Anthony Gabriel Divino Flores / Joel Clark Paragas

Emg216/COM

Case Analysis # 3 – Corona Beer: From a Local Mexican 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 Mexico’s 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 America’s 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

Porter’s 5 Forces Model Analysis for Corona Beer

RIVALRY

Bargaining Power of Suppliers

Potential New Entrant

Bargaining Power of Customers

Threats of new substitute

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 Company’s 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

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.

STRENGHTSGood relationship between management and DistributorsHigh product availability and strong distribution networkRobust leadership of Carlos FernandezStrong brand nameHealthy financials and low debts Sharing of cost between producer and distributors

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

OPPORTUNITIESNew product lines for female drinkersExpand into other other markets outside US Increasing popularity of light beverages and flavored alcoholic beverages

THREATSCompetitor FEMSA owns large chain of convenience storesMergers and acquisition of other companies such as InBev and Anheuser-BauschIncreasing numbers of health conscious consumersHigh dependency on economic situations, foreign exchange, increase in taxes, import tariffs

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.