just On Call - Grupo Modelo weighs Brazil entrance
- Corona brewer still keen on Brazil
- Expects tougher fight with Heineken in Mexico in 2012
- Confident on beer sales momentum
Grupo Modelo keen on Brazil
Modelo is still weighing up an entrance in Brazil, said the Mexican brewer's head of sales and marketing, Jose Pares. However, the Mexican brewer is reluctant to announce a date or comment on its distributor options.
Speaking to analysts on the company's full-year results conference call at the end of last week, Pares said of Brazil: "We evaluate the options and the best time to enter into the market. Right now, based on the economic conditions - the exchange rate environment is tough - it's not that easy to get in with an international brand and, as you know, we sell in US dollars."
As for who might handle distribution for the Corona lager brewer in Brazil, AmBev would be a frontrunner. AmBev accounts for around 70% of beer sales by volume in Brazil and its parent firm, Anheuser-Busch InBev, owns a 50% non-controlling stake in Modelo.
Although Modelo has previously used overseas distribution contracts to emphasise its independence from the Budweiser brewer, there are limited alternatives in Brazil. Modelo's main competitor in Mexico, Heineken-owned FEMSA Cerveza, already distributes in Brazil via the Coca-Cola Co bottling network, making this an unlikely route. Kirin-owned Schincariol and privately-held Petropolis, as Brazil's second and third largest brewers, would be the most likely AmBev alternatives.
At home in Mexico, Modelo is expecting Heineken's FEMSA Cerveza business to give it a tougher ride in 2012. Modelo and FEMSA Cerveza operate a virtual duopoly in Mexico's beer market, but sales figures show Modelo pulled away from its rival in 2011.
"Going forward, this year will be quite challenging," Modelo's CEO and chairman, Carlos Fernandez Gonzalez, told analysts when asked about Mexico. "We have a strong competitor in our main market. I do believe that they're going be more active this year than they were last year."
For the 12 months to the end of December, Modelo's domestic beer sales increased by 6% in volume and 10% in value versus the previous year. In contrast, Heineken reported only a slight rise in Mexico beer volumes over the same period, without giving a precise figure. In October, JP Morgan analysts reported Modelo's volume market share in Mexico at an all-time high of 61%.
Despite the promise of more aggressive competition from Heineken, Modelo said that it is confident it can maintain its domestic sales momentum in 2012. "In Mexico, we will be growing in line with GDP but with real price increases," said Fernandez Gonzalez, without giving specific guidance.
The brewer's outlook in export markets is more mixed. Of the US, where Modelo operates the Crown Imports joint-venture with Constellation Brands, Fernandez Gonzalez said: "It will be challenging, but we will be posting growth." In the country, the group will wait to see if rivals' price increases stick before looking to raise its own beer prices.
Elsewhere, Fernandez Gonzalez said that Europe remains tough but that its Asia business should perform better in 2012 than it did last year. There will be some pressure globally from higher raw materials costs, but the brewer expects its internal cost savings programme to offset much of this.
In terms of capital expenditure, there are no plans to expand capacity beyond the new brewery that is almost complete in northern Mexico. Capital expenditure is likely to be around 5% of net sales over the next few years.
Last week, Modelo reported global net sales for the 12 months to the end of December up by 7.3%, to MXN91.2bn (US$7.1bn). Volume sales rose by 6% on 2010.
The group's higher global sales underpinned a 10% increase in company operating profits for the year, to MXN23.8bn. Net majority profits jumped by 20%, to MXN11.95bn.
Paul Walsh called them a "solid" set of numbers and much of the media appeared to agree with Diageo's CEO, with only a few dents in the armour visible....
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