Bloomberg News

Modelo to Raise Beer Prices in Mexico 3% on Average

August 19, 2008

Grupo Modelo SAB (GMODELOC), Mexico's largest brewer, said it's raising beer prices in the country an average of 2 percent to 3 percent to compensate for increasing grain costs.

Modelo, the maker of Corona beer, began raising prices for its retailers in Mexico this week and expects to complete the increase over the next two to three weeks, spokeswoman Jennifer Shelley said today in a telephone interview. Modelo doesn't control the price retailers charge consumers, she said.

Analysts and investors had expected Modelo to raise prices to ease the effect of grain expenses, which have risen much higher than the price increase announced today, Marco Reyes, an analyst with the Mexico City brokerage Ixe Casa de Bolsa SA, said in an interview. The boost also trails the pace of Mexican annual inflation, which was 5.39 percent in July.

``It's complicated at this moment to take higher price increases,'' Reyes said. ``Consumer spending is declining and any increase will hurt volumes.''

During the second quarter, Modelo's costs rose 8.6 percent to 9.52 billion pesos because of higher expenses for raw materials and energy, the company said. That caused operating income to drop 11 percent to 5.82 billion pesos.

The beer unit of Monterrey, Mexico-based Fomento Economico Mexicano SAB (FEMSAUBD) may increase prices in reaction to Modelo, Reyes said. At the end of June, Modelo had about 57 percent of the Mexican beer market and Fomento Economico, known as Femsa, had 43 percent, according to sales volume data compiled by Bloomberg.

``The market leader is Modelo, so they're the first ones to take the step,'' Reyes said. ``Certainly after this, Femsa will follow with something similar.''

Modelo, which is half-owned by Anheuser-Busch Cos., rose 1.10 pesos, or 2.2 percent, to 51 pesos at 4:10 p.m. New York time in Mexican stock exchange trading. Femsa rose 46 centavos, or 1 percent, to 48.73 pesos.

To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at tblack@bloomberg.net.

To contact the editor responsible for this story: Michael Nol at mnol@bloomberg.net.


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