Trends in Global Beer Markets: Modelo - Case Study Example

REPORT: MODELO Trends in Global Beer Markets Acquisitions A major global trend that set in the 1990s was of acquisition of a large number of breweries by organizations in different countries. This enabled the parent brewery to channel and sell its home productions to these countries via the acquired breweries. Additionally, the home organizations were able to profit from the sale of traditional local products – the production and management of which they left in the hands of the local management. This trend led to consolidation of the breweries where a few major players ended up acquiring most of the breweries around the world. 2. Mergers The next trend was of mergers. Big players like Interbrew of Belgium and AmBev of Brazil merged to build the world’s largest beer producing company, InBev in 2007. As a result of these mergers, there were just a few huge breweries that dominated the world market. These included InBev, Anheuser-Bush, SABMiller, and Heineken. 3. Vertical Integration The beer industry also saw vertical integration where the breweries acquired the raw material supplier unites as well as took on to distribution and retailing. The backward integration was necessary owing to the large production and maintenance costs that were needed for the production operations. 3. Trends in Consumption United States became the second largest consumer of beer after China in the year 2003, though per capita consumption in the US exceeded 6 times that of China. Mexico, continued as one of the world’s largest beer markets. Product preferences 4. NAFTA and Strategic Alliances Beer companies are able to take advantage of the NAFTA agreement and forge strategic alliances with the US marketers and organizations. Impacts of Trends in Global Beer Market on the Strategy of Modelo Modelo had started as a local producer and seller of beer in the Mexico market. With the local competition warming up due to FEMSA’s adoption of distribution-to-seller approach in beer business, Modelo had to look towards the US market for survival and profits. Even within the US, the presence of large players like Heineken and Anheuser-Busch meant that Modelo could only play a sidelined role in the beer market. However, using an innovative distribution strategy and a completely novel marketing communication and advertising strategy, Modelo was able to drive itself to the height of becoming the largest imported brand of beer in the US. With the beer market becoming more and more consolidated across the world and also in the US. This led Modelo to further modify its strategy of selling in the domestic or the US market alone and foraying into the International market. The globalization and liberalization trends in the world economy lead to foreign beer companies make foray into the Mexican domestic beer market. This trend meant that there could be threat to the dominance of the indigenous players. However, Modelo enacted a strategy of forming alliances with the foreign companies so that it can share any profits made by them. For example, Modelo entered into an agreement with the Anheuser-Busch to distribute its products in Mexico in return for stock ownership and profit sharing. International Expansion Trends of Modelo and Its Strategic Partnerships With the avowed ambition of making Modelo to rank among the world’s top five breweries, Modelo’s Corona beer ranked at just number 5 in the international ranking of beer brands for the year 2005-2006. It is one of the top ten breweries in the world, with its Corono Extra being the fourth best-selling beer in the world in terms of quantity. The market share of Modelo was just under 2% of the worldwide market during this time. Before that, Modelo became the number 1 exporter of beer to the US Market in 1997. These achievements have been made possible only after Modelo made a conscious decision to expand its horizons from just being the largest brewery of Mexico. Within Mexico, Modelo had consolidated its position by using direct distribution with profit sharing. This made the middle-men make profits when they sold the company’s beer and they were also given the freedom to make special concessions to the retailers based on their own understanding of the local market requirements. This mode of operation proved extremely useful when Modelo expanded into the US market. It started with entering into a partnership deal with Barton-Beers distributors that had local knowledge and penetration in the beer market of Western States. Similarly, Modelo employed the partnership with Gambrinus Inc. to gain a stronghold in the Eastern States of the US. Models’s partnership with these distributors were based on mutual trust and understanding. Modelo provided its distributing partners exclusive freedom for all sales related operations, including pricing, while it maintained an overall perspective of the US market. Later, Modelo also went into an alliance with Anheuser-Busch that distributed Modelo’s beer in the United States. Further, Modelo also used a pricing strategy enabled its distributors absorb the tax and enabled the customers to get the beer at a lower price. Another aspect of Modelo’s marketing strategy was that it let the local distributors enact the marketing plan based on the local needs and inputs. This led to the Corona Beer being branded as ‘fun in the sun’ drink that also attracted non-stereotyped (males between 25 and 35) beer drinkers as well. This was done in addition to promoting the Modelo brands as premium imported brands. These two positionings enabled the Modelo brands to attract females, youths and older customers alike Identification of Next Foreign Markets that Corona Beer Should Enter With the advent of globalization and liberalization, Mexico has entered into numerous trade agreements with countries across the world. In addition, the NAFTA agreement further opened gates of opportunities for the companies in the regions to take advantage of newer regional markets. The changing dynamics of the beer industry saw an increase in mergers and acquisitions, strategic alliances with distributors and expansive media budgets. Modelo has attained an enviable position both in the domestic market as well as in the US, but it still needs to expand itself in order to remain competitive. The expectations of mergers in the US beer market (for example, between InBev and Anheuser-Busch in the US) spells threatening conditions for Modelo, as large competitors are more difficult to beat. FEMSA, the local competitor in Mexico is also making strategic partnerships within the domestic market to win back turf from Modelo. Under these conditions, Modelo has to look towards increasing its market. One such market is that of China. This is because the Chinese consumption of beer has increased many folds in the past few decades and it is now at the world’s highest volume. The change in the income levels owing to the rapid economic growth as well as the changing lifestyles of the population are the considered as the drivers of beer market (Consumer Trends, 2010). The large population of China, emergence of nightlife and pub culture as well as reduced governmental restrictions on foreign imports (Cui and Liu, 2000) makes China an adequate market for beer importers. Identification of Strategy for Corona Beer to Enter the New Market China has the potential in the form of sheer number of consumers, and this potential is greater in he rural and sub-urban areas where the beer consumption is yet to increase (Consumer Trends, 2010). However, Chines market is completely dominated by the local manufacturers and producers of beer and this is due to the loyalty and preferences of the local people. Any importer, like Modelo, who decides to enter the Chinese market has to come prepared with a strategy to fight off the local competition. Some of the strategies that Modelo should incorporate are: -Target the local brands with value for money brands The local producers have inefficient production and sales programs that make them come in possession of more beer than they could possibly sell. This leads them to reduce process and distort competition. The most effective way of surviving in a pricing war is to provide more value to the customers for the same prices. Modelo can deliver this value based on its efficiencies in manufacturing and transporting beer through effective distribution channels. - Introduce Premium brands The local Chinese customers, especially those in the urban centers have developed a taste and preference for imported premium brands. Modelo can serve this market adequately by positioning its products as premium. -Strategic Distribution Alliances -Make strategic alliances with the local producers to distribute Modelo products in their own regions. This will ensure that the local producers get some profits out of selling Modelo product and they become less opposed to the foreign brand. -Acquisitions Modelo has been following a policy of single point manufacture of its beer in Mexico that it later on ships to other countries. In the case of China, as there are a large number of local manufacturers, Modelo can get into either alliances with them or buy and run them as subsidiaries. Modelo can import the raw materials and start brewing in China, or it can use the Chinese products and lend its brand name to appeal to the local national sentiments. In either case, Modelo needs to rethink its manufacture in Mexico only policy. Challenges Posed By InBev to Modelo and How Modelo Should Respond Strategically InBev was formulated by the strategic merger of the Belgian Interbrew and the Brazilian AmBev 2004 becoming the world’s largets brewery in the year 2007 in terms of volume. This makes InBev highly competent in areas of manufacturing and distribution as the organization owns numerous small breweries across the world and has strategic alliances with scores of others. It has large economies of scales owing to its large size and is able to reduce costs across its operations in diverse regions. InBev may also merge with Anheuser-Busch in the US and form an extremely powerful competitor for Modelo, that is currently ranked as number one importer of beer there. One way that Modelo can respond strategically is to itself enter into a partnership with Anheuser-Busch. It already is into a distribution deal with the organization but, it is recommended that Modelo should think of having a more strategic and intimate partnership with Anheuser-Busch to beat its rival InBev. Further, InBev has been spending huge amounts in excess of hundred millions on advertising in the US. This increases pressure for Modelo that has been only putting in just $5.1 million for their advertising campaign in the US. By entering into an alliance with Anheuser-Busch, Modelo can expect to ride on Anheuser-Busch own advertising budget that is in excess of $200 million. Also, Modelo should continue with its innovative advertising strategy of targeting the mainstream sections of the society with its campaign. In addition, it should indulge in more creative advertising by segmenting and targeting different sections - like women, youth, old people, couples, friends, male buddies – with different advertising messages that appeal exclusively to these sections. This approach leads to more targeted communications that make more sense to the specific groups and attract them to buying the brand associated with the message (Wu, 2001). Diversification For Modelo While there is scope for an increase in the beer market worldwide with emerging economies embracing the imported beverage, there is also a need for organizations to diversify – both for utilizing their expertise in the distribution channels for the best as well as to safeguard against any fluctuations in the core market. This is even more essential as the US market is facing intense competition from rivals and other markets, like China, may need massive investments in time and money to break-even. Modelo too should consider diversifying to include more range of beverages and even sell food. Modelo’s diversification plans should include: 1. Distribution of soft drinks [manufactured by other companies] through its own distribution channels. This will ensure that Modelo gets a share of the profits made by the soft drinks, and also continues to serve its traditional beer customers. It is however not recommended that Modelo diversify into producing the soft drinks, as there are already established manufactures who are difficult to beat. 2. Acquisition of manufacturing units that make snacks that go with beer. Here, Modelo can aim at providing the entire package – beer and snacks for the customers. This will win Modelo a unique positioning in the minds of the customers as well as get the additional revenue. Bibliography Cui, G. and Q. Liu. 2000. ‘Regional market segments of China: opportunities and barriers in a big emerging market’ Journal of Consumer Marketing 17 (1) 55 - 72 Consumer Trends, 2010, ‘Premium opportunities in Chinese beer market’ [online] Available at: http://www.foodanddrinkeurope.com/Consumer-Trends/Premium-opportunities-in-Chinese-beer-market Retrieved on 19 February 2010 Wu, S, I. 2001. ‘An experimental study on the relationship between consumer involvement and advertising effectiveness’ Asia Pacific Journal of Marketing and Logistics. 13 (1) 43 - 56 Read More