Running head: CASE ANALYSIS: CORONA 1

Case Analysis: Corona Beer

Beer Industry Trends

Beer has been consumed by humans for quite a while. It dates back to the times of the

Sumerians living in ancient Mesopotamian, now Iraq, around 3,500 BC. Moving forward,

during the 14th century, beer was brewed in homes and small local pubs. The beer production

was, so to speak, decentralized and every village and town had its own methods and recipes on

how to produce it. These methods were greatly influenced by the taste that the locals preferred.

Until the later part of the 19th century, beer was still being produced by small breweries in

Europe. As new ways of transportation became available, beer was able to reach different

regions. These trends gave way to the early consolidation practices of small breweries into

larger players in the marketplace.

Since early 1990, among the growth strategies employed by beer companies, acquisitions,

mergers and international expansion are prevalent. These trends created a beer industry

dominated by a small group of companies that control the majority of beer production and sales

worldwide.

Over the past decade, the beer industry has seen significant consolidation, and this trend

continued during 2008. On a pro forma basis, beer sales by the top 10 players now total

approximately 65% of total global sales compared to less than 40% at the start of the

century.[ CITATION SAB09 \l 1033 ].”

The acquisition of competing firms, as well international expansion, has given beer

companies a larger consumer reach. Saturation in the booming beer market in regions like the

U.S and Europe has created entry opportunities by foreign companies to enter these markets.

These expanding companies have strengthened their positions in new areas, not by only
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exporting their products, which can be costly and uncertain, but by acquiring and/or merging

with national companies. “Expansion into key emerging markets has become a strategic priority

for leading firms, who are now competing for market share in several important regions of the

world.” [CITATION Hut05 \p 1 \l 1033 ].

The beer industry global annual sales exceed $300 billion dollars. In most developed

countries, the beer market is at full capacity. This situation is causing less and less growth

opportunities for big companies, as well as increase competitive pressures. In order for these

companies to continue to growth, they will have to move to emerging markets, such as China,

Latin America and India.

Modelo’s International Expansion

The Grupo Modelo, originally Cerveceria Modelo, S.A., was founded in 1922 by Pablo

Diez Fernandez, Braulio Irirarte, and Martin Oyamburu. From its beginning, the company

sought to create new opportunities that could enable it to achieve continuous growth. During the

1930s Modelo engaged in acquiring competing firms. The company acquired Toluca y Mexico

Brewery; shortly after it also purchased the Mexico’s oldest beer company, Victoria. These

acquisitions were pivotal points for the company. Modelo experienced a very solid growth and

financial stability.

In the year 1979 Modelo decided to make its products available in the U.S. beer market.

To do so, the company entered strategic partnerships with the largest U.S. beer distributor in the

25 western states, Barton and Beers, Ltd. In order to capture market in the eastern states, the

company also entered in a distribution agreement with Gambrinus, Inc. These partnerships with

seasoned and very knowledgeable beer distributors, gave Modelo the upper hand over its

competitors. “While continuing to produce the beer domestically, Modelo entered into
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distribution contracts with companies that had local knowledge of the market and gave them

autonomy to market the product fittingly.” [CITATION Tho09 \p C252 \l 1033 ].

An important distinction was made during the creation of these partnerships, was that the

distributors had the responsibility to create brand recognition, advertising, promotions, marketing

and sales activities for Modelo’s products. All of these functions were organized and

implemented by the distributors, but the final approval decision comes from Modelo’s executive

leadership.

The marketing campaign used by Modelo was unique and different from that of other

beer companies. Their slogan – fun in the sun – was catchy and attracted a broader type of

clientele. The marketing focus did not target and specific market segment, generally directed

towards males. Instead it created a sense of leisure for the people that preferred drinking the

Corona beer. The advertising did not communicate superior taste or quality; it emphasized

thoughts of relaxation and escape.

Whereas the taste and quality are subjective and different for each consumer, general

guidelines and surveys consistently and accurately show quality brewing standards.

Undeniably, images of escape, enjoyment and relaxation are even more free-form

allowing he customer to make what they will about the image of the brand. (Thompson et

al., 2009, p. C253).

The marketing strategy used by Modelo in the U.S. paid off. By 1997 the Corona beer

was the top imported beer in the U.S., place that still holds in 2011. The Corona Extra beer is

also the top imported beer in 50 of the 170 global markets in which is currently available.

Consequentially, it places Modelo among one of the ten biggest breweries in the world.
Running head: CASE ANALYSIS: CORONA 4

Next Foreign Market for Modelo

Grupo Modelo has been able to use its business associations to enter international

markets other than the U.S. In December 2006, the company announced an agreement with

Anheuser-Busch to import Modelo’s beers into China. Corona Extra can be found almost

everywhere in the world. As of today, there over 130 countries where Modelo’s products are

sold: The U.S. and Canada, 25 countries in Latin America, 80 countries throughout Europe and

Africa, and 30 countries around Asia and Oceania.

Because of the vast worldwide expansion of Modelo’s products, it is difficult to pinpoint

a specific foreign market for Modelo to enter. More likely, Corona is already there. Instead

Modelo should create a stronger presence in the China and India markets. These countries are

experiencing an unprecedented economic growth. These countries’ rapid emerging middle

classes and increase in per-capita income are optimal for a successful beer market enhancement.

Challenges from InBev

Beside the common business challenges that every company faces: innovation, new

competition, economic movements, political stability, etc., Modelo faces additional challenges

presented by its competitors. The company InBev, commanded by Carlos Brito as its chief

executive, purchased the Anheuser-Busch company for $53 billion USD. This move has

transformed Anheuser-Busch InBev as the world’s largest beer maker.

Back in 1994 Anheuser-Busch acquired 17.7 percent of Modelo’s equity. That percentage

increase to a non-controlling 50.2 percent increase by 2008. Modelo’s should create a strategic

plan targeted to prevent a hostile takeover by InBev. Modelo already tried to prevent the
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automatic purchase by InBev of the 50.2 percent owned by Anheuser-Busch, but their legal

maneuvers were unsuccessful.

An arbitration panel ruled that the 2008 merger of InBev NV and Anheuser-Busch Cos.

didn’t violate an agreement over the transfer of the Budweiser maker’s stake in Modelo,

Leuven, Belgium-based AB InBev said in an e-mailed statement today. The panel

awarded no damages or other remedies. [CITATION Fle10 \p 8-12 \l 1033 ].

As a last resort, if Modelo wants to prevent a future takeover, the company should seek to

buy back all, or a portion of InBev’s stakes in the Mexican company.

Should Modelo Diversify its Business?

Current diversifying opportunities for Grupo Modelo are dependent of its executive

leadership’s knowledge of the physical or knowledge linkages between the beer industry and

other industries. Diversification is not an exact science and more often the wrong approach is

chosen. The beer industry is experiencing market saturation, mergers, acquisitions and

consolidation. In this type of market, companies should create strategies that will help them

diversify their financial portfolio. “Diversification has been an essential basis for the growth and

survival of firms in the last half of the twentieth century, due to the vulnerability of the

specialized firms to the fast and unexpected changes in the environment.” [CITATION Pen95 \l 1033

].

Modelo should mimic FEMSA’s strategy and acquire a chain of convenient stores,

targeted to create a vertical supply chain which will enable the company to control the

distribution channels. In addition, it should also seek product differentiation among global

markets, by introducing beers with local tastes. “As firms grow larger, varied consumer tastes

force multinationals to maintain a more diverse portfolio of products. Despite their size, firms
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must remain agile enough to quickly respond to consumer tastes or risk losing ground in key

markets.” [CITATION Har08 \p 22 \l 1033 ].

References

Fletcher, C. (2010, July 12). AB InBev Wins Dispute Over Ownership of Modelo Stake.

Bloomberg BusinessWeek, pp. 8-12.

Harris, H., Hillwig, B., Prakruthi, N., & Bhargava, A. (2008). Envionmental Scan: The Global

Beer Industry. p. 22

Hutter, L. (2005). Profitable Growth and Value Creation in the Beer Industry-A View From

Deloitte and SAP. In L. Hutter, Profitable growth and value creation in the beer

industry‐A view from Deloitte and SAP p. 1.

Penrose, E. (1995, October). The Theory of the Growth of the Firm. Oxford University Press.

SABMiller. (2009, November 24). SABMiller plc Annual Report 2009. Retrieved May 12, 2011,

from www.sabmiller.com:

http://www.sabmiller.com/files/reports/ar2009/operating_review/trends.html

Thompson, A., Strickland, A., & Gamble, J. E. (2009). Crafting & Executing Strategy. The

Quest For Competitive Advantage: Concepts and Cases (2009 ed.). New York, New

York, USA: McGraw Hill Learning Solutions.