A Heady Time for Mexican Brewers : Their Beers Gain in World Markets
Swathed in corrugated steel and isolated in the dusty Baja California hills, the Tecate brewery would seem an unlikely hero in the Mexican brewing industry’s frontal assault on the worldwide beer market.
But the sprawling Tecate plant now produces the leading export beer for Grupo Femsa, a Monterrey-based conglomerate that also owns the Sol, Dos Equis and Carta Blanca brands. And the brewery, which towers above its namesake hometown in scrub country southeast of San Diego, is working overtime to meet the 30% rise this year in export sales of its frothy brew.
Beer drinkers in Brazil will buy 2 million cases of Tecate this year--up from zero a year ago. In Colombia, Tecate is now the best-selling import, with 200,000 cases sold, compared to zero in 1993. Other Femsa beers are doing similarly well: Sol will sell close to 1 million cases in Britain this year, up from a paltry 10,000 in 1993.
Tecate’s sales in the United States, its biggest market, are rising too. Although Femsa does not break out precise U.S. figures, overall beer imports from Mexico are expected to grow at by least 30% this year, said Kristi King Etchberger, a Latin American beverage analyst with D.A. Campbell Co. in Los Angeles.
What started Mexico’s beer export boom? A big factor in this year’s surge is the peso devaluation, which has generally made Mexican products cheaper in foreign markets. In the case of beer, though, Mexican brewers have used their new advantage to spend more on marketing--offering incentives to distributors, for example--rather than to cut prices, analysts say.
But the Mexican brewing industry has also benefited from mega-investments by foreign brewing giants and from the growing worldwide preference for the high-quality premium beers Mexico has become known for.
“I’m convinced that with or without the devaluation, you would have seen Mexican beer exports rise very nicely this year,” said Carlos Laboy, emerging markets beverage analyst at Bear, Stearns & Co.
Beer exports and consumer trends are notoriously faddish and subject to changing economics and marketing pitches, though. In fact, Tecate’s rival Corona, which is also enjoying double-digit export growth this year, enjoyed a phenomenal boom in the United States in the late 1980s only to fall back to earth by 1990 when the U.S. recession dampened beer-drinkers’ enthusiasm.
“This is the second time around for Corona,” said Ben S. Steinman, president of Beer Marketer’s Insights, a trade newsletter based in West Nyack, N.Y. “I’ve never seen a brand get really hot, tail off and then come roaring back like this.”
But as Scott Wilkins, an investment analyst with Baring Securities in Mexico City, put it: “Beer is an export success story for Mexico, and there have been very few, especially in exports of consumer goods.”
Steinman said the growth is “partially an unexplained phenomenon; secondly, [Mexican brands] are hot with Hispanic consumers, and lastly, the pricing is attractive.” Mexican beer typically lists for around $5 a six-pack, or about $1.20 to $1.40 more than premium U.S. brands but more than $1 less than premium European imports, he said.
In any case, Mexico was the third-leading exporter of beer to the United States in the first six months of 1995, and it is gaining rapidly on Canada and the Netherlands, which were ranked first and second.
But the United States is only part of the Mexican brewing industry’s globalization strategy, says Tecate plant manager Luis Jesus Aguilar. With growing free trade sentiment worldwide and the advent of the North American Free Trade Agreement, Mexican brewers must compete on a level playing field on the basis of quality and price.
“We’ve been preparing ourselves for three years to compete on the world market,” Aguilar said. “NAFTA gave us the impulse because Mexico was a closed market before and we knew we wouldn’t have it to ourselves after NAFTA did away with the [tariffs].”
The rise in exports is critical for Mexican brewers because domestic consumption is as flat as a day-old glass of beer. Despite export growth, Mexican beer sales overall will grow less than 2% this year. The peso crisis that began in December has sent beer prices within Mexico up an average 20%. Consumers, racked by recession, are not in a position to party these days.
The leading Mexican export is still Corona, the flagship brand of Femsa’s rival, the Grupo Modelo conglomerate of Mexico City, which also makes the Modelo, Pacifico and Victoria brands. Corona accounts for a stunning 71% of all Mexican exports, and Grupo Modelo brands control about 55% of the Mexican domestic market as well.
Whereas Corona has been a popular export for 20 years, Femsa’s brands have been latecomers to the export market. Now Tecate, founded here by the Aldrete family in 1945 and sold in 1953 to Cerveceria Cuauhtemoc Moctezuma, Femsa’s brewing unit, is riding point on Femsa’s drive to increase sales outside Mexico.
Femsa’s expansion efforts received a major boost last year with a $510-million investment by Labatt Brewing of Canada, giving it a 22% stake in Femsa. (Labatt has since been bought by Interbrew of Belgium, continuing the worldwide consolidation in the beer business.)
After the Labatt investment, the two companies combined their U.S. importing operations. As a result, Tecate and other Femsa beers have access to markets where previously it was unknown, particularly in the Northeastern United States. By the same token, Labatt is leveraging Tecate’s longstanding presence in the U.S. Southwest.
But Tecate has made the market penetration in Europe and Asia on its own, said Tecate’s export director, Victor Padilla.
“In 1986 we were sold in 10 countries, and in 1995 we are sold in 60 countries. We will be in 100 countries by the year 2000,” Padilla said. Among the new markets targeted are Japan, Hong Kong, Singapore, China and Australia. The United States now represents 60% of all Femsa exports, down from 87% in 1986, he added.
The association with Labatt has also speeded a modernization program at the Tecate plant that will boost brewing capacity to 2 million cases per month by 1996, up 25% from current levels. And that’s being done with fewer plant employees, who now number 420, down from 750 in 1991, Aguilar said.
Grupo Modelo was similarly helped by Anheuser-Busch’s $477-million purchase of an 18% stake in 1993. Modelo is building a mega-brewery in Zacatecas in north-central Mexico that will improve its lead as Mexico’s low-cost beer producer, boosting export production of Corona and also helping the company crack Femsa’s dominance in that area of the country.
Femsa is trying to “segment,” or pitch, its six brands of beer to particular demographic groups, Padilla said.
“With Tecate, we are trying to go to a very young segment of the market, adventurous people willing to change, to try something new, to hit them with the choice of an affordable import brand,” Padilla said.
Analyst Laboy said the strategy is paying off and will help Femsa raise its exports to 8% of total sales this year from 5% last year.
“Femsa is strategically focused with a world-class partner with a global view of the beer industry,” Laboy said.
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The growing international popularity of Mexican beers such as Corona, Tecate and Dos Equis has caused exports to climb despite a flat domestic market resulting from the country’s severe economic problems. Mexican beer exports are expected to increase at least 30% in 1995, although overall beer production will rise only slightly.
Production, in barrels:
Year Total Mexican Production Exports 1995 54,000,000 4,557,000* 1994 53,000,000 3,427,000 1993 52,000,000 2,980,000 1992 49,910,000 2,760,000 1991 48,438,000 2,405,000
Note: One barrel equals 31 gallons. Figures includes sales of beers brewed by Grupo Femsa (Tecate, Carta Blanca, Sol, Dos Equis, etc.) and Grupo Modelo (Corona, Modelo, Victoria, Pacifico, etc.)
Sources: Baring Securities, D.A. Campbell Co.