TITLE PAGE: GRUPO MODELO AT THE BEGINNING OF THE XXI CENTURY CASE STUDY

Author: Professor Miguel Angel Llano Irusta Affiliation: Full time Professor in Operations management of the Instituto Internacional San Telmo Business School; Part Time Professor in Operations management at IESE Business School; PHD on Administration by la Salle Mexico, MBA by IESE Spain, Diploma in Agribusines/Agriceutical Seminar 2002 & 2007 Harvard Business School Boston U.S.A., Industrial Engineer by Universidad Panamericana Mexico Adresss: Instituto Internacional San Telmo Seville Spain Phone 0034-954975005 Fax 0034-954958840 mllano@santelmo.org Review copy for use of the IFAMR. Not for reproduction or distribution. Date: 23/04/2007
This Case has been made thanks to Instiuto Internacional San Telmo Agribusiness Department Advisory Board, formed in November 2006 by the following companies: AECOC, AGRCOLA SAN MARTN, AGRO SEVILLA ACEITUNAS, C.C. CARREFOUR, CAJA RURAL SUR, CAMPOFRO ALIMENTACIN, S.C.A. HOJIBLANCA, COVAP, COVIRN S.C.A., DIAGEO ESPAA, FIAB, FRIMANCHA, GONZALEZ BYASS, GRUPO GALLO, HEINEKEN ESPAA, GRUPO YBARRA, INVERALIA, LANDALUZ, MERCADONA, OSBORNE Y CA, GRUPO EBRO PULEVA, RABOBANK, RENDELSUR, ROYAL SAT, BODEGAS WILLIAMS & HUMBERT.

EXECUTIVE SUMMARY
Grupo Modelo, the Mexican brewery of the famous Corona beer, was established in 1925 in Mexico. In the beginning of the 21st century it led the Mexican market in the production, distribution and sale of beer 57% market share, and Corona is the leader in the USA, and Canada importation beer segment market since 1998, and also is available in more than 150 countries where is recognized as a premium brand. The former Grupo Modelo vice-president of international sales, specifies the ambition further for the international market: "Our target has always been the total globalization of the brand The most relevant issue on the case has to be with the strategic operation model that Grupo Modelo has, in order to be simultaneously leader in Mexico (selling great volumes of beer with low profit through a net of 550 distributors and an integrated production system) and also leader in the biggest beer market on the premium niche: USA & Canada (selling very expensive remembers in a bottle with a lemon inside of vacations, fun and sun). All the factories are located in Mexico, and every year the Benefits over Sales increase due to the reduction of the Operation Costs (every thing is done in Mxico) and the performance in the raw material cost (with the monoproduct strategy in which Corona represents 60% of the Mexican sales and 75% of the international sales) The success of Corona in the US and Canada begun in 1980s and has become the top imported beer brand since 1998 , due to: 1) The positioning of the beer on a niche market strategy with high prices. 2) The focused to bring to consumers memory those beach vacations in a neighboring country. 3) The product itself: identical to the one sold and produced in Mexico. By the year 2003, more than 90% of its exports went to the US and Canada so Grupo Modelo top management decided to concentrate on tackling the non NAFTA market (specially the European market). The target was clear: 1) The goal was to repeat the success that Corona has had in the US 2) To beat Heineken (their main competitor) on their home turf. The data presented in this case constitute much of the basis for decisions that Grupo Modelo will make about the non NAFTA market in the near future.

ABSTRACT AND KEY WORDS

ABSTRACT Grupo Modelo, the Mexican brewery of the famous Corona beer, was established in 1925 in Mexico. In the beginning of the 21st century it led the Mexican market in the production, distribution and sale of beer (57% market share with a low profit and volume strategy), and Corona is the leader in the USA, and Canada importation beer segment market since 1998, and also is available in more than 150 countries where is recognized as a premium brand. All the factories (integrated process) are located in Mexico, and every year the Benefits over Sales increase due to the reduction of the Operation Costs (every thing is done in Mxico) and the performance in the raw material cost (with the monoproduct strategy in which Corona represents 60% of the Mexican sales and 75% of the international sales). KEY WORDS Operation Costs International Integrated Supply Chain Premium Brand Volume Strategy

GRUPO MODELO AT THE BEGINNING OF THE XXI CENTURY1

In 2003 Grupo Modelo, founded in Mexico in 1925, was the leader in the production, distribution and selling of beer in Mexico. On December 31st 2003, it had a total market share (national and export) of 63.1%. It had seven beer plants in the Mexican Republic, with a potential capacity of 51.0 million hectolitres of beer per year. Its product portfolio, consisted of ten brands, including Corona Extra (the worlds best selling Mexican beer marketed as Coronita in Spain), Modelo Especial, Victoria, Pacfico, Negra Modelo and others of regional character. It exported five brands to more than 150 countries and was the exclusive importer in Mexico of the beers produced by the American company Anheuser-Busch, among which were included the brands Budweiser and Bud Light. Since 1994, Grupo Modelo had been quoted on the Mexican Stock Exchange. Its shares, from that date, had been revalued by 500%. On November 13th, 2003 Grupo Modelo, started quoting in Latibex, the Euros market for Latin-American companies in Madrid Stock Exchange, with the intention of launching the negotiation of its shares among Spanish and European institutional investors. Since 1998 Corona had ranked first in the United States, among more than 500 other imported beers, after having ousted Heineken from the first position which it had held since the abolition of Prohibition in the 30s. In 1993 Grupo Modelo and Anheuser-Busch became a joint venture, in which Anheuser-Busch obtained the option to raise their shares up to 50.2% of the group shares, a maximum 35.12% of Grupo Modelo shares and up to 23.35% of Diblo2 shares. The vision of Grupo Modelo was to become the global market leader for Latin American beer leader and its mission was: To make, distribute and sell a quality beer, with an excellent service, at a competitive price, optimizing resources, surpassing customer expectations, with the support of all the staff, suppliers and distributors, increasing the company profitability, protecting the environment and cooperating with the progress of the community and of the country. Valentn Dez Morodo, former Vice-President of exportation and national sales of Grupo Modelo, stated: Our target has always been the total globalization of the brand,... We want Corona to be the Coca-Cola of the beers. The challenges of Grupo Modelo at the beginning of the XXI Century have led it to consider: What is the basis of domestic success and success in the USA? What is the role played by its partner Anheuser-Busch? What are the risks and advantages of production
Case belonging to the Investigation Division of Institute Internacional San Telmo, prepared by Professor Miguel Angel Llano Irusta, intended to be used as the basis for class discussion, rather than to illustrate, either effective or ineffective handling of a management situation. Copyright of this translation April 2007, "San Telmo" International Institute editions. No part of this publication may be reproduced, totally or partially, without the expressed permission of "San Telmo" International Institute.
2 1

Holding Company owner of Grupo Modelo assets.

solely in Mexico? What are the risks of being an almost practically single-product company? Is it possible to emulate the American success in 148 other countries? Is the Corona consumer a global consumer? Can the same marketing mix be applied in all its markets? Are its subsidiaries -Iberocermex and Eurocermex- necessary? How could Grupo Modelo be affected by the exclusive import treaty made between Heineken and FEMSA for the American market?

THE HISTORY OF THE COMPANY

On March 8th 1922 the Cervecera Modelo, S.A. was officially established and production began three years later. At the beginning, its area of influence would be Mexico City and its suburbs. The first brand produced was Modelo beer and a month later Corona was introduced. The main player in the history of the company was Pablo Diez Fernndez. In 1913 he was one of the shareholders that founded Leviatan SA, the first compressed yeast factory established in Mexico. In 1930 he became the General Manager of Cerveceria Modelo, leading the expansion of the company, which made it the most modern and the one with the largest capacity in the Mexican Republic. In 1932 and 1933 the Mexican beer industry experienced its worst years of the XX Century when production fell to 42.5 and 53 million litres respectively. However, in 1935, it was able to acquire the brand and properties of Cerveceria Toluca y Mexico. From then on, Victoria, the oldest and most traditional beer brand in the history of the country, became its standard bearer in the battle for the popular market. In the mid 40s, Corona introduced a new embossed label (for its transparent long necked glass bottle), which unlike the former label, never stained nor fell off. A fleet of delivery trucks travelled around the streets, roads and sidewalks of Mexico, delivering and collecting the Corona beer bottles. By the year 1956, Cerveceria Modelo was already the Mexican beer industry leader, with 31.6% of the national market, in contrast to the 29.9% share of Cuauhtemoc Beer, the 24.3 share of Moctezuma Beer and the remaining 14.2 of the other beer factories. In 1986, the two main competitors of Grupo Modelo (Cuauhtemoc Beer Factory and Moctezuma Beer Factory) merged to form the biggest beer company in Mexico, with a market share of 55.1%. It was at this time when Grupo Modelo, taking advantage of its new competitors financial weakness after the merger, began a very aggressive pricing campaign. However this strategy impacted on the companys profitability, because prices, in real terms, dropped by 14.5%. In 1987, the Government had to intervene to contain the price war and in December that year prices were frozen. It was not until 1991 that Grupo Modelo was able to achieve the leadership of the Mexican market. In its 75 years of existence, Cerveceria Modelo had multiplied its production capacity around 400 times, increasing from 10 million litres in 1925 to 51 million hectolitres in 2004. Moreover, it expanded its infrastructure by two means: the acquisition of previously established companies (Pacifico Beer Factory, in Mazatlan, Sinaloa, and La

Estrella Beer Factory, in Guadalajara, Jalisco, in 1954; Northwest Cerveceria Modelo, in Obregon City, Sonora, in 1961 and Cerveceria Modelo from Torren, Cohahuila in 1979) and the building of new factories (Cerveceria Modelo in Guadalajara, in 1964, Tropic Beer Company, located in Tuxtepec, Oaxaca in 1979 and Zacatecas Beer Company in 1991). Virtually 100% of the raw material (boxes, bottles, caps, transport equipment, etc) used for the production and packaging of Grupo Modelo products, came from factories integrated within the Company. At the same time as its infrastructure was growing, Ceveceria Modelo was also acquiring other supply and service enterprises, like the new National Glass Factory (1968), Barley and Malt (1979) and Inamex of Malt and Barley (1981). In June 1993, the Grupo Modelo shareholders closed an investment contract with the leading beer group in the world, Anheuser-Busch Companies, producers of Budweiser and Bud Light. By this agreement, the American company acquired 17.7% of the Mexican company with an investment of USD 477 million and options to raise their shares up to 35.12% of Grupo Modelo capital and a maximum 23.25% of Diblo shares (holding company owner of Grupo Modelo assets), i.e. not more than 50.2% of the Group's shares. Through this agreement, Grupo Modelo would become the exclusive representative of Anheuser-Busch brands (Budweiser and Bud-Light) in Mexico. In 1996, Anheuser- Busch made use of those rights and increased its share holding to 35.12%. In July 1997, Anheuser-Busch increased its share holding with an additional investment in Diblo, which gave them the maximum permitted by the agreement. The accumulated Anheuser-Busch investment in Grupo Modelo in early 1998 amounted to USD 1.6 billion.3 In February 1994, Grupo Modelo became a public enterprise when they listed 13% of their shares on the Mexican Stock Exchange. From 1997 onwards, Grupo Modelo was the eighth largest beer company in the world and in 2003, the brand Corona Extra occupied the fourth position among world beers and the first among the 450 imported by the United States of America. In 2002, the Modelo Especial beer ranked ninth in North Americans preferences, Corona Light eleventh, Pacific fifteenth and Negra Modelo twenty third. The international expansion of Grupo Modelo products began during the early 1980s in the south and the south-east of the United States, where Mexican beer is very popular. Together with the post cards, the handicrafts, and the souvenirs that North American tourists took home with them from holidays in Mexico, they also brought back memories of Grupo Modelo beers and their flavor. The name Corona was registered in the USA in 1957 by a Puerto Rican beer company, so it was only after a long series of negotiations and numerous visits to US and Puerto Rican courts of justice that Grupo Modelo bought the trademark for the states of Arizona, California, New Mexico and Texas in 1979. The first market launch failed, probably due to it being a very 'Mexican' introduction that was especially created for export, with a dark bottle, a Mexican flag and
3

That participation only represents 43.9% of the voting rights on the Board of Management of Grupo Modelo, therefore the group management cannot be transferred to Anheuser-Busch.

Mayan drawings on the label. Valentine Dies Morodo, former vice-president of national sales and export for Grupo Modelo, concluded afterwards: I was trying to invent what the consumers wanted, instead of giving them what they wanted...What they wanted was the original product and the original container, the same as the Mexicans use. In a second attempt to launch the brand, promotion of the Corona label targeted social events and university parties and also employed static advertisement (neon light posters in bars and restaurants). Corona beer with its transparent, long neck bottle was then immediately accepted. Somewhere in those early days of marketing, Corona also became known for the custom of drinking it with lemon. Some drip lemon juice into the bottle, others put a slice of lemon in the bottle mouth. Modelo opted for making the Mexican origin of Corona a comparative advantage and placed their bets on a strategy of "expensive selling" countering the prejudice that Mexican things had to be "cheap and nasty". They targeted consumers from among the well-off middle class and this market segment made Corona their status symbol. Thus, Corona began to compete with the highest category Premium beers. The first exports made to the retail channel, which was targeted after the food service channel, were made in the traditional Mexican 20 bottle packs, despite the fact that the American market was used to the 24 and 6 bottle packs. It was not until 1983, when the sales in retail outlets were such that the customers used crates belonging to rival brands to carry home Corona beer, that the packing of 24 bottles for export was introduced along with the 6 and 12 packs. In 2003, the American market was divided between two importing companies: Barton Beers Ltd. covered the 26 western states, and the Gambrinus Importing Company was responsible for the 26 eastern states and Washington, D.C. Launched with the advertising motto "Change your whole latitude" in the 1980s, Corona Extra became the imported beer with the greatest growth in the history of the United States. In 1997, Corona beer replaced the Dutch import, Heineken, the longstanding No 1 (in that top position since 1933). The very same year, Modelo Especial, Corona Light, Pacfico and Negra Modelo received the "Hot Brands" award given by the American magazine Impact. From 1985, Cervecera Modelo began to exploit other markets as well first Canada and Japan, later New Zealand and Australia. They entered the market in Europe in 1989, opening a subsidiary in Brussels (Eurocermex). Then they entered Russia, Africa and Latin America, and by the year 2000, Modelo products were marketed in 150 countries. In 2003, the company's international division was supported by six subsidiaries that coordinated and supported importers in 150 different nations: Procermex (US territory), Canacermex (Canada), Eurocermex (Africa, Middle East and the European countries with the exception of Spain), Iberocermex (also acting as an importer), Asiacermex (Asia) and Latincermex. These subsidiaries (except for Iberocermex) were not beer importers, but they worked together with the beer importers in each country, giving them support and the

strategic direction required to coordinate their efforts globally. In each country, one or two beer manufacturers or distribution companies were chosen to import the Grupo Modelo beers with an exclusivity contract for management of the company brands. In 2003 Grupo Modelo sold 11.8 million hectolitres in the export market and a volume of 30.1 million hectolitres in the national market. (See Exhibits 1,2 and 3)

THE WORLD BEER MARKET Mexico

In 2004 Grupo Modelo and FEMSA (Cuauhtmoc Moctezuma Brewery) enjoyed what was practically a duopoly. In Mexico there is a strong emphasis on returnable bottles and other containers of beer (around 65% of the market), which has required a significant local operating presence4 and contracts with retailers as well as low-priced beer. (Over the past 10 years the total price increase of beer amounted to less than 3%). Grupo Modelo was strong in the central, south and pacific states of Mexico, places like Oaxaca and Guerrero. It also sold well in Mexico City and the metropolitan area, which represented one of the most significant markets in terms of size and consumption. In turn, FEMSA maintained a stronghold in the north states of the country, among which are Nuevo Len and Baja California, which had the highest beer consumption per capita in the country. Besides the northern states, FEMSA had a strong presence in the states of the Gulf. As in other countries, people had regional loyalties for beer similar to those for their local soccer teams. In 2003 the production capacity of Grupo Modelo and FEMSA amounted to 83.4 million hectolitres (see Table A)

TABLE A: GRUPO MODELO AND FEMSA CAPACITY

Production Capacity (Millions Hectolitres) Grupo Modelo FEMSA 51.0 32.4 Utilized Capacity (%) 82.1 73.8

The Grupo Modelo transportation team in 2003 was of 11 thousand units among tractotrucks, trailers, trucks, small trucks and other vehicles for the tasks of supervision; Grupo Modelo included 446 agencies and subagencies that attended 200.000 sale points.

In 2003 Grupo Modelo completed the extension of its plant in Zacatecas, allowing it to reach its maximum production capacity. That same year negotiations were initiated to expand the overall capacity, with a view to increasing the companys share of the Mexican beer market. In 2003 the market was dominated by the Standard5 beers, with a market share of 95%. In 2003, Grupo Modelo maintained its leadership in the Mexican market with a market share of 57.1%, selling a total of 52.7 million hectolitres (see Table B).

TABLE B: THE MEXICAN MARKET. MARKET SHARE BY BRAND. 2003

Company Grupo Modelo Brand Corona Modelo Especial Modelo Light Victoria Other brands FEMSA Superior XX (Dos Equis) Sol Carta Blanca Others Others
Source: Datamonitor Beer & FABs in Mexico.

Market Share (%) 34.1 9.1 4.3 1.1 8.2 13.3 13.3 8.3 7.2 1.1

In 2004 the beer industry in Mexico constituted 1.6 percent of GDP with the production of the liquid alone accounting for 0.5 per cent. The industry was an important economic driving force for the country, employing 88,000 workers directly and indirectly generating around 800,000 other jobs, due to its interrelationship with 47 of the 74 industrial branches in the country.

Beer of a low fermentation effervescent type ."Standard" refers to the price.

Ral Rodguez Mrquez, President of the National Chamber for the Beer and Malt Industry, claimed that for beer producers, Mexico constituted one of the most attractive markets, along with China and Brazil: "Around a million people reach the legal age for the consumption of beer (18 years) in our country every year. This is of significant interest to global beer companies that are always on the lookout for expansion opportunities. The potential beer market in Mexico totals 63 million consumers and this figure increases by 1 million a year. In 2001 figures in the Global Beer Report devised by the British researcher Canadean indicated that Mexico occupied the second place in the global export market (Groupo Modelo accounted for 88% of Mexican exports) with a volume of 11.84 million hectolitres, behind Holland, which marketed 13 million hectolitres. As a comparison of consumption patterns, every inhabitant of adult age in Germany drinks 123.1 litres per year, in the United States 83.8 litres, and in Holland 82.3 litres, whereas in Mexico the consumption is 53 litres per capita. In all, 58% of the beer in Mexico in the year 2003 was consumed Off-Trade6, with the main channels for purchase being in traditional stores (48.4%), specialty shops (26.4%) and supermarkets (11%). The main competitor of Grupo Modelo in Mexico is FEMSA (CuauhtmocMontezuma Brewery). In 2003, its portfolio was composed of 10 brands (Carta Blanca, Tecate, Tecate Light, Superior, Sol, Dos Equis Lager, Dos Equis Ambar, Indio, Bohemia, Noche Buena) and it had six production plants in Guadalajara, Monterrey, Navojoa, Orizaba, Tecate and Toluca. With respect to the international market, in December 2003, beer exports rose to 1.9 million hectolitres, which represented 8.1% of their total sales volume, 92% of their exports being to the United States and Canada. During 2003, FEMSA faced a downward trend in consumption in both the domestic and the international market. In response to conditions in the domestic market, FEMSA did not raise prices during this year. Its aim was to reactivate the growth of the industry, as well as to improve its portfolio by means of launching new products and new promotions. In the international market, the Tecate brand maintained its position of fourth place amongst the leaders of beers imported into the United States. Beyond the North American market, it obtained a positive performance in England, where imports registered a growth of 25% in 2003. FEMSA Cerveza also obtained distribution rights in several of the key markets, thereby boosting its growth opportunities. In the middle of 2004 it was announced that Heineken would obtain the exclusive rights to import, promote and sell the FEMSA brands of beer in the United States. "Under the terms and conditions of the agreement, Heineken USA will take responsibility for the
6

It refers to the ulterior consumption, that is to say the consumption in a place different from the point of acquisition.

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promotion, sales and distribution of the brands Tecate, Dos Equis, Sol, Carta Blanca and Bohemia throughout the United States", a spokesperson affirmed. The announcement came after FEMSA had agreed in May 2004 to pay 1,245 million dollars to its partner Interbrew, to conclude a 10 year business relationship, which, according to the Mexican company, had limited the sales of their beer to the north of their border because its brands did not receive sufficient marketing as a retail associate. "The FEMSA brands add approximately 1.8 million hectolitres to the volume of Heineken sales in the United States, taking the total volume of Heineken sales to 7.9 million hectolitres (a 28 % increase). The combined market share of beers imported into North America will be approximately 26 percent", it was announced. (See Exhibit 4)

The United States

According to a study of the Beer Institute at the end of 2002, the beer sector in the United States continued to grow for the seventh consecutive year. The steady rise was generated by a growth in local breweries and by a significant increase in imported beer, which reached a total of about 239 million hectolitres. As a mature product, beer is not subject to the volatile fluctuations of sales that occur in some sectors of the national economy and although beer sales fell in the first half of the 90s, this was due to a 100% increase in federal taxes. Growth in the US beer industry in the 1990s and early 2000 was mainly the result of a constant increase in the adult population (in the USA, people reach the legal age to drink alcohol at 21). The consumption rate per capita did not match that growth, as the trend for beer consumption had been gradually receding since the early 1980s, due to a series of public and private sector initiatives that encouraged moderation and personal responsibility. Apart from this, consumer interest grew significantly in an extensive range of local and imported beers and in other malt products. In 2004, approximately 2,800 brands of malt beverages were produced in the United States, about three times the number of brands produced in the previous decade. Local and international brewers continued with the production of different types of beer and the development of new market niches. Consumer demand generated a significant increase of local brewers from 1994 onwards. By 2004 there were more than 1,800 micro brewers in the United States, five times as many as in 1992. The import market in the United States played a very important role in the growth of the industry volume grew by almost 300% between 1989 and 2000. Seven of the thirteen main distributors of malt in the United States imported beer or else they were affiliated to brewers in other countries. The most important brewers of the United States continued developing foreign markets, by a combination of direct export and agreements with foreign brewers. In 2002 American brewers exported their products to nearly 100 countries and established business

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relations in each continent. In 2003 the American market was distributed in the following way (see Table C):

TABLE C: AMERICAN MARKET SEGMENTS (2003)

Segment Speciality Beer 7 Premium Lager 8 Standard Lager 9 Low / Without Alcohol10
Source: DATAMONITOR Beer, Cider & FABs USA

Market Share (%) 16.7 65.8 16.7 0.8

Sub-Segment Super-Premium Imported Regular Light

Sub-Segment Share (%) 33.0 67.0 32.0 68.0

The point of sale for beer in the United States in 2003 was mainly Off-Trade, with super- markets (32.7%), convenience stores (26.0%) and specialized stores (20.8%) being the main channels where consumers purchased their beer. Modelo exports to the United States Grupo Modelo began exporting to the United States in 1979 through the Amalgamated Distillery Products Inc. (ADP), a company that in 1982 changed its name to Barton Beers Ltd. This distributor in the United States did not deal exclusively with Grupo Modelo, but also did business with wine producers and other brewers, such as Tsingtao Beer from China. Barton Beers' director McNichols, remarked on the US market for Corona's Chinese competitor Tsingtao as follows: "People think of it as a Chinese beer which they only drink when they eat Chinese food. Unfortunately, these are practically all the sales. There are not many other connections with the product that we can take advantage of because there are not many Americans that have been to China." Like most importers in the United States, Barton Beers Ltd bought the merchandise FOB (free on board), taking responsibility for shipping, insurance and distribution.

Those that are not considered within the ordinary categories, including wheat beers and other specialties. The brand Super-Premium is placed in this segment 7 Low fermentation beer. The term Premium refers to price. 8 Low fermentation fizzy beer. The term Standard refers to price. 9 Low alcohol beer has less than 3%, while the without beer has less than 0.5% alcohol content.

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The first Corona sales were achieved thanks to a strong promotion strategy in university populations and other public places of consumption such as restaurants, bars and discos in cities near the border with Mexico, like San Diego, California, and Austin, Texas. It was in these places where people found a liking for the long neck of the bottle and began drinking their beer with the slice of lemon which differentiates it from all other beers. The product that was exported to the United States was the same that was marketed in Mexico, that is to say, bottles of transparent glass, with a long neck but they were non returnable. (Apart from the Mexican collection of returnable containers, the product as well as the production and distribution processes were practically the same in the US.) The price strategy for Corona in the United States differed widely from the one employed in Mexico. While the beer was not located within the premium price range, it was in the segment 30 40% above the price of US domestic beers, comparable to Heineken and other imported beers. This strategy allowed importers of Grupo Modelo to service a market niche that they were not able to develop with American beer labels. In 1986 Grupo Modelo decided on the incorporation of a second importer in the United States to cover the East Coast. Gambrinus Inc began its operations in 1987 throughout Florida, and in the cities of Boston, Atlanta and Philadelphia and in 1988 they expanded coverage all along the Eastern seaboard. In 1986 Grupo Modelo decided to establish a subsidiary in San Antonio, Texas. They placed Promocin de Cerveza Mexicana (Procermex) in charge of coordinating and supervising the work of the two importers in the United States, as well as the general development of operations. In 2003 the North American market was divided between the two importing companies, so that Barton Beers Ltd. covered the 26 western states, and Gambrinus Importing Company, was in charge of the 26 Eastern states and Washington, D.C. Both acted as distributors and suppliers. The marketing of the beer was carried out by the distributors under the supervision of the importers and Procermex. In spite of the positive developments that the Grupo Modelo efforts were rewarded with, not everything was easy for them in the United States. At the end of the 1980s a distributor of Miller and Heineken beers spread the rumor that Corona beer contained urine. Despite winning the legal battle that ensued, Grupo Modelos image was badly damaged. This together with another slander attack claiming that the beer contained 400500 calories per bottle and a slump in the American economy led to a significant decrease in Corona sales. It was then that Procermex and their two importers developed a strategy of combined marketing directed at the distributors and the retailers, based on promotions and sales point programs. This strategy slowly led to the recovery of the brand in the early 1990s, thus reestablishing Corona's quality image. By 2003 Corona was the import brand with the highest sales rate in the United States, above brands such as Heineken and Labatt Blue (see Table D):

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TABLE D: IMPORTED BEERS IN THE UNITED STATES (THOUSANDS OF CARTONS)

Brand Corona (Grupo Modelo) Heineken Labatt Blue Tecate (FEMSA) Amstel Light Guiness Modelo Especial (Grupo Modelo) Fosters Corona Light (Grupo Modelo) Becks
Source: Impact Databank

2002 90.035 60.365 15.705 13.145 9.760 10.705 7.760

2003 E 94.728 61.000 16.019 13.670 10.540 10.380 9.271

Change % 5.2 1.1 2.0 4.0 8.0 -3.0 19.5

Market Share 29.8 19.2 5.0 4.3 3.3 3.3 2.9

9.270 6.980

8.900 8.138

-4.0 16.6

2.8 2.6

8.165
E= Estimate

7.900

-3.2

2.5

In 2003 Grupo Modelo was delivering Corona and four other brands that ranked among the 25 best selling import beers in the United States (Modelo Especial, Corona Light, Pacifico, and Negra Modelo), each of which maintained significant growth rates. It is noteworthy that Modelo Especial ranked seventh, while Corona Light (produced exclusively for export to the United States and Canada) only achieved ninth position among best selling imported beers though ranking second among imported light beer brands. Grupo Modelo sales in 2003 in the United States reached a volume of 7.7 million hectolitres. The communication strategy that Grupo Modelo employed in the United States was based on three appealing concepts "Fun, Sun and Beach". Campaigns were developed over the years like "Vacation in a Bottle", "What you see is what you get", and "Change your Latitude". These campaigns were filmed in Mexico and they were very simple a beach atmosphere without any kind of music or noise to disturb the sensation of peace and quiet and no people. Television was the most utilized media in their development strategy. Their advertising budget in the US in 2001 totalled USD 36.8 million, of which 34.6 million was for Corona, 1.3 million for Corona Light, and 0.9 million for Modelo Especial. Each of the two importers (Barton Beers Ltd. and Gambrinus Importing Company) had 14

their own publicity agencies and Grupo Modelo financed 50% of the advertising and promotional activities. If either of the importers wanted to stage events not developed by Grupo Modelo, financing was negotiated separately. Grupo Modelo kept the approval rights on all the publicity and promotions deployed by the importers, which were then supervised by Procermex. The main competition for Grupo Modelo in the United States was Heineken, which by the middle of 2004 had signed an agreement with FEMSA by means of which they acquired the exclusive rights to service, promote and sell the FEMSA beer brand in the United States.

Canada
According to a report by Brewers of Canada, The National Association of the Brewing Industry, beer sales in Canada in 2003 were 0.2% lower than the previous year, totalling more than 21 million hectolitres, of which 67.2% were bottle sales. The same year consumption per capita was 63.38 liters and there were 82 breweries. The import market increased by 11.6%, led by North American beers (23.4%), with imported beers representing 9.7% of the total beer market in Canada. However, exports fell by 1.5% compared to 2002. Of the total beer production in Canada in 2003, the export market represented 16.6% and Canada ranked sixth in the global beer export market. In 2003, the Canadian and American markets together consumed 90.37% of Grupo Modelo export beer. Grupo Modelo sold 2.9 million hectolitres of beer in Canada and Corona was the top-selling imported beer. According to company executives, good sales and marketing work on the part of the importers Molson Breweries Ltd., and the Mark Anthony Group, under the supervision of Canacermex (a subsidiary of the group in that country), helped Corona gain popularity among consumers in Canada. In 2003 there were more than 850 beer brands on the Canadian market, of which 300 were imported. Robert Armstrong, a director of Grupo Modelo in Canada, explained in an interview: "We like to think that when the Canadians are in the middle of those cold winters they sit down to enjoy a Corona, thinking of a better climate and better times". Thus Corona became the top imported beer brand in Canada. Robert Armstrong went on, "In 1995 Corona was the most imported beer in Canada with sales of 1 million. That was a very important achievement. In 2003, 5 million beers were sold, that is to say that one in every three bottles of imported beers in Canada was a Corona. In Canada, as in the United States, Grupo Modelo opted for a strategy of unique marketing, which meant being present in the places where people drink beer, taking the product directly to the consumer in bars and restaurants. Robert Armstrong recalled "Corona is a real discovery for people. If you ask them, " When was the first time that you tasted a Corona beer?" it is astonishing how often they remember the experience. That is to say, for them it was a true discovery and a memorable moment. That has enabled us to be where we are at the moment."

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 Europe
In 2003, Europe was, as a whole, the biggest global market for beer with production in 20 countries totalling 355.1 million hectolitres. The industry generated approximately 112,287 jobs directly and a further 234,341 indirectly, in 1,830 workplaces. Beer exports in European Union countries in 2003 reached 45.7 million hectolitres, which represented approximately 12.9 % of the total production while imports amounted to 26.7 million hectolitres, 7.5 % of the total production. The consumption of beer reached 327.1 million hectolitres, with an average per capita of 78.8 litres. Beer exports in Europe in 2003 were dominated by Holland, Germany, Belgium, Denmark and United Kingdom, with an 86% share of the market between them, while the major importing countries were the United Kingdom, France, Italy and Spain, which together accounted for more than 70% of all imports. The segmentation by type of beer, in 2003, in some of the main European markets was (see Table F):

TABLE F: SEGMENTATION BY TYPE OF BEER (%)

United Kingdom Speciality Beer11 Premium Lager12 Standard Lager13 Ales, stouts ,bitters14 Low / Without Alcohol15 -34.5 29.3 35.8 0.2 Germany 12.6 25.5 54.7 4.6 2.4 Italy -26.4 62.7 6.1 4.6 France 2.1 31.6 57.4 5.5 3.1 Belgium 25.9 2.3 68.8 2.1 0.9

Source: DATAMONITOR Beer, Cider & FABs

11

Those not included in ordinary beers including flavored beer and other specialities. Super Premium brands are included in this category. 12 Low fermentation. Premium term refers to price. 13 Fizzy low fermentation beer . Standard term refers to price. 14 High fermentation malted dark beer. 15 Low alcohol beer contains less than 3% alcohol, and Without alcohol less than 0.5%.

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In 2003 sales increased in Europe by more than 20%, with notable growth in Spain, England and Russia. In that same year consumption per channel in some of the main European markets was distributed in the following way (see Table G):

TABLE G: CONSUMPTION PER CHANNEL (%)

United Kingdom Off-Trade On-Trade
16 17

Germany 76.3 23.7

Italy 45.0 55.0

France 65.7 34.3

Belgium 48.5 51.5

38.4 61.6

Source: DATAMONITOR Beer, Cider & FABs

In Germany and France, where most consumption is Off-Trade, supermarkets, traditional stores and discount stores are the major channels. To develop their activities in Europe, Grupo Modelo opened two subsidiary offices (Iberocermex in Spain, and Eurocermex in Belgium) in 2003 to provide support to their distributors, in addition to a large distribution center in Guadalajara (Spain). The positioning strategy in the Spanish market, as with the European market, was to target the Premium brand at the 18 to 40 year old age group, of a medium to medium high and high socio-economic level. Such consumers would typically be travellers and the modern urban cosmopolitan generation and would be attracted through advertising by the offer of a quality product.

Spain
According to an economic report compiled by Spanish brewers in 2003, there was a 3% drop in the consumption of beer per capita in Spain in 2002. But there was a recovery in 2003, when sales reached an average of 78 litres per person (an increment of 6.5%). This increase can be explained by the major heat wave that Spain suffered during the summer of that year, the rise in the number of foreigners visiting the country (3.2% more than in 2002), the population increase of 2.10%, fiscal stability, and the growth in economic prosperity. In 2003 the Spanish market was dominated by the standard beers (51%), followed by the premium brands (34%). In 2003, 74% of the beer was sold through the food service channel and the remaining 26% was sold through the retail channel. The importance of the consumption of beer in hotels (225,000 establishments) was reflected in the fact that, after coffee, it ranked second in terms of bill receipts.

16 17

This refers to indirect consumption, consumption in a place different from the point of acquisition. This refers to direct consumption, consumption in the same place in which the product has been acquired (food service channel).

17

In Spain, the Grupo Modelo flagship brand entered the market as Coronita, because another company (Torres Corona) had already registered the name Corona. According to the study AIML Marcas 2003, the Coronita consumer profile in Spain consisted of young people between 20 and 34 years of age, from the medium to medium-high socio-economic levels. In 2003 Coronita was the third brand in the Premium" segment, with a market share of 7.6%, far below that of the 40.3% share of the segment leader, Heineken. In the segment of international brands, which represented 12.8% of the total market, Coronita had, in 2003, a market share of 3.7%, ranking it second behind Heineken, which had a market share of 19.9%. In 2003 the import market, which represented 10.8% of the total beer market in Spain, contained a wide variety of brands, the leaders being Bavaria and Coronita with a market share of 5.5% and 4.2% respectively. Grupo Modelos main competitor FEMSA, with its beer Sun, had a market share of 2.3%. Coronita is imported by Iberocermex and delivered to the Spanish market through a network of 64 distributors. The Grupo Modelo communication investment for the Spanish market in 2003 accounted for 1.8% of the sector total and 8% of the total importers communication budget. Relative to market share this was less than their competitors invested; Heineken (42%), Carlsberg (26%) and Budweiser (24%). The Grupo Modelo communication strategy was twofold: one half of the spending was for promotions in the places of consumption (organizing events in pubs, bars and discos, with merchandising items) and the other half paid for a variety of publicity campaigns. The largest part of the latter (about 60%) was invested in a sports radio program. The rest was spent on external publicity (billboards, marquees), cinema adverts, graphic media, diverse music and sporting events, and for advertising at soccer league games. The advertising operations are in line with the global brand image of Corona, emphasizing its identity (standing out as a beer from Mexico) on the one hand, and its special product characteristics on the other.

COMPETITION Anheuser Busch

In the United States in 2003 Anheuser-Busch maintained the leadership in the North American market with a market share of 49.8%, 0.6% more than in 2002. It sold about 121 million hectolitres, 0.8% more than in 2002.

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In 1996, only 40% of the companys product was sold through the exclusive distributors of Anheuser-Busch, but in 2003, they sold 67% of the domestic volume. This increase was achieved thanks to the development of a sales program which established strategic directives between the company, its distributors and retailers in areas such as technology, communications, and marketing as well as with regard to legal and social matters. The Premium and Light beer brands were responsible for the positive results of Anheuser-Busch in 2003. High price is frequently related to image, the brand conscious consumer finding the beer more attractive the more expensive it is. Brands like Budweiser and Bud-Light represented, in 2003, more than 60% of the Premium beer market in the United States. In 2003, the export sales volume of Anheuser-Busch grew 5%, reaching 9.9 million hectolitres. The positioning of Budweiser as an international brand was supported by the companys operations in China and in the United Kingdom, and major licensed companies in Canada (Labatt Breweries of Canada), Ireland (Guinness), Spain (Brewery Damm), Italy (Heineken Italy) and Argentina, and significant exporting agreements, for example, in Mexico. In Latin America these companies focused on Grupo Modelo in Mexico and on CCU in Chile and Argentina, and in China they focused on the Tsingtao Brewery Company Ltd. One of the reasons behind the growth of Anheuser-Busch in the international market was the establishment of Budweiser as market leader in the Chinese, Canadian and United Kingdom markets. In addition, the 25% increase in Budweiser and Bud-Light sales in Mexico consolidated them as the most important brands in the import market there (with sales of 92 thousand hectolitres, Mexico was the biggest export market for AnheuserBusch) and in Italy during 2003 Anheuser-Busch renewed its license agreement with Heineken Italy, the number one brewer in that country.

Heineken
As one of the world's major brewers, the Heineken Group had a presence in more than 170 countries in 2003. They produced various Heineken beer brands in 115 plants in 65 countries. In 2003, production reached 109 million hectolitres. The objectives of Heineken were to remain as one of the top-ranked brewery groups in the world, consolidating the group brands at an international level. To reach those objectives, Heineken maintained a varied offering of brands. They owned local brands such as Moretti, Zywiec, Cruzcampo and Tigre for instance, along with the international brands Heineken and Amstel, and specialty beers such as Desperados and Murphy. The Heineken management aimed to be the number one or number two in local markets. Such a position facilitated economies of scale in production, marketing and distribution. It also allowed for the creation of a solid platform from which they were able to sell their own international brands, Heineken and Amstel. The Heineken breweries in the Netherlands, France, Spain and Poland exemplified this directive. 19

Heineken was, in 2003, the leading beer in the global import market, showing a cumulative growth rate of 8% per year since 1993. Heineken built a strong position in the Americas, with their exports growing strongly in the United States and Canada, and at the same time they secured agreements with Central and South American companies. In Europe Heineken maintained a privileged position in countries like Spain, Poland, France, Greece, Italy, the Netherlands, Bulgaria, Slovakia and Macedonia. In 2003 sales of Heineken in Europe increased from 50.7 to 55.4 million hectolitres, mostly in Spain, France, Italy and Poland.

Amstel
In 1968, the two largest beer factories in Holland, Amstel and Heineken, merged. This not only fortified their positions in the internal market, but above all, internationally. The two brands were complementary; Heineken was oriented to the premium sector and Amstel to the standard sector. After Heineken, Amstel was the second brand of the group at international level with a strong position in the African and European markets. In the United States in 2003, Amstel Light held a significant position in the segment of light beers. In 2000, the Amstel brand sold 10 million hectolitres in the global market. Amstel was known as one of the main sponsors of UEFA Champions League in soccer, having sponsored that event, one of the most important in the world, since 1994.

Carlsberg
A Danish enterprise devoted to the production, selling and merchandising of beer, with some extra sales activities in the market of soft drinks and mineral water, Carlsberg has three main markets, Western Europe, Eastern Europe and Asia. Its strategy to improve its market position was to establish associations with local brewers, like Carlsberg United Kingdom, Carlsberg Switzerland, Ringnes (Norway), Feldschlsschen (Swedish), Sinebrychoff (Finland) and Carlsberg Polska (Poland). In 2003, Carlsberg was one of the biggest brewery groups in the world. Its beers were sold in more than 150 markets and it employed more than 31,000 globally. The total sales of the group reached 81.4 million hectolitres in 2003, an increase of 4% in relation to the year before. This increase was due to the presence of the beer in the European and Eastern Asian markets. In 2003, Carlsberg saw significant growth in mature markets such as the United Kingdom, as well as in other European markets like Poland, Romania and the Baltic Countries. The brand portfolio of Carlsberg was quite wide, including international, regional and national beers, which allowed it to cater for a diversity of tastes, personalities and ways of life, thus guaranteeing its growth in every segment of the beer market. This portfolio was led by Carlsberg as the main international beer, and supported by regional brands such as

20

Tuborg (Europe) and national brands like Tetley (UK), Baltika (Russia) and Ringnes (Norway). In 2004, Heineken, like Carlsberg, experienced a decline in revenue because of slow economic growth and the price war between distributors and bars. The two companies were left behind as the two biggest breweries in Europe, InBev and SABMiller, were negotiating large acquisition deals, to boost their own international markets, and distance themselves from the mature beer markets that were slowing down in pace. SABMiller, established in London, had also expanded quickly in eastern Europe, China and North America in 2002, after acquiring the America company Miller, thereby positioning itself close to the worlds second biggest brewery group, Anheuser- Busch. Comparatively, Heineken and Carlsberg have been less flexible in acquisition matters, and have depended more upon already cornered markets and growing competition in north and western Europe.

Ambev
In 2003 Ambev was the fifth biggest brewery in the world, with a total of 52 plants and an installed capacity of 175.9 million hectolitres. The leader in the Brazilian brewery sector, with a market share of 67%, Ambev was also present in ten other Latin American countries, with a leadership position in four of them (Argentina, Bolivia, Uruguay and Paraguay). Its brand portfolio consisted of six different beers, most notably Brahma and Quilmes. Brahma appeared on the market in 1888 and by 2003 it was the best-known beer in Brazil, and the eighth highest selling beer in the world. In April 2005, Brahma began to be sold in Europe and North America. This internationalisation of the brand was possible thanks to the partnership between Ambev and Inbev. Brahma was distributed initially in nine countries, the United States, Canada, Russia, Ukraine, Belgium, France, Luxemburg, Holland and England but their alliance led to distribution in 23 countries in total. It meant that for the first time a Brazilian beer was distributed all over the world. The international expansion of Brahma was the result of the Brazilian brewery Ambev and the Belgium InBev, (previously known as Interbrew) signing a global alliance, giving rise to the largest brewery platform in the world in terms of production volume. The project for turning Brahma into a world brand began in 2004 when both companies carried out consumer research in ten countries and defined the positioning of the brand. It would be a Premium beer, which would embody the notion of ginga18 from Brazilian Portuguese, and Brazilian characteristics like genuineness, creativity and
18

Ginga:- a way of walking, moving the whole body rhythmically.

21

originality. The Brazilian arts, especially its music, would be one of the distinguishing features of the brand abroad. To reinforce its positioning, the bottle would be different, transparent and curved with the name Brahma in raised letters. The origins of the beer would be reinforced with the message on the bottle, Brazilian Beer. Brahma would be produced in three countries. From Brazil, it would be distributed to the American, Canadian and British markets and it would also be produced under license in Russia and Belgium. The units manufactured in Brazil would be in bottles of 355 ml. and in Europe of 330 and 500 ml. All Brahma beer bottles would be recycled in line with each countrys recycling legislation. Phillipe Rochez, an analyst from KBC Securities, stated that InBev hoped to emulate the success of the Mexican Grupo Modelo with its popular beer Corona. I believe that the brand has great potential. Brazil has an exotic appeal.

(See Exhibit 5)

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Exhibit 1 GRUPO MODELO MARKETS

United States Canada Spain United Kingdom German Italy y France Holland Others M Hl. 7.70 2.96 0.15 0.14 0.02 0.05 0.03 0.02 0.73 % 65.3% 25.1% 1.3% 1.2% 0.2% 0.4% 0.3% 0.2% 6.2%

INTERNATIONAL MARKET 28.2 11.80 % M Hl.

GRUPO MODELO

NATIONAL MARKET 71.8 30.10 % M Hl.

240000

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Instituto Internacional SAN TELMO

Exhibit 2
Financial Summary-Operations Grupo Modelo Corp. of V.C. and Subsidiary
Figures in million (Mexican) pesos at December 31st 2003, except data per share.

2003 Beer Output - million hectolitres National Market Export Market Total Market Net Sales Sales Cost Gross Outcome Operation Expenses Operation Benefits Expenses and (Products ) Financial Net_ Loss for Monetary Position Financing Integral Cost Other Expenses and (Products) Financial Net_ Benefit before Taxes and Employees Revenues Participation (PTU) Income Tax and Active Tax (IMPAC ) Caused Differed Income Tax Employees Participation in Benefits Benefit before Taxes and Employees Revenues Participation (PTU) Participation in the Results of Associate and Not Consolidated Subsidiaries Benefit before Minority Participation Participation of the Minority Interest Extraordinary Batches MAJORITY NET PROFIT DATA PER SHARE Net profit per Action after Extraordinary Batches Paid Dividends Cash: Total Ordinary Shares Amount Dividend per Ordinary Share Preferent Shares Total Amount Dividend per Preferent Share Number of Shares in Circulation (millions)) Ordinary Shares Preferent Shares
Notes :

2002 28,86 11,12 39,98 38.490 17.343 21.147 11.347 9.800 699 579 120 288 9.632 3.608 701 853 5.872 5.871 1.478 4.394 1,35 1.663 0,36 3.252 -

2001 28,59 9,99 38,58 36.177 16.880 19.297 10.666 8.631 756 339 417 405 9.453 3.177 8 757 5.511 1 5.510 1.528 3.982 1,22 441 0,14 3.252 -

2000 27,85 8,55 36,40 34.444 15.804 18.640 9.896 8.744 970 619 351 308 9.403 3.053 212 759 5.380 4 5.376 1.634 3.742 1,15 839 0,26 3.252 -

1999 26,56 7,55 34,11 31.452 15.105 16.346 8.901 7.445 992 523 468 293 8.206 2.631 92 640 5.026 1 5.025 1.542 109 3.592 1,10 60 0,02 3.252 -

1998 25,57 6,46 32,03 29.650 14.539 15.111 8.402 6.709 1.756 1.013 742 315 7.767 2.001 447 646 4.672 1 4.671 1.482 103 3.292 1,01 1.799 0,55 3.252 -

1997 24,96 4,99 29,95 26.490 13.401 13.088 7.243 5.845 1.090 777 312 401 6.559 1.262 736 616 3.945 1 3.944 1.240 92 2.796 0,86 338 0,12 194 0,60 3.252 -

1996 23,66 3,72 27,38 23.196 11.759 11.437 6.738 4.699 1.624 1.110 514 385 5.598 944 735 562 3.357 3 3.354 999 52 2.407 0,74 277 0,09 234 0,72 3.252 -

1995 22,22 2,89 25,11 23.778 11.905 11.873 7.280 4.593 3.013 2.382 631 339 5.563 1.842 12 651 3.083 2 3.081 1.023 2.058 0,63 277 0,09 258 0,79 2.927 325

1994 23,14 2,08 25,22 23.766 10.239 13.527 8.935 4.592 1.157 418 738 296 5.627 1.884 4 576 3.170 38 3.132 954 55 2.234 0,69 205 0,07 91 0,28 2.927 325

30,10 11,82 41,92 40.454 17.898 22.556 11.690 10.866 668 452 216 495 11.577 4.154 102 986 6.335 6.335 1.518 4.817 1,48 1.803 0,55 3.252 -

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* In the financial year 1993, it was paid in an extraordinary way a dividend of $1.825 for a single occasion, as consequence of that foreseen in the Contract of Investment with Anheuser-Busch. This amount is included in the total of $1.907. * The number of actions in circulation was adjusted as consequence of the splits that were carried out in August of 1995 and in October of 1998, both of 4 x 1. * In December 31st 1996, the shares Series PC were transformed into Series B class II shares. * In December 1998, an extraordinary dividend of $1.277 was paid , which is included in the total of $1.637. * Since 2003, the volume of beer sales began to be reported instead of the outcomes, in the national market as well as in the export. To effects of comparability, the volume of beer sales is shown since 1997. * Starting from 2003, the bonuses in species that before were included within the net sales, were reclassified at the sales cost. This way, the gross benefit doesn't modify and the amount and cost of sales are shown in a clearer way, that is why the figures of sales and sales costs, from 1997 to 2002, have been modified to manage to obtain the financial information comparativeness

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Instituto Internacional SAN TELMO

Exhibit 3
Financial Summary-General Balance and Aditional I f ti Grupo Modelo Corp. of V.C. and Figures in million (Mexican) pesos at December 31st 2003, except data per Sshare. b idi
INFORMATION OF THE GENERAL CONSOLIDATED BALANCE Work Capital (Deficit) Liquidity Properties. Plant and Equipment Net Passive / Total Asset (%) Total Differed Income Tax. Majority Countable capital Yield of Shareholders Value in Books per Share Total Asset ADITIONAL INFORMATION Capital Investments (Fixed Assets&Shares) Depreciation & Recoup OperationBenefit / Net Sales (%) Operation Benefit plus Depreciation& Recoup (EBITDA) Effective Tax Rate ( ISR & PTU ) Price / Benefit per Share Market Price per Share (Max/Min)
Notes : *Grupo Modelo, Corp. of V.C. began to quote in the Market Share in 1994. *The number of shares in circulation was adjusted as a consecuence of the splits made on August 1995 and October 1998, both of 4x1. *The Capital Investments include the acquisition of shares for $183 in 2003, $1,199 in 2002, $ 789 in 2001 and $1,023 in 2000.

2003 16.845 5.0 38.138 18.4% 6.667 39.712 12.1% 12.2 64.055

2002 14.772 4.5 37.098 19.0% 6.585 37.019 12.0% 11.3 60.443

2001 13.849 4.9 36.127 20.3% 7.456 33.856 11.8% 10.4 56.906

2000 11.607 4.5 33.738 22.0% 7.329 3.067 12.3% 9.4 51.980

1999 11.342 5.0 31.519 9.1% 1.414 32.883 10.9% 10.1 49.042

1998 9.697 5.1 29.515 9.3% 1.693 29.747 11.1% 9.1 44.620

1997 11.259 5.6 25.931 9.9% 1.495 28.505 9.8% 8.7 42.648

1996 9.537 5.3 24.170 8.1% 803 16.607 9.0% 8.2 38.871

1995 8.566 4.4 24.501 7.1% 107 26.666 7.7% 8.2 39.086

1994 11.231 5.0 22.952 8.3% 181 27.347 8.2% 8.4 40.120

3.122 1.950 26.9% 12.474 45.3% 18.2 28.8/21.0

4.192 1.878 25.5% 11.367 39.0% 19.5 26.9/19.9

4.198 1.804 23.9% 10.190 41.7% 18.4 26.7/18.7

4.940 1.643 25.4% 10.059 42.8% 25.3 27.1/18.6

3.466 1.568 23.7% 8.666 38.7% 29.3 27.6/18.6

4.979 1.468 22.6% 7.873 39.8% 29.1 24.6/14.7

3.171 1.397 22.1% 6.946 39.9% 32.8 19.0/10.7

3.300 1.200 20.3% 5.600 40.0% 29.7 12.0/7.74

4.281 1.178 19.3% 5.417 44.6% 35.5 9.3/4.3

2.716 1.001 19.3% 5.678 43.7% 31.6 5.82/3.64

25

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Instituto Internacional SAN TELMO

Exhibit 4
RELEVANT ECONOMICAL DATA FEMSA BEER
Figures in million pesos cash in December 31st 2003.

Total Revenues (Annual Growing %) Operation Benefit (Annual Growing %) Operation Benefit / Total Revenues (%) Operational Flow (EBITDA) (Annual Growing %) Total Actives (Annual Growing %)

2003 21,924.0 1.3 4,007,0 -2.1 18.3 6,458.0 2.6 28,936.0 -2.1

2002 21,642.0 0.5 4,094,0 5.3 18.9 6,297.0 10.3 29,547.0 15.3

2001 21,529.0 1.1 3,888,0 5.7 18.1 5,709.0 4.6 25,624.0 5.5

2000 21,292.0 6.2 3,677,0 0.6 17.3 5,459.0 7.2 24,291.0 2.2

1999 20,047.0 7.7 3,656,0 20.2 18.2 5,094.0 16.5 23,757.0 1.6

1998 18,613.0 7.4 3,041,0 12.6 16.3 4,373.0 5.1 23,384.0 1.9

1997 17,334.0 7.0 2,701.0 74.7 15.6 4,156.0 43.5 22,949.0 1.8

1996 16,195.0 0.5 1,546.0 28.1 9.5 2,897.0 18.3 22,548.0 -10.7

1995 16,114.0 1,207.0 7.5 2,448.0 25,261.0

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Exhibit 5
TOP 10 WORLD BREWERY COMPANIES. (2002) (Million hectolitres) Ranking 1 2 3 4 5 6 7 8 9 10 Total Top 10 Group Anheuser-Busch SABMiller PLC Interbrew Heineken Carlsberg Breweries AmBev Scottish Courage Grupo Modelo Coors Brewing Kirin Brewery Country USA South Africa Belgium Holland Denmark Brazil UK Mexico USA Japan Hectolitres 150.1 123.0 97.3 87.8 78.6 62.0 50.0 39.9 38.5 36.0 763.1 %Market 10.6 8.7 6.9 6.2 5.6 4.4 3.5 2.8 2.7 2.5 53.9

Source: Impact, Global News and Research for the Drinks Executive, October 2003.

TOP 10 WORLD BEER BRANDS. (2002) (Million hectolitres) Ranking 1 2 3 4 5 6 7 8 9 10 Brand Budweiser Bud-Light Skol Corona Heineken Asahi Super Dry Coors Light Miller Lite Brahma Chopp Polar Company Anheuser-Busch Anheuser-Busch AmBev Grupo Modelo Heineken Asahi Breweries Coors Brewing Miller Brewing AmBev Polar Breweries Hectolitres 45.1 44.4 31.7 26.8 22.9 20.5 19.9 18.4 15.3 14.4

Source: Impact: Global News and Research for the Drinks Executive, 2003.

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