In a fast-consolidating global beer industry, Grupo Modelo SAB Chief Executive Carlos Fern?ndez is trying to keep his company in the family.
Modelo—whose brands include Corona Extra, the best-selling imported beer in the U.S., and Modelo Especial—is one of a dwindling number of family-controlled beer dynasties. The publicly traded company, which was launched in 1925, watched last year as its main rival, family-controlled Femsa Cerveza, was snatched up by Heineken NV.
Analysts predict that the Mexican brewer’s controlling shareholders will face increasing pressure in coming years to sell their stake to Anheuser-Busch InBev NV. (When InBev NV purchased Anheuser-Busch Cos. in 2008, it inherited Anheuser’s 50.2% noncontrolling stake in Grupo Modelo.)
After weathering the sluggish recovery of the Mexican economy and a U.S. beer-industry slump, Modelo’s current strategy includes introducing new products in the U.S., aggressively defending its No. 1 position in Mexico, where it controls about 55% of the market by volume, and looking for expansion opportunities overseas.
Mr. Fern?ndez, the great-nephew of one of the company’s founders, is also a soccer enthusiast and father of five. The 44-year-old recently spoke to The Wall Street Journal at the brewer’s U.S. office in Chicago about Mexico’s economy, Modelo’s relationship with Anheuser and his favorite beer. Excerpts:
WSJ: Your sales in Mexico were up 5% in the fourth quarter. Is demand starting to improve?
Mr. Fern?ndez: Last year was really tough. I’m starting to see that the consumers are willing to spend more again on our beers in the Mexican market.
I would say volume growth [in 2011] will be in line with GDP. And revenue growth, well, I certainly hope it’s going to be above that, because we are raising prices [in line with inflation].
WSJ: You’re dealing with rising commodity costs. Which commodities will be most challenging this year?
Mr. Fern?ndez: It’s raw materials, specifically wheat, corn and barley. Then it’s aluminum and gas. All these are moving and getting big increases.
WSJ: The company has said it may start hedging against the Mexican peso. How much of a problem for you is the stronger peso?
Mr. Fern?ndez: I’m happy the Mexican economy is strong, but unfortunately for the business model, [the stronger peso] puts extra pressure on the management to deliver better results year after year. For instance, I’m selling more cases of beer in dollars, but receiving fewer pesos. Since my company reports in pesos, that doesn’t help much.
WSJ: What impact is the violence in Mexico having on your company?
Mr. Fern?ndez: Security is an issue. We have been investing more money than we used to on that. But I believe that our government is handling it in a way that, within time, order will come in many regions.
WSJ: What are your priorities in the U.S.?
Mr. Fern?ndez: One of the key points here is how well we balance our portfolio of brands. We have been able to bring innovation to the market with certain packaging styles, and new brands such as Victoria (introduced in the U.S. last year).
WSJ: Corona Extra went through a rough patch in the U.S., with volumes down for three years until it was about flat last year. Have you put to rest the concerns about the brand’s health?
Mr. Fern?ndez: You always have to be concerned about the brands you manage. If you feel really comfortable, it’s the start of disaster. Corona is still a unique brand, which reflects a different lifestyle. And this is not the first time that we’ve gone through a bump with that brand. I’m very confident we’re going to be able to make it grow.
WSJ: Can you maintain the double-digit sales growth for Modelo Especial, the No. 3 import brand in the U.S.?
Mr. Fern?ndez: I cannot say that we are going to repeat another year of double digits, but we’re targeting everything we can to keep that momentum going.
WSJ: Outside of the U.S., where else do you see strong export opportunities in the years ahead?
Mr. Fern?ndez: One of our goals is we want in the next [several] years to have almost 50% of our revenues coming from foreign markets. Today it’s 40%. Australia is having very good momentum. I think Asia will be very important for us going forward. Latin America has been really a surprise for us in many ways. Countries such as Chile, Argentina and Colombia [have shown] double-digit growth.
WSJ: Would your family and the others who control Modelo consider selling to Anheuser-Busch InBev?
Mr. Fern?ndez: I cannot speculate on what’s going to be the position of all the controlling shareholders, but what I’m certain about is three things. They are very happy about the performance of the company. They’ve asked me to continue working based on performance, but also [to expand the company’s existing operations] and just getting the company where everyone wants it, which is a better company among the top 10 [brewers globally].
WSJ: How healthy are relations with Anheuser-Busch InBev?
Mr. Fern?ndez: We are starting to develop that relationship. I believe that going forward it has to be strengthened based on communication, based on what is better for Grupo Modelo, as they are part of our board and important shareholders. These are the first stages of getting to know each other and so far it has been very good.
WSJ: What are your main management principles?
Mr. Fern?ndez: I like to be respectful with everyone. Open communication. Talking and communicating as much as we can. The other one, I’d say, is trust. You have to trust the people that surround you. I have a great team around me, and the results are basically a reflection of the efforts everyone makes.
WSJ: What’s your favorite beer?
Mr. Fern?ndez: Victoria. It’s a well-balanced beer with a distinctive taste, a distinctive color. It’s also a little bit sweet, so I really enjoy it.
|Net sales, in billions*||Profit, in millions*||Employees|
|Grupo Modelo SAB *Figures converted from Mexican pesos, 0.0834 rate|