The Grupo Modelo Place in the World Market
In previous years, beer’s core segmentation was age group 21-27, this demographic bottomed out in the late 1990’s to early 2000’s, but projections are showing that this core demographic will be the top demographic again by 2010 according to beerprofit. com. Studies have shown the 40% of the adult market are expected to be regular beer consumers by 2011. This paper will discuss Medelo’s international expansion through strategic partnerships, next steps into a foreign market for Modelo, challenges from InBev, Modelo’s direct competitor, and whether Modelo should diversify its business. (HTB, 2008)
Modelo’s International expansion with Strategic Partnerships Grupo Modelo is the biggest brewer in Mexico and is based in Mexico City. Model has built several breweries in states throughout Mexico for logistics, warehousing and transportation strategies. Grupo Model best known product is Corona, while it best selling brand is Corona Light. Within Mexico, their biggest selling brand is Modelo Especial which is a premium pale lager that’s more comparable in quality to Dos XX than its lightweight Corona. Most beers sold in Mexico are standard light bodied lager brews that are similar to U.
S. and Canadian lagers. Especial are sometimes viewed as a “premium” brands, while Pacifico has a certain cachet on the Pacific coast, and Corona and Sol are both super light bodied brands with painted labels and that appeal to a “fun in the sun” kind of marketing mentality. In 1985, Grupo Modelo started exploring other markets, first Canada and Japan, and later on Australia and New Zealand. In 1989, the organization moved into Europe when an office in Brussels was opened, later Russia, Africa and Latin America, the Modelo brands are present in 159 countries.
In 1997, Anheuser-Busch and Grupo Modelo agreed to purchase 37% of the brewer to gain some revenue and capital opportunities for Modelo. Under the agreement, Anheuser-Busch has invested $605 million, bringing its total investment in Mexico’s largest beer company to more than $1 billion. The agreement also allowed for Anheuser-Busch to acquire another 17% at a later date. In 2003, Anheuser-Busch acquired a 17. 7 percent direct and indirect interest in Grupo Modelo and its subsidiary, Diblo, S. A. for $477 million. This gave Anheuser-Busch financial control over the Modelo.
By 1996, the acquisition was complete. “Our taking a larger stake in Modelo is advantageous for both companies,” said Anheuser-Busch Chairman of the Board and President August A. Busch III. “Grupo Modelo is a well-managed company with a great heritage. Mexico is a key market in our overall approach to globalizing our company. There is great potential in the Mexican beer market. Our association with Modelo will help grow that market and enhance our already strong relationship with the Mexican-American community. ” (Chalmers, 2009) Grupo Modelo’s Next Foreign Market and Strategy
In 2005, Grupo Modelo and Anheuser-Busch agreed to import Modelo’s beers into China, the world’s largest beer market, the Mexico City-based Grupo Modelo, who is half-owned by Anheuser-Busch and exclusive importer of Anheuser-Busch’s brands in Mexico, including Budweiser and Bud Light. Grupo Modelo holds 62. 8 percent of the total beer market share in Mexico as of Dec. 31, 2005. The agreement with Anheuser-Busch for China covered Corona Extra as well as other Grupo Modelo brands to be distributed in the future. Apart of the strategy was to expand Corona Extra.
Corona Extra is the No. 1 Mexican beer sold in the world and the most popular imported beer in the U. S. , regardless of origin. “This new partnership ideally complements the international strategy that Modelo has successfully implemented for several decades,” said Carlos Fernandez, chairman and CEO of Grupo Modelo, in a statement. Grupo Modelo exports seven brands with a presence in more than 150 countries. (Chalmers, 2006) The Challenges from InBev InBev, the largest beer company in the world produces over 200 beer brands produced and sold throughout the world.
Its flagship brands are Budweiser, Stella Artois, Brahma, Beck’s and Leffe. InBev has operations in over 30 countries and sales in over 130 countries. In 2006 it had a market capitalization of €30. 6 billion and net profit of €3. 2 billion on sales of €13. 3 billion. InBev was created in 2004 from the merger of the Belgian company Interbrew and the Brazilian company AmBev. Before the merger with Ambev, Interbrew was the third largest brewing company in the world by volume, Anheuser-Busch was the largest, followed by SABMiller in second place.
Heineken International was in fourth place and AmBev was the world’s fifth largest brewer. On June 12, 2008, InBev announced that it has made a US$46 billion offer for the brewing firm Anheuser-Busch. This merger joined two of the world’s four largest brewing companies (based on revenue) and created a company that brews three of the top beers in the world – Bud Light, Budweiser and Skol. InBev also stated that the merger would not result in any U. S. brewery closures and they would also attempt to keep on management and board members from both companies.
On Sunday, July 13, 2008, Anheuser-Busch announced that they had agreed to an acquisition by InBev valued at about US$52 billion in cash, or $70 per share. As a condition, InBev will be renamed AB-InBev and Anheuser-Busch would retain two seats on the board of directors. This created a problem for Modelo because Anheiser-Busch has acquired a 51% stake in 2003. Even though the deal was crafted so that Modelo could buy back its majority interest. After the announcement of the AB InBev merger, Modelo sued it US Constellation partner who is partnered with InBev so the InBev could assume a hostile takeover of the company.
That arbitration is ongoing. (Kesmodel, 2009) Should Grupo Modelo Diversify its Business? While Modelo still ranks as the 4th largest brewer behind AB-Inbev, SABMiller, Heiniken International, it is the only brewer controls 65%+ in its home country. The other bottlers have found fortune in diversifying into foods, Modelo may be best served with an expansion into other products to boost its name and brand. SABMiller is the outsource bottler Coca Cola Africa. Pepsi has expanded into other brands by acquiring Gatorade, Frito-Lay, and Quaker Oats.
Its side brands now account for 55% of of its revenue. Modelo could be better served acquiring established food brands or international food processing plants. AB-InBev has diversified, SABMiller has diversified. Heineken has diversified by isolating its beer brands to different markets Europe, Asia, Americas, Caribbean, and South America. With the top selling single beer product in the world, the company can build some momentum based on that product. Conclusion Grupo Model is poised to take a substantial place in the world market.
It is known the throughout the bottle world for its robust and efficient processes. It has been able to expand into foreign markets while keeping its signature product as the number one selling product in the world. It has been able to merge with the largest beer company in the world and still keep it operational control over its products and withstand competitive challenges from direct competitors seeking to penetrate its principal markets. With the establishment of the number one brand beer, Modelo seems poised to leverage its brand into different markets and diversifications.