Anthony Gabriel Divino Flores / Joel Clark Paragas Emg216/COM Case Analysis # 3 Corona Beer: From a Local Mexican

n Player to a Global Brand

Overview The Grupo Modelo, originally Cerveceria Modelo, S.A., was founded in 1922 by Pablo Diez Fernandez, Braulio Irirarte, and Martin Oyamburu. From its beginning, the company sought to create new opportunities that could enable it to achieve continuous growth. During the 1930s Modelo engaged in acquiring competing firms. In 1936, the Fernandez family became the sole proprietor and has maintained its ownership ever since. The company acquired Toluca y Mexico Brewery; shortly after it also purchased the Mexicos oldest beer company, Victoria. These acquisitions were pivotal points for the company. Modelo experienced a very solid growth and financial stability. In the year 1979 Modelo decided to make its products available in the U.S. beer market. To do so, the company entered strategic partnerships with the largest U.S. beer distributor in the 25 western states, Barton and Beers, Ltd. In order to capture market in the eastern states, the company also entered in a distribution agreement with Gambrinus, Inc. These partnerships with seasoned and very knowledgeable beer distributors, gave Modelo the upper hand over its competitors. Grupo Modelo first introduced Corona and by 1988 it had become the second most popular imported beer in the US. In 1997, Corona achieved its goal and surpassed Heineken as Americas top imported beer and since then Corona has been the best-selling import beer in the US. Grupo Modelo has an extensive line of products including Corona Extra, Corona Light, Modelo Especial, Pacifico Clara and Negra Modelo. In 2005, three of its brands were in the top eight brands list of US.

Grupo Modelo is headquartered in politically unstable Mexico that may present challenges for the company coupled with problems like corruption, drug cartels, import tariff etc.

Economic conditions can have significant effects on the beer industry such as volatility of the Mexican economy and its effect on currency exchange rates as the value of the Peso falls, it becomes increasingly more expensiv e to export to other countries.

Societal changes can also affect consumer activity, for example, to attract the smaller consumer base of women, Companies have invented new types such as lighter beers, and flavored alcoholic beverages and products that are targeted towards healthier lifestyle.

Changes in technology enable companies to develop efficient brewing processes, distribution channels and facility upgrades that increase production, consistency and reduce costs

Porters 5 Forces Model Analysis for Corona Beer

Potential New Entrant

Bargaining Power of Customers

Bargaining Power of Suppliers

Threats of new substitute

RIVALRY

Threats of Substitute: High threat. There are multiple choices in liquor, flavored alcoholic drinks, non-alcoholic beer or other beverages

Rivalry: High threat. There are large and fierce competition in the industry from domestic and imports. There are high differentiation in products and advertising. And also, mergers and acquisitions between dominant players may pose threat to gain cost and brand benefits

Potential New Entrant: Low threat. In this type of industry possible new entrants would be reluctant because it needs big amount of investment to form a new one

Threats of Substitute: High Threat. There are multiple choices in liquor, flavored alcoholic drinks and non-alcoholic drinks

Bargaining Power of Customers: Moderate threat. Depending on customer individual taste preferences, price sensitivity, market demand price. Corona needs to keep a low switching cost for the buyers

Bargaining Power of Suppliers: Low Threat. The company possesses half of the Mexican market share. It has also vertically integrated their supply chain to have more control over the inputs

Company Mission The Companys mission is to be a global player. To grow as a multinational competitor in the beverage market, inspiring pride, passion and commitment, and generating value for the stakeholders.

Internal / External Analysis

STRENGHTS
Good relationship between management and Distributors High product availability and strong distribution network Robust leadership of Carlos Fernandez

Strong brand name

Healthy financials and low debts Sharing of cost between producer and distributors

WEAKNESSES
Other top six rated beer in Mexico belongs to competitors (FEMSA) Lack of partner brands in USA

OPPORTUNITIES
New product lines for female drinkers
Expand into other other markets outside US Increasing popularity of light beverages and flavored alcoholic beverages

THREATS
Competitor FEMSA owns large chain of convenience stores Mergers and acquisition of other companies such as InBev and Anheuser-Bausch Increasing numbers of health conscious consumers High dependency on economic situations, foreign exchange, increase in taxes, import tariffs Strategic Implications 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.

Strategy Selection Mergers & Acquisition strategy to benefit through Economies of Scale and other market penetration Expand product line to attract health-conscious, first-time or female drinkers such as introducing low calorie or flavored drinks. Start Diversifying into non-alcoholic beverages

Recommendations The beer industry remains very attractive proposition for Grupo Modelo since they face low pressure from suppliers, low threat of new entrants and a moderate buyer pressure. However, the industry is highly competitive and so recommendation for the

company is to: Increase Marketing budget and engage in focused advertising towards specific target segments such as Young people (21-27 years), Women, Health-conscious consumers etc., Vertical Integration to produce raw materials, thus reducing cost and better quality management. Develop efficient supply chain to better manage the inventory and increase availability of its product in stores. Expand in International market especially China & Australia which are the leading consumers of beer, and continue to follow the current practice of contracting with local distributors that has proved fairly successful.

References Thompson, A.A., Jr., Strickland III, A.J. & Gamble, J.E. (2009). Crafting and Executing Strategy (17th Edition). New York: McGraw-Hill/Irwin.