Mexico & USA: Grupo Modelo - the top seller among U.S. imports since 1997

The largest beer maker in Mexico and biggest beer importer into the United States should put Mexico's Grupo Modelo in an enviable position, Miami Herald commented on February 4.

Grupo Modelo's trendy Corona Extra beer has been the top seller among U.S. imports since 1997, the year the Mexican brew unseated its Dutch rival, Heineken, also a lager. ''It's true that Corona Extra is the imported beer with the highest sales in the United States,'' said Jorge Siegrist P., a Grupo Modelo spokesman. “Still, other brands from our group are also experiencing success in the U.S. market.''

However, Grupo Modelo faces competition at home from Grupo Femsa, maker of Tecate and Dos Equis beers.

In the United States, domestic beer sales are flat in the face of a growing American taste for wine and spirits, although imports are still rising at a moderate pace. But Modelo, which is partially owned by U.S. brewing giant Anheuser-Busch, is optimistic its dominance will continue. Not only has it got other brands waiting in the wings to sell in the United States, it also wants to conquer the world.

Modelo Especial is the sixth most favored beer import in the United States and Corona Light is in eighth place, with Pacífico and Negra Modelo also in the top 20 brands, the company said. ''We will continue working not only to maintain our leadership in Mexico and the United States, but also to position ourselves in the entire world,'' Siegrist said in a statement.

Grupo Modelo, which is still controlled by descendants of the company's founders, exports beer to 150 nations. In the third quarter 2005, the company's sales totaled $3.3 billion, with exports making up about 30 percent. Among the markets Modelo is trying to crack is China, where Corona has had some success in the high-end segment.

''We go to the super-premium markets,'' Siegrist said. “There are lots of costs in exporting beer to 150 countries.'' Modelo executives are proud of the international success of their beers. ''There has been a huge boom from 1995 to the present. We have had a 500 percent growth in our exports,'' said Carlos Fernández, chairman and chief executive officer of Grupo Modelo.

But how did the United States develop such a thirst for Mexican beer? ''It started as a fad,'' said Tom Pirko, president of beverage industry consulting firm BevMark in Santa Inez, Calif. Visitors to Mexico from California and Arizona used to bring back Corona Extra, one of the cheapest beers around. ''It just caught on,'' Pirko said. ''We were looking for foreign beer in America,'' Pirko said. “It was a drink that developed a cachet.''

Corona Extra's success has helped vault Mexico to third place in world beer exports, following Holland and Germany. Beer developed and brewed in Mexico is one of the country's few authentic exports at this point. Most other Mexican exports are the manufactured goods of U.S. companies that operate offshore plants in Mexico.

PARTNERSHIP
While Grupo Modelo looks and feels Mexican, Anheuser-Busch now has a 50.2 percent noncontrolling interest in the company. The partnership with Anheuser-Busch dates back to an exclusive agreement in 1989 to import and distribute Budweiser and Bud Light in Mexico. Then in 1993, Anheuser-Busch took an equity stake, later raising its investment to the current level.

''We invested in Modelo because it is a well-run company in a market with great volume and profit potential,'' Stephen J. Burrows, Anheuser-Busch chief executive office and president, said in an e-mail reply to The Miami Herald. ``We enjoy an excellent relationship with Modelo and its management team, and we respect their strong record of accomplishment.''

Fernández, Grupo Modelo's chairman, sits on the Anheuser-Busch board, while Anheuser-Busch scion August A. Busch III is a director of Grupo Modelo.

There is another U.S.-Mexican connection. Last year, Grupo Modelo heiress and board member María Asunción Aramburuzabala wed the U.S. Ambassador to Mexico, Antonio O. ''Tony'' Garza Jr.

Grupo Modelo also has made U.S. investments and arrangements to assure it has sufficient supplies of barley and hops for future expansion. The Mexican brewer invested $85 million in a malt plant in Idaho Falls, Idaho, next door to an Anheuser-Busch facility. Modelo also has an association agreement with the largest U.S. hops producer, International CO2 Extraction in Yakima, Wash.

UPS AND DOWNS
There have been ups and downs in Grupo Modelo's relationships with its U.S. partners. In 1998, relations soured with Anheuser-Busch over the price it would pay to exercise its options to acquire a bigger stake in Grupo Modelo. The American company later paid $556 million to boost its share to 50.2 percent in Grupo Modelo's operating subsidiary and settle the dispute.
Now Grupo Modelo is embroiled in a dispute with its distributor for the eastern half of the United States, the Gambrinus Co. of San Antonio, which shares U.S. distribution with Barton Beers of Chicago.

When the Mexican brewery announced it would not renew its import agreement with Gambrinus when it expires this December, the Texas company lodged a complaint with the International Court of Arbitration of the International Chamber of Commerce in Paris.
Still, the big problems facing brewers are heated global competition and the lagging pace of beer consumption. Around the world, larger breweries are gobbling up smaller ones in cross-border mergers.

''The world is closing up,'' Pirko said. ``Even with new and developing markets there is a fast move to consolidate.''

In this race, Pirko said he views Grupo Modelo more favorably because it is ''more aggressive'' than partner Anheuser-Busch.

But even on its home territory, Grupo Modelo faces competition from Femsa, which has set its sights on upping its share of the Mexican market to 50 percent, up from 43 percent in 2003. Together the two companies control about 99 percent of the Mexican beer market -- the second-most profitable in the world after the United States.

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