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04.2006

Massachusetts Beverage Business

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Article By: Lew Bryson

Like any other good thing that really gets rolling, Cinco de Mayo is getting complicated. First it was a memorial to Mexican pride, a battle won against the French invader. Then it was a touchstone for Chicano pride, something to encourage Mexican-Americans to be proud of the Mexican part of their identity. Then it became a general celebration of Latino culture, and then a party that everyone invited themselves to - and now it's a sales opportunity.

Beer sales for Cinco de Mayo are mammoth in southwestern cities like Los Angeles and San Antonio, where beer wholesalers, importers and brewers sponsor huge celebrations and parades. It is the biggest promotional season for the biggest Mexican beer, Corona. Cinco is huge, and like the Mexican-American population, it's growing.

As George Bush could tell you - 41 or 43 - when you make it to the top, everyone's got issues. "Cinco isn't the 'real' Mexican independence day," people will tell you. "It's not a holiday anymore, it's become an excuse to sell beer, and we need to take it back" Latino activists complain. "It's not even a holiday in Mexico," know-it-all's smugly proclaim.

Any of this sound familiar? Sure, begosh and begorra, it must be familiar to a Bostonian, for faith, 'tis the same things folks say about the wearing of the green on St. Patrick's Day. Just as everyone's Irish on March 17, when some folks will eat the only corned beef they'll have all year, everyone sticks a lime in their beer and eats nachos on Cinco. And just as St. Pat's is a much bigger holiday here than it is in Ireland, Cinco practically goes by unnoticed in Mexico. So what? I was at a big Groundhog Day celebration at a bar in Philadelphia, hardly a major holiday. The same bar has created a huge celebration around Friday the Thirteenth, with both floors packed to the gills from mid-afternoon to midnight. Cinco isn't celebrated in Mexico? Friday the Thirteenth isn't celebrated anywhere!

Some people get completely wrapped around the axle about this. The "it's not the real Mexican independence day" crowd wrings their hands as badly as the folks who insisted on reminding us that January 1, 2OOO wasn't "the real millennium" - that was on January 1, 2OO1. Did you notice anyone partying extra hard on December 31, 2OOO because it was the "real millennium?" No, and you won't hear about many people celebrating the "real Mexican independence day," September 17, either. Cinco is an American holiday, and we celebrate it when and how we want.

That goes for the complaints of the anti-alcohol and Latino heritage activists as well. These folks are horrified that Cinco de Mayo is "used to sell beer". They have press conferences, and proclaim that they're going to take back Cinco and organize beerless counter-celebrations. But the mainstream Cinco fests all have beer sponsors, and still continue to grow.

"We try to always promote and sell beer in a responsible way," said Don Mann, marketing group general manager for The Gambrinus Co. (eastern US importer for the Modelo brands, which include Corona and Corona Light). "Beer as a product is promoted throughout the year, other holidays included: Christmas and New Years' Eve, the 4th of July. We've always been very cognizant and proud of the way we've sold and promoted the product."

Dan Tearno, vice-president of corporate affairs for Heineken USA (importer for the FEMSA brands, which include Dos Equis and Tecate), echoed that. "The key to any beer promotional activity any time of year is responsibility," he said. "We do all our promotions in a responsible fashion. The POS we use has a responsibility statement on it, following the same policy as Heineken. Beer is sold all year long, and whenever we sell it we want to do that in a responsible fashion."

After all, no one seems to mind that President's Day is used to sell major kitchen appliances, but in the beer business you're probably used to that double standard. Holidays are used to sell goods by everyone with the creativity to make a hook, a tie-in, for their particular product, and brewers and retailers are just as smart as anyone else.

"It's the most important promotion for us every year," Mann said. "It kicks off the summer season for our brands, and for Corona, that's particularly important. There's such a strong seasonality for our brand. We have an association with warmer weather, a warmer climate. Some customers may move away from the brand during colder months. Cinco reintroduces the brand to them.

"That's been true since we started doing the promotion in the late '8Os." he recalled. "At the time, other brands were not associated with Cinco, weren't promoting it. When we first developed it, it was not a major program, and we were able to build it from nothing. That allowed us to exert a great degree of ownership on it. Now it's much more competitive, everyone does it, but it's strongly linked to our brand. That works to our advantage."

What works to the advantage of the importer, works to the advantage of the wholesaler. "Cinco de Mayo launches us into summer," said Tim Ullman, who is import portfolio manager for Atlas Distributing in Auburn. "We load up in April, get ready for May, and take it into summer. Business picks up; you can see the numbers pick up big-time in April and on into May."

"We get a bump, I wouldn't call it a big bump," said Steve Doherty, director of sales and marketing for Quality Beverage in Taunton. "But it's a nice holiday to have in early May. Having an event like is something to build progress on. Corona has a great program, a big program, one of their heaviest programs."

Corona has another big promotional program in store for Cinco 2OO6, according to Mann. "We will support the Massachusetts Corona retailer with TV and radio spots," he said. "We have new radio creative breaking this year; general market creative and Hispanic creative as well. Both spots are music-based, the Hispanic spot uses a different style and approach; they're geared towards different markets.

"As always we will put out a plethora of promotional items," he continued. "There's so much available for retailers to take advantage of. The promotional pieces become the representative piece for the program; they speak the loudest. The promotion is based on last year's, it builds on that: Get Your Cinco Started. It's very colorful, a tropical Mexican heritage piece. The Corona Cinco pennants are very colorful, and tend to be left up all year. That's a good thing for us."

Corona has another big thing going for it in 2OO6, a part of the magic that had been missing recently: sales momentum. "We have a lot of momentum going into this year," said Mann with well-deserved satisfaction. "Our business was up over 12% for 2OO5 for the wholesaler group, and in January we're up 27% for The Gambrinus Company. Our business has been coming back and regaining momentum after price increases. Corona has outpaced the import segment, it's driven the category. It's gathering steam as retailers and consumers adjust. There's a bit of sticker shock when it first comes out, and you hope that wears off. It has.

"Our Coronita 7oz. biz has gone very well," Mann said. "We have a new party package of twenty-four 7oz. bottles, done in colorful tropical colors. We're bringing that out in the summer. We've always been associated with tropical escape, now we're bringing that to our retail packaging."

It's not all Corona, either. "The other big driver last year was Modelo Especial," said Mann. "It's just been on fire, it's exploding. We did 14.6 million cases in 2OO5, and we're on track for 2O million cases in 2OO6, which would make it the 3rd largest import in the country. That probably surprises some retailers in Massachusetts. It blew by Corona Light. Corona Light was up 13.5%, but Especial was up 53%. It's got a very strong following in the Hispanic market, but we're seeing crossover. We introduced a 12-pack bottle package, and we got tremendous exposure in grocery stores. That put it in a crossover market, and is helping to fuel the growth."

Corona doesn't just overshadow other Grupo Modelo beers, it overshadows the other Mexican beers: Dos Equis Amber and Lager, Tecate, Bohemia, Sol, and Carta Blanca, the beers of the FEMSA brewery, which are now imported by Heineken USA. But Heineken USA had a great first year with the brands, and has momentum of their own going.

"There are lots of synergies in the business," said Tearno. "The fine Mexican brands are a complement to the Heineken brands. Heineken's strong in the Northeast, the Mexican brands are strong in the Southwest. Our folks are learning how to sell that portfolio. They're great brands." "We're very happy," confirmed Eduardo Casas, director of Mexican brands for Heineken USA. "The brands are fully integrated into the overall portfolio. It says a lot about the organization. We had a pretty limited portfolio. But the addition of these five brands adds a lot of consumers in different parts of the country. We're excited about having them. The Mexican beer segment is a growth segment. To have Heineken, Heineken Lite, and the Mexican brands clearly puts us in a leadership position for the future."

FEMSA may be new to Heineken USA, but they get Cinco, too. "It's like St. Patrick's Day," said Casas, "the one day everyone celebrates being Mexican. It's amazing when you go in the bars on Cinco: they're having fun like they're in Cancun. Everything that's Mexican is so hot, the Mexican influence on the US is being felt everywhere in the culture: food, art, music, movies. With the growing Hispanic population, that's only increasing across the country. And Mexico's one of the biggest vacation destinations."

What do they have to take advantage of that? "We have a full-brand lineup promotion for Cinco," Casas promised. "It can be tailored for a specific brand or the wholesaler family. That will be out in April through Cinco."

Tecate is the portfolio's best seller nationally, but things are different in Massachusetts. "In the Boston area, Dos Equis Amber does very well," said Casas, "and Dos Equis Lager is growing. The brands have some clearly distinct strengths within themselves. The beauty of the brand, the Dos Equis brand, is that it's also sold on draft. The other Mexican beers are not, and that's a big plus."

Don't forget the "dark horse" brands of either brewer. "Have you ever had Bohemia?" asked Casas. "The beauty in Mexican beers is the drinkability, the back of the throat is always clean. But Bohemia has more body, more malt, it's more a European style of beer." Carta Blanca, Sol, Pacifico and the "dark Corona", Negra Modelo, all represent opportunities for a customer who's looking for "something different".

Looking at the numbers, though, it's still largely a Corona world when it comes to Mexican beer. In fact, as Tim Ullman put it, "Corona now targets all consumers. Where before it was a summer, Mexican beer, it's bigger than that. It's not really a 'Mexican' beer any more." Corona is the largest imported beer by far, and it's in the top ten of bestselling beers in the US market overall. It has made Mexico the third-largest beer exporting country in the world, after Holland and Germany. Success like that should be something to make Mexican-Americans as proud as Cinco de Mayo. That's something to celebrate.

A TALE OF TWO IMPORTERS Corona sells an image of a vacation in a bottle, relaxed enjoyment on a warm beach. The images are tranquil rather than frenzied. But there are storm clouds out over the ocean, and the waves are rising - at least for one part of the Corona empire.

Grupo Modelo, the Mexican brewer of Corona, has relied on two importers to cover their American marketing: Chicago-based Barton Beers in the west, and The Gambrinus Company, a San Antonio company, in the east. The model has worked, and Modelo has made money hand over fist as the two importers broke the US beer market wide open with an energetic blend of "vacation in a bottle" imagery and intense local promotion. Corona did so well that its coattails have brought along success with other Modelo brands: Corona Light, Modelo Especial and Negra Modelo.

But the relationship between Grupo Modelo and Gambrinus turned sour. Modelo 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". To be fair, it would have been hard to call it anything else. Alvarez declined the offer.

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, filed for arbitration with the International Court of Arbitration of the International Chamber of Commerce in Paris. "It's an entity that's been agreed upon in the contract for disputes," explained Don Mann. "It's not a court, it's a private organization."

Gambrinus issued a statement in mid-2OO5, saying that they expected a decision by the fall of 2OO5, and refused to make any further comment on the issue. Obviously, that date has come and gone.

"It's still pending," said Mann. "All the interested parties are still waiting for direction to come back from the arbitration party. They've been working on it for quite some while. We were originally expecting a much earlier decision, but it's more complex that it might appear. We remain confident. It's not a performance issue, that's clear."

And that's as much as anyone has heard on the matter for eight months. Is it something to worry about? Probably not. "The wholesalers aren't that nervous," said Steve Doherty. "We've got rights to the brands that we paid for. We have no issues with Gambrinus, but we will continue to get product. Whether the importer is Gambrinus, Anheuser-Busch, whoever, we'll get beer."

Meanwhile, FEMSA had its own importer problems back in 2OO2. The brands were being imported by Labatt USA, which was then taken over by InBev when that company bought Labatt. 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 US 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 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, a major expansion of that company's portfolio.

It has been a happy marriage. "Transitions are always a slow start," noted Dan Tearno. "But at our national distributor conference, the FEMSA officials were praising the transition as one of the best in the business in decades. There's usually a drop, but we were up high single digit growth total on the brands in 2OO5, and the momentum increased as the year went on."

That's the story on the two portfolios. FEMSA's happy in their new home, while Gambrinus is waiting to see if they're going to continue to bring you Grupo Modelo beers. As one industry source told me, "The contract's up December 31, so people will have to know something well before that." Maybe we'll hear something by - Cinco de Mayo.

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