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MEXICO CITY, Mexico -- Grupo Modelo SA, Mexico's largest beermaker, plans to open as many as 1,000 convenience stores over the next 12 months, almost doubling the size of its retail unit and gaining on the country's leading convenience-store operator, according to company CEO, Carlos Fernandez in a Bloomberg report.
Fernandez said he'll seek to open another 1,000 convenience stores, which go by the name Extra, the following year if the company is able to meet the 1,000-store goal over the next 12 months. Modelo's retail unit provides the company with an opportunity to grow and put to use some of its $1.8 billion in cash while creating a direct point of sale for its beer brands, including Corona beer.
"It's a format that has a lot of potential in Mexico," said Fernandez in a telephone interview in Mexico City. "The retail area in Mexico, we see it in the numbers, is more successful now than in past years.''
Modelo's retail unit could become an important part of the company's distribution system and its attempts to sell more beer in northern Mexico, where competitor Fomento Economico Mexicano SA has a stronghold, said Jose Angel Montano, an analyst with the Mexican brokerage unit of Banco Bilbao Vizcaya Argentaria SA in the report.
"Strategically, the stores can used to penetrate with its beer brands in the whole country,'' Montano said. "They have the money to do it.''
Modelo plans to vary the format of its stores by size and types of products to boost its success, Fernandez said. The company isn't "in a race" with its competitors and will keep stores open that meet its goal for return on investment, he said. Modelo has about 1,050 stores, Fernandez said.
"We want to be very disciplined," he added.
The strategy mirrors Fomento Economico's Oxxo chain, which is the largest in Mexico, with 4,141 stores at the end of 2005. Femsa, as the Monterrey-based beer and soft-drink maker is known, uses its nationwide chain to sell its products and compile information on consumer purchasing habits.
"Given that this has worked out well for Femsa, it's not a surprise that Modelo is trying to do the same thing," said Urban Larson, a fund manager with F&C Investments in Boston. Revenue from Femsa's retail unit has tripled to $2.7 billion in 2005 from 2000 and the company plans to reach 10,000 stores within eight to 10 years, Javier Astaburuaga, Femsa's chief financial director, said in an interview last month, according to the report.
Additionally, Modelo will announce before the end of the year the location for a beer plant it plans to build to keep up with rising demand, Fernandez said. The plant will be built in stages, similar to its Zacatecas plant, with the first having capacity of 5 million hectoliters of beer a year, he said.
Modelo is searching for opportunities to invest its cash in Mexico and abroad that won't drag on its operating margin -- which is operating income divided by sales -- of 28 percent, said the Bloomberg report.
"Modelo is open to using its cash on projects that increase revenue and profits, but don't deteriorate our operating margins," Fernandez said.
The company announced earlier this week it will invest an undisclosed amount to form a joint venture with Constellation Brands Inc. to distribute its beer throughout the U.S. beginning Jan. 2. The company is also experimenting with a directly owned distribution company in Spain, Fernandez said.