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AB InBev, Heineken’s Exclusive Beer Deals Capped by Mexico

The Mexican units of Anheuser Busch InBev NV (ABI) and Heineken NV (HEIA) must cap exclusive distribution deals with small retailers selling their beer at 20 percent or pay fines, the nation’s antitrust regulator said.

The brewers, which according to Barclays Plc control 98 percent of the Mexican beer market, reached an agreement with the nation’s Federal Competition Commission after a three-year probe prompted by SABMiller Plc, according to a statement today. The deal excludes large convenience-store chains such as Oxxo.

The pact’s focus on mom-and-pop stores, restaurants and small grocery outlets means the increase in competition will be limited, said Melissa Earlam, an analyst at UBS AG. Mexico is coveted by U.S. and European beermakers facing stagnant sales at home. AB InBev, based in Leuven, Belgium, accelerated its push in the country when it bought full control of Grupo Modelo SAB, the maker of Corona, last month for $20.1 billion.

“If you look at who’s going to make the most of the market becoming more democratic, it’ll be SABMiller,” which could push import brands including Coors Light and Miller Lite in the country, Earlam said. “However, we would expect a slow increase in competition rather than anything dramatic.”

AB InBev, the world’s largest brewer, and Heineken, the third-largest, will be required to limit exclusivity deals to 25 percent of their points of sale in mom-and-pop grocery stores and restaurants, falling to 20 percent by 2018, the competition commission said. Mexican craft beers must be allowed in all restaurants and bars, the agency said.

SABMiller Response

While the regulator’s acknowledgment that exclusive contracts restrict consumer choice is “a positive and important step,” the agreements don’t go far enough to open the beer market, SABMiller (SAB) said in an emailed statement. A lack of competition will continue “in large measure,” the world’s second-largest brewer said.

“This agreement shows that both brewers acknowledge that their exclusivity contracts constitute anti-competitive practices with a negative effect on consumers and competitors,” Armando Valenzuela, the head of SABMiller in Mexico, said in the statement. “Unfortunately, the competition commission considered it appropriate to keep allowing the existence of exclusivities and, surprisingly, allowed discrimination against Miller’s brands to be maintained.”

The brewer said it was analyzing the agency’s decision before determining its next step.

Potential Fines

Small grocery stores along with bars and restaurants represent about 60 percent of beer market volume, Barclays estimates, opening a potential avenue for SABMiller as it seeks a toehold in Mexico, the world’s sixth-largest beer market. Violating the agreements could lead to fines of as much as 8 percent of domestic sales for AB InBev and Heineken, the competition commission said.

Heineken’s agreement with the commission doesn’t include contracts with Oxxo stores, affiliates, hotel chains or sponsored events, the Amsterdam-based company said in a separate statement today. Oxxo, owned by Fomento Economico Mexicano SAB (FEMSAUBD) known as Femsa, had more than 10,700 stores in Mexico as of March 31. Heineken acquired Femsa’s Mexican beer operations in 2010 in a stock deal valued at 5.3 billion euros ($6.91 billion.)

Convenience Stores

The chain represents about 15 percent of Heineken’s volume in the country, Anthony Bucalo, an analyst at Banco Santander SA, has estimated.

The agreements also exclude stores owned by Grupo Modelo, such as Extra and Modelorama, according to Marcela Cristo, a company spokeswoman. The brewer has about 5,500 company-owned businesses that sell its brands, along with 980 additional convenience stores, according to its annual report. Existing contracts with outside retailers will be respected until they expire, according to a statement by Modelo.

AB InBev’s shares rose 1 percent to 71.37 euros in Brussels. Heineken’s shares increased 0.9 percent to 52.18 euros in Amsterdam trading.

To contact the reporters on this story: Brendan Case in Mexico City at bcase4@bloomberg.net; Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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