Blame it on the economy
How is Grupo Modelo’s U.S. importer Crown going to explain a whopping 13 percent decline in export sales in the first quarter? Well, they are not. All they do is blame it on the economy and a price hike that took place in the first half of 2007. Who are they fooling?
No doubt about it, the U.S. economy is in trouble and consumers are feeling the pinch. However, it does not do Grupo Modelo’s U.S. business Crown Import (its joint venture with Constellation) any good to repeat the standard “oomegawd, it’s the recession” mantra while there are competitors around who are not doing so badly after all.
Beer Marketer’s Insights report that in the on-trade sector Modelo’s rival FEMSA has skipped the trend and increased sales, while Modelo’s major seller Corona Extra has continued its downward slide. Ok, the Wall Street paper shufflers will argue that FEMSA has slightly lowered its prices whereas Corona Extra, on average, has seen them go up. But hey, we are not talking about price increases in the high single digits. With all the price promotions going on the consumer would have noticed them hardly at all. Nevertheless, it is an undeniable fact that Grupo Modelo on a year-on-year basis has lost 12.8 percent in export sales. When it comes to export revenues, Grupo Modelo’s dropped 7.7 percent in the first quarter compared to the same quarter 2007. Crown Import registered revenues of USD 570 million compared with USD 618 million last year. In fact, the loss in the U.S. must have so deep that it could not be offset by rising export volumes to Latin America, Europe, Asia and increased domestic sales. Consequently, Grupo Modelo’s first quarter EBITDA was 6.9 percent below last year’s.
To date, the national U.S. press has refrained from asking the pertinent question: who is responsible for all this? It cannot just be the U.S. economy acting as culprit for Corona’s lacklustre performance given FEMSA’s counter-cyclical success. Perhaps it is just a matter of time before someone will have the courage to probe a bit deeper into the issue. Especially since Corona’s losses have far-reaching consequences. One can imagine how annoyed Anheuser-Busch’s top brass must have been when they admitted during the brewer’s first quarter conference call in April that equity income, or earnings from Anheuser Busch’s stakes in foreign brewers such as Modelo and Tsingtao, have fallen 21 percent year-on-year. After all, Modelo is half-owned by Anheuser-Busch.
Anheuser-Busch themselves have had their fair share of troubles during the first quarter: sales for the Bud family — primarily Budweiser and Bud Light — were down by low single digit percentages in the first quarter, with Michelob beers down by mid-single digit percentages. The cheaper Busch and Natural families of beers, meanwhile, were up about 1 percent.
Sales during the summer months will be crucial. Anheuser-Busch are planning to plunge more money into marketing this summer to strengthen Michelob and Budweiser beers. Advertising spending on the two brand families will rise 15 percent, it was reported.
