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Heineken Sees Beer Rebound in Mexico With Economy in 2014

Heineken NV (HEIA), the world’s third-biggest brewer, says the Mexican beer market will bounce back in 2014 from this year’s declines as economic growth accelerates.

Beer industry volume will post a “low single digits” percentage gain next year and Heineken’s growth will outpace the market’s, Marc Busain, the head of the company’s Mexico operations, said in an interview yesterday.

Heineken and Anheuser-Busch InBev NV (ABI) are battling flagging volumes in Mexico as the economy slowed this year and hurricanes crimped spending in September. Economic growth in the Latin American nation, Heineken’s largest market, is projected to more than double next year, boosting demand for beer.

“The industry, after showing very healthy growth in 2012, is declining this year,” Busain said after the first day of a Heineken investor conference in Mexico City yesterday. “We expect it to catch up again next year. We plan to grow above the industry.”

Heineken and AB InBev, which completed its $20.1 billion acquisition of the nation’s largest brewer this year, control a combined 99 percent of the Mexican beer market, according to Heineken. The Dutch company bought Fomento Economico Mexicano SAB (FEMSAUBD)’s beer unit in 2010 in an all-stock deal valued at the time at about $7 billion.

Heineken, based in Amsterdam, has avoided a revenue decline in Mexico this year thanks to price increases and improved sales of higher-end brews such as its namesake brand, Busain said. He declined to provide an estimate of how much the brewer’s Mexican sales and volumes would grow next year.

Tecate, Dos Equis

The company reported third-quarter beer volume that fell 2 percent in the Americas, and said Mexican volume declined “slightly.” AB InBev said its Mexico volume fell 2.3 percent in the third quarter.

“We did not witness the expected pickup in economic growth in the third quarter,” Heineken Chief Financial Officer Rene Hooft Graafland said on a call with analysts in October.

Heineken is relying on Mexican brands such as Tecate, Dos Equis, Indio and Sol to boost its market share from the current 41 percent, Busain said. AB InBev, which bought Corona brewer Grupo Modelo SAB, has about 58 percent, he said. Mexico is Heineken’s largest market, including domestic sales and exports, Busain said.

Premium Beer

Heineken is also boosting premium beer sales with its namesake brand, he said. The international premium segment accounts for only about 3 percent of the Latin American and Caribbean beer markets, the lowest among the world’s major regions, according to Stefan Orlowski, president of Heineken’s Americas business.

“If you look at all the regions around the world, whether you look at Asia-Pacific or Western Europe or Africa, it is the lowest penetration,” Orlowski said in the interview. “That’s one of the value drivers for us in Mexico and the broader region.”

The segment may post a compound annual growth rate of 17.3 percent in the 2012 through 2017 period in Latin America and the Caribbean, the fastest in the world, he said.

This year’s ruling by Mexico’s antitrust regulator to limit exclusive distribution deals by Heineken and Leuven, Belgium-based AB InBev will have “‘no negative impact on our volumes,’’ Busain said. According to the July decision, the brewers must cap exclusivity agreements with small retailers, such as restaurants and mom-and-pop convenience stores.

That could allow other brewers like London-based SABMiller Plc (SAB) to elbow into the market, analysts at the time said. In addition, Mexican craft beers must be allowed in all restaurants and bars.

‘‘We believe that supporting the craft brewers will only help the category to grow,’’ Busain said.

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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