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Top Bottling Exec: "There's Still a Lot of Room for Local Breweries"

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Top Bottling Exec: "There's Still a Lot of Room for Local Breweries"

Jose Antonio Fernandez, head of the largest bottler in Latin America, explains the "Most Interesting Man" ads and other competitive strategies.

What's it like to be the boss of The Most Interesting Man in the World? students asked Jose Antonio Fernandez, chairman and CEO of FEMSA, the largest bottler in Latin America. They were referring to the Dos Equis beer advertising campaign featuring a faux celebrity, a suave, 50s-something guy who dispenses wise advice based on his life's experiences. He always concludes with, "Stay thirsty, my friends."

Fernandez hopes the western hemisphere does stay thirsty. His $15 billion company with beer, beverage and retailing operations based in Monterrey, Mexico, has close to 100 beer and soft drink brands — it accounts for one out of every 10 Coca-Cola products sold globally — as well as the chain of Oxxo convenience stores in Mexico. The stock of the 119-year-old company is traded on the New York Stock Exchange. Today its Tecate beer is the fourth-largest imported beer in the United States, based on annual sales.

Fernandez

Fernandez told a student "View From The Top" audience in May the Interesting Man ad is part of the brewery's strategy to position Dos Equis as a product meant for upper-class consumers — not just "dumb guys. We want to give beer what it deserves and we have the best," he said. An increasing trend in beer marketing is to leverage the premium market, and the company is hoping the Interesting Man will move the label beyond the Mexican imports section — and beyond top-seller Corona.

Fernandez, who started with FEMSA in 1987, described how important execution is in the beverage industry, especially in distribution and pricing. He said he learned as a young man starting out in business that. "You have to control your sales, marketing, and agenda — that's where you make money."

The Oxxo chain, which at one time was a company afterthought and now accounts for 27 percent of sales, is integral to the distribution chain. It's grown from 300 stores to 6,300 and is the largest customer for FEMSA beers and Coca-Cola. It's a big advantage in Mexico, where the grocery store network is highly fragmented.

The format is being exported to Colombia, where FEMSA has opened five Oxxo stores in Bogota as a pilot project; a full-fledged launch could happen later in 2009, according to Reuters.

Because its home country distribution network is centered on the mom-and-pop nature of the business, FEMSA works mainly through partner Heineken USA to distribute the Tecate, Dos Equis, Sol, Carta Blanca, and Bohemia beer brands across the United States. In 2008, volume growth of FEMSA exports to the United States rose more than 9 percent, while U.S. beer industry volume declined, according to the company.

The company distributes Coca-Cola products in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Brazil and Argentina, making it the second-largest Coca-Cola bottler in the world. But Fernandez said the company almost sold the franchise back to Coca-Cola Co. in the 1980s — at a loss. "Thank God they didn't take it, even though we offered to sell it back at a discount," he said. The unit now accounts for 48 percent of sales.

Fernandez acknowledged that it faces a formidable competitor with Anheuser-Busch InBev, the leading global brewer. It owns a 50 percent share in Grupo Modelo, Mexico's leading brewer and owner of Corona.

"We are completely convinced that there will still be a lot of room for local breweries," he said. "You compete in every town with your brand, and that's how we compete against the giants." He added that FEMSA's presence in Brazil is "very important" and that the operation there has plenty of unused capacity.

FEMSA beer sales volume slipped 3 percent in Mexico in the first quarter, compared with the January through March period last year. Fernandez told Reuters last month that the economic slowdown is expected to hurt second-quarter sales, but the company will cut $250 million in costs to compensate.

With the Stanford audience he noted that the Mexican economy has been suffering — "from a crisis not created by Mexicans." A drop in travel and the swine flu scare have hurt domestic sales, and demand for U.S. exports has plunged as consumers here have cut back.

But Fernandez said he is most interested in the long-term potential of the company. "We are always making decisions to influence the numbers in the future, not in the next quarter," he said.

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