Gustavo Ballvé on October 23rd, 2009
Corporate Strategy, Food, beverage and tobacco, Industries, Investment Themes, Portfolio Management

#1) It doesn’t make sense to think about beer and soft drinks (carb and non-carb) in stand-alone terms anymore,

#2) It doesn’t make sense to think about beer/soft drinks without thinking about FMCG companies – especially food cies.,

#3) It smells like there is a growing convergence of Anheuser Busch-Inbev and PepsiCo that can force at least a SAB Miller/KO approximation (although it seems the first can be much more transformational and faster, independently of terms).

We have just read an interesting report by Credit Suisse that talks tangentially in some of these subjects and more specifically on FEMSA, Modelo and Coke. “Denial Gets Shallow in Mexico” is a must-read for those interested in AmBev and AB-Inbev (here’s a story that mentions it). Also, the report is very “OK, now we get it” about Ambev and Inbev’s superior management.

That said, KO doesn’t seem willing to integrate both beer and soft drinks so the creation of a SAB Miller + Coke + Femsa axis to counterweight ABI + Pepsi + Modelo seems hard to pull off. It also looks like SAB is the only one with real chances and intentions of buying Femsa. Modelo is geared towards integration of beer and CSD (carbonated soft drinks) in Mexico, they have started to distribute Nestle Waters with great success, and they could acquire Pepsi’s bottler in Mexico in the future. Coke doesn’t want to mix the two things – not because it isn’t good economically (in Brazil, Ambev’s share of soft drinks profit is 40% and growing) but because they (Coca-Cola Company) are not aligned with their distributors. Perhaps they don’t want to put their 53% Latin American EBIT margins in jeopardy if bottlers start paying more attention to beer.

It seems Pepsi is much more open-minded about this, starting to mix food and drinks in the US and now buying the bottlers. Pepsi is also very pleased with Ambev’s performance in soft drinks in Brazil and Argentina, so in the future they might envision combining ABI’s beer and their stuff in the same trucks… If ABI buys Modelo it’s highly likely that Pepsi would go along.

Links:

FEMSA in talks over beer deal – Reuters, Oct. 1st ’09

FEMSA weighs future of beer unit – Bloomberg, Oct. 2nd ’09

Mexico now the focus of global beer consolidation – Financial Times, Oct. 3rd ’09 (subscription required and well worth it)

Heineken’s last chance for Latin America – Financial Times, Oct. 25th ’09

Kraft has not lost its taste for rival – Financial Times, September 30th ’09 – great place to start FT’s in-depth coverage of the Kraft/ Cadbury imbroglio.

A window on Kraft – Wall Street Journal, September 30th ’09 (subscription required and worth it too)

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