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    Grupo Modelo S.A. De C.V. Was Mexico's largest beer producer and distributor. The company surpassed Heineken for bragging rights as the number one selling import in the u.s. How did Modelo build up its domestic power?

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    Grupo Modelo S.A. De C.V. Was Mexico's largest beer producer and distributor. The company surpassed Heineken for bragging rights as the number one selling import in the u.s. How did Modelo build up its domestic power?

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    2K visualizzazioni10 pagine

    Corona Beer

    Caricato da

    Froggy Sky
    Grupo Modelo S.A. De C.V. Was Mexico's largest beer producer and distributor. The company surpassed Heineken for bragging rights as the number one selling import in the u.s. How did Modelo build up its domestic power?

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    Brand Ashok Som ESSEC Business School 8 atypical Friday afternoon in 2007, and Carlos Fernandez, chairman of Grupo Modelo'’s board since 1997, was making an unexpected stop at one of his company’s brewing facilities in Zacatecas, Mexico, where the plant was going through major renovations to increase capacity. Grupo Modelo S.A. de C.V, (Modelo) was Mexico's largest beer producer and distributor. It was expanding produc tion capabilities across the board. Among the com- pany’s many brands was Corona Extra, which had been the worlds fourth bestselling beer in terms of volume (see Exhibit 1 for world ranking). With an investment of more than $300 million to renovate its facilities, Modelo aimed to increase produc- tion to face growing international demand. Carlos Fernandez. clatified his ambition soon after his appointment as CEO in 1997: (1 want] Modeto to leapfiog the competition and Catapult itself into the ranks of the world’s top five brewers. And they did that when Grupo Modelo surpassed Heineken for bragging rights as the number one sell- ing import in the United States in 1997. Yet com- petitors did not let that happen without reacting, and Grupo Modelo soon faced tough times both in its domestic market and abroad. How did Modelo build up its domestic power? How did it consider the attack on the US. market? Could the company sustain its success trend against competition? Those were some of the questions ana- Iysts asked atthe time. opis © 2008 by ESSEC Busnes Scho! and Asbok Som. A right reserved cass CASE Corona Beer: From a Local Mexican Player to a Global Exhibit 1 World's Top 10 Beer Brands, 2005 and 2006 (Millions of barrels—shipments) Be oa Eee 1. Bud Light| 993° 411 30% 2. Budweiser 346 93728. 3. Sho! 279 286d 4, Snow 35° 259 19 5. Corona 245 256 19 6. Brahma Chopp 206 216 16 7. Heineken 200 214 16 8. Mller Lite 2 213 9. Coors Light 5 168 12 10. Asahi Super Dry 15.0 148 44 Totaltop 102289 47.6 © 18.2% ‘Seureo- Grupo Modelo annual report, 2007 THE GRUPO MODELO STORY: BUILT TO BE A LOCAL LEADER Cerveceria Modelo S.A. was formed on March & 1922, and officially opened its first brewery three years later, with a strategic aim to focus on Mexiea City and the surrounding areas. Modelo was the fit brand to be produced by the group, followed a mont later by Corona. ‘oyamburt pe operational produci nse to Dez oversaw ( onbiltes the most mode The 1930s surviving the the company’s Diez bought ( comer of the © ffom Banco T bs remained Femandez fam In 1935, 0 the company, ( anvassetsofth x, Vitoria th beer, would sp) tute the popul 1940s proved company, wit popularity. Wi focusing on WWII efforts, cally and impe tion facilities v ‘As Mex infrastructure The key elem cally during tt Aistibution: d Modo’ « sitet dist a share of vas special beer from ness gave by thecone by a person supervisor area toate In 1971, CEO of Mod niece. Under Mexican Stoc Headed in the early days by Pablo Diez Fermandez, Braulio Iriarte, and Martin Oyarne bur, the company was soon controlled by py and Oyamburu after Iriarte died in’ 1932. Undex the operational direction of Diez, Cervecia Modelo sarted producing Corona in clear quarter bottles 19 ‘esporse 10 consumers’ preference for cleat glasses Diez oversaw the expansion of the group’ brewing capabilites that would tur it into Mexico’ angers and most modern producer The 1930s were trying years for Modelo, Aver surviving the prohibition policy and the death of the company’s president during the early 1930s Diez bought Oyamburu’s shares and became cole owner of the company in 1936, with financial fe fiom Banco Nacional de Mexico, The. company ocal »bal Brana, tas remained under the majority ewnershp oe ae 2 Fernandez family ever since. C In 1935, once financial stability was restored to the company "eria Modelo bought the brands and assets ofthe Toluca y México Brewery. From then an, Victoria, the country’s oldest established brand of teer, would spearhead the company’s fight to domi, tute the popular market. With these acquisitions, the {940s proved to be a period of strong growth for the fompany, with reketing as did its centrate domest- Gilly and improve distribution methods and prod, tio facilites within Mexico ‘As Mexico became industrialized, the country’s Tefastructure allowed for large seale distributer Ihe key element behind the rapid growth domean Gagiting the post-WWII era was a new way of (isnbution: direct with profit sharing Modelo’ sales were revolutionized by the idea of septlistbuton with the executive in charge geting Aashare of profits. A key element ofthis second aaa dear Pextlzed concessions. In other words spliting fom groceries and making it an exclusive bust prneN® HSE to dicet distributors sometimes nag Pitz concessionsre orbs successors or soca bya person sent from head office, a traveling agent, sor, or manager who would be moved from ea to area J" 1971, Antonino Fernandez was appointed of Modelo. He was the husband ct Pablo's Under his control, Corona was listed the feo Stock exchange in 1994. At that time, Case 13 Corona Beer: From a Loca I Mescan Player toa Global Grand caw Safeiser Busch sequived 17.7 percent ofthe equity ant hadan option o increase its ownership t9 $0.2 99, ent overtime, The 50.2 percent presented only 43.9 Percent of voting rights inorder to preserve the mney Ship ofthe Diez family over Grupo Modelo $4 ALOCAL LEADER GOING ABROAD Modelo’ fist entry into the US. beer market came p79 with Corona distributed by Amalgansared Distillery Products Inc. (later renamed Barton Beers Lid). Due to its nonrefundable policy, its elec and unique bottle, and different marketing, Conan quickly distinguished itself from the competition and gained popularity in southern states, Corona’ TORS “eXPerienced rapid growth throughout the 1960s and by 1988 it had become the second maa Popular imported beer in the United States, It wasn ntl late 1991, with the doubling of federal eneive {ax on beer, that Corona’s rise to the top of Amen (a dermPort beer market was slowed considerably Can gtise Of the company. At the young age of 29, (Carlos encompassed all the attributes edad to kg the ComPany into the new millennium. Not only hed the young man dedicated himself to the family buat ar the ae he was 13, when he fitst started working atthe company, but he carried with him a vision of an international business model—one that had the GamPeny expand internationally in order to capital He on the newly introduced North American Free ‘Trade Agreement (NAFTA) and streamline the coe pany’s focus. In just 12 years 5 Carlos accomplished one of his wade eG chaitman when his grandfather stepped Lage In 2007, Grupo Modelo was exporting fe Kinds of beer to the United States: Corona Extra, c-250 Exhibit 2. Total Imported Beers in the United States, 2006-2007 (thousands of cases) Ea 2006 Baa 1. Corona Extra 116,155 115,060 2. Heineken 68,790 68,100 2, Modelo 19,605 22,404 4, Tecate 17,480 19,050 5. Guinness 12,725 13,360 6. Corona Light 11,085 12,207 7. Labatt Blue 12500 12,000 8, Heineken Light 7,520 975 ©. Stella Artois 6.175 3,335 10. Amstel Light __8,900 8,198 Total top 10 20,905 288,479 ‘Source: Grupe Medlo's annual eport, 2007, Corona Light, Modelo Especial, Pacifico Clara, and Negra Modelo, These exports represented 131 mil- lion cases in 2005 and three Grupo Modelo brands ranked among eight firsts in the United States (see Exhibit 2 for detailed rankings). THE BEER MARKET, A PROGRESSIVE CONSOLIDATION Modern beer was first brewed in Europe in the 14th century. The industry developed differently in every country in order to address local tastes and specific recipes. This resulted in a clustered industry with ‘many local breweries. The lack of a transportation network made exportation impossible for centuries and brewing remained a local and then a national domain for a long time. The first steps of national consolidation were carried out in the 19th century in the United Kingdom and the United States to achieve economies of scale. In other, smaller coun- tries, with several mid-size players the consolidation process was lighter and local breweries survived and became specialists. One determining factor behind the type of domestic beer was the national taste of the particular country. Some countries have distinct Part 2. Casas in Crafting and Executing Strategy coe cultaral tastes, where Beer isnot the alg of preference. In counties suchas lay i Je outperforms beet for consump whereas in counties like Germany an i reverse is true. Whereas Italy and Franc national beer brands, Germany and Ieee numerous medium brewing companies respected domestically and inernaonlye Tn the 1990s, anew phenomenoe whereby national leaders bezin expanding ea For example, the Belgian compan sales to 110 countries, leaving local manages trolling the local brands while enjoying te ence to develop sales of its flagship brand Artois. This trend also might be due to the fast initial startup costs of a brewery have always resources. That structure of the industry sopport concentration i Other companies followed the same strategy ad the consolidation process led to a small numberof 4 global players. On March 3, 2004, the world third 5 largest brewery company, Belgium-based Intebrew and the world’s fifth largest brewery, Brazibbagd . ‘AmBey, announced plans to merge their operations, In a deal valued at $12.8 billion, the merger cre ated the world’s largest brewing company in tems of volume. In 2007, the panorama of the brewing industry was clear, showing the top players as Inbey, Anheuser-Bush, SABMiller, and Heineken ranking as the market leaders. See Exhibit 3 for the top sit global producers as of 2005 100-1249 75-999 50-749 mn < 49.8 [Ne gata Seuce it Jupioad ib Chinese beer cons remained in the cou fegional craft brewi find profitability si amies of scale We rargins. The fact t 15 percent of the emphasized the vo Mexico, the 8 try, was one of the This is impressiv birthplace and stil market in the Wo proportion of its beer and another considering the ¥ ico has a large of tastes, from 1 KEY WORLD MARKETS The United States had the largest beer market in the world until China surpassed it in 2003. Yet the consumption per capita remained almost six times higher in the United States than it was in China at the time (see Exhibit 4 for global beer consump tion). The growth expectations were significantly reduced in the United States, but performance Wa not consistent across the clusters ‘The top three breweries controlled almost 80 pe cent ofthe US. market, with 45 percent for Anheuset Busch, 23 percent for Miller Brew and 10 perce for Adolph Coors. That being said, 300 breweries cas Pat2 Cases US, market, To sum it up, the two Mexican players decided to attack the US. market but could not do it alone considering entrance barriers, FEMSA's CEO presented it this way in 2006: Tt was an exceptional year for exports, We continued to atiract new consumers, and our volume growth exceeded expectations, up to 15.3 percent. Through our distribution agreement with Heineken USA, we significantly expanded our brands’ availability and developed our brands' value across our U.S, market territories. GRUPO MODELO EXPANDING ABROAD Corena and the Early Successes Since its entrance into the American beer market Corona had built a marketing campaign around the idea of “fun inthe sun.” A myth surrounding the beer was that it was discovered by Californian surfers while traveling the Mexican Pacific coast looking for the next big wave. Amid mixed reviews among beer enthusiasts, Corona’s ascent to stardom could be attributed to its brilliant and unique marketing campaign which was a direct result of the interna- tional strategy undertaken by Grupo Modelo when it expanded into the United States. While continuing to produce the beer domestically, Modelo entered into distribution contracts with companies that had local knowledge ofthe market and gave them autonomy to market the product fittingly, yet maintained an active involvement in the decision making. The result was the rise of Corona from a beer sold primarily in the states bordering Mexico, tothe number one imported beer in America. An analyst underlined: In recognition of the outstanding performance of ‘Corona, Modelo Especial, and Negra Modelo in the US. import segment, they have been included in the Impact Magazine “Wot Brands” list. This happened 10 times in the last 11 years International Expansion through Competitive Distribution Channels When Corona first entered the American beer mar- ket, it chose Chicago-based Barton Beers Lid. as its distributor, According to Modelo executives, the fring and Executing Strategy a's ingenio: » out of Moc of giving au choice to align itself with Barton Beets wat agg | fone because it was the largest beer imporee al 25 westem sates and was experienced in th a keting and sales of imported pretest SN through Barton thatthe marketing image gf niely saw Coro the sun” was bom In 1986, fo continue fy aa ot tas an rn within the United States and to supply the egy seine. campaign states, Modelo decided to select a second digg gait nt FORUS oF tor, Gambrinus Ine, which was headed by fom. pertnkers Which Modelo executive, Each company was espomiyg. Band 45. Campaign forits own 25 states and, according to Valentin Dg, tha bistorically Modelo’ vce chairman and chet sales officer” x ataetive: wore! Proved bees i Prooas ditingist for brewing a .. Corona did = fp develop an imag peryone, yet posit owsary due 10 | Fgh price paid fe fen? campaigns i ievof leaving beh tlxing. Wherces tu ifferent for e and surveys consist brewing standards eqjyment and rl Blowing the custo the image of the br rom. the accented this imag ofen humorous sévertisements inthe form of re ments never had file to ne humat enjoying their tt never shown, Th center of the sex the sounds ofthe The most from ordinary” There was a healthy competition that existed betwee, the two of them, even if they didn’t cover the same geographic Modelo’s agreement with its distributors was hat each importer would be responsible for essentially all activities involving the sale of the beer, excep is production, which took place in Modelo factories in ‘Mexico. Everything—including transportation ofthe beer, insurance, custom clearance, pricing strategy, and ‘creativity of the advertising campaigns—ws the importers’ responsibility. Although the impor- ers were essentially autonomous to make these decisions, Modelo always took an active role in the decision making and maintained the final say on any- thing involving the brand image of its beers, In order to oversee all operations in the United States, Modelo set up Procermex Inc., a subsidiary whose purpose was to coordinate, support, and supervise the two distributors. The strength of the relationship between the importers and Modelo was very strong, as evi denced with the tax increase in 1991, After talks with Modelo, Grambrinus, followed shortly by Barton Beers, decided to absorb the increase instead of pass ing it on to customers (while all other imported beers did) after being reassured by the Mexican producer that they would be subsidized. Marketing, the Other Key Leading to Success Ironically, the key to Modelo's success had been fore- seen by the main casualty ofthat suecess story when Michael Foley, Heineken’s president, said in 1993: conjure ideas of lis, In one adve relaxing by the b to protect his C above the bottle in. By focusing Towing the tren ‘There's no mystery about brewing beer. Everyon® ccan do it... Beer is all marketing. People don’t drink beer, they drink marketing found a Corona ton Beers was an ensy Corona’s ingenious marketing philosophy, which er in the was bom out oF Modelo’s international expansion Ebeeinrs strategy of giving autonomous control to experi- enced, local distributors, focused on “fun inthe now and quickly saw Corona in an ever-increasing num: ber of bars and restaurants in the United States. The rienced in the mar. drei beers. 1 as sting image of “fun in © continue its growth to supply the eastern marketing campaign's distinguishing feature, wes eta vwcond donb. | daritdenot ea dings inrget market fe ‘I by a former beer drinkers, which were males between the ages of oe responsible 25 and 45. Campaigns geared toward this target moe ket had historically been testosterone driven eevee on attractive women and party scenes, Preieet imported beers differed slightly as they fosescl vader caar eee | thebeers distinguished quality; wall ore oe ¥ di’ cover te sume] iperir brewing and ch herhews Corona did away with this status quo. It neededt ibutorswasttat } to develop an image of a best het weal nee oft bes ects | SY de tothe mp ae an rae in Modelo factors in| higher price paid for the beer. With te shat transportation ofthe | sm" campaigns, it sold the idea of ereape a oe sce, pricing stategy fee of leavig behind Sry Tere ha sing capelgne om. -Bolatiag. Whesces seas quality are subjective ‘Alfhough the impore | and diferent fr eae consumer, general guidelines us to make thee | andsurveys consistent and acutely sheg sen mactve rote inte | brewing standads Usernt images of escape, ‘ihe inal ay onan | eoyment and relaxation are ven more hee hos ding to Valentin Diez, bief sales officer: seoftstbees, Inout] allowing the customers to make whariey eg United States, Modelo} the image ofthe brand . iiary whose purpose From the beginning, Corona’s advertising ii supervise the two] secented this image asi focused on minis wo relationship between [often humorous, scones escape. Common to all S very strong, a5 ev Pe advenisements wos the tose scenes of escape come “aot-atersatiswih | inte form ot eteing on de tee advertise 2d shorty by Barn Jews never had alot of action Gn fae ne crease instead ofa | ite no human action and ifthe ner eeat lotherimporedbees | stying their tine atthe ech, ti mere the Mexican prodvet’ J Rr shown. The Corona boitle was always in he Gkter ofthe screen, with no soundtrack other then the sounds ofthe sea and surrounding nature, . The most recent advertis ing slogan (“Miles away Key teading ‘om ordinary”) associated with Corona continues to Sonjure ideas of femoving oneself from daily activi Thone advertisement, the scene shows a person. success had been fF elxing by the beach on «slightly rainy day. In order sat sons ore Pott is Conn, he pce ne tet siden, sai in 1995: he bottles neck so as not to allow water drip beer, Everett [1.8 focusing on this image of eseape, and noe fe, ha Peopte don Yait [bing the ten op testosterone-driven campaigns, ope do cting. Peopl f St found a folowing like no othe beer before ase 13. Corona Boor From a Local Meson Player to» Gch Brand popilaton to drink beet, specifically females, Eas to please the new market for beer drinkers, brs on {esaurants decided to sell the bee, increasing i gotmumer reach. And because of its availabilty @ became a dependable second choice for beer dick: ers who were frustrated with not having thelr ons ite beer soldat the current establishment, A good advertisement is not enough without {he budgets to broadcast it widely. In 1996, Modeia Sent $5.1 millon in the United States, compares With $600,000 in 1985, Yet the same year Herveker ShsMt SISA million and Anheuser-Busch, spent $192 million. It must be précised that in the cate ot imported becrs, advertising costs are shared by the Producer and its distributors, the repartition being pbotiated according to the campaign. Considering the Performances of Heineken and Corona in 1996, the impact of the message was able to overcome 4 Felative financial weakness THE 21ST-CENTURY CHALLENGES Grupo Modelo had rarely played the role of the

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