Identify and discuss the trends in the global beer markets. There is a common item found at sporting events, entertainment venues, restaurants, bars, and mainly in the refrigerators of Americans. This item is beer. Of the 67% of Americans who consume alcohol 42% prefer beer (Frank Newport, 2010). Beer consumption is continuously increasing not only in the United States but also globally. In the past decade, the global beer market has gone through a process of rapid change.
In many emerging and developing markets, economic and societal developments and transformative improvements in the quality and appeal of beer brands have resulted in strong organic growth in the beer category. Developed markets have also undergone change as brewers have responded to constrained or declining beer consumption trends. (SABMiller Investors, 2011). Within the emerging markets, China recorded volume growth of 6% and, despite inflationary pressures, an increase in volumes of premium lager.
Africa saw healthy growth of 8% with increased volume in both the premium and more affordable price segments, driven by Angola, Nigeria, Tanzania, Ghana, Uganda and the DR Congo. Latin American beer volumes grew by 3% in 2010, with reductions due to a material tax increase in Colombia, more than offset by rapid growth in countries such as Peru. In Eastern Europe, beer volumes declined by almost 5% in the face of continuing unemployment and depressed consumer confidence affecting beer sales in bars and restaurants.
As economies improve, the trend towards premium will resume as consumers become more willing to pay for authentic, more image-oriented brands that reflect their socio-economic and lifestyle aspirations. Discuss how Modelo’s international expansion was made possible through strategic partnerships with experienced distributors in local markets. Modelo’s strategic focus was originally on Mexico City and the surrounding areas. Modelo entered into the U. S. market with its Corona line in 1979.
The company’s strategic plan was to enter into an agreement with the largest eer importer in the western states. Thus they chose Barton Beer Ltd. as its distributor. Barton Beers, formally known as Amalgamated Distillery Products Inc. , was the largest distributor in the western twenty -five states and had experience in marketing and sales of imported, premium beers. To complete its strategic plan, Modelo chose as a second distributor Gambrinus Inc. This firm was headed by a former Modelo executive and would be responsible for the eastern twenty -five states. Modelo would give each of these firms complete control of every aspect of the business except for the production.
The product would continue to be brewed at the Modelo manufacturing plants in Mexico. The creation of the marketing image “fun in the sun”, in 1986, began Corona’s rise to success. The strategy to use these two firms for their international expansion has paid great dividends as today Corona is the number one selling Mexican beer in the world and the number four selling beer in the world. Corona beer can be found in over 150 countries (C. V. , 2010). Identify and discuss the next foreign market that Modelo should enter and with what strategy The next foreign market Modelo should consider entering is South Korea.
South Korea offers the right environment. Modelo looks for markets with warm climates because of its “fun in the sun” marketing strategy. South Korea is a prime market for a new beer brand. Reports from visitor indicate there is a need for a tasty beer. Korea has three main beer brands -which are Cass, Hite, and OB. Hite Prime is the only beer of all the Korean brewed beers with 100% barley. There are import beers in the region however due to high taxation, these beers are expensive. In the 2011 calendar year, global beer market volume growth is forecast to be 2. %, led by continuing strong performances in Asia, Africa and Latin America. China and Africa are expected to grow by almost 5% and Latin America by almost 3%. Looking ahead to 2015, it is likely that growth will continue to be led by emerging markets. The 25 fastest-growing markets are forecast to deliver over 5% CAGR in beer volumes. China is expected to account for almost 40% of this growth with Vietnam, Brazil, Ukraine, Nigeria, India and Peru contributing significantly. Discuss the challenges that Modelo faces from its competitor InBev, and how it might respond strategically to the industry giant.
Modelo has to prepare itself for a possible major challenge from one of its competitors, InBev. There is information circulating throughout the industry indicating InBev is looking to merge with U. S. base Anheuser-Busch. “Such an alliance would form a brewing colossus with more than one-fifth of the world beer market by volume and could transform the sector” (Arthur A. Thompson, 2009). Modelo would have to increase the volume of product it produces to compete if the merger occurred. To counter this transaction Modelo would have to consider strategically placing breweries in several of its market segments.
This would cut the cost of exporting product to the larger markets for distribution. Modelo would also have to increase its marketing for its other brands. A new marketing strategy would have to be developed and Modelo would need to align itself with other distributors. Another challenge facing Modelo from InBev and other competitors is the amount of money spent on media budgets. Modelo is taking a hit due to an increase in the media area. InBev and others are spending an enormous amount of money on high end commercials such as those seen during the NFL Superbowl, and on celebrities to market their product.
Compare this to the major Corona commercials which feature nameless and faceless personalities who are only seen from behind or from an occasional profile shot. Modelo would have to maintain its status with Corona and increase its marking with one of its other top selling brands. Discuss whether or not Modelo should diversity its business. If so, what business should it enter and why? Modelo is in position to diversify its business. Modelo could offer a tortilla chip, salsa and dip line to compliment its beer products. This would be considered unrelated diversification.
An unrelated diversifying business “focuses squarely on entering and operating businesses in industries that allow the company as a whole to grow its revenues and earnings” (Arthur A. Thompson, 2009). By having a brand name with Corona, Modelo could enter into the chip and dip market piggy backing off the Corona brand and place its product in line with the top two brands Tostitos and Santitas products. It would not be as much of a challenge as tortilla chips originated in Mexico and the corn industry is profitable in Mexico. After analyzing the market entering the chip and dip industry would be profitable for Modelo.
The products are low cost and require a simple manufacturing process. The cost to build the factory and to purchase the equipment would be low and the turn-around on profit could come within a three to four year period. The only obstacle for Modelo would be developing a unique recipe for the brand. Any consumer who has eaten at most family restaurants or stopped to have drinks at a local bar has been served tortilla chips at some point in time. The product is so low cost and common the numbers in regards to the percentage of establishment serving the product are not recorded.
Thus my analysis finds there is a general correlation between the beer and chip industry throughout the world. Tostitos (PepsiCo brand) has a large market share and has positioned itself as the number one brand with its main stay as the corporate sponsor for the NCAA Fiesta Bowl. They also purchase top end advertising spots during special events. Modelo would have the opportunity to challenge in the market because of the financial support it could draw on from its beer products. An aggressive market strategy would help position the product in one of the top spots of its category.