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Friday, October 2, 2009

FEMSA Follow-up

Hey, remember we were talking about how well Dos Equis is doing for Heineken USA? Keep in mind that Heineken USA is just the importer; the beer is brewed and owned by Mexican brewer/drinks conglomerate FEMSA (Fomento Económico Mexicano, S.A. de C.V.). But I see in the Financial Times today that they are "in talks" to sell off their beer business, to either SABMiller or Heineken, in order to focus on their profitable Coca-Cola business. Here's why I posted, in light of the previous post:

Heineken USA has distributed Femsa's beer in the US since 2005, after Femsa's decision to extract itself from a distribution deal in 2004 with former partner Interbrew. Femsa and Heineken USA, a unit of the Dutch beermaker, signed a deal in April 2007 to extend their relationship for another 10 years.
But the US partnership with Heineken has underperformed, industry insiders say, as Femsa's beers have struggled to compete against fellow Mexican brewer Modelo and its ubiquitous top beer, Corona.
But the need for consolidation in the Latin American brewing arena has taken on a new level of urgency in the wake of InBev's $52bn deal to buy Anheuser-Busch. As part of that transaction, InBev, the world's largest brewer, gained a 50 per cent stake in family-run Modelo.
In other words...the strong growth FEMSA's Dos Equis and Tecate have shown in the U.S. isn't enough, because they aren't Corona. They have "underperformed." Sounds to me more like FEMSA doesn't have the stomach for the fight.

What it really sounds to me is that the "need for consolidation" is lemming-like, brewers rushing to buy other brewers so they get big enough to fight for market share, when all they're actually doing is fattening themselves for the kill.

And who gets rich? Bankers. Who gets screwed? Brewers, and you, my friends, because huge brewers can and will throw their weight around and have an effect on the entire beer market, including crafts, just like Wal-Mart does in retail.

And what will happen when there are but three or four mega-monster brewers left? I hope someone's standing by Carlos Brito, ready with a videocamera:

When Alexander saw the breadth of his domain, he wept, for there were no more worlds to conquer.


The Beer Nut said...

If Alexander had known just how lucrative the Far East markets were, he'd have been a lot happier.

sam k said...

Yes, they CAN throw their weight around, but will it be substantially different from what crafts experience now at the less-than-clean hands of the current bullies?

Lew Bryson said...

Fair point, Sam, but think about that Wal-Mart comparison. Wal-Mart has distorted the retail business more than Sears or Macy's ever did. Here, read the Vlasic Wal-Mart story:

Now, picture a brewer that size, with the three-tier system gone.

sam k said...

Just heard today that Wally sells 25% of all milk in the U.S.

Anonymous said...

InBev will advance its global beverage position and be ready for bigger deals Grupo Modelo.InBev is the first bottler that is larger than its supplier.Modelo may want to sell to InBev soon it is struggling with an acrimonous control group,leadership problem and shrinking growth.If Modelo goes,Femsa will have to go as well,Femsa could draw Heineken and SABMiller into a bid process.If they were smart unlike the two large wholesalers in Philadelphia who sell Miller and Coors and merge before the breweries consolidate them with either having much say in the matter.Modelo/Femsa could merge and test the Mexicans goverments antitrust rhetoric and lose much political funding..
Cheers Pumpkin Head

Steve J said...

While there's no doubt that behemoths have a huge effect on an industry, I don't think it's quite as doom-and-gloom as it seems. To use your Walmart analogy, while it undoubtedly pushed a lot of small shops and companies out of business, the rise in shop-local movements, and craft movements in various foods and goods, is in direct response to the prevalence of big-box retailing and the homogenization they bring.

Just like the craft brewing movement rose up and thrived in response to an era where the US market was controlled by three companies, I suspect there's better than an even chance something similar can and will happen in the face of global consolidation. At a macro scale, anyway. Some localized markets will indeed suffer.