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Bus509

In: Business and Management

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Grupo Modelo (GM) is a Mexican brewer company with a 57% share in Mexico. The Mexican beer market is the world's eighth largest beer market. The company is also an important player in the United States premium beer segment with a market share of about 6%. Three of its brands ? Corona Extra, Modelo Special and Corona Light ? are among the top ten highest selling imported beers in the US. Grupo Modelo has a distribution system covering more than 122 countries, with its flagship brand, Corona, being the fourth largest selling brand in the world. The major beer brands of the company are: Corona Extra, Corona Light, Modelo Especial, Pacifico, Victoria and Negra Modelo.

Grupo Modelo operations comprise of mainly two areas: brewing process and sales. The brewing operations include five breweries located in Mexico with a total processing capacity of more than 50 million hectoliters per year. The group has several subsidiary / affiliate companies that provide support services to the core business of producing beer. GM has followed a strategy of vertical integration since the 60's which has resulted in this network of companies engaging in the brewing and ancillary operations. GM has an established distribution network in Mexican market, which is a key factor in maintaining market shares in the domestic beer market. The export sales of beer are coordinated through a set of representative offices around the world. It may also be mentioned that the distribution network of the company is strengthened by company owned convenience stores operated in Mexico, which assist the company in maintaining its dominant market position.

GM is a company whose primary business is brewing operations, with non-beer items comprising a mere 9% of the income. The focus of the beer business is in the local Mexican market, although in recent years, exports sales of beer have increased significantly (with a growing demand of Mexican beer in US and depreciation of the Mexican peso against the dollar).

Sources of Revenue
(in $ million) 2002 2003
Local Sales 2,467 67% 2,310 64%
Foreign Sales 895 24% 961 27%
Other Revenue Income 315 9% 328 9%

Total 3,676 100% 3,599 100%
Source: Grupo Modelo

2004, total beer sales volume increased by 2.3% to 32.0 million hectoliters, with the exports providing the major impetus to sales with an increase of 7.6% in export volumes. Export growth occurred primarily in the US along with Europe and Asia.

FINANCIAL PERFORMANCE
The financial performance of Grupo Modelo can be characterized by its absence of debt, its domestic moderate growth of sales as well as a high but decreasing growth rate of export sales. The domestic sales are fairly stable around a trend that is mainly driven by the population growth. Deviations from that trend can be explained mainly by recessions. In the export market, Modelo has maintained a high growth rate in volume mainly driven by the successful positioning of Corona in the US market. The growth rate has been declining in the last years but remains high (6.3% increase in volume during 2003).

MARKET POSITION
Grupo Modelo's market positioning is a result of a business strategy that generates profit in a way that is difficult for its competition to replicate. The Mexican beer market is segmented geographically with each of the two major market players, GM and FEMSA, having their own areas of influences. These zones of influences are based primarily on the control exercised by each player on the distribution channels in different areas. The sources of market power of the company are as follow:

1. GM and FEMSA together account for 99% of sales of beer in Mexico. Around 70% of GM's sales take place through establishments that have an agreement with GM to distribute exclusively only GM brand beers.

2. The distribution network: In the 1930s, the Mexican beer market consisted of several breweries spread all over the country. The two major players, FEMSA and GM, pursued a strategy of acquisition of small breweries and consolidated their properties around certain geographical areas. As a result of this strategy of acquisitions and consolidation, GM now controls most of the Mexican market.

3. Low income of consumers: Mexico is a developing country with most of its population having low income. Therefore, the pricing levels in the Mexican beer market are low, commensurate with the low income levels of the consumers.

THE US BEER MARKET (Export market for GM)

Salient Features of the market

The US beer market is a mature market with a flat consumption levels due to high awareness on the product, slow population growth and an ageing population (young adults are the largest beer consumers). On account of increased competition, all the major players have initiated comprehensive pricing cuts that have adversely affected operating margins. Price competition, along with increasing vertical integration and the inherent production economies of scale of the market leaders, makes it very difficult for an inefficient major brewer to compete in the US beer market.

Beer Consumption in the US

Beer consumption is particularly widespread in the US, with nearly 40% of the adult population being regular beer consumers. Typical beer consumers are young males with a low to moderate education and moderate income households.

• Beer sales in the US were around 272.8 million hectoliters. • Imports were 27.8 million hectoliters; Mexican beer imports were 12.1 million hectoliters. • Beer Consumers' population is expected to grow at a rate of 16% in next 6 years. • Imported beer sales have grown at a rate of around 10% in last ten years vis-à-vis a stagnant domestic beer market.

Target Audience

The Behavior of young people in our local target is not very different from what we expect it would be. However we will start conducting more detailed marketing strategies to be detached to the target closely. In British Columbia, Hockey is one of the most beloved sports and people tend to hang out more at the bar to drink beer. Since our theory of co-relation in between sports and beer is very relevant, the marketing strategy will be broadly related to the behavior of young people who loves watching, enjoying, or even for someone who work in sports area.

Everybody loves to be away from all sorts of stresses from daily life and goes to vacation. Our geographic target is British Columbia which is one of the most famous vacation destinations in the world. As aforementioned in our SWAT Mix, there are several elements in our strengths that go along with the target. The main concept of Corona is the vacation. As all the young people love going out for vacation, it has a lot of potential to grow our sales in British Columbia.

Furthermore, the biggest upcoming even to happen in British Columbia will be the 2010 Olympics. This will actually boom up our marketing in many ways. The people from all around the world are coming to town and we believe there is no other chance that can be greater. The behavior of our target market will change in many ways. First of all, the Olympics event is the largest sports festival of young people around the world. There will be a lot of media coverage, teams representing their nation, and visitors. Our corona store will be located in the middle of City in Whistler town so it will always be packed with all the visitors from other countries.

We are not looking at this Olympic effect as a short run effect. After the event is done, we are predicting that the Olympic will bring a huge economic benefit through out the state which will bring the consumer demand for beer higher. As our launch of the Corona Store in Whistler get its fame through out the Olympic, and the resort of Whistler become a lot more popular destination of vacation, the sales will continuously hit our target growth rate.
It is assumed that the tourism stimulated by the Olympic will disappear in 5 years. But many experts concluded that it will not be the case in Vancouver since it has been the destination for vacation for a long time already and the Whistler already had its fame as a resort.

Following is the information we researched regarding the various beer consumption demographics in U.S. We believe these graphs are very similar to the behavior in Vancouver since the city itself is very close to U.S. and most of North Americans have similar behavior in many ways.

These two graphs show the behavior of target market in general. They tend to attend more Sports and enjoy more of it. As briefly mentioned above, our co-relation theory of beer and sport is very strong and we believe that this behavior will generate greater potential to increase the total sale. Also, the second graph shows precisely why we select our target market of the ages from 19 to 45.

References:

British Columbia STATS: Population and Demographics http://www.bcstats.gov.bc.ca/ Beer Online Profit Guide http://www.progressivegrocer.com/progressivegrocer/profitguides/beer/index.jsp Constellation Brands, Inc. Official Website http://www.cbrands.com/CBI/constellationbrands/

Corona Extra Official Canadian Website http://www.coronaextra.ca/

Corona Merchandise Store http://corona.orbitearthstores.com/

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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