The branding game: a disappointing quarter and a drop in domestic beer sales underscore the importance of Femsa CEO Jose Fernandez' mission to strengthen his family of brands and steal market share from Mexico's No. 1 beer maker

Latin CEO: Executive Strategies for the Americas, March, 2001 by Daniel J. McCosh

Fernandez also wants a wider distribution of Femsa's refrigerators, known as the "tumba," or tomb. These special coolers chill beer to barely above freezing. He says that same-store beer sales increased 15 percent with these coolers in pilot areas in Tijuana. Most beer is consumed within an hour after purchase in Mexico, so point-of-sale temperature is a key factor. "Soda you can drink warm, but beer you want ice cold so that your eyes water," says Salomon Smith's Corrou.

Export Front

Fernandez has made it clear that one of his priorities is to attack the US market -- especially the sunbelt area -- where climates and tastes are closest to those in Mexico, Again, Modelo stands in the way Its Corona brand has been the No. 1 export beer in the US since 1997, when it dethroned Heineken of The Netherlands. Femsa controls a modest 20 percent of Mexican beer exports, compared to Modelo's lion's share of 80 percent. The positive spin on this dynamic is that Femsa has only one way to go, and that is up. And it seems Femsa may be on the right track. In the fourth quarter of 2000, its exports increased about 14 percent, during the same time that domestic sales went down.

Femsa's top-selling brand in the United States is Tecate, which is aimed at Hispanic consumers. The company is also trying to position Sol as a leader for "Anglo" drinkers in the United States, along with Dos Equis. Still, the Company's market share in the US is minimal compared to Corona's. Femsa beers are distributed through a joint venture with equity partner Labatt. That Canadian brewer, now part of the Belgium-based Interbrew family, is also a 30 percent equity holder in Femsa.

Although some analysts say that Femsa's Canadian partner is probably more of a hindrance than help for US sales, Fernandez says that Femsa's relationship is the normal push-and-pull of any partnership.

As a subsidiary of Belgium-based Interbrew, Labatt has a long list of priorities in the United States. Interbrew is pushing its Stella Artois brand, while Labatt is also focusing on its own brands. Somewhere between these priorities is the promotion of Femsa beers.

The company has taken some steps toward a more direct relationship with southwestern US consumers. A recently launched pilot marketing initiative, known in corporate offices as its "rookie" program, has a team of about 80 Femsa specialists directly marketing its beers in target US markets. Fernandez says results have been surprisingly good. And Fernandez is quick to point out that Femsa beers are the best-selling and fastest growing beers in the Interbrew portfolio in the United States.

For The Right Price

Another problem Femsa must overcome is Wall Street's negative perception of its other interests, namely retailing, packaging and logistics. Femsa calls itself an "integrated beverage company," meaning that it produces, packages, markets and distributes its drinks, along with related items. Unfortunately, few of the related items are as profitable as the beverages. For example, the firm's retailing division -- Femsa Comercio -- brings in almost 13 percent of the company's gross revenues, but less than 5 percent of its operating profits. The division which delivers its beverages, Femsa Logistica, brings in 2.8 percent of revenues, but just 1.6 percent of profits.