Why one of the world’s largest beer markets only has two competitive beer brewers

More in the mood for a Modelo, or a Modelo?
More in the mood for a Modelo, or a Modelo?
Image: Reuters/Daniel Aguilar
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In the Mexican beer business, cash is the surest way for beer companies to win a vendor’s heart. The country’s lucrative beer market is the world’s fifth largest by volume, and yet only two companies, AB InBev’s Modelo and Heineken NV’s Cervecería Cuauhtémoc Moctezuma, sell 98% of the country’s beer (55% and 43%, respectively). But companies like Britain’s SABMiller, the world’s second largest brewer by sales, are hoping a looming antitrust decision might help them get a leg up in the country.

Mexico’s antitrust regulators are mulling a complaint filed by SABMiller and a handful of smaller Mexican beer companies about whether exclusive contracts doled out to local vendors by InBev and Heineken are anti-competitive. Both AB Inbev and Heineken dish out cash to corner stores and restaurants to sell only their products. These types of contracts account for some 85% of beer sales, which competitors like SABMiller argue intentionally keep them out of the market.

But winning the anti-trust suit will be an uphill battle, since SABMiller has filed and lost similar lawsuits before. In 2004, after it filed a complaint with the Mexican government citing Grupo Modelo’s exclusive contracts, Mexico’s antitrust agency ruled in SABMiller’s favor. But the decision was overturned when Modelo appealed.

AB Inbev and Heineken got their leg up playing by Mexican beer brewers’ rules.  AB Inbev’s purchase of local brewer Grupo Modelo and Heineken’s acquisition of Mexico’s Cervecería Cuauhtémoc Moctezuma from Fomento Económico Mexicano SA (Femsa) gave the two companies access to the local companies’ existing exclusive sales contracts, which granted them 99% of Mexico’s beer sales (SABMiller and smaller brewers have since gained another 1% of the market). In 2003, a food manager at Tony Roma’s in Mexico City told the Wall Street Journal that he had offered customers 28 different varieties of beer until Modelo began paying the restaurant not to. Beer makers have also offered vendors heavy discounts and assistance in acquiring alcohol permits to win their exclusive business.

The clear loser in Mexico’s beer market is the Mexican consumer, who suffers from fewer options. Meanwhile, just across the border, Americans have been happily guzzling a growing list of Mexican craft beers.