powerful allies. Femsa has ties to Canada's John Labatt Ltd., which bought a 22% stake in the beer division for $510 million last year. Labatt's foreign ventures may get an even bigger push, now that it is being acquired by Belgium's globally minded Interbrew. Modelo, meanwhile, is able to draw on the marketing and logistical knowhow of Anheuser-Busch Cos., which spent $477 million to acquire 17.7% of the Mexican brewer in 1993. A 21/2-year option to increase that stake opens next month. Busch executives say they plan to expand their holding but won't say by how much.
As the battle shifts to new niches and regional strengths, Femsa has a head start. Unlike Modelo, which has relied heavily on Corona, Femsa has three strong brands and a mix of niche beers like the upscale Dos Equis. It's betting it can use those to knock points off Corona's 28% market share. Corona accounts for more than half of Modelo's sales--and the company has no backup if Corona falters.
Femsa's first shot at Corona and its trademark clear bottle came earlier this year in Mexico City, where Femsa repackaged its own light beer, Sol, in a clear bottle. Femsa says Sol, which it had produced mainly for export to Europe, went from a minuscule share of sales to almost 5% in the first quarter and predicts it will end the year at about 8%.
Femsa has also moved more quickly to look for market niches. It introduced Mexico's first low-calorie beer, Tecate Light, in 1993, a year before Modelo. Although three-quarters of all beer is sold in returnable bottles, Femsa leads in canned beer, tapping into the recent growth in supermarkets. Last year's beer-division sales amounted to $1.3 billion, and analysts say Femsa has begun to stem the market-share loss: Its brands tumbled from 55% of the market 10 years ago to 46% last year.
Mexico's economic crisis has put a dent in Femsa's plans. The recession caused by the peso's collapse is expected to crimp domestic beer sales by 5% or 6%. Sales of canned beer are falling as penny-pinching consumers look for familiar brands at the cheapest price. Moreover, Femsa may face delays in its plans while Interbrew takes a new look at the North American strategy. Still, 1 million young potential beer drinkers enter the Mexican market each year, and brewers expect growth rates of about 5% to resume by 1997.
"LIKE CHICKEN SOUP." Anheuser-Busch is helping Modelo respond to Femsa's moves. The St. Louis brewer is advising Modelo on the construction of a brewery that will be Latin America's largest. Anheuser-Busch is also helping out with Modelo's national distribution system, including computerization. Expanding brands such as Budweiser is not on the table, however. "We don't like U.S. beer," explains Francisco Rivero, an analyst at Valores Finamex, a Mexico City brokerage. "It tastes like chicken soup."
Diez sees little need to change what has worked for Modelo. "In the States, they have low-priced beers and new brands and new beers and new types. We don't need that," he says. "We're awake every day." The company that taught the world how to drink Corona with a wedge of lime won't let the home market get away so easily. By Elisabeth Malkin in Mexico City