Foreign Market Entry and Diversification: Modelo

The beer market has grown globally in the past five years when it comes to alcohol consumption. From the statistics from the company, SABMiller, the compound annual growth rate (CAGR) of beer in the global market was 4.8%. The trend seems to be shifting from those that are of high alcohol content and locally manufactured towards those that are commercial and of high quality in packaging and for consumption. In regional trends, the share of beer in alcohol sector in South and Central America increased by 51.5% and 45% in Eastern Europe which was majorly contributed by the consumption of spirits. Asia and Africa had a respective market share of beer of 32.8% and 49% which were due to the improved quality of beer produced and ease of access by consumers. This has been the trend in the past five years. The driving forces for this growth varied among regions though most of the regions like China which recorded an annual growth of 10.7% were explained by the widening economy which meant high disposable incomes and availability of the commodity (SABMiller plc Annual Report 2009, n.d.). The future for the beer market throughout the world is expected to be good given that governments are moving in to legitimize only healthy forms of alcohol. Besides, beer manufacturers are seeking mergers and acquisitions as a way to expand their businesses and to reach a wider market (Beverage World, n.d.).

Modelo’s growth to be a leader in the alcohol industry is attributed to its high quality and dependable delivery to the designated markets. This brewer “consolidated the market by increasing the sales and distribution of its beer products by 60.7%”; (Service Business Industry, n.d.). Executive Strategies for the Markets report of 2001 recorded the product of Grupo Modelo, Corona was the top imported beer in the United States market and the seventh in market penetration. Grupo Modelo used workable strategies that enabled it to sell its presence in the various markets that it has taken lead. It acquired several beer plants and malt manufacturing plants and through associating with other companies with the main reason of producing the required beer in the market. Most of the companies were located in the strategic positions that had specific significance to the company. For example, the company website (Grupo Modelo S.A.B. de C.V) records that in 1935, it acquired Compañía Cervecera Toluca y México in which the brands Victoria and Pilsener were manufactured. These series of acquisitions went on with companies like Cervecería del Pacífico, in Mazatlán, Sinaloa and Cervecería La Estrella in Guadalajara, Jalisco and ervecería Modelo del Noroeste, in Ciudad Obregón, Sonora in 1954 and 1960 respectively and later amalgamated with Constellation Brands in 1960. Modelo has a 50-50 joint venture with Crown Imports for the purpose of distributing and marketing the brands that are associated with Grupo Modelo in the US market. The expansion continued with the construction of a brewery Nava, Coahuila which began in 2007. The main reasons for these mergers were to provide a product mix and to increase the area of business operation so that consumers could be reached easily to improve service delivery to the consumers. This was achieved by strategically locating distributors in a fashion that matched the demand and beer type preference.

Modelo has been targeting regions that have customers of Hispanic origin. This was evidenced by their nature of advertisements which were in Hispanic language. Indeed, US has these group of people that support this Mexican company. It has however managed to penetrate other foreign markets like China with an impressive performance, giving it a reason to try out new markets, using the backdrop of quality products and service delivery. There are also plans to use English language as a mode of advertisement to reach customers who are not Hispanic natives (Hospitality News, n.d.). The presence of Modelo beer products has been felt worldwide though it first started with south west of the United States. In markets of Africa, Europe and Middle East Modelo should seek a merger with parent companies in respective countries. In Africa for example, major breweries such as Eastern Africa Breweries in Kenya and Stella or Heineken of Egypt would seek a merger to provide more expansion for Modelo. Africa and Asia are the markets that Modelo should venture into due to their developing economies and few alternative foreign brands in these countries.

Inbev, the giant beer maker acquired Anheuser-Busch in November 2008,

thus making it even more stronger for individual companies to compete against in beer business. The beer industry seems to be headed in consolidations and mergers to trade better in provision of the product and achieving product mix (Beverage World, n.d.). This presents a challenge for Modelo in terms of market share and resource disposal for acquisition of new beer manufacturers (Moore, 2008). This is well exemplified in the investment rights for the company Anheuser-Busch that was staked by the two companies but later acquired by InBev (Dorsey, 2008). Thus, Grupo Modelo should seek mergers and amalgamations with more manufacturers in the industry as a way of competing beer giants like InBev. This is one of the ways in which companies usually diversify their business when entering foreign markets (Thomson, Strickland, & Gamble, 2010).

Beer and beverage makers have sought means of diversifying their business recently by identifying new markets and customer preferences. These companies have manufactured non-alcohol drinks that are malt-based so that the clientele that does not consume alcohol is captured and catered for (East Africa Breweries Limited, n.d.). Other beverage companies like Coca-Cola has manufactured bottled, branded Dasani water, so that it reaches all customers adequately (thecoca-colacompany.com). Modelo should also diversify its business to manufacturing these and other products to reach a wider market.

References

Dorsey, J. (2008). Grupo Modelo vs. InBev Part II: Dos Cervezas Por Favor! Web.

East Africa Breweries Limited: Kenya Breweries Ltd. 2009. Web.

Growth in the Heartland. Beverage World. 2009. Web.

Grupo Modelo speaks for itself. Latin CEO: Executive Strategies for the Americas. Business Services Industry. August, 2001. Web.

History. Grupo Modelo S.A.B. de C.V.: Grupo Modelo. 2009. Web.

Hospitality News. Modelo Especial to Debut New General Market and Hispanic Ad Campaigns. 2009. Web.

Moore, H. N., Three Reasons InBev Wants to See This Bud Stand Alone. 2008. Web.

SABMiller plc Annual Report 2009. Web.

The Coca-Cola Company: Dasani Manufacturing Process. 2009. Web.

Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy (17th ed.). New York: McGraw-Hill-Irwin.

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