UPDATE 3-Big Mexican brewers forced to open local beer market
MEXICO CITY, July 11 (Reuters) - Mexico's biggest brewers, Grupo Modelo and Cuauhtemoc Moctezuma, have agreed to face more competition to end a dispute over their long domination of the world's sixth biggest beer market.
Mexico's Federal Competition Commission (Cofeco) said on Thursday that Modelo, a unit of Anheuser-Busch InBev SA , and Cuauhtemoc, which belongs to Heineken NV , would have to reduce exclusivity deals they have with clients in Mexico over the next five years or face heavy fines.
The directive follows a longstanding complaint from rival SABMiller, which has struggled to make headway selling its brands, which include Miller, Grolsch and Peroni, in Mexico.
A spokesman for SABMiller declined to comment, though analysts said the decision would help it in Mexico.
The two Mexican brewers must submit to conditions that include limiting exclusivity deals in convenience stores and restaurants to a maximum of 25 percent of points of sale, reducing this to 20 percent over the next five years.
If Cuauhtemoc, the makers of beers including Sol, or Modelo, which produces Corona, fail to meet the conditions set out by Cofeco, it could result in a fine of up to 8 percent of the company's annual Mexican revenues, the watchdog said.
The ruling, which allows existing agreements to expire, was "not that harsh" Credit Suisse said in a research note, arguing it was positive for AB InBev and negative for Heineken, which has strong ties with local convenience store chain Oxxo.
SABMiller would have improved access to the market, but it still faced some barriers to Mexico, including its brand portfolio, Credit Suisse analyst Antonio Gonzalez wrote.
Aside from loosening the hold the two Mexican firms have on the market, the decision delivered a boost to microbrewers.
"All craft beers will enjoy open and unrestricted access to all restaurants, bars and cantinas in the country," Cofeco said.
Shares in both Heineken and AB InBev, the world's biggest brewer, closed up nearly 1 percent after the decision. Shares in SABMiller, the second largest brewer worldwide, were up by nearly 2 percent on the London stock exchange.
In future, all exclusivity agreements made by Cuauhtemoc and Modelo must be in written form, be of limited duration with their terms published in national newspapers, Cofeco said.
Restaurants and bars in Mexico have received a range of incentives for running exclusivity deals with the brewers, that extend from awnings, games, refrigerators, and, if sales are high enough, a discount on inventory purchases.
Plenty of Mexicans have looked forward to change in the market, which is a near duopoly for the two big brewers.
"The monopoly that Grupo Modelo and Cuauhtemoc have is really screwed up," said Paco Bernal, the dreadlocked manager at El Palenguito, a small, dimly lit mezcal bar in Mexico City's Roma Norte neighborhood, earlier this week.
In terms of the amount of beer consumed, Modelo accounted for some 56 percent of the Mexican market in 2012, with Heineken Mexico at 43 percent, data from market research firm Euromonitor show. SABMiller was back in third on just 0.3 percent.
AB InBev and Heineken have carved up much of Brazil's market as well as Mexico, which Euromonitor says is the world's sixth biggest market by volume and eighth biggest by value.
SABMiller has leading positions in the smaller Latin American nations such as Colombia and Peru.
James Mosher, an expert on the brewing industry at the CDM Group consultancy, said the Mexican decision had opened the door for SABMiller to make a big push into the local market.
"I'm sure SABMiller will come in with big discounts, lots of incentives for the retailers," Mosher said. "I would expect, depending on how effective the agreement is ... in ten years they'd be able to grab 10 percent of the market."
AB InBev this year completed its purchase of the half of Modelo it did not already own after settling a dispute with the U.S. Justice Department.
Dutch brewer Heineken acquired Cerveceria Cuauhtemoc Moctezuma, whose other brands include Dos Equis and Indio, from Coca-Cola bottler Femsa in 2010.
Femsa, which has a 20 percent stake in Heineken, operates Oxxo and has exclusivity deals to sell the Dutch firm's beers. Modelo has similar agreements with bars and restaurants.
Despite those agreements, craft brewers have been finding their way into the Mexican market little by little, said Alfonso Torres Cabello, the director of Cervefest, an annual event intended to link microbrewers with vendors and the public.
"There will be a large market for both segments of producers," Torres said.
Responding to Cofeco's decision, Cuauhtemoc said on its website that microbrewers were defined as companies making up to 100,000 hectoliters of beer per year.