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How do smaller beer companies battle the new consolidated power of domestic brewers? How about a consolidation of import marketers?

The decision of Mexico's Fomento Economico Mexicano SA de CV, Monterrey, and John Labatt, Toronto, to combine U.S. operations earlier this month will not only put Rolling Rock, Labatt Ice, Tecate and Dos Equis in the same marketing basket, it will give the combined companies greater clout in dealing with wholesalers and retailers, and offsetting their bigger rivals.

The move would immediately give the new company a more than 10% share of the U.S. import market. And the combined operation, for which a name has yet to be chosen, could further enlarge its clout.

Labatt President-CEO Hugo Powell acknowledged the two companies would welcome a third U.S. partner. The most likely would be Guinness Import Co. (which now distributes Dos Equis), Van Munching & Co. (Heineken and Amstel) or perhaps one of two Japanese brewers, Kirin Brewery Co. or Sapporo Brewery.

The consolidation wasn't fueled mainly by the U.S. market. Labatt was looking for expansion possibilities in the fast-growing Mexican market, while FEMSA wanted access to Canada and a stronger U.S. presence.

Rival Anheuser-Busch Cos. has invested in another Mexican brewer.

The deal calls for Labatt to pay $510 million to buy 22% of FEMSA Cervesa, FEMSA's beer unit, and gives it rights to acquire 8% more. FEMSA Cervesa will distribute Labatt's brands in Mexico, and Labatt will distribute FEMSA's brands in Canada.

However, it immediately helps in the U.S., where Labatt rival Molson Breweries has seen an increased presence in advertising and promotion since Philip Morris Cos. bought in and turned over U.S. Molson marketing to its Miller Brewing Co. subsidiary.

New Zealand importer Lyon-Nathan last year tied up with Coors Brewing Co.

Labatt now handles most marketing through wholly owned Labatt USA in Stamford, Conn., while FEMSA has most of its brands at its Wisdom Import Sales Co. in Irvine, Calif.

Hill, Holliday, Connors, Cosmopulos, New York, handles Rolling Rock and Labatt. Tecate is handled by DBC Ad Americus, Los Angeles. No agency changes were planned.

Mr. Powell said operational details have yet to be worked out, but the two offices could remain. He noted Wisdom's strength in the West matches well with Labatt's in the East and Midwest.

The move creates some unlikely partners. Philip Morris owns 7.9% of FEMSA and had hoped to make its own deal with the Mexican brewer.

FEMSA earlier did a similar joint venture with Coca-Cola Co. for its Mexican soft-drink unit.

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