SAB Miller says it feels ‘quite positive’ about the possibility of Mexico opening-up as a beer market, with the nation’s competition authority poised to rule on the legality of exclusivity arrangements that the UK plc claims penalises it vis-a-vis rivals.
In 2010 SAB filed an antitrust action, claiming that local giants Grupo Modelo and Cuauhtemoc Moctezuma (owned by Heineken) block consumer choice through, currently legal, exclusivity contracts, and hand retailers loans, payments, even free refrigerators, in exchange for not stocking rival brands from the likes of SAB.
The world’s second-largest brewer discussed Latin American trends in a recent London seminar, and said that although it was not the biggest regional player, the territory still accounted for 20% of volume, 23% of revenue and one third EBITA.
SAB was not the biggest brewer in Latin America “because Brazil and Mexico are too important for that”, Latin America president Karl Lippert explained, but he said the firm had “strong holds” in six core markets.
Retail exclusivity ‘keeps others out’
These are Colombia, Peru, Ecuador, Panama, Honduras and El Salvador, all markets where (aside from El Salvador), SAB holds close to 60% or above of the beer alcohol market share, which Lippert said was a “benchmark number” for the brewer.
But SAB has no footprint in Mexico, just an import business fed by US brewed products, and Ian Shackleton, an analyst at Nomura Securities, asked executives how SAB could expand its presence in the country, in light of current regulatory reviews.
Lippert replied: “Our import business is in close proximity to the US and the Fort Worth brewery, so a significant portion of what we sell in Mexico is in the northern part of Mexico”
He added: “We have an expanding business with the chains, which is an open channel, and have developed a very nice stronghold in Guadalajara, and have plans to go further there.”
But Lippert insisted that the problem in Mexico was the high degree of “retail exclusivity” in those outlets “that is essentially keeping others out”, which had led to SAB and others bringing a case before competition authorities.
“That process is quite far advanced, in fact, by their own timetable, sometime this month they should actually pronounce. But I think they will find some sort of reason to say that it will drag on a bit more,” Lippert added.
“But still, we’re feeling quite positive about the possibilities of Mexico opening up as a market. Until that time, it’s difficult to get a foothold in there. But we’re there and we’re advancing.”
‘We’re at a standstill in Brazil’
However, Brazil was a different story, Lippert admitted, essentially conceding Shackleton’s further point that SAB’s purchase of a Mexican import business had not served as a springboard into Latin America’s largest beer market.
“Brazil is a different story. If you do not produce locally, then imports are very expensive, and the Reais is sitting at 1.55, where it was 18 months ago, then it’s quite feasible,” Lippert said.
But at an exchange rate of 2 or above [per US dollar] it’s really not easy to compete because their import taxes are high, logistical costs are high.
It’s a very complex market to get into. So at the moment, we’re on a standstill with Brazil.”