By Elinor Comlay and Luc Cohen
MEXICO CITY, July 11 Mexico's biggest brewers,
Corona maker Grupo Modelo and Sol producer Cuauhtemoc Moctezuma,
have agreed to face more competition to end a dispute over their
long domination of the domestic beer market, the world's
Mexico's Federal Competition Commission (Cofeco) said on
Thursday that Modelo, a unit of Anheuser-Busch InBev SA
, and Cuauhtemoc, which belongs to Heineken NV
, would in the next five years have to reduce
exclusivity deals they have with clients in Mexico or face heavy
The directive follows a longstanding complaint from rival
SABMiller, whose brands include Miller, Grolsch and
Peroni, and which has struggled to make headway in Mexico.
In terms of the amount of beer consumed, Modelo accounted
for some 56 percent of the Mexican market in 2012, with Heineken
Mexico at 43 percent, data from market research firm Euromonitor
shows. SABMiller was a distant third with 0.3 percent.
The two brewing giants agreed to conditions that include
limiting exclusivity deals in convenience stores and restaurants
to a maximum of 25 percent of points of sale, reducing this to
20 percent over the next five years.
In addition, no such agreements may exclude sales of
artisanal beer brewed by small-scale beer makers, Cofeco said.
The watchdog also set a penalty for breaking the terms of
the agreement at up to 8 percent of Cuauhtemoc's or Modelo's
annual Mexican revenue.
Modelo had domestic sales of 51.6 billion pesos ($4.01
billion) last year, implying a penalty of up to $321 million -
or about a third of the company's net profit in 2012.
The settlement gives microbrewers, as well as SABMiller, a
better chance to compete, but not everyone was persuaded.
SAB Miller's Mexico unit said a complete opening of the
market would have been better for all involved. "Miller is
analysing the settlement to determine its response in due
course," Armando Valenzuela, chief executive of Miller Trading
Company in Mexico, said in a statement.
One of Cofeco's five commissioners voted against the
settlement because he wanted a stronger ruling. "In principle, I
think these exclusive agreements are wrong, because they reduce
choice for consumers," said Miguel Flores.
Exclusive agreements between restaurants and bars and the
dominant pair of brewers already account for 25 percent to 30
percent of the market, the commissioner said. "This is just
formalizing the status quo. There is no change in the market,"
The ruling, which allows existing agreements to expire, was
"not that harsh" Credit Suisse said in a research note.
SABMiller would have improved access to the market, but it
still faces some barriers to Mexico, including its brand
portfolio, Credit Suisse analyst Antonio Gonzalez wrote.
Shares of Heineken and AB InBev, the world's biggest brewer,
closed up nearly 1 percent after the decision. Shares of
SABMiller, the second-largest brewer worldwide, were up nearly 2
percent on the London Stock Exchange.
Restaurants and bars in Mexico have received a range of
incentives for entering into exclusivity deals with the brewers,
including awnings, games, refrigerators and discounts on
inventory purchases, if sales are high enough.
Many Mexicans have looked forward to change in the market,
which is a duopoly for the two big brewers.
"The monopoly that Grupo Modelo and Cuauhtemoc have is
really screwed up," said Paco Bernal, the dreadlocked manager at
El Palenguito, a small, dimly lit mezcal bar in Mexico City's
Roma Norte neighborhood, earlier this week.
AB InBev and Heineken have carved up much of Brazil's market
in addition to that of Mexico, while SABMiller has leading
positions in smaller Latin American nations such as Colombia and
Following the Cofeco settlement, SABMiller will probably
start offering big discounts and lots of incentives to Mexican
retailers, said James Mosher, an expert on the brewing industry
at the CDM Group consultancy.
"I would expect, depending on how effective the agreement is
... in 10 years they'd be able to grab 10 percent of the
market," Mosher said.
AB InBev this year completed the purchase of the half of
Modelo it did not already own, after settling a dispute with the
U.S. Justice Department.
Dutch brewer Heineken acquired Cerveceria Cuauhtemoc
Moctezuma, whose other brands include Dos Equis and Indio, from
Coca-Cola bottler Femsa in 2010.
Femsa, which has a 20 percent stake in Heineken, operates
convenience store chain Oxxo and has exclusivity deals to sell
the Dutch company's beers. Modelo has similar agreements with
bars and restaurants.