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GRUPO MODELO:
BREWERIES
--- STRATEGIES PRE, DURING AND POST RECESSION
INTERNATIONAL BUSINESS
SECTION-ANAVYA JOSEPH PGP/17/027
SANJEET KUMAR PGP/17/042
V.SHARADA PGP/17/058
JAI GUPTA PGP/17/084
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Table of Contents
ABOUT ........................................................................................................................................................... 2
INTRODUCTION ............................................................................................................................................. 2
BRANDS OF GRUPO MODELO ....................................................................................................................... 3
INTERNATIONALISATION AND EXPANSION .................................................................................................. 4
BRANDS OF GRUPO MODELO ....................................................................................................................... 5
BUSINESS STRATEGY ..................................................................................................................................... 5
ENTRY INTO THE U.S. MARKET ..................................................................................................................... 6
CAGE FRAMEWORK ................................................................................................................................... 6
PESTLE ANALYSIS ....................................................................................................................................... 7
COMPETITIVE POSITION OF GRUPO MODELO .............................................................................................. 8
STRATEGY DURING RECESSION ................................................................................................................... 11
POST RECESSION OPPORTUNITIES AND ACQUISITION ............................................................................... 12
CLOSING INSIGHT ........................................................................................................................................ 12
BIBLIOGRAPHY ............................................................................................................................................ 16
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GRUPO MODELO
Grupo Modelo is a large brewery in Mexico. It has captured 63% of the Mexican beer market, and exports beer to
over 180 countries in the world. Its export brands include Corona, Modelo, and Pacífico. Grupo Modelo also brews
brands intended solely for the domestic Mexican market, Estrella (a local beer found only in western Mexico); and
León and Montejo (originally local to Yucatán but now available nationwide). The company has exclusive rights in
Mexico for the import and distribution of beer produced by Anheuser-Busch.
INTRODUCTION
Grupo Modelo, founded in 1925, is the leader in Mexico in beer production, distribution and marketing. It has seven
brewing plants in Mexico, with a total annual installed capacity of 60 million hectoliters. The company imports
Anheuser-Busch (A-B) InBev’s products in Mexico, including Budweiser, Bud Light and O’Doul’s. It also imports
the Chinese Tsingtao brand and the Danish beer Carlsberg. Through a partnership with Nestlé Waters, it produces
and distributes in Mexico the bottled water brands Sta. María and Nestlé Pureza Vital, among others.
On June 12 2008, The Wall Street Journal stated that Anheuser-Busch InBev, which owned a non-controlling 50%
stake in the company, may attempt to acquire the remaining 50%. This did not materialize due to global financial
crisis and finally on June 29, 2012, it was announced that Anheuser-Busch InBev would acquire the remaining 50%
stake for an all cash price of US$20.1 billion. On January 31, 2013, the U.S. Justice Department filed an anti-trust
suit in an attempt to prevent the buyout. The matter was settled and the two companies merged in June 2013, with
the transfer of all United States rights to Constellation Brands.
BRANDS
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Out of the 12 brands, 5 were exported to over 159 countries. Also, they had a strategic alliance with Nestle Waters
producing and distributing bottled water. The company has exclusive rights to the distribution of Budweiser, Bud
Light and O’Doul’s, 180 Energy Drink in Mexico. Like traditional Mexican groups, Grupo Modelo has a diversified
network of Subsidiaries – 6 subsidiaries, 1 Bottling/Lid Company. 1 Machinery Manufacturing Company and 3
Malting facilities.
INTERNATIONALIZATION & EXPANSION
Since its founding years, Grupo Modelo had used the path of expansion via acquisition of major brands within the
country and set-up of new plants to increase its capacity. Also, its international market presence was mostly through
exports, which contributed significantly to its growth.
ModeloEspecial
Others Estrella
León
Modelo
Light
Figure1: Locations of Grupo Modelo breweries in Mexico
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The first acquisition was the purchase of Brewing Company in Toluca and Mexico, Victoria Marks and Pilsener in
1935. By 1954, the brewery acquired the Pacific, Mazatlán, Sinaloa and Brewery Star in Guadalajara, Jalisco. In
1960, he joined the group Northwest Cervecería Modelo, Ciudad Obregon, Sonora.
The company started off with its first exports to the US market in 1935, albeit on a smaller scale. But the
internationalization process gained significant boost from its decision of entering new markets in 1985, with entry
into Japan, Australia, New Zealand and European nations. Corona beer was then exported to Hong Kong, Greece,
Singapore, Holland and Belgium in 1990. By 1997, Corona beer had established itself as the topmost imported beer
in the US.
To expand its reach and maintain the top positions in the US imported beers market, it entered into an alliance with
Constellation Brands to form a joint-venture – Crown Imports LLC in 2006. Crown Imports started operations in
2007.
BUSINESS STRATEGY
Modelo approached its internationalization strategy through majorly exporting in the early years. It integrated the
global demand into its newly acquired breweries in Mexico to service the international markets, while keeping the
marketing and distribution networks highly local to the individual markets. This was done by setting up of strategic
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offices at various locations to monitor and respond to the market dynamics. Also, it entered into joint-ventures to
expand its distribution network and learn from its existing partners.
This is highly typical of an International Strategy of an organisation. The strategies put in place were focussed at
addressing the volatile Mexican foreign exchange market, which resulted in jumps and declines in the sales of
Modelo due to the rise and decline of the Peso.
ENTRY INTO THE US MARKET
Modelo, though based next door in Mexico from the US, had little knowledge about the US market nor did they
have the infrastructure to produce beer in US. While companies adopt the policy of entering the new markets
through acquisition, Modelo adopted the entry route of exports for expansion. In 1978, Modelo and Barton Beers
Inc. entered in to a joint venture for the purpose of importing and marketing Mode lo’s Mexican beer portfolio in the
western US states.
THE CAGE FRAMEWORK
Cultural
Distance
Administrative
Distance
Geographic
DistanceEconomic Distance
Similar culturein the south &
western US
Membership in
Trade agreements
Neighbouringmarket - little
distance
Common LandBorder
Different economic background of the
consumers
Parity in consumerincomes
Though the US market was just next door, there were differences in the economic conditions of the target
consumers. But the geographic and administrative closeness made the case for expansion into the US market first
when going for internationalization.
PESTEL ANALYSIS
Political• Mexico entered into many trade agreements
• Especially NAFTA eased the entry of Mexican companies into US
Economic
• Mexico was economically very volatile and unstable
• US provided for a mature and big beer market
• Taxes & tariffs made for establishing operations in the US rather than
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exporting
Social
• Mexico was closely linked to the US socially and culturally
• The southern states closely resembled the Mexican society and similar
consumer tastes
Technological
• Entry into the US enabled Modelo the access to latest developments in
distribution and marketing strategies
• Modelo would have to up its standard and improve technologies used for
brewing to remain ahead of competition
Environmental
• Most of the raw materials are agricultural products, thus the ecological effects
should not be ignored
• China, being the largest beer market and also the largest producer of
agricultural products can be considered for further expansion
Legal
• Modelo had to abide by both the Mexican as well as the US laws
• Being close neighbours gave it the advantage of being aware of the US norms
better
Many companies favor entering new markets through acquisition to have complete control over the entire value
chain and especially the positioning and distribution of their brands. Modelo, on the other hand chose the route of
exports. It dispelled the disadvantages of lesser control over marketing and distribution by establishing offices in
strategic locations in order to respond in a timely fashion to importers, distributors and customers. Also, it entered
into joint ventures with major distributors to setup independent distribution networks to stay ahead of the
competition.
COMPETITIVE POSITION OF GRUPO MODELO / CORONA BEER
78%
11%
8%
2% 1%
World Alcohol Market: Beverage Split
Beer
Wine
Spirits
RTD/ High StrengthPremix
Cider/Perry
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We see that the beer market dominates the world alcohol market. This provides huge scope for any industry that
wishes to compete in this market. Taking advantage of this data, let's analyse how Grupo Modelo/ Corona managed
to succeed.
SWOT ANALYSIS OF GRUPO MODELO:
The strong financial position enjoyed by Grupo Modelo gives it the ability to enter any market which it deems
suitable. Grupo Modelo also has a robust distributor network which it maintains by giving complete autonomy to the
distributors and supports them by involving them in the decision making processes pertaining to the promotional
activities of Modelo products.
Successful product placement in the US markets with the tag “Fun in the Sun”, “Let the World Wait” and “Miles
Away from the Ordinary”. This served as a key stone towards the other global markets for Modelo. It also promoted
a new and a rather unique way of drinking beer by serving the beer with a wedge of lime inserted into the neck of
the bottle. The lime resulted in reducing the bitter taste of the beer and opened markets to potential customers (non-
beer drinkers and women who avoid it owing to the bitter taste)
One of the main weaknesses observed was the breweries production, which is solely based in Mexico. The transport
time and the shelf life of 9 months of the beer gave the overseas distributors a very narrow window to sell the
STRENGTHS
•Strong marketing & promotion campaign
•Strong distributor network & channel
•Corona Extra: International Brand
•Low debt levels: Can focus on investmentsand acquisitions to further business
•Own Breweries
WEAKNESSES
•Limitted or a highly focussed geographies(highly focussed on the US and Mexicomarkets)
•Prime focus on Corona Extra only: Leavesspace for the competitors to work: Changeconsumer preference
•Production only in Mexico: Logistics: Delay indeliveries
OPPORTUNITIES
•Increase geographic footprint: Convert theweekness of limited focus to theorganisation's advantage
•Increased damand for "Premium"products: which is intune to the productplacement of Corona by Groupo Modelo
THREATS
•Increased competitionin: Heiniken'sincreasing acquisitions in the Mexicanmarket
•An imminent hostile take over
•Loss in market share due to limitedstrategic alliances
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products. Pricing was also one of the major issues Corona faced, owing to the extra Excise Duty levied by certain
governments, it was priced higher in some countries over the rest, thereby resulting in loss of customer base.
MAJOR COMPETITORS AND THE POSITION OF GRUPO MODELO:
We observe that there are multiple competitors in the beer market, competing for the same target groups. The power
of the supplier is highly limited, with more power to the consumer.
When we consider the International Expansion of the company, we have observed in the general trends of the
market that the production and marketing of beers has a limited and few and far growth opportunities. And in the
home market, these opportunities get exhausted faster, which prompts the organisation to offer their products
abroad. This trend was religiously followed by the Mexican Company as well. Instead of following the traditional
approach of acquisitions in other countries, they chose to Internationalise solely by means of exports.
It was observed that when Grupo Modelo decided to venture into new markets, it studied the target market for the
economic and cultural conditions to acquire a good fit. They also ensure that the intellectual property of the
organisation is safe by law in the target market. And finally, they also analyse the sales infrastructure and the
positioning and marketing capabilities in the new market. The use of CAGE framework might help us analyse how
the organisation has chosen these markets for furthering the business.
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GRUPO MODELO – RECESSION PERIOD
In 2008 and 2009, Grupo Modelo outperformed the global beer market, as it benefited from increasing exports
and consistently strong beer consumption growth in Mexico.
However, the economic crisis hit Grupo Modelo’s performance, mainly in the US and Western European
markets. Although, global beer volumes started to recover in 2010, Modelo registered falling beer volumes,
with sales being severely impacted as economic difficulties hit the company’s sales in Mexico.
In 2011, the economic recovery in Mexico and developed markets boosted consumer confidence, which
helped the company to outperform the global beer market again.
Company Strategy during recession: In addition to growing domestic sales, Modelo benefited from the
growing popularity of imported premium lager. The company took advantage of changing consumer behaviour
in many mature beer markets, such as the US, the UK and Australia. They positioned their product as an
imported premium lager and associated with pop culture trends in the region. This allowed greater brand recall
and culminated in larger sales numbers.
GLOBAL BEER BREWING INDUSTRY - POST RECESSION
The global beer brewing industry has undergone a process of consolidation. In 2003, the global beer industry had
been fragmented with Anheuser-Busch's 8.5% market share enough to make it the global leader. Lately, a steady
process of consolidation via M&A has taken place, focusing on cost-cutting opportunities or geared towards
acquiring attractive emerging market assets. The market is still driven by local brands, but with changing consumer
trends, the premium lager segment is expected to remain robust.
Source: Euromonitor International
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A-B INBEV.’S ACQUISITION OF GRUPO MODELO
In 2013, A-B InBev acquired the remaining 50% stake in Grupo Modelo for a sum of US$20.1 billion. The deal
significantly enhanced A-B InBev's already dominant position in Latin America, adding Mexico as a hub to its
already strong position in in Brazil. By 2011, Grupo Modelo was the 8th largest player in the beer brewing market
and had a very strong position in Mexico, the second largest market in Latin America. With the industry moving into
a consolidation phase after the financial crises, the acquisition came at the right time for A-B InBev and Grupo
Modelo.
Mexican brands have been particularly successful in A-B InBev's key US market and now the company is likely to
challenge Heineken in many other markets, as it is committed to expanding the distribution of Grupo Modelo's
brands through A-B InBev’s extensive global network.
GEOGRAPHIC OPPORTUNITIES FOR EXPANSION
By 2011, Mexico accounted for 67% of Modelo’s beer volume sales, but exports started becoming the key element
of the firm’s growth, as they generated a higher proportion of net sales with smaller volume from international
markets. Currently, Modelo exports to over 180 countries, with Corona Extra representing the major chunk of its
export volumes (64% in 2011). Corona Extra is a well-known brand worldwide and is the number 1 imported beer in
21 countries, including China, Japan, India, Thailand, Australia, Vietnam, Chile, Bolivia, and the US.
Source: Goldman Sachs Investment
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The company plans to increase the revenue earned from international markets and must extend its geographic
footprint. They must also extend the brand portfolio beyond Corona Extra in its key export markets. Let’s evaluate a
few of the major markets now.
Latin America
Latin America is expected to be a key growth market for brewers, as beer volumes are estimated to grow at a 4%
CAGR over 2011-2016. Imported premium lager still accounts for a small share of these markets, but its prominence
is rising. The countries that provide significant potential to Modelo are Brazil, Peru, Chile and Costa Rica.
The Latin American markets have a high level of consolidation, with 1 or 2 players dominating in most markets, A-
B InBev Modelo could try to partner with strong local players, or could even look at investing in Greenfield
breweries to increase its footprint.
North America
The US accounts for 74% of Modelo’s total beer volume outside of Mexico in 2011. Although the market was hit by
the global financial meltdown in 2008, the company has been registering solid volume growth since 2010, owing to
the growing interest in premium lager. Even though beer volume consumption is expected to reduce in the period
2011-16, the market for imported premium lager is expected to remain positive.
Europe
The beer markets in Europe and UK are expected to be sluggish, registering a declining CAGR of 1% over the
period 2011-16. With restricted consumer spending and increasing taxes in the region, people are shifting towards
Source: Euromonitor International
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better quality beer and in this market Modelo can push its stronghold brand, Corona Extra. The countries that have
the maximum potential are UK, France, Sweden, Italy and Ireland.
Asia-Pacific
Modelo remains a small niche player in this market, with domestic brands owning the major share of the market.
Beer volumes are forecasted to grow by a 5% CAGR over 2011-2016 in the region, mainly driven by solid
consumption growth in China. The company should also focus on other growing markets, such as Vietnam, India,
South Korea and Kazakhstan, to enhance its growth prospects. Premiumization is growing trend in this market and
with A-B InBev being the major international player in this market, Modelo’s brand can leverage this opportunity to
capture a larger share of the market.
EXPANSION RECOMMENDATIONS
Cultural
Distance
Administrative
Distance
Geographic
Distance
Economic
Distance
Expansion
Priority
Latin America Low Low Low Low 1
North America Low Low Low Medium 2
Europe Medium Medium Medium High 3
Asia-Pacific High Medium Medium Low 1
According to the model, the regions that will be the easiest and provide the most value for Modelo would be Latin
and North America. Now adding the dimension of market characteristics and growth opportunities, we believe that
Asia-Pacific should be a focus area. With A-B InBev’s acquisition of Modelo, the brand is in the strongest position
to make a push into this market with the strong brand equity of Corona and the extensive distribution network of A-
B InBev.
Source: Euromonitor International
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CLOSING INSIGHT
We would like to draw your attraction towards the change in strategy of Grupo Modelo over the years. Though they
started out as an organisation which places importance on the internationalisation of its products, the core
competency (Brewing Beers) remaining centrally controlled, and the other accessories being decentralised
(Marketing and publicity, distribution etc.), post their acquisition in the A-B InBev group, they have started moving
towards a globalisation strategy. This could be attributed to the high resource availability due to A-B InBev, and
also they used this opportunity to reduce their weakness, namely: the high logistics cost and the transportation
constraints due to the local and sole production of Corona in Mexico.
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BIBLIOGRAPHY:
http://www.businessinsider.in/How-The-Global-Beer-Industry-Has-Consolidated-Over-The-Last-10-Years-
In-Two-Charts/articleshow/30399280.cms
http://www.economicsonline.co.uk/Business_economics/Brewing.html
http://online.wsj.com/news/articles/SB10001424052702303649504577495921266834262
http://www.fool.com/investing/general/2012/07/07/why-this-beer-company-is-winning-the-battle-and-
th.aspx
http://www.inc.com/news/articles/2009/09/beer.html