NAME:Lucido, Mary Lord Blessilda M. and Endaya, Jeffey M.

COURSE & SECTION: BSIE-4A Case Analysis #12 - Corona Beer: From a Local Mexican Player to a Global Brand Overview Modern Beer was first brewed in Europe in the 4th Century. It was developed differently in every country in order to address local tastes and specific recipes. One determining factor behind the type of domesticwas the national taste of the particular country. Some countries have distinct cultural taste, where beer is not the alcoholic drink of preferences. Mexicos the worlds 11th largest populated country, was one of the largest beer markets in the world. This is impressive considering that Mexico is the birthplace and still home of the most affluent tequila market in the world. For a country that has a large proportion of its alcoholic industry split between beer and other beverages. GrupoModelo was established on March 8, 1922 and officially opened its first brewery three years later. In 1936, the Fernandez family became the sole proprietor and has maintained its ownership ever since. GrupoModelo first introduced the Corona in 1979 and by 1988 it had become the second most popular imported beer in the U.S. In 1997, Corona achieved its goal and surpassed Heineken as Americas top imported beer and since then Corona has been best-selling importer beer in the US. GrupoModelo has an extensive line of products including Corona Extra, Corona Light, Modelo Especial, Pacifico Clara and NegraModelo. In 2005 three of its brands were in the top 8th brands list of US. Company Vision, Mission and Values  Vision To grow as multinational competitor in the beverage market, inspiring pride, passion and commitment and generating value for our stakeholders  Mission GrupoModelos mission is to establish a role model in the global beverages market with the purpose of

Generating constant value for our clients, shareholders, employees and for society.

y y

Thoroughly developing the best human capital in the industry. Attaining excellence in our processes, systems, products and services, exceeding the expectations of our clients and consumers through constant innovation.

To be recognized widely as a socially responsible company.

 Values The values of GrupoModelo are the principles and rules which guide the behavior of every member of the organization. These guidelines direct the culture within the company: y y y y Royalty Respect Responsibility and; Trust

Company Highlights y Coronas was the 1st entry into U.S beer market in 1979 by Amalgamated Distillery Products Inc. y y y y Corona was listed in Mexican Stock Exchange in 1994 By 1980 and 1988 Coronas experienced rapid growth in sale and; 2nd most popular imported beer in the United States In 1997 GrupoModelo surpassed Heineken for bragging as the number one selling import in United States y y y y y y Since 1997, Corona has been the best-selling import beer in the US In 2004, Corona outsold the former number one by 50% And 56% market share of the domestic Mexican market Corona Extra was the 4th best selling beer in the world. GrupoModelo is one of the top 10 biggest breweries in the world. With the outstanding performance of Corona, Modelo Especial and NegraModelo in the U.S import segment they have been included in the Impact Magazine with the title of Hot Brands list. This happened 10 times in the last 11 years.  Products

The five products of Group Modelo exporting in United States: y y y y y Corona Extra Corona Light Modelo Especial Pacifico Clara NegraModelo

Competitor Worlds Top 10 Worlds Beer Brands  Bud Light  Budweiser  Skol  Snow  Corona  Brahma Chopp  Heineken  Miller Lite  Coors Light  Asahi Super Dry Internal / External Analysis  Strength Strong Brand Image of fun in the sun Good relationship management with distributor Healthy financial and low debt helps future projects Solid presence in the country of origin and the rest of the world Consumer have strong connection with the product Corona has extensive network of distribution channels Loyalty of the customer

GrupoModelo has experience at top positions including chairman of the board and CEO Carlos Fernandez. GrupoModelohas the ability to utilize strengths of partial owner Anheuser-Busch. Corona Extra is the fourth best-selling beer in the world (by quantity). GrupoModelo is one of the top 10 biggest breweries in the world. GrupoModelos products have established, international images GrupoModelos net sales have risen 7.8 percent on a compounded basis over the last 10 years.

 Weaknesses Lack of partner brands in United States GrupoModelos domestic sales are currently decreasing. GrupoModelo is geographically concentrated only in North America. GrupoModelos domestic market is the birthplace and home of the most affluent tequila market in the world which takes away from their market share  Opportunities To capitalize on the increasing popularity of light beverages New product lines for female drinkers Expand into other International markets outsides US

 Threats High dependencies on economic situation Many premium beverages which continental sells have a cheaper price Competition FEMSA owns large chain of convenience stores Increasing good of health conscious consumer. Reluctance of customers to pay high costs for imported, premium beers. Rising costs of advertising throughout the industry. The volatility of the Mexican economy including the devaluation of the Mexican peso.

Strategic Implication

The key element behind the rapid growth domestically during the post WW II era was a new way of distribution: direct with profit sharing. Modelos sales were revolutionized by the idea of direct distribution with the executive in charge getting a share profit. The second key element was specialized concession. Splitting the beer from the groceries and making it an exclusive business gave rise to direct distributors. Corona built marketing campaign around the idea of fun in the sun. Coronas ingenious marketing philosophy, which was born Modelos international expansion strategy giving autonomous control to experienced, local distributors focused on fun in the sun and quickly saw Corona in an ever-increasing number of bars and restaurant in the United States. The marketing campaigns distinguishing feature was it did not focus on the classical target market for beer drinkers which were males between the ages of 25 and 45. Corona did away this status quo. It developedan image of a beer that would attract everyone. With the fun in the sun campaign it sold the idea of escape and the idea of leaving behind everyday life for one that is relaxing. The most recent advertising slogan of Miles Away from Ordinary associated with Corona continues to raise ideas of removing oneself from daily activities. Corona was able to get the non-drinking population to drink beer specifically the womens. Because of its availability, it became the 2ndchoice for beer drinkers. FEMSA and GrupoModelo have built up strategic alliance with some major distributors that were enjoying the NAFTA environment. GrupoModelo could enjoy the link with Anheuser Busch to broaden its international impact while FEMSA was distributing Coca-Cola products in Mexico and decided to have partnership with Heineken to attack the U.S Market. To sum it up, the two Mexican players decided to attack the US market but could not do it alone considering entrance barrier.

Recommendation

The beer industry remains very attractive proposition for GrupoModelo since they face low pressure from supplier, low threat of new entrant and a moderate buyer pressure. Expand in international market especially outside the US, and continue to follow the current practice of contracting with local distributors that has proved fairly successful. Reducing cost and better quality management Develop efficient supply chain to better manage the inventory and increase the availability of the products Increasing the marketing budget and engage in focused specific target segment such as young people (21-27 yrs).

Reference y Thompson, A.A. (2009). Crafting & Executing Strategy (7thed.) New York: McGrawHill/Irwin. y www.grupomodelo.com

Endaya, Jeffey M. Lucido, Mary Lord Blessilda M. BSIE-4A Case Analysis #12 - Corona Beer: From a Local Mexican Player to a Global Brand Assignment Questions: 1. What are the dominant business and economic characteristics of the global beer industry? Market Size and Growth Rate - Expand in international market especially outside the US, and continue to follow the current practice of contracting with local distributors that has proved fairly successful. Number of Rivals - The lack of a transportation network made exportation impossible for centuries and brewing was a local a national domain. Scope of Rivalry -Having a presence in foreign country markets is becoming more important to a companys long-termcompetitive success because of currency risk. Number of Buyers -The market is very fragmented because there are many consumers who drink beer worldwide. Degree of Product Differentiation -The large producers cover most types of beer with their product lines. Product Innovation -Developing the beer for young people age 21 to 27 years 2. What do you see as the key success factors for firms in the global beer industry? Clear advertising The GrupoModelo is using the philosopy of fun in the sun in this clear statement and quickly saw Corona in an ever-increasing number of bars and restaurant in the United States. Quality Products - Individual tastes and personal preferences may vary; the most successful beer companies produce quality products with a distinctive taste.

3. What does a strategic group map of the global beer industry look like? How strongly is GrupoModelo positioned in the industry? How favorably does it compare with its closest Mexican rival FEMSA? How favorably does GrupoModelos position compare to that of Heineken?

In this Figure the GrupoModelo is on the moderate place of little brand diversity and moderate uniqueness of product offering. Modelo lacks on product offering rather than on its rivals. 4. What are the resource strengths and weaknesses of GrupoModelo? What competencies and capabilities does it have that its chief rivals dont have? What market opportunities does GrupoModelo have? What threatsdo you see to the companys future wellbeing? What conclusions can we draw from the SWOT analysis for GrupoModelo? Strength -GrupoModelo has experience at top positions including chairman of the board and CEO Carlos Fernandez. -GrupoModelohas the ability to utilize strengths of partial owner Anheuser-Busch. -Corona Extra is the fourth best-selling beer in the world (by quantity). - GrupoModelo is one of the top 10 biggest breweries in the world. -GrupoModelos products have established, international images

- GrupoModelos net sales have risen 7.8 percent on a compounded basis over the last 10 years. -Corona has extensive network of distribution channels -Loyalty of the customer Weaknesses -GrupoModelos domestic sales are currently decreasing. - GrupoModelo is geographically concentrated only in North America. - GrupoModelos domestic market is the birthplace and home of the most affluent tequila market in the world which takes away from their market share. Opportunities -To capitalize on the increasing popularity of light beverages -New product lines for female drinkers -Expand into other International markets outsides US Threats -High dependencies on economic situation -Many premium beverages which continental sells have a cheaper price -Competition FEMSA owns large chain of convenience stores -Increasing good of health conscious consumer. -Reluctance of customers to pay high costs for imported, premium beers. - Rising costs of advertising throughout the industry. - The volatility of the Mexican economy including the devaluation of the Mexican peso. 5. What is your assessment of GrupoModelos financial performance and financial condition from Exhibit 6 in the case? Is the company in good financial shape? Why or why not? Please use the financial ratios inTable 4.1 in Chapter 4 to develop calculations in support of your assessment of the companys financial performance.

GrupoModelo has consistently been ranked among the top 10 beer producers in the world. The effects of these accomplishments are evident in the financial statements of the company which bolster its overall financial condition. 6. Is competition in the global beer industry best characterized as global or multi-country? Why? Which type of international strategy discussed in Chapter 7 is GrupoModelo using in its international operations? How does this compare to the strategies of FEMSA and Heineken? What are the strengths and weaknesses of GrupoModelos international strategy versus those of its main rivals? 7. Based on your analysis of the global beer industry and GrupoModelos situation, what problems and issues does the companys top management need to address? Which ones are top priorities? Which are low priorities? How concerned should GrupoModelo be about the potential merger between InBev and Anheuser-Busch? GrupoModelo is lacking the ability to keep up with consumer demand. Corona Extra just became the number one imported beer in theUnited States and GrupoModelo just approved a $300 million facility expansion project. The company mustbe able to foresee the growth rates of its brands and adjust them accordingly. This is definitely a high-prioritybecause the global demand of its brands will cause shortages in the product and a loss in potential revenues.Also, the governments of certain countries such as the United States have imposed significant tax increaseson the sale of alcohol. Since GrupoModelo absorbs only a portion of the tax while their distributors absorbthe other portions, its priority is relatively low. The potential merger between InBev and Anheuser-Bush would certainly change the competitive dynamicsof the industry. Essentially, the merger would create a dominant player in the industry that was 2/3 largerthan any other competitor. This company would have a market share that was twice that of the nearestcompetitor. With this type of market power the combined company could gain production and distribution efficiencies, and leverage its position with major distributors 8. What actions would you recommend to Carlos Fernandez to help GrupoModelo sustain or improve its competitive position, especially its international operations, and its long-term financial performance? GrupoModelo must vigorously defend its profi t sanctuary in Mexico against FEMSA. FEMSA hasbegun to overtake GrupoModelos large lead in domestic market share partly

because of the taste ofFEMSAs product as well as FEMSAs line of convenience stores. Students should recommend Modeloto increase their product offering to provide a better tasting product and/or create their conveniencestores to compete with FEMSA. It is not completely unreasonable for students to consider an acquisitionof FEMSA by GrupoModelo. FEMSA has a number of highly rated beers that could help fuel Modelos continued international expansion.

First Asia Institute of Technology and Humanities School of Technology Industrial Engineering

Case Analysis #12 Corona Beer: From a Local Mexican Player to a Global Brand

Submitted by: Endaya, Jeffrey M. and Lucido, Mary Lord Blessilda M.

Submitted to: Engr. Darwin R. Gevaa January 17, 2011