Oct 3, 2018 in Case Studies

Discuss and Identify the Trends in the Global Beer Market

Beer is one of the most highly purchased alcoholic beverages, though in recent years, its production started to decline. The purchase capacity of this beverage depends greatly on the culture. Let us take Latin America as an example. This is the region where family bonds are very important, and the spirit of togetherness is cultivated. Beer is consumed at different social functions, which are quite frequent here. Therefore, the production of beer in this region was increased by almost 50% from 1980 to 1990. Big part of this share belongs to Mexico and Brazil.

For a long time, brewing of beer belonged to the local entities, and big international companies were a rare occasion. (Trends in the global beer markets, 2008, p. 14) However, over the past decades, the consolidation began in the Western Europe and North America: 34% of the market belongs to ten major brewers. “In 2008 the number had risen to 56% in the beer market, and introducing the two major acquisitions. Heineken and Carlsberg acquired Newcastle and Scottish and Anheuser-Busch by InBev. After this acquisition, Carlsberg is now the 4th world largest brewer  by hold 5% of market share.

Drivers and Trends

The volume of beer production is the result of the disposable income of the purchasers, beer quality, marketing and advertising. The latest trend is the substitution of other alcoholic beverages with beer. Urbanization and westernization initiated the move towards beer. In some markets, the consumption of beer may be affected by factors, such as season, demographics, health effects, taxes and the use of alternative products.

Discuss how International Expansion of Modelo was made possible through the Strategic Cooperation with Experienced Distributors in the Local Markets

Modelo is the largest brewer in Mexico, and this is the producer of the Corona beer, which is the top selling beer company in Mexico. 37% of the Modelo Group, which equals to $980 million, was purchased by Anheuser-Busch. Since this purchase, three representatives of Anheuser-Busch were elected to the Modelo board, and one representative was elected to the Anheuser-Busch.

Initial Entry

During the first entry into the beer market of USA, Modelo chose the Barton Beers Ltd. as a distributor. Modelo did this, because it was one of the largest beer importers in the 25 Western states, plus it had big experience of sale and advertising and of imported beer. That iss how the marketing motto “fun in the sun” was born (Thompson,Strictland III, & Gamble, 2009, p. C-252) In order to manage the operational part of the house in the USA, Modelo set up the subsidiary company, named Procermex.Inc. Modelo remained the exclusive importer and the distributor of Anheuser-Busch beer in Mexico, while Anheuser-Busch distributed Modelo’s beer in Huston and Los Angeles. Corona and other Modelo brands are still imported to the United States by Gambrinus Company and Barton Beers.

Exports in Other Countries

Mexican beer is exported to 56 countries in Asia, the North and South America, Europe and Africa. The fourth ABI brand that started being distributed by Modelo in Mexico is Ice Draft. Mexico’s beer consumption is the eighth largest in the world, but it still represents only half of the U.S. consumption. Beer consumption rate per capita in Mexico is now estimated as 44 liters, compared to 87 liters in the USA. Exporting the beer from foreign firms has not boost the sales in the US, but it grew, even if there was a drop among the American drinkers.

NAFTA

Breweries are very concerned with the trade barriers. Some of the breweries within NAFTA are Anheuser-Busch in the USA, Molson in Canada and Grupo Modelo in Mexico. NAFTA has been rather beneficial for the beer industry in the North America. The foundation was laid for beer markets in the USA and Canada, and access to the growing Mexican market was still allowed. Though, some attempts made by the US and Canadian brewers enter the Mexican market failed due to large tariff percentage on this beverage. These tariffs are short-lived.

Discuss and Identify the Next Foreign Market that Modelo should Enter, and Discuss the Strategy that should be Used to Enter the Market

When entering a new market, the company should have several assets, smart merchandising policy, vast distribution system and an array of diversified products. Grupo Modelo has been among the top ten companies in Latin America thanks to having a worldwide sales force.  Milson Coors Brewing Company had drafted a letter of agreement to establish a long-term joint venture to import, distribute and market Modelo beer in all of the Canadian provinces and territories.

Grupo Modelo became part of the joint venture with the trading company Cardill, which supplies barley to a plant in the United States. Cooperation with Cargill would help Modelo to become more efficient in the operating practices.

Grupo Modelo needs to expand its portfolio, in order to keep up with the growing taste for the flavored alcoholic beverages and low-calorie drinks. Modelo has been producing light beers and would benefit greatly from producing low calories drinks and alcoholic beverages. Thanks to the policy, Grupo could gain advantage over the companies that do not offer such diversity in production.

Starting the new production, Modelo would have to spend capital for acquiring ingredients, as well as make space for new production and equipment. To get the ball rolling, Grupo has bottle procurements already, as well as the machinery manufacturing, bottle caps, and distribution channels. The good strategy would be to cooperate with different foreign companies which are already strong in the distribution market of low-calorie drinks and flavored alcohol beverages. It would be advantageous to find distributors of their new product line.

Discuss the Issues that Modelo Faces from its Competitor InBev, and how it might Respond to this Industry Giant

“When the ink may be still dry on the $52 billion dollar’s acquisition of the Anheuser-Busch their have main hoops that might have jumped before it’s all over. InBev agreed to let Anheuser-Busch, in order to keep all its breweries open, base the North American headquarters in St. Louis, and make Budweiser the “global flagship” brand” (Spain, 2008, p. 3). InBev is well known for having aggressive cost cutting. In the beginning, InBev and Modelo proclaimed that they would get $1.5 billion dollars in “synergies” during the first three years. This would be 50% more than both companies anticipated.

There were not many opportunities for synergies, since the two companies do not overlap in the U.S. market. InBev was under the impression that they could get some efficiency with the cost of goods sold, but this could present some problems, since the corporate cultures are very different. Competition from SABMiller presents problems for InBev as well. Over the past few months, InBev’s share on the London market decreased by 15 %. On August 14 InBev CEO Carlos Brito reported that he “would like to work with Modelo in the future” (Scott, 2008, p. 2).

Discuss if Modelo should Diversify its Business. If so, what Business Should it Enter and Why?

When making operational decisions, the company must keep in mind the societal changes, and look at the relationship between diversification and firm performance. When the company considers diversification, it should consider two basic issues: whether the industry the company is trying to enter is more attractive than its current business, and if the company is able to have the competitive advantage within the industry it is planning to enter.

There is a trend in recent years for healthier lifestyles; therefore, consumers want lighter and low-calorie beers. The USA has an increased amount of Mexican population, so it is beneficial for Modelo Company. Thanks to improved technologies of brewing, it is possible to organize more efficient distribution channels, and increase the beer production

In order to be competitive at the market, Grupo would have to stay abreast of the technological changes, and be mindful of its social responsibility. Being environmentally conscious also plays a large role in a company’s success. It is important to be careful with the advertising campaigns. The company must follow the laws of both its home country and the countries to which it exports its products.

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