Modelo And Nestlé Finalise Water Venture

Posted April 3, 2007 in [Corporations]

Business Monitor International - Mexico's Grupo Modelo and Swiss group Nestlé Waters have finalised, and legally closed, their joint venture for the Mexican bottled water market. The two companies, which signed a letter of intent on the venture in late 2006, aim significantly to increase sales of Nestlé Waters' brands in Mexico, the world's second-largest bottled water market. The primary focus of the sales drive will be around five principal brands: Santa María, S Pellegrino, Perrier, Nestlé Pureza Vital and Acqua Panna.

Nestlé Waters contributed 9.7% of Nestlé's global earnings in 2006. It currently holds a 15% market share in Mexico's 'modern distribution channels', but will gain privileged access to more traditional distribution channels through the deal. This, Nestlé maintains, will allow it to quickly build and sustain a much larger market share. Modelo, which owns the Corona brand, is Mexico's leading beer producer, with a market share that BMI estimates at 63%. It is also the sole importer of Anheuser-Busch products (Budweiser and Bud Light) into Mexico.

The main thrust of the venture allows for the exclusive importing and distribution of Nestlé's water products by Modelo. Nestlé is calculating that Modelo's wide distribution reach in the country will propel it into a market-leading position. BMI believes Nestlé's need for the deal is more urgent than Modelo's, considering its turbulent history lately of dealing with currency fluctuations, lawsuits and new competitors.

On the one hand, the integrity of some of Nestlé's brands, including Poland Spring and Ice Mountain, has been questioned in North America, and on the other hand, the extent of its dependence on hot European summers for the majority of its sales has been exposed in the last few years, as not every summer brings a record breaking heat wave.

Despite it all, however, Nestlé has maintained half decent growth rates since 2003, when its troubles began. We believe this, in large part, is due to its having kept its head; instead of despairing, it launched new 'healthy ingredient' products, such as ginseng and herb-flavoured waters, as well as a new version of the chocolate malt beverage, Milo, fortified with the new branded ingredient, Actigen-E.

Meanwhile, it strengthened its sales and marketing efforts in emerging markets, particularly in Mexico, around its malt beverage and soluble coffee products. Sales of these, and of Milo, recorded double-digit growth rates in Mexico in both 2005 and 2006. Nestlé's strategy, then, of deepening its involvement in large emerging markets, in order to lower its dependence upon North America and Europe, would appear to be working.
Americas Food and Drink Insight