Strategic Management ??“ BUS 599Corona Beer
Identify and discuss the trends in the global beer markets.
Brewing has historically been a local industry with only a few companies having a substantial international presence. However, the last couple of decades have seen increasing consolidation within the industry. Back in 2003, sales totaled 1,484 million hectoliters. The main impetus for growth came from increased consumption in developing countries, especially China. In more established beer markets, volume growth was slow due to increasing saturation. Also, lifestyle trends are encouraging a broad shift away from beers, as health consciousness increases and encourage consumers to cut down on heavy drinking. Fashion trends towards alternative drinks, such as wine, FABs and bottled water, have also constrained growth in beer sales. Furthermore, stricter drink-driving legislation is deterring consumers from drinking away from home. Global beer volumes are primarily being driven by growing disposable income, improvements in the quality of beer, marketing and advertising activities, and a steadily growing beer-consuming population base. An ongoing trend evident in emerging and growth markets is the substitution of beer in place of traditional, local spirits. This trend is driven by rising incomes and increasing responsiveness towards brands and marketing. In addition, demographic shifts towards urbanization and increasing westernization of tastes among younger generations have supported the shift towards beer. In mature markets, consumption rates vary based on product differentiation, and marketing and promotional activities.
Beer consumption is also affected by a range of other factors, including seasonality, weather, demographics, tax and duties, perceived health effects, responsible-use programmers, rules and regulations and the consumption of substitute products.
While the dominant trend in the beer market between 1998 and 2003 was one of premiumisation, “light” beers gained momentum during 2002/2003, as manufacturers began to target health conscious consumers. Such activity was particularly pronounced in the US, where four of the five top-selling beer brands were light lagers in 2003. Another trend over the last 10 years has been of global consolidation. The top 10 brewers accounted for 34% of the global beer market in 1998. In 2008, this figure had grown to 59%. In 2008, two major acquisitions took place in the global brewing industry: The acquisition of Scottish & Newcastle by Carlsberg and Heineken and the acquisition of Anheuser-Busch by InBev (Management Review: Markets and Strategy, 2009).
Discuss how Modelo??™s international expansion was made possible through strategic partnerships with experienced distributors in local markets.
Corona??™s ascent to stardom could be attributed to its brilliant and unique marketing campaign which was a direct result of the international strategy undertaken by Grupo Modelo when it expanded into the United States. While continuing to produce the beer domestically, Modelo entered into distribution contracts with companies that had local knowledge of the market and gave them autonomy to market the product fittingly, yet maintained an active involvement in the decision making. The result was the rise of Corona from a beer sold primarily in the states bordering Mexico, to the number one imported beer in America. When Corona first entered the American beer market, it choose Chicago-based Barton Beers Ltd. as its distributor. Barton Beers was an easy choice because it was the largest beer importer in the 25 western states and was experienced in the marketing and sales of imported, premium beers. It was through Barton that the marketing image of ???fun in the sun??? was born. In 1986, Modelo decided to select a second distributor, Gambrinus Inc., which was headed by a former Modelo executive. Each marketing company was responsible for its own 25 states.
Modelo??™s agreement with its distributors was that each importer would be responsible for essentially all activities involving the sale of the beer, except its production, which took place in Modelo factories in Mexico. Everything??”including transportation of the beer, insurance, custom clearance, pricing strategy, and creativity of the advertising campaigns??”was the importers??™ responsibility. However, Modelo had the final say on anything involving the brand image of its beers (Som, 2008, p. C252).
Identify and discuss the next foreign market that Modelo should enter and discuss the strategy it should use to enter the market.
The next foreign market that Modelo should enter is in Australia. Currently, Australia is ranked fourth internationally in per capita beer consumption, at around 110 litres per year. Australias beer market is among the most profitable in the world, generating earnings of $1 billion a year, shared largely between Fosters and Lion Nathan. Australia has only two types of beers being produced, lager and light beer. With exception of the family owned Coopers Brewery, all of the large Australian breweries are owned by either the Foster??™s Group or Lion Nathan. Victoria Bitter is Australia??™s highest market share of all beer sold in Australia, and has been for the last 20 years.
The strategy Modelo should use to enter this market is their ingenious marketing philosophy. These strategies consist of giving autonomous control to an experienced, local distributor, focused on ???fun in the sun???. They should partner with Coopers Brewery. Corona beer is a pale lager that has a smooth texture with a tanginess added by a lime wedge which is conducive to Australia??™s climate. With a lack of variety to choose from in Australia, makes Corona a perfect beer to try something new (Wikipedia, 2011).
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. 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. Anheuser-Busch is a dominant market leader in the United States. They have 45 percent of the United States market share, and 75 percent of the beer industry??™s profits. Anheuser-Busch has 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 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 Modelo to distribute its products in Mexico.
SAB Miller and InBev are other large players in the global beer market. SAB Miller currently has 23% of the U.S. market and InBev is 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 including Modelo. In addition, there are many smaller microbrewers in the beer industry that produce differentiated and regional beers. Modelo is also strongly positioned versus their competitors in regards to liquidity. Over the last three years, however,? Modelos? liquidity has been decreasing as demonstrated by decreasing current and quick ratios. Even with this downward trend,? Modelo? remains much more liquid than any of its major competitors and compared to the industry and sector as a whole. None of? Modelos? competitors are able to cover their current liabilities whereas? Modelo? can do so almost three times over. This difference may exist due to the company??™s low operating expenses and low interest expenses. In response to InBev, 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, 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 (Brown, Roath, & Pheann, 2009).
Discuss whether or not Modelo should diversity its business. If so, what business should it enter and why
I believe Modelo should diversify its business. Currently they are in the business of producing and selling of beer products. However, they do sell t-shirts, cups, mugs, and koozies. But what if the beer market goes south There are several reasons this could happen: a decrease in population, which leads to a smaller drinking population; diversification of customers??™ tastes and preferences; a totally saturated beer and low-alcohol beverage market; and stricter laws. Therefore it is essential for Modelo to adopt strategies for future sustainability??”one to strengthen its core liquor business and offer a range of beverages other than beer; the other is to expand business opportunities into areas other than the liquor business. These diversified businesses are basically either vertically integrated or founded upon the core competencies, both of which are close to their main business, namely alcohol beverage business. Also, Modelo already is successful in distribution so adding other alternatives would not be expensive.
Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy:
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(Brown C Roath J Pheann J 20091130 Corona Beer: From a Local Mexican Player to a Global Brand Case Analysis)Brown, C., Roath, J., & Pheann, J. (2009, November). Corona Beer: From a Local Mexican layer to a Global Brand Case Analysis. Retrieved February 3, 2011, from www.plu.edu/~beechujs/doc/corona.doc
(Management Review: Markets and Strategy 20090615 Trends in the Global Beer Markets)Management Review: Markets and Strategy. (2009, June). Trends in the Global Beer Markets. Retrieved February 3, 2011, from http://www.carlsberggroup.com/Investor/DownloadCentre/Documents/AR2008Chapters/
(Som A 2008 Corona Beer: From a Local Mexican Player to a Global Brand)Som, A. Corona Beer: From a Local Mexican Player to a Global Brand. In J. Portz (Ed.), Crafting & Executing Strategy: the Quest for Competitive Advantage Concepts and Cases. New York, New York: McGraw-Hill Learning Solutions.
(Wikipedia 20100802 Beer in Australia)Wikipedia. (2011, February). Beer in Australia. Retrieved February 3, 2011, from http://en.wikipedia.org/wiki/Beer_in_Australia