Capping off a three year probe, by a 4 to 1 vote the Federal Competition Commission (CFC) in Mexico has ruled that future exclusive contracts that Cuauhtemoc and Grupo Modelo have with retailers be limited in nature. The two brewers' exclusive contracts with retailers account for about 85% of total volume. The CFC ruled that craft brewers (such as Cerveceria Minerva and Primus) that manufacture beer in Mexico (under 100m hectos a year) should have unfettered access to restaurants, bars, and cantinas, and that big brewers' exclusive contracts with accounts should not exceed 25% of the total outlets they do business with, which is reduced to 20% over five years. Current contracts are allowed to continue in effect without change until they expire.
Contracts shall be written, have a duration, and be transparent to all, and the failure to comply would result in a fine of up to 8% of the annual income in Mexico. This is a partial win for craft brewers in Mexico, but it does allow Grupo Modelo and Cuauhtemoc to keep some of their biggest contracts in place.
Heineken said in a release that it will abide by the new rules and "standardise and simplify some of our future contracts with customers." Significantly, the CFC allowed some exemptions for Heineken, including the all-important Oxxo c-store chain, as well as hotel chains and sponsored events. Oxxo is 15% of Cuauhtemoc's total Mexican sales, according to Reuters.
So it appears as though the compromise still allows Heineken and ABI to duke it out in the chain accounts while allowing small brewers more access to the up-and-down the street business.
EARLY WARNING SIGNS: WILL DEEP CRAFT DEALS HURT IMAGE?
Getting some smattering of hot summer discounting ..... for craft. In one example, a regional craft brewer is discounting deep to get floor space for a particular chain. Consider this deal:
This beer normally sells for $28 a case PTR and gets a $17.49 PTC on 12 packs. With a five case QD, they give $4 a case off to get a $14.99 PTC. They give $5.50 off with a 10 case QD to get to $13.99 PTC, and they give over $7 a case off with 15 case QD to get to a $12.99 PTC on 12 packs. That's cheap craft beer, folks. That last discount means the distributor is making a little over 21% gross margin.
"This is what will bring the craft industry down," says one distributor. "I am seeing more and more of this pricing with smaller craft players," adding that it reminds him of the crazy deals that legacy brewers like G. Heileman and Stroh did in the 80s to stay afloat. But of course it's a run down the rabbit hole from which it's difficult to emerge unscathed.
RED NETWORK: WE CAN SELL COMPETING PRODUCTS
Paulaner HP USA's new policy of blocking sales to A-B distributors drew some commment, best summed up by this A-B distributor:
"That's short-sided German stubbornness. We sell and grow brands that compete with ABI in our own house. Under the 'Busch Administration' there was more of a strong arm about competitive brands than there is now. With the sale of AB to Inbev, ultimately what ABI ended up losing is wholesaler loyalty."
Until tomorrow, Harry
"Washington is the only place where sound travels faster than light."
-C. V. R. Thompson
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