Case 13: Corona Beer: From a local Mexican player to a global brand

BUS 599- Strategic Management
Strayer University ??“ Chesapeake

Identify and discuss the trends in the global beer markets.
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.
Discuss how Modelo??™s international expansion was made possible through strategic partnerships with experienced distributors in local markets.
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. It is recommended that they further expand internationally to further diversify these risks. To further expand internationally, Grupo Modelo is encouraged 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. I believe that China and Australia are two markets that have great potential for demand of Grupo Modelos beers. China recently surpassed the U.S. in total beer consumption. There is a huge population that is potential for demand. Australia 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.
One expansion strategy would be to subsidize the taxes that were imposed on the beer. The cost at the users end got reduced and by that the consumption of Corona beers grew drastically across US. Corona??™s sales volume increased, thus making a huge profit. The two notable importers were Barton Beers Ltd. and Gambrinus.
Identify and discuss the next foreign market that Modelo should enter and discuss the strategy it should use to enter the market.
Since Anheuser-Busch is a dominant market leader in the United States and they have 45 percent of the United States market share, and 75 percent of the beer industry??™s profits, they have been able to take advantage of economies of scale and control their costs. Anheuser-Busch has also purchased over 50 percent of the shares outstanding in Grupo Modelo, but hold minority voting rights. Anheuser-Busch produces its beers in foreign markets, because it is cost effective for them to do so. They are also industry leaders in the amount spent on marketing campaigns. Anheuser-Busch has partnered with Grupo Modelo to distribute its products in Mexico. Grupo Modelo should in tern use their connections with the Anheuser-Busch company to extend their market globally.
Discuss the challenges that Modelo faces from its competitor InBev, and how it might respond strategically to the industry giant.
InBev is one of the largest players in the global beer market with the world??™s largest brewing company in terms of volume. There is potential for a merger between InBev and Anheuser-Busch which would create a super-company with 1/5 of the total world market share that may pose a threat to smaller beer companies like Grupo Modelo. In addition, there are many smaller microbrewers in the beer industry that produce differentiated and regional beers. Grupo Modelo would have to use their partnership with Anheuser-Busch to ensure the threat of losing their company would be minute.
Discuss whether or not Modelo should diversity its business. If so, what business should it enter and why
In order to determine a recommendation for future strategies for Grupo Modelo, you must first look carefully at individual variables that could affect the company which could influence Grupo Modelo??™s operations. Variables such as political, economic, social, technological, environmental, and legal each represent influences towards the operations of Grupo Modelo.
Grupo Modelo is headquartered in Mexico and conducts all of its production activities in several plants located throughout the country. Since Mexico has an unstable political environment this may present challenges for the company. There is corruption in the Mexican Government, which can lead to? civil unrest in the country. This issue also affects Mexico??™s relationships with other countries, and therefore may affect import policies.
Mexico also faces challenges from drug cartels. Drug cartels in Mexico represent a threat to the safety and stability of the country. As cartel members fight the police and threaten citizens, the country has become very dangerous in some regions. Grupo Modelo has seven production plants throughout Mexico. One of their plants is located in Sinaloa, a state known for a heavy presence of drug cartel violence. There is possibility for a disruption of operations to occur, as well as safety concerns for employees, and distribution disruptions.
Grupo Modelo can also be heavily affected by new taxes and tariffs placed on its goods. If countries increase their import tariffs, it could damage the profitability of the company. In the past, Grupo Modelo has decided to absorb tax increases rather than raise prices for consumers. If the company was forced to increase prices to cover increased taxes or tariffs, it might hurt their market share and decrease the brands??™ attractiveness to consumers. Since imported beer is already priced higher than domestic beer, this potential pricing change may be a threat for the company.
?  Economic conditions can have interesting effects on the beer industry. In positive economic cycles, beer companies are able to do quite well. In times of recession, however, beer companies can also perform well. One challenge for Grupo Modelo is the volatility of the Mexican economy and its effect on currency exchange rates. Exchange rates can dramatically affect the success of their export activities. As the value of the Peso falls, it becomes increasingly more expensive to export to other countries.
?  Societal changes can affect consumer activity, and must be considered when making operational decisions. For example, women make up a significantly smaller consumer base for beer companies. Companies have invented new types of beverages such as lighter beers, and flavored alcoholic beverages to attract more women to their products. There have also been trends toward healthier lifestyles, and more consumers want lighter, lower-calorie beers. This means that for Grupo Modelo, it is essential for new research and development to be occurring in order to maintain a product line that consumer??™s desire.
Another societal change that is occurring is increased Mexican immigration to the United States. This means that Grupo Modelo has a potentially increased customer base in the United States to which they can appeal.? 
Changes in technology enable companies to develop better brewing processes, more efficient distribution channels, and facility upgrades that increase production, increase consistency, and reduce costs. Grupo Modelo will need to stay current on brewing technology in order to compete in this market.
Technology has also created new advertising media. In order for companies to stay competitive, they must keep up with technological innovations. If competitors capitalize on technology and are able to streamline their value chain, Grupo Modelo could be at a disadvantage.
?  With society becoming more environmentally conscious, a company??™s approach to social responsibility can hurt or help their brand image. If a company acts irresponsibly, sales can suffer. Grupo Modelo has begun several CSR initiatives including voluntary reporting of carbon emissions, and this can have positive future effects for the company and its brand image.
Grupo Modelo is a top brand in the global beer industry. The company is currently the fifth largest producer of beer by volume. The ability of Grupo Modelo to compete successfully in another maket is determined by the strength of the external environment against them. At this time it is my recommendation that Grupo Modelo not diversify its business but become stronger in their current market.

References:

??? Grupo Modelo SAB de CV. (n.d.). Retrieved August 8, 2011, from Grupo Modelo SAB de CV: http://www.gmodelo.com.mx/index-1.asp
??? Wikipedia. (n.d.). Retrieved August 8, 2011, from Wikipedia: http://en.wikipedia.org/wiki/Grupo_Modelo#Corona
??? 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 (17th ed.), (pp. C-248-C-258). McGraw-Hill Irwin.
??? Grupo Modelo. (2007). 2006 Annual Report. Retrieved August 8, 2011 from http://www.sec.gov
??? Reuters. (2009). Retrieved August 8, 2011 from http://www.reuters.com.
??? (2009). Corona Beer: From a Local Mexican Player to a Global Brand. In T. /. Gamble, Crafting & Executing Strategy: The Quest For Competitive Advantage Concepts and Cases (pp. C248 – C258). McGraw-Hill.