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Case Study Assignment 3 |What are the dominant business and economic characteristics of the global beer industry? | |The global beer industry is dominated by large corporations who have merged with rivals to increase their global and domestic market share. | |For example in 2004 Interbrew and AmBev merged to form the worlds largest brewing company in terms of volume ( ). Since then Miller | |Brewing has merged with Coors Brewing company and SAB to form one of the worlds largest breweries. |What do you see as the key success factors for firms in the global beer industry? | |Quantities of scale, high-volume, and international alliances for fast and easy entry into new markets. | |What does a strategic group map of the global beer industry look like? How strongly is Grupo Modelo positioned in the industry? How | |favorably does it compare with its closest Mexican rival FEMSA? How favorably does Grupo Modelo’s position compare to that of Heineken? |A strategic group map of the global beer industry would contain Anheuser-Busch, InBev, SABMiller, Heineken and Modelo. It would contrast | |sales volume versus distribution strategy. | |Grupo Modelo is positioned strongly in this industry because of it’s large share of the US Market, however, it’s vulnerable to the larger, | |more powerful companies and the result of their mergers. Grupo Modelo is much stronger than it’s closest Mexican rival FEMSA.
FEMSA has | |utilized their distribution channels to gain a significant share of the domestic market, but they have been unable to rival Modelo’s success| |overseas. FEMSA has a competitive advantage in Mexico, but overall Grupo Modelo remains the stronger company. | |Heineken has a greater share of the global market, however, Grupo Modelo’s takeover of the US market is a successful blueprint of their | |ability to challenge Heineken on a larger scale. For now Heineken remains the larger brewing company, but they are being heavily pressured | |by Grupo Modelo.
Their recent alliance with Modelo’s Mexican rival has allowed them to re-take some of the US market. Modelo is a more | |powerful emerging force, but they have a long way to overtake Heineken’s global presence. | | | |What are the resource strengths and weaknesses of Grupo Modelo? What competencies and capabilities does it have that its chief rivals don’t | |have? What market opportunities does Grupo Modelo have? What threats do you see to the company’s future well being?
What conclusions can we | |draw from the SWOT analysis for Grupo Modelo? | |Grupo Modelo’s competencies include unique, clear, glass bottles, and brilliant marketing campaigns like, “fun in the sun”. The North | |American Free Trade Agreement allows them to sell beer cheaper than their closest competitor, Heineken. This has given Modelo a competitive| |advantage in America over it’s rivals. This large market share of America increases their global volume and increased their economics of | |scale.
However, updated research shows Heineken has purchased Modelo’s chief Mexican rival, FEMSA, and consequently poses an even a greater | |threat to Modelo’s domestic and foreign markets (Berkowitz and Blenkinsop 2010) | | | |FEMSA’s exclusive rights to sell Coca-Cola in Mexico and their ownership of the OXXO convenience stores has given them a distribution | |advantage over Modelo. Sales of Coco-Cola have created a strong customer based that FEMSA can market their beer too. | | |What is your assessment of Grupo Modelo’s financial performance and financial condition from exhibit 6 in the case? Is the company in good | |financial shape? Why or why not? Please use the financial ratios in “A Guide to Case Analysis” and in table 4. 1 of the text to develop | |calculations in support of your assessment of the company’s financial performance. | |After seeing a reduction in gross profit in 2008 Grupo Modelo recovered and increased their gross profit 10. 6% in 2009.
However, Grupo | |Modelo’s volume of beer sales has remained mostly stagnant for the past three years. It’s domestic market has seen a slight increase, but | |their exports dropped 4. 8% in 2009. Heineken’s merger with FEMSA has further reduced Modelo’s exports to the U. S. Market. From 2008 to | |2009 liabilities went down and assets increased, this has strengthened Modelo’s financial condition though investors were disappointed by | |the 3. 7% reduction in return on equity. While no dividends were payed in 2009 stock prices jumped considerably.
Overall Modelo is in a | |strong financial condition and their financial performance is solid. It doesn’t appear Modelo is experiencing any new market share growth | |and if their export sales continue to decline it would be a cause for concern. | | | |The following equations reveal further insight into Grupo Modelo’s financial performance. All figures were obtained from Modelo’s Financial | |document’s (Modelo, 2008)(Modelo, 2009). | | |Dividend yield on common stock – dividends per share/current market price per share | |2. 09/43. 78 = 0. 047 This dividend yield is typical for slow growth companies. | | | |Current ratio – assets/liabilities | |Year 2005 – 80,281,000/12,169,000 = 6. 0 Year 2008: 105,690/25,138 = 4. 2 | |Year 2009: 117,362/21,130 = 5. 55 | |Modelo’s dividend yield on common stock is typical for a slow growth company, however, their current ratio is extremely good. The company | |is in good financial shape to expand, however, right now they aren’t experiencing very much growth. | | | | | | |2009 | |2008 | |2007 | | | |Sale of Beer – millions of hectoliters | | | | | | | | | |Total Domestic | |37. 25 | |36. 28 | |35. 1 | | | |Exports | |15. 27 | |16. 03 | |15. 94 | | | |Total Volume | |52. 52 | |52. 31 | |51. 5 | | | | | | | | | | | | | |Net Sales | |81,862 | |75,363 | |72,895 | | | |Gross Profit | |44,028 |39,802 | |40,304 | | | |Net Majority Income | |8,630 | |9,015 | |9,503 | | | |Return on Equity | |14. 7% | |18. 4% | |18. % | | | |Total Assets | |117,362 | |105,690 | |99,724 | | | |Total Liabilities | |21,130 | |25,138 | |17,173 | | | |Dividends per share | |- | |2. 09 | |2. 4 | | | |Market price per share | |72. 99 | |43. 78 | |51. 50 | | | | | | | |Is competition in the global beer industry best characterized as global or multi-country? Why?
Which type of international strategy | |discussed in chapter 7 is Grupo Modelo using in its international operations? How does this compare to the strategies of FEMSA and Heineken? | |What are the strengths and weaknesses of Grupo Modelo’s international strategy versus those of its main rivals? | |Competition in the global beer industry is best characterized as a global industry. The same core of company’s are competing in the same | |market. Large sales volume plays a huge role and securing a competitive advantage in one market can lead to global success. Grupo Modelo’s| |success in the US beer market has helped them become one of the worlds largest beer companies. | |Grupo Modelo is using a strategic alliance and joint venture international strategy.
All production is done in Mexico, however, foreign | |companies are responsible for everything else from marketing and distribution to customs clearance. Heineken on the other hand uses a | |national (one-country) production base to export their products. Even foreign based distribution companies are owned and run by Heineken’s | |management. FEMSA followed Modelo’s strategic alliance strategy, however, versus working with a US company to enter the American market | |they partnered with another foreign company, Heineken, to market and distribute their beer in a foreign country. Eventually this alliance | |led to Heineken purchasing FEMSA. |Modelo’s strategy allowed domestic companies to tailor Modelo’s marketing to differentiate their products from other imports. This unique | |marketing strategy propelled them to the top, however, their dominance is being threatened by alliances between rival companies. Modelo may| |be forced to form alliances with rival firms in order to sustain their competitive advantage. Heineken’s acquisition of FEMSA enable them | |to maximize their resources and quantities of scale to challenge Modelo as the number one imported beer in the US market. | |Modelo’s customized marketing strategy gives them a competitive advantage, however, Modelo’s lack of international alliances and overall | |global presence is a key weakness.
Their competitors ability to compete in different markets and form strategic alliances with fellow | |company’s is a huge strength. Modelo has responded to this by selling Anheuser-Busch a 50% non-controlling stake in the company. However, | |Modelo remains dedicated to staying independent and pursuing their own business strategy. | | | | | | | |Based on your analysis of the global beer industry and Grupo Modelo’s situation, what problems and issues does the company’s top management | |need to address?
Which ones are top priorities? Which are low priorities? How concerned should Grupo Modelo be about the potential merger | |between InBev and Anheuser-Busch? | |Grupo Modelo needs to address their domestic market shortcomings and rivalry with FEMSA, Grupo Modelo needs to determine how to react to | |Heineken’s and FEMSA’s strategic alliance. Both issues are high priority and could potentially topple Modelo’s competitive advantages and | |market share. Another issue Modelo needs to confront is their comparably small advertising and marketing budget (Ashok, 2008). Increased | |media spending has played a large role in Heineken’s and FEMSA’s recent success.
It appears Grupo Mondelo has attempted to address these | |issues by selling Anheuser-Busch a 50% non-controlling interest (Webring, 2010). This partnership offsets Heineken’s purchase of FEMSA | |InBev and Anheuser-Busch have merged and every beer company has been impacted by this merger. Quantities of scale and global presence are | |the dominating attributes of the global beer industry. This merger has a corporation with an unparallelled market share and enables them to| |further leverage their volume of sales. Anheuser-Busch currently owns a 50% non-controlling stake in Mondelo. However, Mondelo felt they | |had become a pawn of Anheuser-Busch in Busch’s negotiations with InBev and relations have been strained since (Webring, 2010). |What actions would you recommend to Carlos Fernandez to help Grupo Modelo sustain or improve its competitive position, especially its | |international operations, and its long-term financial performance? | |Carlos Fernandez needs to focus on their domestic distribution strategy to fend off Heineken/FEMSA’s aggressive attacks. Their success in | |the US market should give them a powerful blue print to expand to other nations. I would continue their international distribution and | |marketing strategy. Acquiring other breweries is expensive and Modelo doesn’t have enough capitol to compete in this manner. | |Their decision to remain independent from other corporation’s is a strategic move that must be carefully monitored. In order to stay on | |this course Grupo Modelo needs to remain focused on their domestic and US markets.
I suggest Fernandez use Grupo Mondelo’s capitol to | |expand their share of the US beer market. More money should also be spent on media campaigns in order to fend off InBev/Anheuser-Busch and | |Heineken’s aggression. Their capitol could also be invested to build a competitive distribution advantage in Mexico and the US. | |(List of works cited on the following page) | | | |List of Works Cited | |Ashok, S. (2008). Corona Beer: From a Local Mexican Player to a Global Brand. 56 | | | |Berkowitz, B. and Blenkinsop, P. (2010, January 11) Heineken buys FEMSA beers, cements Latam alliance. Reuters. Retrieved from | |http://www. reuters. com/article/2010/01/11/us-heineken-femsa-idUSTRE60A16L20100111 | |Modelo ( 2008) Retrieved from http://www. gmodelo. mx/download_/informe_anual/informe_2008_en. pdf | |Modelo ( 2009) Retrieved from http://www. gmodelo. mx/download_/informe_anual/informe_2009_en. pdf | |Webring, O. (2010, July 12). Just-drinks.