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Venezuela's Polar Continues To Dominate Beer Market With 81% Share
Impact / March 1, 2002

By Larry Luxner

CARACAS -- If Venezuela's economy is about to collapse like a house of cards, 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, whose size is estimated at 19 million hectoliters.

"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 (the next-highest on the list are Mexico, at 52 liters, and Brazil, at just under 50 liters).

"It's been like that for the last 25 or 30 years. It has nothing to do with social factors or climate," said Mendoza, who was interviewed recently at Polar headquarters in Caracas. "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, which began life as one of the smallest breweries in Venezuela, grew rapidly. By 1961, only 20 years after its founding by Mendoza's grandfather, Lorenzo Mendoza Fleury, Polar already had a 50% market share, and by the late 60s had become the clear market leader.

From the beginning, the company instituted just-in-time practices, selling its products 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, but far less than what Polar earns. 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 Impact, 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."

Despite Polar's prominence in beer, says Mendoza, "we're not just a beer company anymore. Beer accounts for only 53% of our revenues today. There have been a lot of developments in the food area, in which we have grown dramatically."

Polar already 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 soft drinks, a revamped Panamco is probably making a competitive situation for Pepsico a lot more difficult. And there's a third brand, Kola Real, that's been giving the soft-drinks companies a run for their money," says analyst Lizarraga. "Overall, the soft-drink market in Venezuela seems to be contracting a little bit. In addition, there are increasingly competitive pressures for Polar. It's quite clear theirs is a beer market and that what drives their business."

Even so, Polar is determined to branch out. Last year, Mendoza engineered his biggest acquisition yet -- paying $480 million for food products giant Mavesa. That takeover, which dwarfed Polar's 1988 acquisition of Beatrice Foods' Latin American division for $120 million, instantly made Polar a leader in the 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," he said. "Mavesa produces all kinds of things -- margarine, mayonnaise, juices and sauces -- and it fits very well with our strategy."

Between its existing lines and those acquired from Mavesa, Polar 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, according to a recent article in The Wall Street Journal.

Polar also 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.

On the other hand, Polar's beer business is confined mainly to the domestic market. Even though the company ships limited quantities of beer to neighboring Colombia and a handful of Caribbean islands -- Aruba, Bonaire Curacao and Trinidad & Tobago -- and to South Florida, which has a large Venezuelan immigrant population, there's no serious regional beer venture on the horizon for Polar.

"Everyone has a vision for Latin America, but so far, no one is present [throughout the region]," said Mendoza, noting that "99% of Brahma's revenues are in Brazil, and 95% of Quilmes' revenue is in Argentina."

"We do have a vision as well," he explained. "It's just that opportunities to acquire a brewery in Latin America are very scarce. We have 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. Greenfields in those countries are not the way to go. It's got to be through alliances or acquisitions, and beer companies do not come up for sale in Latin America every day. And the ones who do are usually in trouble."

To date, Polar's only overseas investment in beer is its interest in Backus & Johnston, a Peruvian brewery that has annual sales of around $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.

In strictly revenue terms, Grupo Cisneros -- which has interests in telecom and entertainment as well as Regional beer and Coca-Cola products -- is probably 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.

Says Herrera: "The biggest ways of selling beer in this country is at baseball games. So Cisneros went and bought a baseball team to get into the stadiums."

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); snacks ($241 million) and packaging ($153 million).

Mendoza, who's been running Polar for the last three years, said his company's success is based on "service, quality of product and being very consistent in what we do."

"We try to give a lot of value to the consumer, but obviously our pricing strategy takes purchasing power into consideration. We have to be realistic and work hard to be competitive. Every year, we try to beat inflation, so whenever we have a price increase, the levels are below the rate of inflation, and therefore people see us as giving better value to them than other categories," he explained.

"As you know, in Latin America things can be very rosy and wonderful one minute, then all of a sudden a thunderstorm comes up. The key is understanding those cycles. You have to keep people focused and motivated. Sometimes you subordinate that by talking about how bad things are. We at Polar are very good at trying to isolate our management from the day-to-day activities and keeping managers focused on their objectives. That is very difficult to do, but if you do that, you're able to accomplish your goals in a more realistic way than if you're just barking and complaining."'

Mendoza has an MBA from the Sloan School of Management at MIT. He worked for a few years as an investment banker at Citicorp in New York, and at a merchant bank in London before joining the family business.

"My family let me do whatever I wanted to do," said Mendoza, who runs marathons as a hobby and was recently featured by The Wall Street Journal as one of the 10 up-and-coming business leaders of Latin America. "I just thought I could add value and could lead by knowledge, and that's why I'm here."

The young executive and father of five shows up for work at 6:30 a.m. every day, spending 90% of his time on internal matters and not leaving the office until 8:30 or 9 p.m. In addition to running Polar, he's on the board of directors of AmCham, and also serves on the boards of BBVA, Banco Provincial and energy conglomerate AES Venezuela.

Observes Herrera: "Mendoza is a very refreshing businessman. He's young, open, very accessible, very amiable, and surprisingly mature for his age. I wouldn't call him brash. On the contrary, he's unassuming."

Asked what accounts for Polar's success, Herrera said it's quite simple: "When you have a brand predominance in Venezuela, it usually happens in a big way. You're talking 60, 70, 80 percent of the market. It also has to do with good management. They have a very good corporate reputation in general. Their share is being challenged lately, but still over so many years they've had such a dominant position that it's very hard to match."

Regional is certainly trying, though. The company, which is controlled by Grupo Cisneros, recently introduced a clear-bottled light beer that has taken that market segment by storm, though not necessarily at Polar's expense. Even so, 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."

At the same time, the Venezuelan economy is stagnating. President Hugo Chávez, a former coup leader and paratrooper who has been in office for three years now, is bitterly resented by the nation's business leaders, who blame him for bankrupting the country with his populist policies and scaring away badly needed foreign investment.

Mendoza is reluctant to criticize Chávez by name, instead preferring to blame the last three governments for the enormous problems his country faces today.

"Venezuela has been going through difficult times for the last decade or so," he said with obvious frustration. "We don't have an economic plan that the private sector and investors can rely on. We've been zigzagging without a specific economic plan for the last 10 years. This has obviously hurt us. From my point of view, we don't have a government that promotes private investment. We haven't had a government that thinks beyond oil."

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