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 Business News | August 2006 
Mexican Beers Flow North of the Border
 Ana Campoy - MarketWatch
| 'The shift of many American beer drinkers toward imports is a reflection of a growing and relatively stable economy, and 'certainly not a short-term trend.'
— Mark Swartzberg, Stifel Nicolaus |
Millions of Americans seeking an alternative to domestic brews are increasingly drinking beer imported from Mexico.
This trend, combined with new ways of distributing and marketing products, is boosting results for Mexican brewers and helping them to slowly but consistently swallow more of domestic companies' market share, analysts say.
Fomento Economico Mexicano S.A., the maker of Tecate and Dos Equis, reported a 42% jump in its export volume in the first quarter of 2006 on the back of strong U.S. sales. That means the brewer exported more than 17 million gallons of beer, up from 12 million gallons. In the second quarter, exports dropped 0.5% due to the distribution of a buildup of inventory from the previous quarter, the company said.
Exports from Mexico's other beer giant, Corona maker Grupo Modelo S.A., climbed 20.5% in the first quarter and 7.8% in the second.
In contrast, domestic volumes at the biggest American brewers, Anheuser-Busch Cos. and Molson Coors Brewing Co., grew by less than 5% in the first quarter. In the second quarter, Anheuser-Busch's domestic beer volume rose 2.2%. The St. Louis-based brewer owns 50% of Grupo Modelo.
So with imported-beer sales growing at a brisk pace while the share among the domestics shrinks, the makeup of the U.S. beer market could radically change in some years.
The shift of many American beer drinkers toward imports is a reflection of a growing and relatively stable economy, according to Mark Swartzberg, beer market analyst at Stifel Nicolaus. Despite signs of a slowdown in coming quarters, he expects imports to continue eroding domestic brewers' market share.
"It's certainly not a short-term trend," said Swartzberg.
Who wears the crown
With more than 90% of the Mexican beer market in their hands, Grupo Modelo and Femsa, Mexico's two biggest brewers, are looking north to expand their revenues, sending more than 80% of their exports here.
"Mexican brewers had focused on the south [of the United States] and now they are looking to encompass more territory," said Luis Martinez, Latin America beverage-sector analyst at Standard and Poor's in Mexico City.
To be sure, Grupo Modelo's and Femsa's beer sales are dwarfed by those of domestic companies such as Anheuser-Busch and Molson, which account for 86% of the beer sold in supermarkets and convenience stores in the United States, AC Nielsen data show.
But so far, imports have escaped the fate of domestic brewers, which have seen their sales fall as wine or spirits become more popular. In 2005, overall beer shipments from manufacturers to wholesalers dropped 0.1%, with shipments for domestic beers falling 1.2%, according to the Beer Institute, an association of brewers that compiles beer statistics. During the same period, imports grew 7.2%.
This year, shipments of domestic beer rose 3.8% in the first quarter, although mainly due to the dismal comparison with last year, analysts said. Shipments of imported beer grew 10% in the first couple of months of 2006, the Beer Institute reports.
With slightly more than 50% of the import market share, Mexican brewers are largely responsible for driving growth. Supermarket and convenience-store sales of Mexican beers expanded by 11% last year, compared with a 7.6% rise in overall imports, according to AC Nielsen data.
In addition, Mexican beers in particular have benefited from an increasing appetite for Mexican food, said Dan Motelet, beer expert at AC Nielsen. Mexican restaurant sales went up 23% between 1997 and 2002, according to the latest figures from the U.S. Census Bureau. Mexican beers are also light in color and taste, appealing to Americans more than other imported beers, he commented.
Recently, though, Mexican brewers have been growing their market share simply by putting theirs beers in more selling points, analysts pointed out.
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