Artisanal alcoholic drinks are increasingly becoming an option for Mexican consumers
BY BETHANY GOMEZ
In a country where mega brands are rapidly expanding at the expense of small independent brands and retailers, the opposite trend is becoming apparent in the Mexican alcoholic drinks industry: artisanal products are on the rise. Craft beer is growing rapidly, with new players and new brands entering the market every month. Wine consumption is on the rise in Mexico, with domestic wine production growing twice as fast as imports, to the benefit of small local producers. Mezcal, which is mainly produced by small companies in the Oaxaca region, has had an image revamp in recent years, causing explosive growth in many major cities. These trends are creating opportunities for entrepreneurs and small companies throughout the country.
RISE OF CRAFT BEER
As disposable incomes are on the rise in Mexico, the rapidly expanding urban middle class is seeking out higher quality food and drinks. Mexico has a strong culture of beer consumption, with the third highest consumption per capita in Latin America. However, there is little variety available, with 97 percent of all beer sold being standard lager and more than 99 percent of beer sold coming from two companies, Cervecería Cuahutémoc Moctezuma and Cervecería Modelo, leaving substantial opportunity for growth in the premium beer segment.
The artisanal beer market started to be explored years ago by the now popular Beer Factory, a restaurant and brewery known for producing high quality beers, including some flavoured and seasonal varieties, and that was later acquired by Comercial Mexicana, a major retailing company in Mexico that owns several chains of grocery retailers, as well as several restaurants. With this move, Comercial Mexicana diversified its offering in the foodservice market and introduced the Beer Factory beers in its several sales points - Costco, City Market and Comercial Mexicana - contributing to its position as one of the most popular craft beers in the country.
This proved that artisanal beer had significant potential in the country, so other microbreweries started to follow this pattern; moving from on-trade offer to negotiating with retailers to increase its presence through the off-trade channel. The next craft beer sold at grocery stores soon after Beer Factory was Minerva from Cervecería Minerva; who subsequently emerged as one of the most important artisanal beer players, leading and uniting others to lobby the government to avoid the exclusivity contracts that Cervecería Cuahutémoc Moctezuma and Cervecería Modelo use to stifle competition through the traditional grocery channel.
Given the popularity of microbrews in the US, it is unsurprising that many of the independent breweries, such as Cervecería de Baja California and Cerveza Mexicali, are located in the north of the country, targeting the border region, though there are now small breweries popping up in many other cities.
In Mexico City's fashionable neighbourhoods, dozens of restaurants and bars have appeared that feature extensive selections of artisanal beer and are extremely popular amongst young professionals. Some of the more popular artisanal beers, such as Minerva, Tempús and Mexicali, are increasingly becoming available through modern grocery retailers including Costco, Superama and Comercial Mexicana.
While most craft beers are produced by small independent breweries, such as Cervecería de Baja California, Cervecería Minerva and Andreau Primus, larger companies are trying to capitalise on the trend as well. Grupo Modelo is also trying to leverage this new trend by launching its own craft beer, recognising the opportunity that craft beer presents. The beer is named Ideal and was launched in mid-2012 in both dark and light varieties (Ideal Azabache and Ideal As d'Oros). It is currently being distributed primarily through restaurants in the fashionable districts of Mexico City (Condesa, Roma, Polanco) and a limited number of off-trade establishments. Given Modelo's immense distribution network, if the beer catches on, it has the potential to become the top craft beer.
Moreover, small breweries are increasing in number, launching events, fairs and contests throughout the country to promote their products. These are becoming increasingly popular, particularly among young consumers, who are the “heavy users” of alcoholic drinks.
Though craft beer is on the rise in Mexico, the segment remains very niche, at less than 0.1% of the total beer market by volume. It is growing quickly, but will remain a niche segment in the future due to the higher unit prices of craft beers and stiff competition from Modelo and Cuauhtémoc Moctezuma, companies which have exclusivity agreements with most independent small grocers in exchange for discounts, or other incentives. These exclusivity agreements limit the ability of artisanal brewers to promote their beers through off-trade channels, especially independent grocery retailers, an important channel for this product.
Beer isn’t the only product enjoying a shift towards local artisanal products. The culture of wine is developing rapidly in Mexico, and Mexican oenophiles are increasingly embracing Mexican wines. The wine industry in Mexico is still quite nascent, and previously was considered to be of low quality. However, vineyards have been using improved technology and techniques resulting in many high quality wines, several of which have won awards in international competitions.
According to the Mexican wine association Consejo Mexicano Vitivinicola, Mexican wines now make up approximately 27 percent of all wine consumed in the country and are expected to continue gaining ground against imports from Spain and Chile in coming years. There are a few major international companies that have production facilities in Mexico (Domecq, Freixenet), but most domestic production is from small and medium sized wineries.
The Mexican wine consumer is largely driven to consume wines primarily out of a pride in the growing sophistication of the country’s wine industry. Furthermore, as the value of the peso falls against the dollar and euro, Mexican wines are becoming better value than their Spanish and American counterparts. These factors spell a promising future for the Mexican wine industry, with significant market potential for both small independent wineries and large international players looking to move production to Mexico.
MEZCAL’S NEW IMAGE
For decades, mezcal was thought of as poor man’s tequila and was targeted at lower socioeconomic groups and binge-drinking American college students on spring break. Both tequila and mezcal come from the agave plant; however, tequila is produced from blue agave in the Jalisco region and is usually distilled twice, while mezcal is generally distilled only once and comes from maguey agave which is found primarily in the Oaxaca region of the country.
Over the past few years, mezcal has benefitted from the same trend that has benefitted Mexican wine producers; a pride in consuming high quality Mexican products. As a result, many independent mezcal producers have been investing significantly to improve the quality of their product and marketing it to the growing population of young urban professionals. Both the drink’s popularity and unit price are on the rise, with some bottles now being sold for over Mx$2000 pesos (US$150) per 750ml bottle.
Mezcalarías are emerging in major cities in Mexico and some of the most popular bars and restaurants have special areas for drinking mescal, such as the Mezcal Bar within the popular Fever Club in Condesa, Mexico City. Other restaurants in Cancun, Monterrey and Mexico City sell generic mezcal, which is generally purchased by the keg or barrel from the Oaxaca region. Some bars have started offering mixed drinks featuring mezcal in margaritas (mezcalitas) and martinis.
OPPORTUNITIES FOR ENTREPRENEURS
The global alcoholic drinks industry has seen a steady stream of consolidation in recent years, to the extent that nearly half the world’s beer sales are held by only five companies: AB InBev, Heineken, SABMiller, Carlsberg AS and Molson Coors. Mexico’s two largest breweries, Grupo Modelo and Cuauhtémoc Montezuma, have been bought up by international giants in the past three years: Cuauhtémoc Montezuma was purchased by Heineken in 2010 and Grupo Modelo was purchased by AB InBev in June of 2012. Nearly all major tequila brands are owned by international companies, with the exception of Grupo Cuervo, which was nearly bought out by Diageo until the deal fell through in December 2012. However, as the international giants are scrambling to buy each other out, a significant market for small domestic producers is appearing, allowing Mexicans to regain some control of their own products. This trend is a win-win for Mexico, as it provides opportunities for entrepreneurs while treating the Mexican population to higher quality alcoholic drinks.
Bethany Gomez is a Research Analyst for Latin America at Euromonitor International. This article was written for Latinvex.
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