Which brings us to Modelo, whose Corona and other Mexican imports now claim about 6 percent of the U.S. market. In recent years, Corona has been in a head-to-head battle with AB InBev’s Bud Light for the affections of American consumers — in particular, women and Hispanics. ABI responded to the cross-border challenge by introducing Bud Light Lime, a not-too-subtle echo of the lime wedge that bars stuff into the neck of each bottle of Corona. Corona fought back with Corona Light.
Corona vs. Bud Light
What few people outside the industry realized was that, back in 1993, Anheuser-Busch had bought a non-controlling 50 percent stake in Grupo Modelo and through it a 25 percent stake in Crown Imports, the exclusive U.S. importer of Corona.
In other words, Bud’s parent, ABI, profited every time a bottle of Corona was sold in the United States. For ABI executives, however, this proved insufficient solace. They were more concerned with the way Corona had gained its market share — by refusing to follow ABI’s lead in raising industry prices and profits.
Since 2008, ABI’s hard-nosed chief executive, Carlos Brito, has made no secret of his aim to end the price wars that for years depressed profits in the U.S. beer industry. Price competition was inevitable as long as there were lots of brewers with excess capacity competing for market share. But Brito’s strategy was that consolidation would eliminate the excess capacity and make it possible for the handful of remaining firms to reach a tacit agreement not to compete on the basis of price.
Inside ABI, the strategy was known as its “Conduct Plan,” which the Justice Department, in its suit, characterized as a “how-to manual for successful price coordination.” Each August, ABI would announce its intention to raise prices in October and then wait to see how rivals would respond. As Brito had hoped, SABMiller announced a similar increase. A recent report by the American Antitrust Institute found that since 2008, despite a recession and a modest decrease in the amount of beer it sold, America’s beer duopolists have increased prices, operating profits and share prices.
Brito’s strategy might have worked even better if Modelo had played along. Instead, Modelo used the price increases to narrow the gap between its more expensive Corona and its domestic competitors. In California, ABI’s losses in market share were so great that its vice president for sales wrote in a memo that “California is a burning platform,” according to the Justice Department’s suit. In Texas and New York City, the loss in sales was so great that ABI was forced to roll back its price increase, the government says.