E-Malt.com News article: Mexico & United States: Grupo Modelo to keep Corona beer prices steady despite consumers turning to cheaper brands

Grupo Modelo SAB, Mexico’s largest brewer, plans to keep Corona beer prices steady at a time when U.S. drinkers are being tempted by less expensive beers, Bloomberg reported on August, 21.

According to Modelo’s chief financial officer Emilio Fullaondo, the brewer intends to remain “very disciplined” with promotions. The company’s export shipments, mostly Corona to the U.S., declined 5.3 percent in the first six months of this year.

“The strategy is to maintain our prices in general terms,” Mr. Fullaondo said. Promotions “will be very focused and very practical so as not to lose the price level we feel our products should maintain.”

The premium price of Corona, the best-selling imported beer in the U.S., has helped Mexico City-based Modelo’s export revenue reach about 40 percent of total sales.

U.S. consumers bought less imported beer in the 52 weeks ended July 12, pushing case sales down 2.1 percent, according to Information Resources Inc., a Chicago-based researcher. Case sales of sub-premium domestic beers jumped 2.6 percent in the same period. Corona case sales dropped 5.7 percent, while Anheuser-Busch InBev NV’s Bud Light Lime increased more than fourfold, IRI said. Corona is often served with a lime wedge.

Modelo won’t reduce marketing spending either, Fullaondo said. The company is resurrecting its more successful ads from the 1990s, instead of creating new ones, to help stretch marketing dollars, he said.

“Part of our long-term strategy is to continue building the brand-equity of our brands,” Fullaondo said. “We’re not going to take away that support.”

Many beer makers are reluctant to cut prices or offer big promotions because they face higher input costs, such as grains and aluminum, said Lauren Torres, an analyst with HSBC Holdings PLC in New York. Costlier imports such as Corona can’t do much with price to keep consumers from switching to domestic brands during a recession, she said.

“You don’t want to degrade the brand and price it at a sub-premium beer price because that will make the consumer, when times are good again, say, ‘Why should I pay for this when I remember it being in line with the cheaper brands?’” she said.

The company is increasing the number of outlets for draft beer sales of Modelo Especial and Negra Modelo, a dark beer, to counter an increase in draft sales of Leuven, Belgium-based AB InBev’s Stella Artois, Fullaondo said.

Modelo will start operating a new brewery in the northern state of Coahuila on schedule at the end of the first quarter of 2010, the CFO said. The plant will begin with annual capacity of 5 million hectolitres and can increase that to 10 million hectolitres. The company’s existing plants are operating at more than 80 percent capacity, he said.

Fullaondo said he’s helping formulate a policy on hedges and derivatives that will be submitted to the board. The company incurred a charge of 2.32 billion pesos ($180.2 million) in the second quarter for cancelling hedges on the dollar-peso exchange rate and natural gas, causing net income to fall 47 percent from a year earlier.

The new hedging policy will probably be adopted this year, he said. Fullaondo declined to say if any types of hedges would be banned under the new policy.

“You don’t have to demonize them,” he said, referring to hedges. “These are instruments that have been in the market for many years and under certain circumstances they are instruments that, if used correctly, are useful.”


26 August, 2009