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Beer duopoly forced to cede ground to microbreweries

July 24, 2013

Mexico’s Federal Competition Commission (CFC) has opened the domestic beer market to microbreweries by introducing restrictions on the exclusivity agreements long favored by the powerful duopoly of Grupo Modelo and Cuauhtemoc Moctezuma.

The CFC announced early this month that craft or artisan beers must be allowed open and unrestricted access to all restaurants, bars and cantinas in Mexico. Any exclusivity agreements signed with Modelo or Cuauhtemoc can no longer legally restrict the sale of craft beer from Mexican microbreweries in these establishments.

From now on, all exclusive contracts must be written, transparent and time-limited, with clear rules for termination of contract. Furthermore, each company can sign exclusive contracts with only 25 percent of its current retail outlets – and this number must be reduced to 20 percent by 2018.

An independent body will verify compliance with these conditions and report regularly to the CFC. Breach of these conditions will result in a fine of up to eight percent of the guilty company’s annual domestic income. In the case of Mexico’s leading brewer Modelo, which made 51.6 billion pesos from domestic sales in 2012, such a penalty could be as high as 4.1 billion pesos, equivalent to a third of its total profits last year.

These restrictions are the result of an anti-monopoly investigation the CFC opened after SAB Miller, the world’s second largest beer producer, complained in 2010 that the duopoly’s exclusivity contracts were excluding it from access to the lucrative Mexican market worth over 20 billion dollars a year. Mexican craft breweries Minerva and Primus also lobbied hard for the new restrictions.

Ivan Torres of Minerva hailed the CFC ruling as “a great achievement” but warned the “war” between Mexico’s beer giants and its microbreweries will still continue. “Maybe now it will become a dirtier war, because [Modelo and Cuauhtemoc] will have to look at new ways of pressuring outlets into only buying their beers,” Torres told the Reporter.

Mexico is one of the largest producers and consumers of beer in the world, with annual production at 7.8 billion liters and annual consumption averaging 62 liters per capita, according to the National Chamber of the Beer and Malta Industry.

Modelo and Cuauhtemoc have long dominated the industry by offering bars and restaurants financial incentives or free refrigerators in return for exclusive sales. If independent breweries grew enough to be viewed as a threat they would be bought out, with notable examples including Modelo buying Guadalajara lager Estrella, and Cuauhtemoc buying Monterrey craft beer Casta – only to discontinue and eliminate it from the market.

As Mexico’s appetite for stronger, more flavorsome beers has grown in recent years, the duopoly has also sought to control this end of the market, with Cuauhtemoc beginning to sell Weissbier and chocolate stout versions of its popular Bohemia beer, and Grupo Modelo launching stronger craft-style beers Azabache and As de Oros last year.

According to Mexican daily Reforma, Modelo currently holds 54.25 percent of the domestic beer market, Cuauhtemoc has 45 percent, SAB Miller has 0.7 percent and craft breweries just 0.05 percent. However, the latter’s share of the market has already grown fivefold from 0.01 percent in 2011 and the Mexico Brewery Association (Acermex) expects it to reach one percent by 2017 – while Forbes magazine predicts it could even reach three to five percent in the next few years.

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