Thirsty for growth
The beer industry in Central America experiences a refreshing rise in activity

By Carolina Solís

Central America’s beverage industry has been invigorated by the arrival of several multinational breweries. In just the last five years, the region’s fermented malt industry has changed dramatically, with numerous acquisitions and alliances between multinational breweries and beer producing companies in the region.

Central America’s beverage industry has been invigorated by the arrival of several multinational breweries. In just the last six months, the region’s fermented malt industry has changed dramatically, with numerous acquisitions and alliances between multinational breweries and beer producing companies in the region.

The fermenting of the industry

Global brewer SABMiller, followed by the Belgian-Brazilian InBev and the Dutch Heineken, were the first to turn their gaze toward Central America, where an estimated 600 million liters (158.5 million gallons) of beer are consumed each year. Panama leads the region in consumption, accounting for approximately 55 liters (14.5 gallons) of beer per person each year and spending approximately $100 million a year on beer.

The evolution of the industry began in 2001, when South African Breweries (SAB), seeking to extend their field of operations, joined forces with Agrisal in El Salvador to create the holding company known as Beverage Company (BevCo). The role of BevCo would be to control the beverage companies Industrias Cristal, Embotelladora Salvadoreña, Corchos y Latas S.A. and Industrias La Constancia, which are all from El Salvador, and Cervecería Hondureña, which had been acquired by SAB a few months earlier for $537 million.

In 2002, SAB merged with Miller Brewing Co. in the United States, in a transaction valued at $5.62 billion to become today’s global giant SABMiller. In 2005, it acquired all of BevCo and the beverage companies it controlled, including the brewery La Constancia from El Salvador and its leading brand Pilsener. SABMiller also acquired South America’s second biggest brewery, the Colombian Bavaria. Some years earlier, Bavaria had acquired the Panamanian Cervecería Nacional y Refrescos Nacionales, thus SABMiller’s operations in the region were further extended.

Also in 2002, InBev made its mark through its Brazilian operation AmBev. In a joint venture with Pepsi’s regional bottler Central America Bottling Corporation (CABCORP), it invested $50 million to create Cervecería Río in Guatemala, which was recently renamed AmBev Centroamérica. The company also has a presence in Nicaragua and El Salvador and, in 2005, it started operations in the Dominican Republic, building a $100 million modern plant facility and launching its flagship brand Brahma.

Heineken also jumped into the Central American market by expanding to Costa Rica. The Dutch giant purchased 25 percent of the beverage division of the Costa Rican firm Florida Ice & Farm Co. (FIFCO), which produces more than 1.5 million hectoliters (39.6 million gallons) of beer a year and generated sales of $240 million in 2006.  Heineken also extended its field of operations in Nicaragua and Panama, following a 1993 merger between FIFCO and other Central American companies to create Consorcio Cervecero Centroamericano (COCECA), which invested in the Nicaraguan beer industry. FIFCO and Heineken, together with Panamco, also bought the Panamanian brewery Cervecería Barú in 2002.

These are not the only large breweries operating in the region. U.S. firm Anheuser-Busch is also present, through its famous Budweiser brand introduced in Honduras in 2006. In late January 2007, Heineken announced that it had reached an agreement with Anheuser-Busch to produce and market Budweiser beer in Panama.

“Panama and the surrounding region have witnessed major improvements in beer volumes since the beginning of this decade and this trend is expected to continue,” said Alejandro Strauch, Vice President of Anheuser-Busch International for Central and South America. “The production and bottling of Budweiser beer in Panama is a major achievement for the company, because it provides a starting point for expanding our brand to other markets in the region,” he told the Panamanian press.

Anheuser-Busch, based in St. Louis, Missouri, is the biggest beer producer in the United States, accounting for 49 percent of total beer sales nationwide. Anheuser-Busch also has a 50 percent stake in Grupo Modelo, Mexico’s leading brewery. Anheuser-Busch ranked number one among beverage companies in Fortune Magazine’s Most Admired U.S. and Global Companies list in 2006.

Another heavyweight in the beer industry is Mexico’s Femsa, which operates through commercial partners that import and distribute soft drinks, alcoholic beverages other products. Tecate is its flagship brand in Mexico, followed by Carta Blanca and Sol. “Sales in Central America have grown at double figure rates over the last two years, which is why we also expect 2007 to be a good year for our exports in the region,” said company sources.
New flavors

The sector is also seeing activity in new branding and marketing strategies.
AmBev, for instance, changed its name from Cervecería Río to AmBev Centroamérica in July 2006, as part of its drive to align the region with its corporate brand. During the presentation of the new name, Luis Miguel Castillo, Vice Chairman of CABCORP’s Board of Directors, pointed out that the change was yet another step aimed at the company’s consolidation in Central America. “The region has posed challenges that have given us the opportunity to inject vitality into the market and explore new options for consumers in Guatemala, El Salvador and Nicaragua,” he said.

Maria José Villanueva, Corporate Communications Manager, added: “We invested and arrived in Central America over four years ago, after seeing the potential for economic growth and the region’s institutional stability, as well as the benefits of a Free Trade Agreement and the integration of the region. It is satisfying to see how we have invigorated the Central American beer market with a young and dynamic new business style.”
In addition, last year AmBev launched Brahva Beats, a brand with a sleek container aimed at younger drinkers. Company director Marcelo Pera notes “This is how the beer market can be livened up, through our constant innovation.” The product, characterized by revolutionary packaging, was launched after a year and a half of project development and investment of more than $3 million. The company also introduced the leading Argentinian brand Quilmes as part of a special promotion in an international package.

SABMiller, for its part, introduced the brand Barena to Colombia, Peru and Puerto Rico through the brewery Cervecería Hondureña in 2007. The arrival of new brands like Pilsner Urquell, from the Czech Republic, and others from Italy, is scheduled for El Salvador.

 Coming to a head

Central America is also experiencing an adoption of trends first seen in the United States and Europe. “Light” or diet drinks are just one example. In 2006, FIFCO launched a light version of its Imperial brand. Corporate Relations Manager Carlos Francisco Echeverría notes that “even though there is definitely a niche for these drinks, it is still not as big as in the U.S. and European markets. It will grow to the extent that people become more concerned about their weight.” The introduction of new brands and increased market share are other directions in which the industry is moving.

The topic of social responsibility is also gaining in importance in the beer industry. Last year, SABMiller launched a ten item list of its priorities for sustainable development in Panama. The goals set out in the list include reducing environmental impact, saving water in production, and minimizing the impact of activities on neighboring communities. The drive involves almost 200 volunteers.

How the market will be affected by trade agreements, such as CAFTA-DR, remains to be seen. “There is a tariff removal program that will take ten years so that beers from the United States can enter duty free. No short-term increase in these products has been forecasted”, said Roberto Álvarez, Communications Manager for SABMiller in Honduras. Echeverría of FIFCO does not predict any significant impact. “Imported beer is already subject to low import duties, or none at all if it is Central American. Nonetheless, if CAFTA-DR invigorates the economy, then it could possibly mean increased per capita consumption. Economic stabilization and growth, along with better distribution of wealth, will boost consumption especially in countries like Guatemala, El Salvador and Nicaragua.”

This is without doubt what producers are aiming for: increased consumption. And as consumers of industry trends, we’ll report more headlines and strategies on how they plan to achieve this in future issues.

 

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