While a smaller company will have more limited distribution, it will distribute specifically to the same types of establishments favored by Corona's target market, and German brews are generally not competing directly with Corona. AB InBev owns 50% of Modelo at this point. There is the possibility that the company may decide to purchase the remainder of Modelo. If they do not, they are still something of a threat because brands such as Budweiser and Stella Artois, while positioned as mainstream brews in their domestic markets, are generally positioned as premium brands in export markets, the same tactic that Modelo employs for Corona. This puts those brands in direct competition with Modelo. It is interesting to consider that as long as AB InBev owns 50% of Modelo, they are unlikely to compete too vigorously against the Mexican brand lest they devalue it. The main threat, then, is the threat that AB InBev may decide to purchase the remainder of the brand. This could have wide-ranging implications.

One of the ways in which AB InBev could derive synergies from a purchase of Modelo is to offshore some of that beer's production, as the world's largest brewer has excess capacity in a number of different markets. This could result in job loss in Mexico, but it could also compromise the image of the beer. The other main threat is that if AB InBev purchases Modelo, it could allow the Corona brand to wither, or it could promote Corona heavily while allowing the other brands to wither. The latter strategy would be catastrophic in the domestic Mexican market, which provides Modelo with a source of strength in the consistently positive cash flow.

Modelo should respond to these threats by diversifying its business. The company can choose to seek geographic diversification by saturating foreign markets that are presently served only minimally. Another means of diversification would be to expand the product line....

This could be done by purchasing liquor brands, and building an international drinks portfolio in that way. This would give Modelo a more diverse source of cash flows to help counter the impacts of the beer industry's maturation and the increase in competitive intensity. These brands may also dissuade buyers, for whom such brands would be a nuisance to be sold off at a loss.
By diversifying into a broader drinks category, Modelo would be able to leverage its strengths in international distribution and marketing, and apply those talents to established regional drinks names. The industry is similar to brewing, especially in terms of its marketing and its status as a globally consolidating business. There are sufficient congruencies, in particular with distribution and marketing, that Modelo could make a merger work and help grow the company into a much larger, stronger entity than it is today. Indeed, the international expansion phase for Modelo is almost over, as the company operates in most of the world at this point. Modelo needs to look ahead to the next step of its existence, be it as part of a global brewing conglomerate or as a diversified drinks company in its own right.

Works Cited:

Dalton, M. (2009). AB InBev leans on cost-cut efforts. Wall Street Journal. Retrieved March 24, 2010 from http://online.wsj.com/article/SB10001424052748704576204574530890633506588.html

Jones, D. (2010). AB InBev to buy Modelo this year: Broker evolution. Reuters. Retrieved March 24, 2010 from http://www.reuters.com/article/idUSTRE6282EE20100309

No author. (2006). A mixed forecast for beer. Modern Brewery Age. Retrieved March 24, 2010 from http://www.breweryage.com/industry/

Hee, E. (2008). Beer and stout industry to face tougher times. The Star. Retrieved March 24, 2010 from http://biz.thestar.com.my/news/story.asp?file=/2008/7/29/business/21943875&sec=business