Running head: CORONA BEER (MODELO)

Corona Beer (Modelo) Corliss Davis Strayer University Strategic Management BUS 599 Dr. Michael Simms May 08, 2011

Corona Beer (Modelo) Identify and discuss the trends in the global beer markets. We think of beer as the most highly purchased alcoholic beverage in the world, but over the years the global production of beer had started to decline. When we look at beer in some Latin American countries we see it being consumed to celebrate various functions. Latin American is known for its elaborate celebrations and colorful decorations. This culture is cultivated by family values and strong bonds for togetherness. Keeping bonds strong is what allowed the increase of production of beer to almost 50% from 1980-1990. Mexico and Brazil accounted for much of that share. They say variety is the spice of life, the availability of various beers in that marketplace is the catalyst for the increase of production. By targeting the young adults (mid 20s) demographically has brought production into a new light. Historically the brewing of beer had always been a local entity there were only a number of companies that made up the international market. Over the past decades we have seen a consolidation in the industry which began in Western Europe and North America. During the past decade global consolidation has accelerated giving the top ten brewers 34% of the market. In 2008 this number had increased to 56% in the overall beer market introducing two major acquisitions. Carlsberg and Heineken acquired Scottish and Newcastle and Anheuser-Busch by InBev. Since this acquisition Carlsberg is the fourth largest brewer in the world by hold 5% of the market share (Trends in the global beer markets, 2008, p. 14) Drivers and Trends The global beer volumes is normally a result of growing disposable income, beer quality, along with marketing and advertising which usually stems from growing beer consumption. This ever growing trend is due to the substitution of beer for other alcoholic beverages. Most of these

trends are income driven and a direct response to brands and marketing. Urbanization and westernization plus the different among younger adults initiated the move towards beer. In some mature markets where the consumption rates vary due to product differentiation and marketing promotional activities. The consumption of beer may be affect by factors such as seasonal, demographics, taxes, health effects, responsible-use programs and the use of alternative products. Discuss how Modelos international expansion was made possible through strategic partnerships with experienced distributors in local markets. During its tenure to enhance their position within international sector Anheuser-Busch had purchased 37 percent of equity interest for $980 million in Grupo Modelo. Modelo is Mexicos largest brewer and the sole producer of Corona which is the top selling beer in Mexico. Modelo currently represents 51% share in the market that exports to over 56 countries, since these purchases Anheuser-Busch had three representatives elected to the Modelo board while one representative has been elected to the Anheuser-Busch board. Initial Entry During the initial entry into the American beer market they Modelo chose Barton Beers Ltd. as its distributor. Modelo chose Barton because they were the largest beer importer in 25 western states plus they had a vast amount of experience with advertising and sale of imported beers. With Barton Modelo started the marketing image of fun in the sun (Thompson, Strictland III, & Gamble, 2009, p. C-252) was born. Modelo needed someone to manage the operational side of the house in the United States, so they set up a subsidiary company called Procermex Inc. They were to set up relations, support and supervise both distributors. With the agreement between Modelo and Anhueser-Busch, Modelo would remain the exclusive importer

and distributor of Anheuser-Busch brands beer sold in Mexico. Anheuser-Busch is the brewer of beer for Mexico at breweries in Houston and Los Angeles. The importing of Corona and other Modelo brands will still be imported in the United States via Barton Beers and Gambrinus Company. Exports in other countries Mexicos beer market also exports products to 56 countries in North and South America, Asia, Europe and Africa which account for more than 69% of their total beer exports. Modelo, is the exclusive importer and distributor of Anheuser-Busch beers in Mexico, added a new brand to distribute called Ice Draft. This became the fourth ABI brand that was distributed in Mexico by Modelo. Mexicos beer consumption is the eighth-largest in the world but still only half of U.S. consumption. Per capita beer consumption rate in Mexico is estimated to be at 44 liters, this compared to 87 liters per person in the United States. Exporting beer with foreign firms did not boost sales in the United States, but they did grow even though there was a drop among American drinkers. NAFTA Breweries are especially concerned about trade barriers, but they are very concerned about NAFTA. Some of the countries within NAFTA are Molson, in Canada, Anheuser-Busch, in the U.S. and Grupo Modelo, in Mexico. When it comes to the North American beer industry NAFTA has been rather beneficial. It has laid a foundation for beer markets in the U.S. and Canada, still allowing access to the increasingly growing Mexican market. To some, attempts made by the US and Canada brewers to enter the Mexican market failed due to large tariff percentage on beer. These tariffs are short lived US/Mexican and Canadian/Mexican has tight strategic alliances and will capitalize from being distributors for Budweiser and Labatts.

Identify and discuss the next foreign market that Modelo should enter and discuss the strategy it should use to enter the market. When entering into any market you must have several assets, smart merchandising, endless distribution systems, and an array of diversified products. Having a worldwide sales force has been a plus for Grupo Modelo allowing his company to be among the top ten companies in Latin American. S.A.B de C.V., brewer in Canada is the number one imported beer Corona Extra, Milson Coors Brewing Company had drafted a letter of agreement to establish a long-term joint venture to import, distribute and market Modelo beer brand in all of the Canadian provinces and territories. The venture would add on to the existing success since Molson imports, distributes and markets Modelo brands in Ontario. Modelo Grupo became part of a joint venture with a trading company by the name of Cargill so they could supply barley to a plant in the United States. Entering a joint venture with Cargill would allow Modelo to gain more efficient operating practices. Grupo Modelo should expand its portfolio in the theme of keeping up with the ever growing taste for low calorie drinks and flavored alcoholic beverages. Since they already have light beers they would benefit of the health advantages of low calorie drinks and the great taste of flavored alcohol. Grupo could gain competitive advantage over firms that dont offer such diversity. By adding this to his portfolio Grupo would have to add on to its acquisition of ingredients and make capital expenditures for the space production and equipment. Grupo already has bottle procurements as well as bottle caps, machinery manufacture, and distribution channels to get the ball rolling. Grupo should form a strategic alliance with foreign companies that are already strong in the market of distribution of flow calorie drinks and flavored alcohol. They could find distributor and enter into an agreement for

them to distribute their new product line. This not only will help them enter a foreign market, but will strengthen their competitive advantage in world markets. Discuss the challenges that Modelo faces from its competitor InBev, and how it might respond strategically to the industry giant. While the ink maybe dry on the $52 billion dollar acquisition of Anheuser-Busch their maybe some major hoops that may have to be jumped before its all over. InBev has agreed to let Anheuser-Busch to keep all of its breweries open basing its North American headquarters in St. Louis and making Budweiser its global flagship brand (Spain, 2008, p. 3). InBev is well known for having aggressive cost cutting and will have to work a little harder than they anticipated. In the beginning the two companies announced that they would find $1.5 billion in synergies over the first three years. This would be 50% more than they anticipated in the plan to restructure Anheuser-Busch during the negotiation process. There werent many opportunities for synergies since the two companies dont overlap in the U.S. market. InBev was under the impression that they could get some efficiency with the cost of goods sold, but this could present some problems since the corporate cultures are very different. This deal had caused some resistance in the Gateway city where Anheuser-Busch is one of the largest employers not to mention charitable donors. InBev has a lot of work to do to fix the businesses that are underperforming the increased competition from SABMiller could also present problems for them. Some of the London brewers are biting at the heels of InBev since its 15% decline in share price over the past twelve months. On Aug 14, InBev CEO Carlos Brito told investors that he would love to work with Modelo in the future (Scott, 2008, p. 2).

International competition will continue to increase InBev still has a lot of challenges to overcome with its businesses. Discuss whether or not Modelo should diversify its business. If so, what business should it enter and why? Societal changes can have a strong effect on consumer activity this must be at the forefront when making operational decisions. You must take a look at the relationship between diversification and firm performance. We have to address the issue of how large and how diversified a firm will be. When considering diversification there a two basic issues that come to play, is the industry that you are attempting to enter more attractive than the firms existing business? The question is can the firm establish a competitive advantage within the industry to be entered? As we look at the ongoing trend of healthier lifestyles consumers tend to want lighter, low calorie beers. It is important to remember the vast amount or research and development that is needed introduce a product that consumers desire. The United States currently has an increased Mexican population, this would allow to him to target that market. With technology changing better ways of brewing beer are constantly arising making more efficient distribution channels with upgrade in their facilities to increase production. Grupo would have to stay abreast of these technological changes in order to compete and maintain competitive advantage in this market. Grupo also has to mindful of social responsibility this could possible hurt/help their brand image. Being environmentally conscious also plays a large role in a companys success if they act irresponsibly sales could be greatly affected. Since media outlets are so vast beer companies must be very careful with their advertising campaigns. We have laws that control the content of

advertising and companies foreign and domestic must be aware of them. Gupo will not only have to follow the laws of his home country, he must be mindful of the laws and the culture of the countries in which he exports.

References Scott, M. (2008) InBev: Lukewarm Results shoe Need for Bud. Retrieved from www.businessweek.com Spain, W. (2008) InBev faces daunting financial, integration tasks. Retrieved from www.marketwatch.com Thompson, A. A., Strict land III, A., & Gamble, J. E. (2009). Corona Beer: From a Local Mexican Player to a Global Brand. In A. Som (Ed.), Crafting & Executing Strategy: The Quest for Competitive Advantage Concepts and Cases (pp. C248-C-257). United States: McGraw-Hill Learning Solutions. Trends in the global beer markets (2008) Retrieved from www.carlsberggroup.com