Miami Herald / June 17, 2002
By Larry Luxner
CARACAS -- If the Venezuelan economy is teetering on the brink of collapse, you'd never know it by touring the giant Caracas brewery of Empresas Polar S.A.
Here, at the headquarters of the largest privately held company in Venezuela, workers produce enough Polar to supply a whopping 81% of the country's beer market.
"We've been profitable and growing every year since we were founded in 1941," says Polar's 36-year-old president and CEO, Lorenzo Mendoza. Exactly how profitable Polar is, no one outside the company really knows. "We don't talk about profits," says Mendoza. "That's the luxury of being a private company."
Polar, with $2.83 billion in 2001 sales, ranks as the fourth-largest brewer in Latin America behind Mexico's Grupo Modelo, Brazil's AmBev and Mexico's Cuahtemoc-Moctezuma. In revenue terms, it's bigger than Argentina's Quilmes, Chile's Cervecerías Unidas or Colombia's Bavaria.
"Clearly, they're the beer leaders in Venezuela," says Raquel Lizarraga, a beverage-industry analyst at BBVA Securities in New York. "When you have that kind of dominance of an industry, you basically set the agenda."
Even if you don't drink beer, it's hard not to notice Polar while in the Venezuelan capital. The company's distinctive polar-bear logo whizzes by on passing delivery trucks, looks down from huge billboards and, at night, lights up the Caracas skyline with neon from atop one of the city's tallest office buildings.
Polar's near-monopoly on the Venezuelan beer market is even more impressive, considering that the average Venezuelan guzzles 78 liters of suds a year -- giving the country the highest per-capita beer consumption in Latin America.
"It's been like that for the last 25 or 30 years. It has nothing to do with social factors or climate," Mendoza told The Herald in a recent interview. "We have worked very effectively to improve the distribution of beer in this country, and to have different types of beer that are affordable to all social classes. To do that, you've got to be very competitive."
Polar is -- and not just in beer. Last year, Mendoza engineered the $480 million buyout of food products giant Mavesa. That takeover, which dwarfed Polar's 1988 acquisition of Beatrice Foods' Latin American division for $120 million, instantly made Mendoza's conglomerate a leader in the Venezuelan consumer foods sector.
"We had products that were very basic, like rice, corn, wheat and pasta. We were already the leaders in corn flour. So we decided that we needed more value-added products," said Mendoza. "Mavesa produces all kinds of things -- margarine, mayonnaise, juices and sauces -- and it fits very well with our strategy."
As a result, the company now produces 90% of the corn oil, 70% of the precooked corn flour, 60% of the ice cream and 30% of the rice consumed in Venezuela, with beer now accounting for only 53% of total company revenues.
Robert Bottome, publisher of the Caracas newsletter VenEconomy Weekly, says Mendoza is among the new generation of business leaders who are making a difference in Venezuela.
"For years, we had all these old fogies running things. It's only now, with the collapse of the traditional parties, that you're beginning to see new leaders in all walks of life, including business," observed Bottome. "Here you have this kid who took over Polar, reorganized it and put it on a solid basis. It's a much better company today, and he made a huge decision when he decided to buy Mavesa. That was a vote for the future of Venezuela."
Polar was established by Mendoza's grandfather, Lorenzo Mendoza Fleury. From its birth as a tiny brewery, the company grew rapidly, and by 1961 -- only 20 years after its founding -- Polar already had a 50% market share. By the late 60s, it had become the clear market leader.
Since the beginning, the company has followed just-in-time practices, selling its beer to retailers every day rather than once a month and always keeping fresh stocks on hand. Polar has never given discounts on quantity, because that would encourage customers to buy large volumes and end up with stale beer.
"I don't like to be arrogant at all, but I must say there's nothing like our products," brags Mendoza, who enjoys a beer with lunch every day.
Today, there are only two other beer producers of any significance in Venezuela. One is Cervecería Regional, which was founded in 1929 in Maracaibo. Regional -- today owned by Mendoza's biggest rival, Grupo Cisneros -- has a 15% share of nationwide beer sales and leads the market in some areas of western Venezuela. The other is Cervecería Brahma, which is owned by Brazil's AmBev and has a share of around 4%.
According to analyst Lizarraga, AmBev earns revenues of $60 per hectoliter of Brahma beer sold in Venezuela -- substantially more than the $38 per hectoliter AmBev gets in Brazil. Interestingly, imported brands comprise less than 0.2% of the Venezuelan beer market.
"Imports are not a factor except in countries where disposable per-capita income is high, And in our country, price is very important," Mendoza told The Herald, noting that both Budweiser and Heineken have tried, unsuccessfully, to expand their tiny presence in Venezuela. "We have very good beer here. We don't need to go for imported brands."
According to Polar's 2001 annual report, the beer and soft-drink sector accounted for $1.33 billion of Polar's $2.83 billion in revenues, followed by processed foods ($1.102 billion); snack foods ($241 million) and packaging ($153 million).
Polar owns half of Snacks America Latina, a joint venture with Pepsico subsidiary Frito-Lay International. The $500 million, 10-nation venture produces potato chips and other snack-food items in Venezuela, Colombia, Peru, Chile, Honduras, Guatemala, Panama, Bolivia, Ecuador and Costa Rica.
It also earns substantial revenues from its 70% ownership of Pepsi-Cola de Venezuela; New York-based Pepsico has the other 30%. That venture was born in 1997, when Pepsi's previous bottler in Venezuela jumped ship and switched to Coca-Cola.
"Pepsi was left without a bottler, and we had some knowledge of the bottling industry. We were well-positioned to join with them," said Mendoza, noting that in the ensuing five years, Polar -- which has invested $500 million in the venture -- has been able to boost Pepsi's market share of the Venezuelan cola market from essentially zero to 37%. Coke has most of the remaining 63%, through the Panamco venture owned by Grupo Cisneros.
In strictly revenue terms, Grupo Cisneros -- whose interests range from beer and soft drinks to telecommunications and entertainment -- is far bigger than Polar. But only 15% of that company's assets are actually in Venezuela, says Antonio Herrera, CEO of the Venezuelan-American Chamber of Commerce.
"There's a lot of rivalry between Cisneros and Mendoza -- Pepsi against Coke, Regional against Polar," says Herrera, noting that the two men also have a lot in common. "These are family-owned companies, and it's very interesting that they've succeeded in a world that every day is dominated more and more by faceless corporations."
Another similarity: both men are incredibly rich. The Mendoza family's net worth stands at around $4.5 billion, according to Forbes magazine's list of the world's richest people, while Cisneros is a billionaire several times over.
"The biggest ways of selling beer in this country is at baseball games," says Herrera. "So Cisneros went and bought a baseball team to get into the stadiums."
That strategy may be working. Region, which is controlled by Cisneros, recently introduced a clear-bottled light beer that has taken that market segment by storm. Polar is countering with a $7 million billboard and TV advertising blitz of its own.
"Regional has taken market share mainly from Brahma. We have lost some points as well," conceded Mendoza. "They've been successful in launching their light beer, so we've lost about 20% in that segment, which is around 12% of the total beer market."
Cisneros himself could not be reached for comment, though Susan Ainsworth, a New York-based spokeswoman for the conglomerate, said "we're extraordinary happy with the development of Regional, and we anticipate continued growth in market share." She declined to talk about the rivalry between Cisneros and Mendoza, saying that "it's our company policy not to comment on the activities of other companies."
Clearly, one thing that distinguishes the two giants is the fact that, while Grupo Cisneros is huge internationally, Polar's strength derives from its domestic sales. Even though the company ships limited quantities of beer to neighboring Colombia, some nearby Caribbean islands and South Florida -- which has a large Venezuelan immigrant population -- there's no serious regional beer venture on the horizon for Polar.
To date, Polar's only overseas investment in beer is its interest in Backus & Johnston, a Peruvian brewery that has annual sales of $450 million and produces several of Peru's most popular beers, including Cusqueña and Ariquipeña. Last November, Polar paid $112 million for a 12% share in Backus & Johnston, bringing its total stake in the company to 25%, in partnership with two Peruvian entities, Grupo Bentin and Grupo Brescia.
"We do have a vision," said Mendoza. "It's just that opportunities to acquire a brewery in Latin America are very scarce. These are big, well-established players with great brands, and you cannot go into these countries thinking you are a conquistador. That philosophy will ruin your pockets and the success of a viable business."