Corona Beer – from a Local Mexican Player to a Global Brand Case Analysis

Corona Beer – from a Local Mexican Player to a Global Brand Case Analysis

1. Introduction

Grupo Modelo is one of the largest breweries in the world, the leading brewer in Mexico and producer of the best-selling Mexican beer in the world. Since it foundation in 1922 Grupo Modelo has been family-operated and focused on becoming a leader in the Mexican beer production. Grupo Models occupies more than 40.00 employees and has a revenue of $ 6.9 Billion and a net income of $ 804.6 Million (Grupo Modelo, 2010).

Grupo Modelo has an extensive line of products including Corona Extra, Corona Light, Modelo Especial, Pacifico Clara and Negra Modelo. In 2005, three of its brands were in the top eight brands list of the US.

2. The Global Beer Industry

The most dominant business characteristic of the global beer industry was stated by Heineken's president Michael Foley: "There is no mystery about brewing beer. Everyone can do it… Beer is all marketing. People don't drink beer, they drink marketing." The today's market is ruled by big organizations what makes it extremely competitive. Those large companies have multiple private label brands to meet different needs and tastes worldwide. Especially in the US the competition takes place between four major players: InBev, Anheuser-Busch, SABMiller and Heineken. The top three breweries control almost 80 per cent of the U.S. market, with 45 % for Anheuser-Busch and 23 % for Miller Brew. Nowadays the industry has to face great challenges from local governments who are imposing strict laws and taxes regarding alcoholic beverages. Some of the regulations imposed at the federal and state level involve production, distribution, labeling, advertising, trade and pricing practices, credit, container characteristics, and alcoholic content.

The global financial crisis has also changed the global beer industry's profitability, as exchange rates continue to sway companies are trying to figure out ways to reduce operating expenses to offset the decline in exchange rate. On a global view there is also a need to expand into new markets. Today's markets are almost to the saturation point and the companies will have to face slow growth.

3. Key Success Factors

Manufacturing / Technology related KSF:

• Utilization of brewing capacity and improved production efficiency to keep manufacturing costs low.

Distribution related KSF:

• A strong network of wholesale distributors to gain access to many retail-outlets, which is precondition to reach the consumer.

• Ability to run business in foreign markets

Marketing related KSF:

• Strong marketing and clever advertising: to induce beer drinkers to buy a particular brand.

Other types of KSF's:

• A good understanding of new potential markets

• Forward-thinking people in key positions

• Key people in positions who can be forward thinking

• Consolidation for global success

• Mergers and Acquisitions

• The price of ingredients

4. Five Forces by Porter

Threat of Substitution

High threat, because of multiple choices in liquor, flavored alcoholic drinks. Beer substitutes include liquor, flavored alcoholic drinks, non-alcoholic beer, and beverages in general. Also the large tequila drinking population in Mexico poses a threat.

Threat of New Entrants

Low threat, for large companies like Grupo Modelo. Smaller microbreweries cannot compete with large companies when they enter their niche. Large beer companies have the advantage of economies of scale. Forward integration in the value chain allows large companies to have cost advantages over smaller companies. The beer industry also requires heavy startup capital. This makes the industry unattractive for new entrants.

Bargaining Power of Buyers

Moderate threat because companies must be aware of taste preferences and what people want. There is also price sensitivity in the beer market. Companies are subject to the market demand price, and therefore more restricted as to what they can charge. Buyers also have some power due to the fact that there are low switching costs for them. Companies must keep their customers