Prosepcts for Imports

What
happened?

Hard to say.
Promotions remained big, there were no blows to consumer
loyalty. The beer market in the US overall was weak, but
that never slowed the overseas brigade before. There is a
possibility that things just reached a natural ceiling, but
that doesn’t seem likely.

A likely
candidate would be loss of focus. The major import companies
have had a lot on their minds and on their plates recently.
Let’s take a look at what’s been going on, and what’s coming
down the pike, to get a better picture of the interesting
times.

We’ll start with
the biggest fish in the pond: Corona. Corona has become so
large, a major brand in the American market by virtue of
sheer volume, that it has been argued that the brand has
transcended the import category into a zone of its own.
There’s certainly something to be said for that, and it has
certainly transcended the “Mexican beer”
category.

Corona’s
importers, Barton Brands and The Gambrinus Company, have
successfully marketed the beer as “a vacation in a bottle”.
It’s not about Mexican beer any more, it’s about relaxation
and recreation, a state of mind in which the beach and
languid leisure play a large part. Corona did so well that
its coattails have brought along success with other Modelo
brands: Corona Light, Modelo Especial, and Negra
Modelo.

If only that
were true on a business level. The relationship between
Grupo Modelo and Gambrinus (the importer for the eastern
U.S. and Texas) has turned sour. Modelo first tried to
purchase Gambrinus, a private company owned by former Modelo
executive Carlos Alvarez, “as a means to improve Modelo’s
profitability,” according to a Gambrinus press
release.

At that time,
Modelo said the action was unrelated to Gambrinus’s
performance, which was called “outstanding”, as indeed it
had been, by any reasonable measure. Gambrinus responded
that the company was not for sale, that it valued its
independence, and that Gambrinus would continue devoting its
entrepreneurial efforts towards achieving further growth for
the Modelo brands.

Modelo has since
informed Gambrinus (and the media) that their importer
agreement would not be renewed after its December 31, 2OO6
expiration date. Gambrinus, in turn, has initiated an
arbitration against Grupo Modelo and its US subsidiary,
Procermex, Inc., before the International Court of
Arbitration of the International Chamber of Commerce. The
company expects a decision by the fall of 2OO5, and refuses
to make any further comment on the issue. No similar action
has been reported with Barton at this point.

Corona may have
transcended the Mexican beer category, but FEMSA (Fomento
Economico Mexicano, S.A. de C.V.), brewers of Dos Equis and
Tecate (among other brands) embraces it whole-heartedly –
just not as a partner with InBev any more. Things have
shaken up there, as well.

FEMSA was
imported through Wisdom Imports in the early 199Os, but that
importer was absorbed by Labatt USA, who then took over
distribution of FEMSA’s Tecate and Dos Equis brands. Labatt
was taken over by InBev (Interbrew at the time, but we’ll
just say InBev throughout to avoid confusion), and ownership
of Labatt USA was split between InBev and FEMSA, 7O/3O.
FEMSA apparently got what InBev was willing to give; former
InBev head Hugo Powell noted that “FEMSA had never been
happy with this relationship.”

Things got worse
when InBev acquired German brewer Beck’s in 2OO1 and decided
to merge Beck’s United States importer with Labatt USA to
cut costs. FEMSA wasn’t happy, and got a court order to halt
the merger in May of 2OO2. InBev fought back, but lost in
the courts.

The solution to
this bad blood was for FEMSA to buy back the FEMSA shares
owned by InBev, at which point InBev agreed to “unwind”
FEMSA’s relationship in Labatt USA, which as of September
2OO4, is now InBev USA. FEMSA regained its US importing
rights, and is now represented by Heineken USA.

Heineken USA’s
almost ready to go to market with them, according to
spokesman Dan Tearno. “We now have Tecate, Dos Equis Lager,
Dos Equis Amber, Sol, Carta Blanca, and Bohemia,” he said.
“We doubled the size of our portfolio in one chunk. The key
brands nationally are going to be Tecate and Dos Equis. The
others will get local focus where they are already moving.
We’ve brought in a new marketing group and new agencies for
the Mexican brands; we expect it will be a comprehensive set
of marketing and promotional activities. Not everything’s
done yet.”

What does all
this mean on the street? Probably not much in day to day:
different faces with order sheets, different names on the
checks, same beers. The only significant difference will
come in changes or lapses in importer focus on brands. Will
Heineken be able to give full support to FEMSA’s brands?
Will the arbitration proceedings and apparent friction
between Gambrinus and Grupo Modelo cause their focus on the
brands to slip in the East?

If that happens,
watch for bold moves by InBev USA. InBev, as the
Belgian-based Interbrew had a fairly low profile working
through Labatt USA. Now that they have merged with Brazilian
megabrewer AmBev, a move that made them the world’s largest
brewer, InBev USA is ready to move into the US, the world’s
largest premium-priced beer market, in a “world’s largest”
kind of way.

“InBev USA had
an excellent year in 2OO4, with depletions up over 4%,”
noted InBev spokesperson Brenda Williams. “Some of the
highlights included another exceptional year for Stella
Artois – up more than 5O%. Stella Artois continues to be the
fastest growing major European brand in the country, for the
third year in a row. It is also the number one draft beer,
in the number one draft market, New York City. Stella Artois
will continue its roll out to national distribution in
2OO5.”

It’s not just
Stella. InBev has quite a large portfolio. Besides Stella
Artois, they have the Beck’s brands, Rolling Rock and Rock
Green Light, Labatt Blue and Blue Light, and the English
staple, Bass Ale, as well as a host of smaller, specialty
brands like Hoegaarden, Leffe, Staropramen and Boddington’s.
With the defection of FEMSA, they do not have a Mexican
brand, but they are already leaning hard on their European
roots as a source of quality beer.

For instance,
InBev will continue to push their other flagship brand,
Beck’s, with their “Life Beckons” campaign, and will add
some serious marketing oomph to the new Beck’s Premier
Light. “We are very excited about early enthusiasm from
retailers for Beck’s Premier Light,” said Victor Melendez,
the importer’s head of European brand marketing. “It’s a
fantastic tasting beer that stays true to its German roots
in both taste and its brewing process. Not only does the
beer have incredibly low calories, but it is the lowest low
calorie import to hit the US market.” A truly astonishing 64
calories per 12oz. bottle is the figure given. The national
roll-out will be complete by summer.

InBev has also
found new life in Bass Ale. The brand was skidding after a
total loss of focus when it changed hands a couple years
ago. InBev has made a nice recovery, and Bass saw growth in
the second half of 2OO4, success Williams attributes to “a
renewed focus on quality and freshness.”

But the big
unknown in the InBev corner is whether they will bring out
their big Brazilian, Brahma. Brahma is huge in Brazil, but
virtually unknown in the US, and it’s not clear what InBev
intends to do with it here. Williams was somewhat reticent
on the subject. “Brahma will be introduced to the US in
2OO5,” she allowed, “but it’s too early for any additional
details about that brand.”

What’s Brahma
likely to do in the U.S.? Some of us remember a couple of
attempted launches for the brand in the past 2O years that
went nowhere. But a big launch in 2OO5 will have several
points in its favor. First, Latin influence is hot right
now.and most Anglos can’t tell the difference between
Spanish-fueled Latino culture and Brazil’s Portuguese samba
beat; it’s all Latin America to them. Add to that the
growing popularity of Brazilian rodizio restaurants that
will almost automatically provide a base market for the
beer.

Now, add to that
the marketing power of the world’s largest brewer, and you
have a real X-factor in a possible Brahma launch this year.
InBev has an unusual opportunity as the focus of Mexican
brands may be directed elsewhere. Interesting
times.

The interesting
times don’t all focus on interactions with Mexico, though.
Some of it is purely about America; the American dollar.
Currency exchange always affects import sales, and the
strong-as-steel dollar has been helping imports pick up a
big chunk of the US market. Now that the dollar has slumped
dramatically, things have changed. You notice it at the gas
pump, at the Toyota dealer, at the grocery store. It’s
something the beer importers have to face as
well.

Are prices
headed up? Importers are holding the line as much as
possible. “I can’t discuss pricing issues,” admitted Dan
Tearno. ” It’s our plan to do the best we can with what we
can control: exciting packaging and promotions for beer
drinkers 21 and older. Currency is what it is.”

Bill Wetmore,
marketing head for Scottish & Newcastle Importers, had a
similar “wait and see” message about Newcastle Brown. “We
have not taken a price increase of late, and we don’t have
one scheduled,” he said. “Of course, we are sensitive to
currency changes.”

It’s probably
going to be a case of waiting for a major leader in the
category to break ranks and raise prices, at which point
everyone will follow. Currency fluctuations don’t help
anyone.

Well, actually,
they do: they help domestic producers. That’s one possible
explanation for the very impressive performance of the
craft-brewed sector in 2OO4. Craft-brewed beers grew at a
rate that was over four times faster than imports in
2OO4.

Before anyone
brings up the point that craft-brewed beer is working on a
much smaller base than imported beer, and so it doesn’t take
as much to make a big percentage increase, let’s take a look
at the real numbers. Craft beers aren’t that much smaller;
they have about one-third the market share and volume of
imported beers. So a big percentage growth rate is actually
significant in comparison of the two categories.

And in this
case, it doesn’t even matter what size the two categories
are. Why not? Because craft beers grew at a higher rate and
chalked up bigger actual numbers. Imports grew 1.4% in 2OO4,
or 332,1O8 barrels. Craft beers grew 7%, which gave them an
increase of 46O,19O barrels.

Was it currency
exchange favoring craft brewers on price over imports?
Maybe, but craft brewers had price pressures of their own
from healthcare and energy costs. It’s more likely a matter
of the category finally getting their message through and
brewing consistently high-quality beer.

Or it could be
that consumers see imports and crafts as two sides of the
same coin, and craft brewers won the toss this year. “It’s a
situation where people have been willing, and still are
willing, to pay more for what they feel is a better beer,”
Tearno said, rather even-handedly. “That started in the
early 199Os with the micros. Then in the late 199Os and
early 2OOOs, the imports grew on the same idea. But a
quality beer is a quality beer, whether it’s brewed in
Colorado or Amsterdam. If people are willing to pay a
premium price for it, I think that’s good news for everyone
in the industry.”

Bill Wetmore had
much the same to say. “There’s not a clean line between
Sierra Nevada Pale Ale, Fat Tire and Newcastle,” he said.
“Consumers will move back and forth among those brands.
They’re all high-quality, with good taste. Those products,
and smaller products on the regional scale, have done a good
job. The craft beer business has helped Newcastle by
broadening people’s horizons on the kind of beers they’ll
try.”

Wetmore also
pointed out that the craft brewers have helped drive
retailers to carry a broader selection of beers, both on-
and off-premise. “It provides the consumer with a greater
range of options,” he said, “and in turn it allows more
competition. We’ve done well there, and we’re grateful for
the opportunity.”

Wetmore was
pretty happy about Newcastle, and represents the other side
of interesting times. “We finished up about 8%,” he said.
“We had a very good year, particularly in off-premise. We
finished the IRI’s up about 24.8%, a really strong year. We
moved up to number 14 overall in imports – and what was
really great, in dollar sales we were 11th.”

While 2OO4 was
not as strong for imports, Wetmore feels his brand has a
unique strength in that respect. “We are able to ride it out
better because we have a unique proposition,” he said.
“There’s not another beer like us, that offers more flavor
and drinkability. We’re unique as a brown ale for the most
part. We’ve got new advertising out in April that reinforces
that message; we’re the brand that fits in that slot. If you
want a beer that isn’t just lawnmower beer, but doesn’t
abuse your tastebuds, we’re there. It really ties into our
“Best of Both Worlds” promotion.”

Not to be
overlooked, Heineken USA is coming off 2OO4 with solid 5%
growth, and is ready for 2OO5 with some innovative
promotions and packages. “It would be premature to talk
about 2OO5 with only one month done,” said Tearno in early
March. “But we’re quite optimistic. We have some packaging
innovations coming online. We have a 4.75 liter draft
package coming on, and it’s not just a big can. It’s really
draft, with a CO2 widget in it. We did fridge packs for
Amstel Light that were very successful, the roll-out kind of
pack, and they’re coming for Heineken.”

The Heineken
promotions center on music, a follow-up to the Heineken
Downloads program. “We have the Music for Life program,”
said Tearno, “a consumer sweepstakes. Music has become even
more part of people’s lives in the US with downloads, it’s
part of the enjoyment of life. Heineken is as well, and it’s
complementary.”

There may be
some surges, there may be some new players, there may be
some strange goings-on, there may be price changes. But
imports aren’t going away. It shows just how solid imported
beers are when a growth rate that still outpaces the general
market is cause for concern. When your annual growth is
“only” 4.5 million cases, that’s the kind of “wrong” most
salespeople would be glad have a truckload of. Even in
interesting times.