By David Kesmodel
In a fast-consolidating global beer industry, Grupo Modelo SAB Chief Executive Carlos Fernández is trying to keep his company in the family.
Modelo—whose brands include Corona Extra, the best-selling imported beer in the U.S., and Modelo Especial—is one of a dwindling number of family-controlled beer dynasties. The publicly traded company, which was launched in 1925, watched last year as its main rival, family-controlled Femsa Cerveza, was snatched up by Heineken /zigman2/quotes/205347870/delayed NL:HEIA +1.81% NV.
Analysts predict that the Mexican brewer's controlling shareholders will face increasing pressure in coming years to sell their stake to Anheuser-Busch InBev /zigman2/quotes/209225053/composite BUD +5.39% NV. (When InBev NV purchased Anheuser-Busch Cos. in 2008, it inherited Anheuser's 50.2% noncontrolling stake in Grupo Modelo.)
After weathering the sluggish recovery of the Mexican economy and a U.S. beer-industry slump, Modelo's current strategy includes introducing new products in the U.S., aggressively defending its No. 1 position in Mexico, where it controls about 55% of the market by volume, and looking for expansion opportunities overseas.
Mr. Fernández, the great-nephew of one of the company's founders, is also a soccer enthusiast and father of five. The 44-year-old recently spoke to The Wall Street Journal at the brewer's U.S. office in Chicago about Mexico's economy, Modelo's relationship with Anheuser and his favorite beer. Excerpts:
WSJ: Your sales in Mexico were up 5% in the fourth quarter. Is demand starting to improve?
Mr. Fernández: Last year was really tough. I'm starting to see that the consumers are willing to spend more again on our beers in the Mexican market.
I would say volume growth [in 2011] will be in line with GDP. And revenue growth, well, I certainly hope it's going to be above that, because we are raising prices [in line with inflation].
WSJ: You're dealing with rising commodity costs. Which commodities will be most challenging this year?
Mr. Fernández: It's raw materials, specifically wheat, corn and barley. Then it's aluminum and gas. All these are moving and getting big increases.
WSJ: The company has said it may start hedging against the Mexican peso. How much of a problem for you is the stronger peso?
Mr. Fernández: I'm happy the Mexican economy is strong, but unfortunately for the business model, [the stronger peso] puts extra pressure on the management to deliver better results year after year. For instance, I'm selling more cases of beer in dollars, but receiving fewer pesos. Since my company reports in pesos, that doesn't help much.
WSJ: What impact is the violence in Mexico having on your company?
Mr. Fernández: Security is an issue. We have been investing more money than we used to on that. But I believe that our government is handling it in a way that, within time, order will come in many regions.
WSJ: What are your priorities in the U.S.?