QUESTION 1 1. The global beer industry is an attractive industry where most large brewing companies produce different type and taste of beers to suit different class of people all around the world. Many countries were having or in the midst to negotiate Free Trade Agreement around the world, it makes the cost of import beer cheaper and affordable. In the year 2010 Thailand has abolishes import tariffs on beer, hence it make beer brand like Carlsberg, Budweiser and Tsingtao more cheaper to their rival Chang Beer and Singha Beer. (Brewers fear end to beer import tax – Published 26/05/2009)
Most international brewing companies are facing huge challenges from some countries that are imposing higher tax and stricter rule to deter beer consumption. However on the contradictory side, the beer industry is an extremely huge industry that has an impact on the country, contributing mainly to the economy and the society. In the US region, nearly 1. 7 million people are employing related to beer industry. The beer industry also generates 190 billion US dollars annually into the US economy. (Beer Institute, Beer Tax Fact, 2008) 1. Many brewing companies are started to export their beer brand globally, as they understand that their local market has reach saturated point. Over the year, joint venturing, expanding oversea brewing plant and cooperation with other brewing company have been their strategic movement to extend their market share globally. Heineken have successfully establishing joint venture in various countries include Australia, Germany, Indian and more to introduce their beer. (Lion Nathan and Heineken in joint venture, 18/5/2004) Another key factor of the activeness of the beer industry is the profit margin.
Base one the calculation of one keg of beer will produce a net profit of $340 then how about of 1,000 kegs sold, it will produce $340,000 (Draft Beer Profitability) 1. 3The key success factors for global beer industry is to continue identify new markets and create awareness for beer drinking by associate to popular sports. For Modelo under the management of Carlos Fernandez in the year 1997, it took him 12 years to make Corona Beer to become top five beer companies in the world, selling across 150 countries. Thompson/Strickland/Gamble, Crafting and Executing Strategy, 17th Edition) Heineken has position itself to be probably the best beer in the world by having joint venture among other countries to expand it beer world wide. With the increase publicity on popular sport associate with beer (See exhibit 1 for youtube video on sport associate with beer), the world Cup 2010 had drawn nearly 715 million viewer (Fifa World Cup, Wikipedia) and it host country South Africa has it own traditional of watching football, drinking beer.
Quoted by Istair Hewitt, a manger that own a bar locate at Johannesburg “Beer sale will soar during the month long football and an additional of 100,000 hectoliters, which is about 20 million beers, in a 500 ml glass will be projected. (Darren Talyor, 2010) Further scientific have proven that beer belly is not cause by excessive beer drinking instead of eating too much food. (Alcohol problems and solution, fact and fiction) Socially and in some tacit culture in certain countries, beer drinking has become a social, season and party events beverage.
And with the increase of female consumption of beer, it makes the industry far too tempting to give up. Notwithstanding to some limitation that beer drinking has it negative impact in the society such like alcohol abuse, drink driving and underage drinking, certain countries has been using the revenue generate from brewing companies to create public education and awareness on responsibly and social drinking. (Anti-drink driving) Exhibit 1 – Beer ads associate with Sport | | | | | | | | | |Youtube link |Beer Brand |Country orgin |Sports | |http://www. youtube. com/watch? v=mtd_WxhbPeg |Tiger |Singapore |soccer | |http://www. youtube. om/watch? v=OIhVoLwJBLA |Foster |Australia |various | |http://www. youtube. com/watch? v=Ze8qTaQFwzo |budweiser |US |super bowl | |http://www. youtube. com/watch? v=IschlOH4EB0 |Singha Beer |Thailand |soccer | |http://www. youtube. com/watch? v=d-u7UTYDp14 |keystone light |Canada |pool | |www. outube. com/watch? v=ZaKN3_D0l3Q |Tsing Tao |China |Wrestling | Question 2 2. 1While most of the establish brewing companies are seeking to become the best selling beer globally, however non of any brewing company nor beer brand has reach the status on top best selling beer globally. (see exhibit 2 Strategic map for beer industry) Bud Light from US has it best selling of beer since 2001, however it market share are only restricted to US, Canada, Ireland, Mexico, Colombia and Sweden.
Where Heineken and Corona have it wider market share but beer sale are much lesser compare to Bud Light. ( Roger Wade, 2008) While recent Rabobank report claim that Asia Pacific region are only accounted for over half of the growth in beer consumption since 2003 and show strong grow in Eastern Europe, Latin America and Africa. (Rabobank maps growth in global beer industry) It gives a moral booster to international brewing companies to expand it presence in other market and region. 2. Grupo Modelo has positioned very well in the industry.
Their Corona extra beer is the number one selling import beer in Canada and US. Corona is the fifth most selling beer in the world and is the number one best selling local beer in Mexico. Through the leadership of Mr Carlo Fernadez, Group Modelo has increased it Net sale from 40,421,000 in year 2000 to 81,862,000 in year 2010. It profit after tax has rose from 6,314,000 in year 2000 to 14,193,000 in year 2010. Both sale and profit after tax has an increase of 100% throughout a decade ( Group Modelo, annual reports 2009) Moving forward Modelo will continue expand it Corona Extra Beer presence outside Mexico market.
They have signed an agreement with Carlsberg Breweries to market Corona extra in Russian and another eight neighborhood countries which formerly under the Soviet Union. In Asia, the new distribution center will began operation in Shanghai, china to faster and efficiently deliver of it Corona Extra beer. (Grupo Model annual report 2009 report from CEO) Grupo Modelo is positioned to be a world leader in the global beer industry. 3. Grupo Medelo was established and run by the Fernandez family in year 1922.
Since it introduce Corona Beer in the year 1925, it clear and unique bottle represent transparency has roots it mind of the Mexicans as the strong and best beer brew in Mexico. Grupo Medlo currently has a 58% beer market share and the rest belong to FEMSA. FEMSA in other hand is the biggest beverage company in Mexico. The growth of FEMSA is mainly through partnership and joint venture with other companies. It main revenue generate from Coca-Cola, as it owns 53. 7% of the world’s second largest bottler of coca cola.
FEMSA recently announced it will sell it beer operation to Heineken international in return to be the largest shareholder in Heineken. (FEMSA) With the recent sale transaction from FEMSA to Heineken, Grupo Medelo will be the biggest Mexican Brewing company in Mexico. Grupo Medlo favorably position will be their strategic in marketing their own brand Corona Extra and strong bond in their management. Their International Business Model has been proven to be successful as they have managed to export Corona Beer in 150 or more countries. [pic] 4.
With Heineken acquire over FEMSA beer production, there are likely that Heineken will use FEMSA OXXO network to establish Heineken Beer within the Mexico region. Grupo Modelo will continue to strike it best to retain it number one position and 58% market share in Mexico. Grupo Modelo will focus more on being the best suppliers in the beer industry and will plan, develop and initial opportunities toward their distributor channel which include pop stores, liquor store and bars. Grupo Modelo will be running campaigns to capture Corona Extra as a symbol of Mexican pride all over the world. Grupo Modelo, annual report, 2009) Looking at the foreign market segment, Grupo Modelo will still be well position in countries outside Mexico due to it establish international business model in the past over to Heineken. Question 3 1. Grupo Modelo’s strengths can be classified into two areas, tangible and intangible. 3. 1. 1Tangible strength Grupo Modelo has a strong financial position, standing at 117,362,229 net assets ( Grupo Modelo, Annual report, 2009) it gives Modelo the ability to enter any markets which it deem as suitable.
With the recent hike in malted barley (the main ingredient in brewing beer) it makes small breweries financially difficult to expand. (Alex Johnson, 2008) It excellent distribution channel are another key strength Grupo Modelo encompass. Modelo gave full autonomy to it distributor and yet support them by involving in their decision making process related to promoting Modelo products. (Thompson/Strickland/Gamble, Crafting and Executing Strategy, 17th edition) It has resulted to a win-win situation that Modelo Products could expand world wide and in the same time distributor will have their fair share. . Intangible strength Modelo had spent million dollars in marketing campaign and advertisement on it Corona beer. Over the year it has successfully imparted the ideal of “Fun in the sun” & “Miles away from ordinary” to the US market and therefore open it doors to the world. Outside Mexico, Corona Beer is often served with a wedge of lime that inserted into the neck of the bottle, and the lime will fully submerge before drinking. The lime has get ride the bitterness of beer and it is well accepted by non beer drinker and female drinker therefore open up a new range of customers.
Modelo main weakness will be on the breweries production. Currently all their beers are produce and pack in their 7 plant in Mexico. It will take months to export out to other countries and with Corona extra shelf life of 9 months, it will gave a short period of time for oversea distributor to sell the corona beer to consumer. Further Corona extra beer is price at a high side certain countries due to excise tax (See exhibit 3). This has make Corona beer a less favorable position for those average earners. |Exhibit 3 | | | |AUD 1 to SGD 1. 94 | | | | | | | |Brand |Country Origin |Volumn capacity |Alcohol contain |Price | |Heineken |Holland |330 ml |5% | SGD 3. 60 | |Tsing Tao |China |330 ml |5% | SGD 3. 00 | |Tiger |Singapore |330 ml |5% | SGD 3. 0 | |Carlsberg |Denmark |330 ml |5% | SGD 3. 30 | |Corona extra |Mexico |355 ml |4. 60% | SGD 3. 65 | |Stella Artois |Belgium |330 ml |5% | SGD 3. 20 | |VB |Australia |375 ml |4. 60% | SGD 3. 44 | |Chang Beer |Thailand |330 ml |5% | SGD 2. 0 | |Anchor |US |323 ml |4. 90% | SGD 1. 90 | |San Miguel |Phillippines |330 ml |5. 00% | SGD 2. 70 | |Saigon Beer |Vietnam |355ml |4. 90% | SGD 2. 10 | |Source quoted from Carrefour Singapore | | | | | | | | | 3. 2The main competencies of Grupo Modelo are their management.
The management of Grupo Modelo led by Carlos Fernandez has been maintaining the family culture to be a transparent company. All the breweries information either financial or non financial could be extract out from the company website or on the Annual report. Mr Carlos has make a strong bonding toward his staff, supplier, customers and distributor therefore Modelo product Corona could be expand rapidly and become 5th top selling beer in the world. Their capabilities in marketing and branding has make Corona beer outshine Heineken and become number 1 best selling export beer in the US and Canada region.
Beside Corona Beer Modelo have it own and some import brand of beer that cater to different level and class of consumer. (Brands that Modelo carry) 3. 3Abilities to expand oversea are one of the main opportunities Grupo Modelo have. Considering the success of launching and become number 1 export beer brand for Corona in the US and Canada, Grupo Modelo could use the same strategic to apply in Eastern Europe, Russian and the Asia Pacific region. Social and cultural changes such like the World Cup and Christmas season will see Modelo product increase in sale as all this events have been associate with beer.
Modelo need to capture the consumer by launching campaign and advertisement for watching football, drink Corona or at the Christmas party drink Corona. 3. 4The threat that Grupo Modelo under go will be compete with rival like Heineken and Budwiser to capture the market to become number one best selling beer in the world. Especially Heineken, since it has acquire FEMSA on the beer production in Mexico, Modelo have to stay vigilant and focus on any strategic that could counter Heineken.
Changes in Government regulation and excise tax are another key threat that might affect the competitiveness of Modelo product in certain country. It might further reduce the sale and decrease the revenue for Modelo. Increase in health conscience, religion issue and beer related crime might be another soft area that Modelo have to stay focus on. Any huge change might impact the import of Modelo products into some countries. A similar global recession like 2008 – 2009 will also heavily impact the sale and profit of Modelo products. 3. Considering the above and the SWOT Analysis (see exhibit 4) I conclude that Grupo Modelo should growth. Grupo Modelo has strong distributing channels and brands that people from Mexico, US and Canada have strong impression with. It should rely on these attributes to continue expand it presence in more countries and in the same time introduce more Modelo products other then Corona to oversea markets. My conclusions are exclude limitations that assuming the management team remain the same and there is no major health issue that has a negative impact to beer industry. Exhibit 4 Swot analysis on Grupo Modelo | | | |Internal |Strength |Weakness |Appraisal | | |Strong management teams |All prodcution done in Mexico |YES | | |Strong marketing & promotion campaign |Higher price for Corona in some other countries | | | |Reputable brand – corona extra |Lack of more product export to oversee | | | |Strong distributor network & channel | | | | |Financial strong and stable | | | | | | | | | | | | | |External |Opportunities |Treats |NO | | |Potential new markets – Russian, ASEAN |Recession | | | |Social change – Football vs Beer |Rival growing and expanding | | |New range of customers – Non drinking & Female |Social and environment issue | | | |abilities to set up joint venture & acquisition |substitute product – wine | | | | | | | | | | | | | | |Final Recommendation |Growth | Question 4 1. In my opinion the beer industry competition should be categorized as global. Considering there is more then 20,000 different beer brand brew in 180 style in the world, and there are no single brand available in one country. Furthermore the ingredients that use to brew beer are mainly water, barely and hop. The alcohols contain for beer various from 4. 5% to 5%, less then 4. 5% will make the beer taste bland and more then 5% will become overpowering and spoils it taste.
Nevertheless same brand of beer maybe price differently in different countries, that was mainly due to excise tax however the taste, ingredient and alcohol contain remain the same no matter where the particulars brand of beer brew in which location. 4,2The type of international strategy Grupo Modelo is using are maintain national production base and export to oversea distributors, EXPORT strategy. (Thompson/Strickland/Gamble, Crafting and Executing Strategy, 17th edition) Grupo Modelo brews and packs their beer in their 7 breweries in Mexcico. By doing that Modelo could proper control and monitor their inventories and production and meet immediate need. 4. There are a huge different in international strategy compare from Grupo Modelo to FEMSA and Heineken (See exhibit 5). Till date Grupo Modelo still produce it beer in their 7 breweries in Mexico, for FEMSA, they international strategy are strategic alliance and joint venture. FEMSA owns 53. 7% of the world second largest bottler of Coca-Cola, FEMSA also owned 68% of a South America brewery found in Brazil. Then lastly was the selling of their beer operation to Heineken in exchange for Heineken share. For Heineken their strategies are acquisition of oversea rival breweries and later close some of them now. By far Heineken own 119 breweries in more then 65 countries. Exhibit 5 : Different international strategic | | |Company |International Strategic |Advantages |Disadvantage | |Grupo Modelo |Own Breweries – export out |Better control, rectified error |Longer delivery time due to Mexico | | | |immediately |operation | |FEMSA |Strategic alliance & joint venture |Cooperation with others, share |Limitation in control | | | |expertise | | |Heineken |Acquisition |Taken down rival – bigger market |More fund required to acquire firm. | | |shares | | 4. 4The strength of Grupo Modelo’s strategy compare to it main rivals namely FEMSA and Heinekenare better control on it production. Grupo Modelo could control and monitor it production depend on the need of it order. Immediate production for sudden order could be done easily as the production is in the own town. Further by using export strategies the capital involvement is pretty minimal compare to joint venture and acquisition. The weaknesses of export strategy use by Grupo Modelo are delivery might be late due to production at Mexico.
The volatile currency for Mexican peso is another weakness that Grupo Modelo might face as it needs to export the finish product out from Mexico. The exposure of loss of currency is potential due to instabilities in Mexican peso. Where compare to FEMSA and Heineken strategic both have oversea breweries either under alliance or owns, these will minimize the exposure of exchange rate. Question 5 5. 1The top management of Grupo Modelo should concern on the consolidation of rival company to form bigger establishment, such like Heineken transfer it stake to FEMSA in exchange their beer operation. Another problems management should consider are the setting up breweries in oversea countries to cater for faster delivery.
To export more Modelo products other then Corona to more oversea countries should also be problems to Modelo. As if Corona extra has received some negative news or certain regulation has bar Corona for importing therefore Corona placing of 5th best seller beer will be vanish. Last but not least advertisement slogan on fun in sun and ideal of escape might not work in South East Asian as the Asian are typically workaholic and seldom have time to go beach for relaxation. Grupo Modelo should learn the culture of Asian and present a new slogan, example: “work no play make Joe a dull boy”. The issue Grupo Modelo should take note is the prices Heineken might drop.
As since Heineken and FEMSA have joint forces, they will enjoy economic of scale where much cost will be reduce therefore they might drop their beer price and start a price war. Since Mexico have the most FTA in the world, Heineken might use the advantage of FTA to export their beer to Mexico FTA countries to climb the ladder to be top best seller beer in the world. 5. 2In my opinion on the top priorities Grupo Modelo need to handle is Heineken in Mexico. Heineken itself is a establish brewing company and on the transaction to FEMSA, there are no cash involve instead share are transfer to FEMSA therefore Heineken is cash rich now and they might be planning to explore possibilities to take over Grupo Modelo number one beer sale position in Mexico.
The low priorities will be work on some new slogan for different market especially Asia country. As Corona Extra has been selling to 150 countries, there is no rush no change the advertisement slogan. To have more Modelo products export oversea could treat as low priorities as more time for proper planning and marketing is required. 3. The merger between Anheuser-Bush and InBev had taken place in on July 13, 2008 and the whole merger was completed on Mar 13, 2009. (InBev) Grupo Modelo should be concern as the competitor and industry player. This merger has create the largest global brewing company with nearly 25% of global market share of Beer are under them. Anhenser Busch Inbev) Grupo Modelo as one of the establish brewing company surely need to relook their strategic as currently Bud light and Budwiser, both beer brand carry under Ahenser Busch Inbew are the world top 2 best seller beer in the world. With the merger their status of Number 1 & 2 world best selling beer would be intact as they have more resource and facilities to maintain the status. As Grupo Modelo has some stake in Anheuse-Busch, this acquisition from Inbev will force Grupo Modelo to sell it stake in Anheuse-Busch, however in return Grupo Modelo will received a sum of fund from the sale. Grupo Modelo could make use this fund to establish more distributor centre or acquire some small breweries to have additional presence in the world. Words count : 2,472 References 1. http://www. bangkokpost. om/business/economics/144372/ Brewers fear end to beer import tax Published: 26/05/2009 (Assessed on 22 July 2010) 2. Beer Institute, Beer Tax Facts, 2008, The economic and societal impacts of state and federal taxed on beer. 3. http://www. ferret. com. au/n/Lion-Nathan-and-Heineken-in-joint-venture-n719623 Lion Nathan and Heineken in joint venture, 18. 05/2004 (Assessed on 22 July 2010) 4. http://www. micromatic. com/draft-keg-beer-edu/draft-beer-profitability-aid-129. html Draft Beer Profitability (Assessed on 22 July 2010) 5. Thompson / Steickland / Gamble, Crafting and Executing Strategy, 17th Edition, Case 13, page C-249 A local Leader going Abroad paragraph 2. 6. http://www2. potsdam. du/hansondj/AlcoholFactsAndFiction. html Alcohol problems and solutions, fact and figure (Assessed on 22 July 2010) 7. http://en. wikipedia. org/wiki/FIFA_World_Cup Fifa World Cup, from Wikipedia (Assessed on 22 July 2010) 8. http://www1. voanews. com/english/news/sports/World-cup-taylor-part-five-92115069. html, by Darren Talyor, 26/04/2010, Watching Football, Drinking Beer – A South African Tradition. South Africa’s main brewer gears up to supply beer to many thousands of World Cup football fans 9. http://www. transport. qld. gov. au/Home/Safety/Road/Campaigns/Anti_drink_driving_campaign Anti-drink driving (Assessed on 22 July 2010) 10. http://www. bootsnall. om/articles/08-08/best-selling-beers-around-the-world. html Best Selling Beers Around the World, By Roger Wade , August 19th, 2008 (Assessed on 22 July 2010) 11. http://www. rabobank. com/content/news/news_archive/027-Rabobankmapsgrowthinglobalbeerindustry. jsp ,Rabobank maps growth in global beer industry, 28/05/2010 (Assessed on 22 July 2010) 12. Group Modelo annual report 2009 page 36 & 37 13. Group Modelo annual report 2009, report from CEO page 4. 14. http://en. wikipedia. org/wiki/FEMSA FEMSA (Assess on 22 July 2010) 15. Group Modelo annual report 2009, report from CEO page 3. 16. Group Modelo annual report 2009, Consolidated Balance sheet page 48. 17. http://www. msnbc. msn. om/id/22808209/ by Alex Johnson 01/24/2008 Rising beer prices could leave you tapped out, Small brewers line up to pay premium prices for scarce ingredients 18. Thompson / Steickland / Gamble, Crafting and Executing Strategy, 17th Edition, Case 13, page C-252 Grupo Modelo Expanding aboard paragraph 1. 19. http://www. gmodelo. com. mx/index-2_en. asp (Assessed on 23 July 2010) 20. Thompson / Steickland / Gamble, Crafting and Executing Strategy, 17th Edition. Page 215 Strategy option for entering and competing in foreign markets. 21. http://en. wikipedia. org/wiki/InBev In Bev (Assessed on 23 July 2010) 22. http://en. wikipedia. org/wiki/Anheuser–Busch_InBev Anhenser Busch Inbev (Assessed on 23 July 2010) ———————– Carlsberg Asahi VB Tao Tsing Blue Labatt Light Bud Corona