Modelo Company: Foreign Market Entry and Diversification

Introduction

Beer has been consumed for a long period. Beer refers to lager or ale which has been fermented to different levels. Modelo is a Mexican based beer company which distributes its brands in over 159 countries. The company has 13 brands; its mission is to be a leader in international beer market (Modelo corporate website, 2010). This paper, guided by different headings, discusses world beer industry and Modelo strategies in domestic and local markets.

Worlds beer industry

In the period 2004 and 2009, the consumption of beer in the world has drastically increased. According to alcohol consumption data, the percentage of beer consumption has increased to 41% of the worlds alcohol consumption; this is a 200 basis points (bps) increase. The increase has been attributed to increase in population, lifestyle and switching from traditional beer to well packed beers. In United States, the level of beer consumption stands at 51%, in Europe it stands at 48%, Africa and Asia 49% and 39% respectively. During the last five years, despite economic crisis that the world is undergoing through, there has been an average increase in beer consumption by 4.7%. The highest growth in consumption was recorded in Asia with 8.4%, followed by Africa 6.4%, then Europe 6.3% and America 0.5%. Beer gets competition from wine, spirits and local brews (Global Industry Analyst, 2008).

The following graph shows the growth index of beer for the period 2003 to 2009;

Beer Growth Index
Graph1

Modelo next target market

The company aims to export its products to Brazil; brazil has the highest beer market in Latin America where the market is dominated by Anheuser-Busch InBev NV. The company aims to export Corona in the country to tap the large beer market in the country which is relatively not very competitive. In Nov. 5, 2010 Modelo Chief Executive Officer Carlos Fernandez, noted that Brazil is the world’s third largest beer market after America and China. He observed that in 2009, the consumption rate increased at a higher rate than the leaders in the market.

There have been earlier attempts to venture in the market but has been faced by large taxes, tariff barriers and bureaucracy. However the brand is imported informally by some Brazilians and thus the company is confident that a venture to the country will be a success.

The market entry strategy that the company should use is partnering with other established companies in Brazil, Franchising and direct investment where it will benefits from an already building individual market (Thomas, 2010).

Modelo’s international and local expansion

To venture domestic and international markets, Modelo has been forming business alliances and acquisitions of other beer companies. The first international expansion was in south and southwest of the United States. Then in 1985 Canada and Japan, and later on Australia and New Zealand., four years later it ventured in Brussels was opened, later Russia, Africa and Latin America. Currently the company’s brands are available in over 159 countries.

One of the earliest acquisitions was in 1935 where the company acquired a domestic company called Compañía Cervecera Toluca y México. In United states, the company’s products are distributed and marketed through a partnership alliance with Constellation Brands. The company sells the products via their subsidiary operating in North west part of the United States. the subsidiary is called Barton Beers. The alliance was made to ensure that the company was the only importer of the Mexican company product. It also benefits the company as it benefits from wide knowledge of market with Barton beers.

The company uses products differentiation as one of the way to develop a strong brand name. The size of the company’s beer bottle has a long neck similar to those of American origin. This assists the company in gaining good first impression from its customers. Secondary the company has three different brands with different tastes the brands are Corona Extra, Corona Familiar and Corona Light. The diversification in brand is to ensure that it covers the tastes of a large population group (Modelo corporate website, 2010).

Competition faced by the company

The beer industry is a highly competitive industry which faces competition from beer manufacturers and other alcohols manufacturers. On the other hand, it is a market that is controlled by brand names and customer loyalty.

InBev and Anheuser-Busch have agreed to merge together and form world Leader in Beer; Budweiser will be the Flagship Brand. The challenge that is facing Modelo is that Anheuser-Busch holds 50% of its nonvoting shares. When the move is completed, there will be an increased competition from combinations that have a large experience in beer market. They are likely to produce a stronger brand name than Modelo brands (Thompson, Strickland & Gamble, 2010).

To counter the move, Modelo, should conduct an intensive survey of trend in beer market, and use the information gathered to improve its existing brands. This will ensure that it has retained the loyal customers and it markets aggressively for other customers (Custom Book, 2009).

Diversification of Modelo’s Products

Modelo should diversify its production and start producing soft drinks. This is mostly fresh squeeze juices. The move will make the company remain afloat in the changing beverage market. There is an increased campaigns aimed at persuading people to stop taking alcohol. The number of people persuaded is turning to other non alcoholic products. Secondly, fresh squeeze is a new business opportunity that is highly advocated for health purposes (Camillus, 2008).

Conclusion

In the period 2004 and 2009, the consumption of beer in the world has drastically increased. According to alcohol consumption data, the percentage of beer consumption has increased to 41% of the worlds alcohol consumption; this is a 200 basis points (bps) increase. Modelo is a Mexican based beer company which distributes its brands in over 159 countries. The company has 13 brands; its mission is to be a leader in international beer market. The company aims to venture Brazilian beer market where it needs to have a strong marketing team to counter competition and develop its brand name.

References

Camillus, J.C (2008). Strategy as a wicked problem. Harvard Business Review. 86(5), 98-106.

Custom Book (2009). BUS599: Strategic management cases. New York, NY: McGraw-Hill.

Global Industry Analyst. (2008) World Beer Industry Market Brief. Web.

Modelo corporate website.(2010). Web.

Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 custom edition (17th ed.). New York, NY: McGraw-Hill-Irwin.

Thomas B. (Nov 8, 2010). “Grupo Modelo May Export Corona to Brazil, Where AB InBev Rules Beer Market”. Broonbeig. Web.