2014/2015

UNIVERSITY OF GUYANA
POLICY AND BUSINESS STRATEGY MNG4200
MR. TODD HUGH
CASE STUDY 13: CORONA BEER: FROM A LOCAL MEXIAN PLAYER TO A GLOBAL PLAYER.

GROUP MEMBERS

REGISTRATIONNUMBER

WASIM KHAN

11/0835/1457

SHEMICA ISAACS

11/0835/0375

NAOMI SINGH

12/0835/2153

CHRISTOPHER ADAMS

11/0835/0596

DIVYA HARDIAL

11/0835/1016

GAITRIE JADGEO

11/0835/0738

CHARLES THOMAS

11/0835/0339

RHONELL NURSE

11/0835/1397

ARJUNE LATCHMAN

11/0835/0266

RETISHA LOOKNAUTH

11/0835/0715

INTRODUCTION
This endeavour aims to provide an analysis of the case study: Corona Beer: From a Local Mexican Player to a
Global Brand. As such, the analysis of the case study is with the parameters of the following questions: 1.
what are the strengths, weaknesses, opportunities and threats of Modelo? 2. How did Modelo gain dominance in
the Mexican market? 3. Which international strategy did Modelo used in the international market? 4. How
concerned should Modelo be about the potential merger between InBev and Anhueser-Busch?
Grupo Modelo is among one of top ten largest breweries in the world, the leading brewery in Mexico and
producer of the best-selling Mexican beer in the world making it a market leader.
Grupo Modelo has an extensive line of products including Corona Extra which is the worlds fourth best
selling beer and also the top imported beer in the United States market. Some of the other products are: Corona
Light, Modelo Especial, Pacifico Clara and Negra Modelo. In 2005, three of its brands were in the top eight
brands list of the US.

SWOT ANALYSIS OF GRUPO MODELO

STRENGTHS
The acquisition of Toluca y Mexico Brewery proved to be one of the first strengths of Groupo Modelo. This
move attributed to Modelos early domestic dominance in Mexico. Another strength is that Modelos
management used innovative strategies such as direct with profit sharing. This strategy allowed direct
marketing to customers while managers had a share of the profits. Hence managers now had a direct interest in
the success of the company. More important that other strengths of the company was the vision that drove it.
The vision was to basically have the company acquire international market share. This vision was realized with
the opportunities presented with NAFTA.
Good strategic management was executed when Modelo gave autonomy to its international alliances in the U.S.
since they possessed the invaluable knowledge of making Modelos beer succeed in the U.S. market. Finally,
the pricing strategy was one that made the company penetrate the international market. When the excise taxes
increased, Modelo subsidized it distributors, allowing them to absorb the expense instead of charging an
increased price to customers.
WEAKNESSES
The weaknesses of the company lie in the fact that the domestic market share were not guaranteed since the
economy in Mexico was unstable. Additionally, as Modelo sought out new market share in the U.S. production
remained centralized in Mexico, contributing to increasing costs.
OPPORTUNITIES
NAFTA allowed opportunities of free trade outside the Mexican market. To add to this good fortune, the
downfall of the pricing strategy of Heineken allowed Modelo to steal the dominance from Heineken as the
number one imported beer in the U.S. This was subsequent to the fact that Heineken passed on the additional
excise tax to the price customers had to pay.
Additionally, the utilization production outside of Mexico is a good opportunity to reduce exchange rate risk.

THREATS
Exercise duties and exchange rate risk both of which threaten the companys profit margin. Another possible
risk is the decline of beer consumed in most high consumption markets. Here, profitability is threatened.
The unstable peso, as well as government intervention where policies are made to increase excise taxes are
other threats.
Other threats existed where a potential merger between the industrys leader, InBev and Anheuser-Busch, who is
part owner of Modelo. Hence a hostile takeover of the predominantly family owned company is brewing.

How did Modelo gain Dominance in the Local Mexican Market?

The journey of Grupo Modelo began with Cerveceria Modelo S.A that was established in 1922. Later in1935,
the then Cerveceria Modelo S.A, made the acquisition of Toluca y Mexico Brewery. This acquisition was the
paramount thrust that the company used to gain dominance in the domestic market, especially since , the
acquisition brought into possession of the company, Victoria which is Mexicos oldest beer.
Enhancing the growth effects of the acquisition, management strategically focused on how to improve
distribution and production locally. Meanwhile, other players in the industry were busy focusing of energies
supplying the American Army.
The strategy that gave way to dominance in the local Mexican market was a new way of distribution which was
direct with profit sharing. This means that mangers will share in the companys profits, giving them a direct
reason to have the companys interest first. Having secured the confidence and motivation of the managers, the
company distributed their products directly. There were no middlemen. This translated to lower prices charged
for beers. Ultimately, profitability will increase.

Which type of international strategy is Grupo Modelo using in its international operations?
The international strategy that Grupo Modelo is using is strategic alliances which can be defined as partnerships
that exist for a defined period during which partners contribute their skills and expertise to a cooperative
project.
With the availability of the opportunities presented by the North American Free Trade Agreement (NAFTA) the
vision to launch Grupo Modelo into the international arena was made possible. Modelo first entered the US
market in 1997, there were barriers to enter the foreign market and as such Modelo employed an international
strategy whereby strategic alliances were formed with foreign distributors to be the medium through which
Corona beers can be distributed thus penetrating the foreign market.
Strategic alliance with US distributors allowed more market access, these companies in which strategic
alliances were formed possessed local knowledge of the beer market that Modelo capitalized on. The largest
beer importer and well experienced in marketing and sales of imported premium beers was Barton beers and it
was due to this fact that Modelo choose it as its distributor, the second distributors was Gambrinus Inc.,
interestedly enough there existed healthy competition between the two distributors.

Barton beers and Gambrinus Inc. possessed valuable market and marketing knowledge and were very
competent to ensure success to Modelos product. With this realization Modelo gave to these companies
autonomy to make decisions, however they were careful to maintain the right to have the final decision in the
decision making process thus it was for this reason that Modelo established Procerax Inc. This subsidiarys
position was to oversee all operations of the two distributors.
The strategic alliances were chosen well and the management strategy to give them autonomy enhanced the
success of the new market especially since the alliances had knowledge which gave them a competitive edge.

How concerned should Grupo Modelo be about the potential merger between InBev and Anheuser-Bush?
In 2004 Interbrew and Amber merged and became InBev creating the largest producer of beer in 2005and
sustained in 2007. Thus Anheuser-Busch was placed second in terms of volume production, Anheuser Busch is
part owner of Grupo Modelo and group Modelo was a distributor for Anheuser-Busch this was made possible
through NAFTA.
Anheuser-Bush owns 49.4% of Grupo Modelos stock and the Fernandez family owns 50.6% thus making them
the primary stockholders of Modelo. So the possible merger between InBev and Anheuser-Bush would crate an
atmosphere for a hostile takeover hence the Fernandez family will lose primary ownership of their company.
Grupo Modelo can however adopt a defensive measure such as a poison pill/doomsday device or shareholders
right plan.

CONCLUSION
Two actions that we would recommend to Carlos Fernandez to help Grupo Modelo sustain or improve its
competitive position especially in their international operations are as follows:
1) To improve the strategic alliance abroad, Grupo Modelo can establish a production plant in the US area
especially since the US market is the target market. This decision came about because the Mexican
economy became volatile or unstable with the devaluation of the currency, exports became increasingly
expensive as sales declined. Thus the company should open a production plant where their target market
is located; hence cost of production can be cut.
2) Another recommendation for Modelo is the pursuit of diversification. That is, should the company
venture out into ownership of night clubs revenues can be increased as only Modelos line of beer will
dominate.

REFERENCES
Som, Ashok., ESSEC Businerss School, Case 13 Corona Bee: From a Local Mexican Player to a Global
Brand.
Business policy and strategic management 5th edition
International business policies and strategies , Winter Quarter 2011