This case analysis presents a synopsis of Corona Beer (Modelo) current strategy and its position within the competitive beer industry. The key question being addressed is whether Modelo would be able to maintain its status as one of the market leaders in beer production and distribution as competition in the industry increases. This paper presents an analysis of the trends within the global beer market, analysis of the foreign market of Modelo, competitor analysis, and by identifying the strategic challenges being faced and various options and recommendations to address them.
Identify and discuss the trends in the global beer markets. The trend towards premium beer consumption has slowed somewhat in the recent economic downturn. However, down-trading is limited and there are notable instances of consumers continuing to trade up, both into beer and, within the category, into premium products. The beer industry has also seen a trend towards consumers trading up to attractive, local, premium and more expensive beers. Since 1997 Corona has become the number one imported beer in the US, substituting Heineken who had held the number one spot in the beer industry since 1933.
(Thompson, Strickland, & Gamble, 2010) With Corona expanding their company internationally into the United States and Canada, Grupo Modelo has already responded to the potential threats that may come because of the unpredictable Mexican economic system and theirpolitical environments. During the past five years, on a pure alcohol-equivalent basis, beer has increased its share of total alcohol consumption by more than 200 basis points (bps) to 41. 1%. In 2008 the trend slowed somewhat and beer’s year-on-year share of total alcohol consumption remained flat.
In emerging markets, beer has generally shown higher growth than other alcohol categories as consumers gradually switch from local, generally high-alcohol, subsistence products towards attractively packaged, higher-quality, commercially produced beer. Over the past five years, the beer industry has seen a trend towards consumers trading up to more expensive beers. As a result, premium beer has gained more than 40 bps and now constitutes 17. 9% of total beer sales. For mainstream beer consumers, particularly in emerging markets, the most common trade-up proposition is to attractive, local, premium brands.
Beer has increased its share of total alcohol consumption every year but in 2008 the trend of Corona slowed down. In emerging markets beer has shown higher growth than other alcohol categories as consumers switch local to commercially produced beer. Beer drinking is on the rise and the market of beer drinkers has changed from being predominantly a male product to females now drinking socially too. Over the past five years, the beer category has maintained a compound annual growth rate of 4. 8% globally.
(Thompson, Strickland, & Gamble, 2010) Discuss how Modelo’s international expansion was made possible through strategic partnerships with experienced distributors in local markets. The global financial crisis continues to cause a considerable slowdown in most countries. Governments around the world are trying to contain the crisis but many suggest that the expansion is not over. When Corona first entered the American beer market as a distributor Modelo’s choice to align itself with Barton Beers was its largest beer importer in the 25 western states and has experience in marketing and sales of imported, premium beers.
In 1986, to continue its growth within the United States and to supply the eastern states, Modelo decided to select a second distributor Gambrinus Inc. Modelo agreement with distributors was that each importer would be responsible for essentially all activates involving sale of the beer and production. (Thompson, Strickland, & Gamble, 2010) Modelo took on the role of decision making and maintained the final say on anything involved the brand image of it beers. In order operations in the United States, Modelo set up Procermex Inc. a subsidiary whose purpose was to coordinate, support, and supervise the two distributors.
The strength of the relationship between the importer and Modelo was very strong as taxes increased in 1991. To further expand internationally, I would 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. I 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 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. Identify and discuss the next foreign market that Modelo should enter and with what strategy. In the current environment, the biggest challenge for Grupo Modelo is to sustain its growth and maximize the return to shareholders by following business expansion strategy in order to retain market leadership position in both domestic (Mexican) and International market especially in United States.
Hence, the company could consider various options to overcome this challenge: Expand in domestic market and emerge as a stronger competitor to FEMSA. Expand in International market such as China which has overcome US as the biggest consumer and other Asia Pacific, European, Central American countries. (Thompson, Strickland, & Gamble, 2010) Discuss the challenges that Modelo faces from its competitor InBev, and how it might respond strategically to the industry giant. Modelo is a top brand in the global beer industry. The company is currently the fifth largest producer of beer by volume.
In order to determine future strategies for the company, we must first consider the attractiveness of the beer industry. The ability of Modelo to compete successfully is determined by the strength of the external environment against them. There are intense competitive forces within the beer industry. This fierce competition represents the greatest threat for Modelo. There is high differentiation in products and advertising. (Thompson, Strickland, & Gamble, 2010) Within the beer industry there is competition from both domestic products and import products, so companies have many types of competitors to be aware of.
There is also a great threat coming from the possibility of mergers and acquisitions in the industry such as InBev and Anheuser-Busch. As large companies acquire others, they can become dominant industry players as they gain cost and brand benefits from economies of scale and market share. They have 45 percent of the United States market share, and 75 percent of the beer industry profits. Corona faced challenges due to changing demographics such as the increasing young adult population, the growing Hispanic community, changing lifestyles and increasing incomes.
Also, retail consolidation, which decreased the number of wholesalers and retailers distributing the brand, compelled distributors to stock too many brands at one outlet. Consequently, Modelo’s US bound shipments of the brand, which grew in double digits through the 1990s increased by less than 2% in 2004. Furthermore, apart from the brands in the US like Heineken and Budweiser, other imported brands from Mexico like Tecate brewed by Formento Economico Mexicano (FEMSA), also gave Corona stiff competition.
Carlos Fernandez (Fernandez), the CEO of Modelo, reorganised the company’s marketing strategies in the US to overcome the challenges. Modelo introduced new television ads targeted at the growing Hispanic consumers and introduced promotional offers. Acquiring an import contract from one of its two importers in the US and establishing its own distribution network, was also being considered as a part of the reorganizing process. (Thompson, Strickland, & Gamble, 2010) Discuss whether or not Modelo should diversity its business. If so, what business should it enter and why?
I believe that Modelo should diversity its business. As other beverage companies have expanded their business models. I feel that Modelo should add lime to its ever popular Corona beer. I feel that Modelo should also start a new line of flavored beer with stronger alcoholic volume. Also merging with other alcoholic beverage companies in other countries would expand their business. This will also give Modelo a chance to introduce it’s already existing products into a new market.
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