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GRUPO MODELO CASE ANALYSIS BY

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Table of Contents:

Financial Ratios Performance..............................................................................…………………..Pg.3
Primary Objectives and Summary............................................................................................Pg.4
Market Overview......................................................................................................................Pg.5
Key Success Factors..................................................................................................................Pgs.5-6
SWOT ANALYSIS........................................................................................................................Pg.7
Strengths...........................................................................................................Pg.7
Weaknesses.....................................................................................................Pg.7
Opportunities..................................................................................................Pg.7
Threats............................................................................................................ Pg.7
Recommendations................................................................................................................Pgs.8-9
Exhibit 1: Financial Ratios......................................................................................................Pg. 10
Exhibit 2: Top USA Beers by Brands 2009..............................................................................P.11
Income Statement………………………………………………………………………………………………………………Pg.12
Balance Sheet……………………………………………………………………………………………………………………..Pg.13
Cash Flow……………………………………………………………………………………………………………………………Pg.14
References.............................................................................................................................Pg.15

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FINACIAL RATIOS PERFORMANCE:
Grupo Modelo consistently has a strong balance sheet and income statement as shown in the figures at the end of the case analysis. Profitability ratios indicate how a business’s expenses and other costs compare to its earnings and Grupo Modelo profitability ratios are on the on the positive side. In 2008 Revenues decreased by 16% just like many businesses in the U.S were hit with recession Grupo Modelo was affected by it since they do a lot of their business in the U.S. However in 2009 Grupo Modelo was able to rebound with a 22% increase in revenues as the U.S economy was in a better estate than the previous year. They were able to do this as they were able to keep cost and expenses as low as possible and not pass any additional cost to consumers. Grup Modelo has been able to generate gross profit in the 50% percentage in the last few years. While stockholder’s equity only grew 8% from 2004 to 2005 there was a significant jump from 2008 to 2009. As stockholder’s equity increased 64.5% from 2008 to 2009. This shows just how fast Modelo Group was able to recover from the downturn in the market in 2008 and provide great returns to its stockholders.
Grupo Modelo has also shown to be consistent with their operating profit which ranges from 24.90% to 30.63 with an average of 27.9% from 2004-2009. They are able maintain this average by having low operating and interest expenses. Grupo Modelo is strongly positioned in regards with liquidity as they have average a current ratio of 4.4 over the last three years. This shows just how well Grupo Modelo can cover their current liabilities as they are able to convert their assets into cash very quick and easy. A current ratio of 1 is good and Grupo Modelo with a current ratio of 4.4 is sitting pretty. With a healthy working capital Grupo Modelo has available funds to finance inventory expansion, additional account receivables and a larger base of operations without resulting to borrowing or raising more equity capital. They have been able to well manage their borrowed funds to finance their operations which is shown by their extremely low debt-to-assets ratio with an average of .18 from 2004-2009.
Grupo Modelo has also been able to a good job at managing their debt-to-assets ratio which has average to be .28 from 2004-2009. Any debt-to-assets ratio that is above 1.0 signals excessive debt, lower creditworthiness and weaker balance sheet strength. Grupo Modelo has shown the opposite with their low debt-to-assets ratio. All the numbers show just why Grupo Modelo has been able to maintain its lead as the best selling beer in Mexico and the top-selling imported beer in the United States.

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GRUPO MODELO PRIMARY OBJECTIVE AND SUMMARY:
Grupo Modelo primary objective is to continue being the number one producer of beer in Mexico and the number one leading imported beer brand in the United States while continuing to capture bigger percentages of the market share. One way of doing this was by expanding production capabilities across the board. Grupo Modelo also plans to sustain its continued success trend against competition.
Grupo Modelo has an extensive line of products including Corona Extra, Corona Light, Modelo Especial, Pacifico Clara and Negra Modelo beers. In 2006, three Grupo Modelo brands were in the list of the top six brands imported in the United States. They have been family-operated since its creation in 1922 and that’s part of their success. Grupo Modelo has been able to do a wonder job in becoming the number one beer in Mexico and the number one imported beer in the United States. They had to overcome many obstacles including an unstable political environment, drug cartels and new taxes and tariffs that were placed on its goods. The Corona brand was introduced in the U.S in 1979 and was able to distinguish itself from the competition by its clear unique bottle and different marketing. But it was not able to become the U.S imported beer until 12 years later in late 1991. Corona distributor changed their pricing strategy as the federal excise tax on beer doubled. By absorbing the tax instead of passing it on to the consumers Grupo Modelo experience an increase in sales of Corona starting in 1992 and it has been increasing ever since. Grupo Modelo’ Corona is one of the top brands of beer in the world. In 2006 Corona was number 5 in the world’s top 10 beer brands. In order for the company to continue being one of the world’s top five brewers and producing one of the world’s top five beer they need to study well the market as whole, establish some key success factors in addition to knowing their strengths, weaknesses, opportunities and strengths.

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Market Overview
Although the beer category as a whole has seen consistently modest growth for several years, certain beer segments are still performing extremely well. Among the beer segments, the greatest growth has been in light, imports, domestic specialties, and super-premium; the growth in the other beer segments has been flat to down(2). Price increases will drive value growth, while volume sales are expected to increase more slowly. Volume sales fell for the first time in at least five years in 2009, slipping by 0.5% (2). The market is set to expand by 5.5% in volume this year and then by between 3.5% and 4% each year to 2014. While volume sales decreased slightly, according to the global research group Mintel, the beer market value rose by 5.4% in 2009. This is forecast to rise by 8% in 2010 and then by between 6% and 7.5% annually up to 2014, which should help to see Mexico sustain is position as one of the most profitable beer markets in the world (3).
In the past decade, annual U.S. malt beverage imports from Mexico rose from $36 million to $162 million. Beer and tequila now make up 22 percent of Mexico's US$1.5 billion in food exports to the United States and the breweries employ 88,000 people in 11 Mexican states (4). The Mexican beer industry is dominated by Grupo Modelo, which Anheuser Busch has a non-controlling 50% stake, and FEMSA, who was purchased by Heineken at the start of 2009. Modelo has lost some market share to FEMSA and other brewers; in 2009 Modelo had 53% compared to 56% in 2008.
Key Success Factors (KSF)
Some of the KSF’s are the opportunity for global expansion, industry consolidation, consumer preference, and the specialty brew explosion.
Globalization. Despite a long history of beer being a local industry, the trend has been moving toward globalization. The pace of globalization in a given industry can be judged by four key factors:

1. Access by global companies to consumers 2. Consumers wanting more choices 3. Intangible assets such as the ability to leverage brands, people, skills, and relationships 4. Specialization by players in single high-value aspects of industries that used to be vertically integrated

A review of each of these factors shows that the beer industry is becoming global. Increasingly, consumers and corporations have more access to each other. Many brands of beer are now very widely available: Heineken is sold in 170 countries, Corona and Carlsberg in 140. Innovative partnerships between global brands and local brewers explain some of this, but lower tariffs have helped, as well. One of the key success factors in the expansion of the beer market has been the

Page 6 easing of tariffs under the 1994 North American Free Trade Agreement. In anticipation of beers entering the U.S. market without import taxes, Anheuser Busch Cos. in 1993 invested heavily in Grupo Modelo. Brewers around the world have also enjoyed relatively free access to capital markets to fund expansion and acquisitions. South African Breweries has used its presence in the American Depository Receipt market to raise sufficient capital to expand into new countries.
Consolidation. Wholesalers have faced pressure from major breweries attempting to streamline their delivery systems by integrating distributing into their businesses. Consolidation and tough market conditions forced the total number of wholesale distributors from over 3,000 in 1997 to 2,765 in 2003.
Total industry employment likewise diminished through the late 1990s and early 2000s, from about 96,000 to 88,000 (3).
Technological Improvements also contributed to consolidation; prior to WWII beer was distributed within an extremely limited geographic region because it was expensive to transport. For national brewers, internal expansion led to increasing the size of plants, improvements in packaging, introduction of automated breweries, the development of special fermentation processes, and the building of additional plants. The rise in concentration can also be attributed to the increasing growth in advertising expenditures undertaken by the national brewers. Mergers played a role also, but they accounted for only a small share of the increase in concentration due to very strict enforcement of antitrust laws by the Justice Department.

Consumer Preference. Beer drinkers' thirst for healthier and more value-added alternatives to traditional domestic beers was evidenced in a number of trends defining the beer and ale market in the early 2000s. The list of leading beer brands in the United States was dominated by light versions, which claimed more than 40 percent of the domestic market, continuing a fifteen-year trend.
The trend towards low carbohydrate diets lead beer wholesalers to develop new low-carbohydrate beers that might appeal to an increasingly health- and body image-conscious beer-drinking market. Anheuser-Busch paved the way among the leading brands with its introduction of Michelob Ultra, which registered strong sales through its first year on the market.

The Specialty Brew Explosion. The 1990s and early 2000s saw growth in the number of microbreweries and brewpubs. These breweries generally had a localized distribution network, and had to fight for distribution with larger brewers. Seeing the market demand, the large breweries responded to the microbrew explosion with their own upscale beers intended mainly for urban markets.

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SWOT ANALYSIS
Strengths: Grupo Modelo maintains outstanding relationships with its distributors in the United States. This allows them to give their distributors more responsibility in branding and marketing the product. In addition, Grupo Modelo is very strong financially, which is a great advantage to funding future projects and continuing operations. They have also developed a popular brand image and marketing campaign for their products. Grupo Modelo has a strong portfolio of top performing beers, as well as a popular taste in its Corona products. Through vertical integration of the supply chain, Grupo Modelo has been able control costs and better manage quality control. The company has also established an operating partnership with Anheuser-Busch in Mexico which has been successful thus far in giving them exclusive Anheuser-Busch distribution rights.
Weaknesses: Grupo Modelo currently has no sustainable competitive advantages. This can be a problem for the company due to the high level of rivalry in the industry. The company also has poor inventory management as evidenced by its high days of inventory ratio and its low inventory turnover ratio. Grupo Modelo also does not have a partner beer brand supporting them in the United States. Competing companies have been working to establish partnerships in their United States operations, so this represents a potentially dangerous weakness for Grupo Modelo.
Opportunities: Grupo Modelo has the opportunity to use its Mexican roots to capture the large beer-drinking markets in Mexico and in the population of Mexican immigrants to the U.S. There is increasing popularity of light beverages and flavored alcoholic beverages, so it may be beneficial to invest in development of these alternative products. Also, Grupo Modelo may potentially benefit from partnership with Anheuser-Busch as it merges with InBev. This could allow them to continue to expand into other international markets, benefit from economies of scale and distribution networks, and benefit from strong brand recognition.
Threats: Grupo Modelo's profitability has some dependency on the Mexican economy and unstable peso. This can dramatically damage the company's profitability if the peso declines in value. There is also a possibility of future increases in taxes and tariffs, which could also damage their financial performance. Though there are potential opportunities that arise from the future potential merger of Anheuser-Busch and InBev, such a large competitor may also pose a threat to Grupo Modelo. It would create a competitor with better economy-of-scale advantages, and could weaken Grupo Modelo’s position in the market. Also, there is a potential for a loss partnership between Grupo Modelo and Anheuser-Busch.

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RECOMMENDATIONS
It is recommended that Grupo Modelo develop a reciprocal relationship with Anheuser-Busch to help distribute and promote Grupo Modelo beers in the United States. This method has benefited both Anheuser-Busch and Grupo Modelo in Mexico and it would provide more support to the Grupo Modelo brands and distribution network in the United States. Depending on whether there is a merger between InBev and Anheuser-Busch, and depending on the outcome of that merger, Grupo Modelo might benefit from a more co-dependent partnership with this potentially growing company.
By expanding internationally into the United States and Canada, Grupo Modelo has already responded to the potential threat created by the volatile Mexican economic and political environments. We would recommend that they further expand internationally to further diversify these risks. To further expand internationally, we encourage Grupo Modelo to continue its model of contracting with a distributor in the target region. This strategy has benefited the company because the local distributors are able to brand the beers to their local market needs. We believe that China and Australia are two markets that have great potential for demand of Grupo Modelo's beers. China recently surpassed the U.S. in total beer consumption. There is a huge population that is potential for demand. Australia is already has high per-capita consumption of beer, so it might be an easy market to enter especially considering the match of brand image of Corona to the typical image of Australian beaches.
Within the United States, Grupo Modelo has been presented with an opportunity to appeal to the large population of first- and second-generation Mexican immigrants to the United States. Grupo Modelo can target this market with its Modelo Especial brand, which is especially popular in Mexico. To do so, the company should work with its U.S. distributor to build on its distribution and marketing strengths in the United States. The Grupo Modelo marketing team can contribute its knowledge of Mexican culture to further establish this growing market.
Also suggested is that the Grupo Modelo expand its portfolio of "malternatives" in light of the social changes leading to increased popularity of low calorie drinks and flavored alcoholic beverages. The company already has a number of light versions of its beers, but would benefit from increasing the promotion of the advantages and taste of these beverages. In addition, Grupo Modelo should consider including flavored alcoholic beverages in its already strong portfolio in order to gain a competitive advantage above competitors that do not offer such drinks. This addition to its portfolio would require Grupo Modelo to expand its procurement of ingredients and make capital expenditures for production space and equipment. However, Grupo Modelo already has the procurement of bottles and bottle caps, machinery manufacture, and distribution channels to facilitate such an addition to its portfolio.

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Although for the most part Grupo Modelo is financially stable, we commented earlier that their inventory management appears to need improvement. Effective inventory management can save costs by decreasing the need for storage space and by ensuring that only as much inputs as are needed are purchased. It appears that Grupo Modelo is on the right track with its recent development of e-procurement, demand, and production systems. It is likely that it takes time for the company to understand these systems well enough to effectively implement their use. However, it is possible that we have not seen improvement because employees have not been supportive in adopting these new systems because of the company's culture or because of the challenges inherent in adopting a new system.

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Exhibit 1.1 Grupo Modelo | 2004 | 2005 | 2007 | 2008 | 2009 | Profitability Ratios: | | | | | | Gross Profit Margin | 56.32% | 54.03% | 51.52% | 50.19% | 53.78% | Operating Profit Margin | 29.34% | 27.80% | 30.63% | 27.01% | 24.90% | Net Profit Margin | 13.80% | 14.71% | 22.71% | 20.75% | 17.34% | EPS | $0.18 | $0.21 | $0.27 | $0.20 | $0.20 | | | | | | | Liquid Ratios: | | | | | | Current | N/A | N/A | 4.99 | 4.07 | 4.14 | Working Capital | N/A | N/A | 2801.80 | 2117.60 | 2636.90 | | | | | | | Leverage Ratios: | | | | | | Debt to Assets | 0.17 | 0.15 | 0.18 | 0.24 | 0.18 | Debt to Equity | 0.27 | 0.23 | 0.28 | 0.41 | 0.22 |

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Exhibit 1.2 Top U.S.A Beers by Brand 2009: [5] 1. -------------------------------------------------
Bud Light (unchanged from 2007) – 28.3% market share 2. -------------------------------------------------
Budweiser (unchanged from 2007) – 11.9% market share 3. -------------------------------------------------
Coors Light (up from #4 in 2007) – 9.9% market share 4. -------------------------------------------------
Miller Light (down from #3 in 2007) – 9.2% market share 5. -------------------------------------------------
Natural Light (up from #6 in 2007) – 6.1% market share 6. -------------------------------------------------
Corona Extra (down from #5 in 2007) – 5.3% market share 7. -------------------------------------------------
Busch Light (up from #8 in 2007) – 3.7% market share 8. -------------------------------------------------
Busch (up from #9 in 2007) – 3.4% market share 9. -------------------------------------------------
Heineken (down from #7 in 2007) – 3.3% market share 10. -------------------------------------------------
Miller High Life (unchanged from 2007) – 2.7% market share

Page 12 Grupo Modelo, S.A.B. de C.V.Income Statement [6] | All amounts in millions of US Dollars except per share amounts. | | | | | 2007 | 2008 | 2009 | Revenues | 6,154.20 | 5,180.70 | 6,278.00 | Cost of Goods Sold | 2,983.70 | 2,580.70 | 2,901.50 | Gross Profit | 3,170.50 | 2,600.00 | 3,376.50 | Gross Profit Margin | 51.50% | 50.20% | 53.80% | SG&A Expense | 1,805.00 | 1,489.00 | 1,710.00 | Depreciation & Amortization | -- | -- | -- | Operating Income | 1,884.80 | 1,399.50 | 1,563.00 | Operating Margin | 30.60% | 27% | 24.90% | Non-operating Income | 149.9 | 108.7 | -95.2 | Non-operating Expenses | -132.1 | -114.1 | -51 | Income Before Taxes | 1,902.70 | 1,394.00 | 1,416.80 | Income Taxes | -504.8 | 319.1 | 328.4 | Net Income After Taxes | 2,407.50 | 1,074.90 | 1,088.50 | Continuing Operations | 1,397.90 | 1,074.90 | 1,088.50 | Discontinued Operations | -- | -- | -- | Total Operations | 1,397.90 | 1,074.90 | 1,088.50 | Total Net Income | 1,397.90 | 1,074.90 | 1,088.50 | Net Profit Margin | 22.70% | 20.70% | 17.30% | Diluted EPS from Total Net Income | 0.27 | 0.2 | 0.2 | Dividends per Share | | 0.15 | 0 |

Page 13 Grupo Modelo, S.A.B. de C.V.Balance Sheet[6] | All amounts in millions of US Dollars except per share amounts. | Assets | 2007 | 2008 | 2009 | Current Assets | Cash | 1,896.60 | 953.9 | 1,660.70 | Net Receivables | -- | -- | -- | Inventories | 870.1 | 969.2 | 1,026.50 | Other Current Assets | 736.6 | 885.3 | 790.8 | Total Current Assets | 3,503.40 | 2,808.40 | 3,478.00 | Net Fixed Assets | 4,789.00 | 4,016.70 | 4,418.40 | Other Noncurrent Assets | 837.4 | 844.8 | 1,104.10 | Total Assets | 9,129.80 | 7,669.90 | 9,000.50 | Liabilities and Shareholder's Equity | | | | Current Liabilities | Accounts Payable | 461.5 | 488 | 596.1 | Short-Term Debt | -- | -- | -- | Other Current Liabilities | 240.1 | 202.8 | 245 | Total Current Liabilities | 701.6 | 690.8 | 841.1 | Long-Term Debt | -- | -- | -- | Other Noncurrent Liabilities | 920.1 | 1,133.50 | 779.3 | Total Liabilities | 1,621.60 | 1,824.30 | 1,620.40 | Shareholder's Equity | Common Stock Equity | 5,773.20 | 4,486.30 | 7,380.10 | Total Equity | 5,773.20 | 4,486.30 | 7,380.10 | Shares Outstanding (thou.) | 3,233,000.00 | 3,233,000.00 | 3,233,000.00 |

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Grupo Modelo, S.A.B. de C.V.Cash Flow Statement[6] | | | | | All amounts in millions of US Dollars except per share amounts. | | | | | 2007 | 2008 | 2009 | Net Operating Cash Flow | 1341.00 | 914.00 | 1516.00 | Net Investing Cash Flow | (546.40) | (590.30) | (594.20) | Net Financing Cash Flow | 997.10 | (873.20) | (268.90) | Net Change in Cash | (202.00) | (549.50) | 652.70 | Depreciation & Amortization | | | | Capital Expenditures | (466.60) | (502.80) | (620.90) | Cash Dividends Paid | (842.20) | (839.70) | (268.90) |

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REFERERNCES
1. Som, Ashok. (2007). Corona Beer: From a Local Mexican Player to a Global Brand. In A.A. Thompson, A.J. Strickland, and J.E. Gamble, Crafting and Executing Strategy(17t ed.), (pp. C-248-C-258). McGraw-Hill Irwin.

2. High Beam Report. Industry report: Beer and Ale Distribution. 2010. The Gale Group, Inc. http://business.highbeam.com/industry-reports/wholesale/beer-al

3. Just the Facts - Mexico's beer market. just-drinks.com editorial team | 11 August 2010

4. MSNBC.com May 5, 2005. US Free-Trade Law Seen Aiding Mexican Beers. http://msnbc.msn.co m/id/77462 \

5. http://www.thebeerfathers.com/top-us-beer-brand-stats-2009-update

6. http://www.hoovers.com/company/Grupo_Modelo_SAB_de_CV/htryif-1-1njea5.html