“Corona Beer (Modelo)”

Foreign Market Entry and Diversification

Richard J. Bradley

Professor Brian Grizzell

Strategic Management – BUS599

Strayer University

February 9, 2012

Abstract

This analysis outlines Corona Beer (Modelo) and its current strategy and position amongst the competition in the beer industry. The key question addressed is the ability of Corona Beer (Modelo) maintaining status as an industry leader among beer producers and distributers. The trends within the global beer market are also examined as it impacts Corona Beer (Modelo). A competitor analysis will be discussed and how Corona Beer (Modelo) will need to perform and react in the ever changing international markets. There will also be strategic challenges identified and how the company will handle them while facing various options and recommendations to address such challenges.

In addition this analysis will outline and dissect trends affecting global beer markets. My analysis will examine how the international expansion of Modelo was initiated by strategic partnerships with various seasoned beer distributors. The analysis will also focus on Modelo and an effective strategy to enter foreign markets for success. The discussion will cover the varying challenges Modelo may encounter from the competition. By 2010, beer sales dropped some 1.5% in the United States America and slightly higher in western Europe with 2.3% (The Economist, 2011). The amount of beer consumed in blossoming markets has shown some increased growth over other beverage categories as consumers convert from locally brewed products to higher-quality, pretty packaged commercial beers.

“Corona Beer (Modelo)”

To understand global beer market trends, one must understand how the trends are characterized and how beer markets are labeled. Corona Beer paints a picture of relaxation and ocean views. In 1925, the Cerveceria Modelo opened its doors in Mexico City selling approximately 8 million bottles of beer by 1928 (Grupo Modelo). The beer industry has been successful adapting to changes over the years and Grupo Modelo can boast the same within the company.

Consumption of alcoholic beverages has increased over the years and we can thank the economic downturn for that. Since the economic collapse many consumers have been searching for avenues to ease their pain and stress. With this being the case, Grupo Modelo and its many brands have untapped markets that can be marketed to in order to have their product available to additional global markets. The beer industry comprises of more than 2,000 brewers and importers thousands of beer distributing facilities across the world and a plethora of retail partners.

Identify and discuss the trends in the global beer markets.

Over the past few years, global beer markets have been through a series of fast moving changes (SABMiller, 2012). Several of emerging markets, developments in the economy and society along with changing improvements in the quality and desire of beer led to an outpouring desire and growth in the beer industry. The mature and existing markets have undergone a transformation as brewers and distributors have answered to constrained consumption trends. As outlined, existing markets are not enthusiastic over beer, but markets that have yet to experience beer at the same level are still excited and desire that experience. This has led to a consolidation within the beer industry. As of late four of the main corporations in the beer industry; Anheuser-Busch InBev, SABMiller, Heineken and Carlsberg, account for about half of the volume within the industry. The consumption of beer continues to increase in countries such as Africa, Asia and Latin America. The growth in population and income as well as the improvement in the quality of beer has driven the growth and desire for beer. Consumers are shifting from lower grades of alcohol to beer and alcohol that is attractively packaged and appealing. As far as the alcoholic segment is concerned, beer is growing at the expense of subsistence alcohol. Despite economic pressures, the consumption of beer globally increased slightly in 2010 (SABMiller, 2012). Over the years, global beer sales have maintained average sales in existing markets while emerging markets have experienced a better rate of growth. The consumption of beer in existing markets succumb to the pressures increased unemployment, increased fuel prices and limited spending by consumers. Unemployment rates are extremely high amongst targeted beer drinkers in the United States. The same can be said for beer drinkers in Western Europe. The volume consumed in these regions continues to decrease due to consumers switching their tastes to other beverages and limit their beverages consumed on-premise. The amount of beer consumed globally is normally a direct result of increasing disposable income, quality of the beer, along with marketing which normally would stem from expanding beer consumption. The rise in beer consumption trends can be attributed to the substitution of beer for other alcoholic beverages. This trend can be related to a consumer’s income and the responsiveness to brands. The movement with urban areas and changing demographics initiated this movement towards beer consumption. In existing markets consumption varies due to product differentiation and the level of marketing promotions. This serves as a partial explanation with regard to amount consumed in differing global markets.
Discuss how Modelo’s international expansion was made possible through strategic partnerships with experienced distributors in local markets. The largest brewer in Mexico is Grupo Modelo. The signature product and biggest seller of Grupo Modelo is the Corona brand of beer. Modelo possesses a large presence in the market with exports to many countries spanning the globe. With InBev having a large ownership interest in the company, this has allowed Grupo Modelo to expand even more.

To get its foot into the American beer doorstep, Grupo Modelo chose Barton Beers Ltd. as the main distributor. The size of Barton Beers Ltd. was attractive to Grupo Model due to Barton being one the largest beer importers. In addition, Barton had in depth experience on how to market and sell imported beers. Once Modelo ramped up production they would need an organization to support operations. Grupo Modelo enlisted the support of Procermex, Inc. to aid in operations. In addition, Procermex, Inc. would also oversee relations, support and the distributors of Grupo Modelo. The agreement that Modelo and Anhueser-Busch drafted would allow Modelo to be an exclusive importer and distributor for InBev brands of beer sold in Mexico.

Surprisingly, one of the more beneficial partnerships came from the North American Free Trade Agreement (NAFTA). This agreement helped relieve some of the barriers that were in place with trading among countries located on North America. NAFTA became an integral part of the beer industry. The agreement laid down the blueprint for beer markets in the United States and Canada. This also allowed continuing access to the growing beer market in Mexico. Despite NAFTA there was hesitation to trade due to the large tariff placed on beer. The tariffs were not as stifling as the strategic alliances between the United States, Canada and Mexico were able to capitalize on the distributions of beer.

Identify and discuss the next foreign market that Modelo should enter and discuss the strategy it should use to enter the market.

A corporation entering a market must have various assets, effective marketing, a well connected distribution system and a diverse product portfolios. Corona Beer (Modelo) has the luxury of employing a global sales team which has created a top ten company in Latin America. Canada is one of the top countries that imports Corona Extra. Grupo Modelo along with Milson Coors Brewing Company drafted agreements establishing joint ventures to import, distribute and market Corona to all of Canada (Grupo Modelo Mexico). This new venture would add even more success to that already being enjoyed because Molson currently imports, distributes and markets Modelo brands in Ontario.

Grupo Modelo is a member in the joint venture with Cargill to supply barley to plants throughout the United States. By joining Cargill in a joint venture allows Modelo to have improved operating practices. With the continuing success of beer distribution, Grupo Modelo may find it worth its time and resources to expand its portfolio by investing in the growing popularity of low calorie and flavored alcoholic beverages. This would seem to be a natural fit to the product line-up since Grupo Modelo offers light beers. Grupo Modelo has the possibility of gaining a competitive advantage over other companies that do not have such a diverse portfolio. If Grupo Modelo were to add such a slate of new products the company would need to invest in new ingredients and make capital improvements to build additional space and obtain new equipment. Grupo Modelo has a head start in that bottling, manufacturing and distribution channels are in place to get any new product rolling.

Grupo Modelo would benefit from forming strategic alliances with other international corporations that currently have a strong market presence in areas already offering low calorie drinks and flavored alcoholic beverages. By doing so, Grupo Modelo could enter into a distribution agreement allowing them to infiltrate the new areas with their product lines. Not only will this aid Grupo Modelo to enter foreign markets, but improve their position and competitive advantage across the world.

Discuss the challenges that Modelo faces from its competitor InBev and how it might respond strategically to the industry giant.

InBev, the leading brewer in the world and one of the top five consumer products companies (AB InBev, 2012). InBev experienced an exponential growth after the company completed a $52 billion dollar acquisition of Anheuser-Busch. InBev is comprised of a portfolio of over some 200 brands of beer that include flagship brands Budweiser and Beck’s along with American favorites Bud Light, Michelob and Skol. Additionally, InBev has a vested 50 percent equity interest in the operations of Grupo Modelo. The fact that InBev has an ownership interest in Grupo Modelo makes this an interesting comparison due to that Grupo Modelo helps InBev become even larger.

InBev is more than a competitor to Grupo Modelo, they are also an investor. The sheer size of InBev would intimidate even the greatest competitor, so imagine how Grupo Modelo feels as a key competitor has a larger ownership interest. InBev’s presence is felt in over twenty three countries while Grupo Modelo’s dominant presence is in Mexico. However, Mexico is one of the most profitable beer markets in the world. Alongside Brazil and the United States, Mexico accounts for a third of global beer industry profits. The Mexican beer market is set to increase in value by an average of at least 6% per year up to 2014 (Mercer, 2011).

Grupo Modelo will need to continue to build upon its existing strengths in the Mexican market so that can translate into a larger presence on a global scale. As the company grows, Grupo Modelo will be able to strategically divert attention and assets to other markets and become a direct competitor of InBev and possibly even regain majority ownership once Grupo Modelo gains some market advantages.

Discuss whether or not Modelo should diversify its business, what business it should enter into (if any) and why.

Changes in society strongly effect consumer activities and such activities must be at the forefront as companies make operational decisions. Modelo needs to focus attention on the relationship between diversification and performance. The issues that need to be investigated include how large and how diversified a firm should take itself. These particular issues play an integral factor on how the corporation will proceed. As a corporation contemplates diversification there are other factors to consider such as looking at the industry the corporation wants to enter in order to gauge the corporation’s strength and viability when comparing to existing businesses.

The trends as of late show that consumers are looking for healthier lifestyles. This translates into the taste of consumers changing, meaning they want lighter, low calorie beers and alcoholic beverages. A major factor that Modelo needs to consider the amount of resources required to introduce new products in existing and new markets. The United States is experiencing a population boom with regard to Hispanic cultures. According to the 2010 census, Mexicans make up the largest Hispanic group nationally and experienced a population growth of 43 percent (United States Census, 2011). The extreme growth in this market segment would allow Grupo Modelo to target its products and possibly experience and gain more of the market share.

The advancements in technology are a whirlwind of change. These advancements include better and more efficient systems of brewing beer and other products. Technological advances have allowed distribution channels to flow smoother and efficiently which allows for better delivery and increased production. Grupo Modelo needs to stay ahead of the curve of such changes so its competitive advantage can be maintained.

Conclusion Corona Beer (Modelo) has effective strategies on how to position itself in the global market. The competition is fierce among distributors and retailers and every strategy is vital to the success. The partnership allowing Grupo Modelo to export its brands across the world allows the company to grown and become a major player in beer distribution. The trends within the global beer market show that consumption has increased despite down economic factors affecting other industries.

The expansion of Modelo will allow for good competition among beer companies and possibly lead to better innovations, products and technology advancements. With InBev being a key competitor as well as an vested investor may provide the spark that Grupo Modelo needs to stay on top of industry standards in order to continue offering superior brands of beer.

References

AB InBev, http://www.ab-inbev.com/go/about_abinbev/our_company/ab_inbev_company_profile.cfm, accessed February 9, 2012.

Grupo Modelo Mexico, http://www.gmodelo.mx/presencia_internacional_en.jsp, accessed February 10, 2012.

Mercer, Chris, just-drinks, Mexico: Grupo Modelo Steals March on Rival – Analyst, October 24, 2011, http://www.just-drinks.com/news/grupo-modelo-steals-march-on-rival-analyst_id105336.aspx, accessed February 12, 2012.

SABMiller, Global beer market trends, http://www.sabmiller.com/index.asp?pageid=39, accessed February 10, 2012

The Economist, The Global Beer Industry, Sell foam like soap, To maintain profit growth, brewers will need keen marketing, Copenhagen, May 5, 2011, http://www.economist.com/node/18651308, accessed February 11, 2012

United States Census Bureau, 2010 Census Shows Nation's Hispanic Population Grew Four Times Faster Than Total U.S. Population, May 26, 2011, http://2010.census.gov/news/releases/operations/cb11-cn146.html, accessed February 9, 2012.[pic][pic]