Both of Mexico's leading brewers, Grupo Modelo and Femsa Cerveza, have defied the US economic slowdown by registering a substantial increase in US sales. Export expansion has more than offset sluggish sales at home. But according to Victor Flores, industry analyst for Casa de Bolsa Interacciones: "Sales at the national level are very stagnant. Volumes are really not very good for either company."

Of the Mexican brewers, Grupo Modelo has been the strongest international performer, with a presence in over 150 nations around the world.

During the first half of this year Modelo's US sales set a new record with a volume of over 3m hectolitres. But it faces strong competition in the US market from second place Heineken and Mexico's Tecate, which recently became one of the top five sellers.

Modelo's Corona brand emerged as the world's fifth best selling during 2000 and has been the best selling foreign beer in the US for several years, with a market share (among foreign brands) of over 25%. Other Grupo Modelo brands that have achieved strong gains in foreign markets include Corona Light, Modelo Especial, and Pacifico.

In the company's report of second quarter earnings Modelo president Carlos Fernandez pointed out that during the 12 months ending 30 June the company's exports rose 24.4% on average. These gains were primarily attributed to further penetration of major foreign markets where Modelo's brands already have a foothold.

During the first half of this year the value of Modelo's exports reached US$425m, representing an increase of 21.6% relative to the same period one year earlier. According to Fernandez: "This growth was primarily the result of an increased proportion of export sales relative to total output. Exports reached 29.1% of total volume compared with 25.3% a year ago."

Modelo's output increased 5.1% during the second quarter of this year, reaching 10.5m hectolitres. Of that amount, 7.4m hectolitres were destined for the domestic market, representing a modest decline of 0.3% from a year earlier. In spite of the fact that currency factors worked against export earnings net sales rose 6.7% during the second quarter relative to one year earlier.

The Mexican peso has been unusually strong relative to the dollar, gaining roughly 3% over the past year. As Fernandez explains it: "Price stability in the Mexican market has boosted real prices per hectolitre and this has offset the effect of the strong peso on export earnings."

Femsa Cerveza sidesteps US economic slowdown

The ripple effect of the US economic slowdown on Mexico is likely to put a small dent in domestic sales this year, but management anticipates that this will be more than offset by gains in the US. Luis Duran, international vice president of Femsa's Cuauhtemoc-Moctezuma brewery was quoted by the El Norte newspaper as saying: "This has been a good year and we continue to be optimistic about the remaining months. More than likely the beer industry in the US will not grow, or may even experience a slight decline, however Femsa's performance will be much better than that."

As Duran puts it: "Tecate is not only our best seller in the US, but worldwide as well. In light of the new categories for imported beers in the US, it moved up from fifth to fourth place during 2000 with a 23% increase in sales." Other Femsa brands that are widely distributed in the US are Bohemia, Carta Blanca, Sol, and XX (amber y lager). Duran went on to say that Femsa has about 700 distributors in the US covering virtually all regions, including Alaska.

Strong demand among Hispanics

Consumption by Beer Type - Growth
Chg in Volume (+/- 000's HL) 99-00
Annual % Change
Total
1031
2.1%
Standard Lager
1107
2.3%
Dark Beer
-49
-5.2%
Draught Beer
-42
-12.3%
Premium Lager
5
2.6%
Imports
10
3.3%
Source: Canadean

In general, sales of Mexican beer brands in the US have also benefited from the increasing popularity of Mexican food over there. A growing number of Americans order Mexican beer along with their meals in Mexican restaurants. While Mexican citizens living in the US, who number over12m at present, tend to be loyal consumers.

The strongest growth in Mexican beer sales is in the southern part of the US. "This is mainly due to the strong growth our beers experienced in the Sun Belt, which includes the states of California, New Mexico, and Texas, where there is a strong Hispanic presence and where the nation's strongest economic expansion is taking place," Duran explains.

So given the steady growth of the Hispanic population, long-term export prospects for both brewers look quite good and while Grupo Modelo and Femsa continue to enjoy a virtual stranglehold on the Mexican beer market it is unlikely that any foreign brands will pose a major threat either.


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