Grupo Modelo's global expansion: from Mexican brewery to North American market leader

Corona Beer (Modelo)

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

Grupo Modelo's greatest strengths are beer and beverage production, and exceptional skills in managing distribution channels and networks location in foreign nations. Founded in 1922, with its first brewery in operation in 1925,

Grupo Modelo over its first six decades of operations became the best selling beer producer and distributor throughout Mexico and the United States. In 1979, Grupo Modelo successfully launched Corona, which quickly became one of the best-selling beers in Mexico. In 1988 the beer was launched into the United States and quickly rose to become the second best-selling imported beer. Grupo Modelo went public in 1994. Anheuser-Busch purchased 50.2% of Grupo Modelo shares that translated into 43.9% voting rights, which assured the Diez family of retaining control of the company. After going public the company invested heavily in creating distribution partnerships in throughout North America which have emerged as one of the company's greatest competitive strengths.

Trends Impacting the Global Beer Market

Branding and pricing are the two most common differentiator used by competitors globally in the beer market. There are also more alliances, mergers, acquisitions and joint ventures being created to mitigate and spread the risk of the global economic downturn. In addition to these macroeconomic factors there is also the redefining of nonalcoholic beverages as being healthy and low in calories. This market trend is aimed at attracting women to beer, which has historically been a low-consumption product for them. The industry globally is in the decline stage of its product lifecycle, and has only seen moderate change to the technologies that brewery operations and channel strategies. As a result Grupo Modelo is competing on the strength of its alliances and channel partnerships and ability to launch new brands successfully throughout North America. Figure 1, 2009 Global Distribution Channel Segmentation, illustrates how traditional retail channels, which are by definition multi-tier, are dominating the market in conjunction with mass merchandisers. Wal-Mart, Costco and other mass merchandisers are changing the distribution channel dynamics and forcing pricing pressure on beer providers including Grupo Modelo.

Figure 1: 2009 Global Distribution Channel Segmentation

Market Segment

2009 Global Market Share

Supermarkets and mass merchandisers

24.0%

Independent grocery stores

22.0%

Hospitality

19.0%

Liquor stores

13.0%

Convenience stores

7.0%

Other

7.0%

Direct sales

4.0%

Discount stores

4.0%

Sources: (Mayers, 2007) Analysis of SEC Filings by Grupo Modelo (2009 -- 2010)

In addition to the consolidation of channels the global market for beer has become standardized on Lagers, followed by dark beers. This is understandable given the dominance of European breweries in the beer industry (Mayers, 2007). Figure 2, 2009 Global beer Products Segmentation provides an analysis of the distribution of 2009 sales of beer by type. Corona is considered a Lager and is in the most crowded area of the market, making differentiation difficult. Grupo Modelo's decision to concentrate on its channel alliances and partnerships is critical for their long-term growth in such a consolidating and challenging market. In a sense Grupo Modelo has chosen to seek out a services-based strategy to gain a competitive advantage by creating such strong alliances in its channels. This is an excellent decision on their part as it is clear the market is consolidating and losing differentiation by product.

Figure 2: 2009 Global Beer Products Segmentation

Product/Services

2009 Global Market Share

Dark beer

12.0%

Lager (standard)

73.0%

Low and non-alcohol

5.0%

Premium lager

8.0%

Stout

2.0%

Sources: (Mayers, 2007) Analysis of SEC Filings by Grupo Modelo (2009 -- 2010)

Defining Market Development Priorities Globally

Grupo Modelo's abilities at channel alliances and partnership creation and mutually shared profitability are evident from the many examples in the case study. The decision of which nation to expand into needs to take into account their existing strengths in channel development and channel management in English-speaking nations. While China appears to have exceptional growth potential, the language and cultural barriers could be quite significant. The recommendation therefore is Australia first, China second. Australia's distribution channels for beer are comparable to North America and the language barrier is significantly less than expanding into China. In addition the cultural and political differences between Mexico and China are so significant that the expansion into that nation is going to take an inordinately high level of patience and investment. Due to these factors it is recommended that Grupo Modelo expand into Australia first. The 2009 global share of sales by region is shown in Figure 3.

Figure 3: 2009 Global Region Market Shares

Region

2009 Global Market Share

Europe

39.4

North America

22.2

North Asia

20.4

South America

10.0

South East Asia

3.0

Africa & Middle East

2.0

Oceania

2.0

India & Central Asia

1.0

Competitive Response to InBev

There are a multitude of possible strategies that Grupo Modelo can take in responding to InBev, yet the most lethal would be a price war, the most profitable, a focus on channel management and channel loyalty. For Grupo Modelo the best possible strategy is to continually invest in channel alliances and partnerships, seeking to further differentiate and strengthen the trust they have earned over years of working with these channel partners. Trust is very costly to earn and keep, and for InBev, their approach to en masse distribution has cost them credibility. For Grupo Modelo the best possible strategy is to lock InBev out of their channels and gain channel loyalty to further distance themselves from their largest competitor. Figure 4, 2009 Global Competitor Market Shares shows the dominance of InBev.

Figure 4: 2009 Global Competitor's Market Shares

Competitor

2009-2010 Global Market Share

Anheuser-Busch InBev

18.0% (2010)

SABMiller plc

15.4% (2010)

Heineken N.V.

9.2% (2009)

Carlsberg a/S

6.1% (2010)

Asahi Breweries, Ltd.

3.0% (2009)

Other

48.3% (2009)

Sources: (Mayers, 2007) Analysis of SEC Filings by Grupo Modelo (2009 -- 2010)

Diversification

Today the company is diversified into sports teams and is attempting to create vertical integration throughout their supply chains. What the company needs to do in the future is focus on creating more efficiency in collaborative planning and forecasting with its channel partners and consider how diversifications can strength channel alliances first. The diversifications for branding alone will have long-term impacts, yet the company must focus on how to diversify to strengthen its channel alliances first. This could be in the form of additional product lines that are designed primarily to give channel partners more of an opportunity to earn gross margins, thereby making them more profitable -- and loyal -- over time.

Reference

Michael Mayers. (1 August). Global market review of premium beer - forecasts to 2013: 2007 edition: The leading international brewers. Just - Drinks: Global market review of premium beer - forecasts to 2013:,9-31.