Foreign Market Entry and Diversification of Modelo

Foreign Market Entry and Diversification of Modelo

Introduction

Modelo is the seventh leading brewer in the world. It is the top brewer in Mexico and the producer of Corona Extra, which is the best-selling Mexican beer in the world. Modelo is a family controlled entity, although A-B InBev owns a non-controlling 50.2% equity stake, which was acquired by InBev through the Anheuser-Busch acquisition in 2008. The company also distributes Budweiser, O'Doul's, Carlsberg and Tsingtao brands under license from their brand owners. Modelo has operations in convenience stores retailing and also in non-alcoholic beverages, but these are small compared to its presence in beer. Modelo's total beer shipments reached 52.7 million hectoliters in 2010, showing stable volumes (0.3% growth) compared to 2009.

Trends in the Global Beer Markets

Modelo has enjoyed a dynamic, higher than global average volume growth rate, which peaked at over 7% in 2003/2004, thanks to growing demand and its expansion in the Mexican and the US markets. From 2004, its growth rate started to decline, but it was still above the world's average. In 2005/2006, Modelo's growth rate fell under the global rate, and it continued to decrease thereafter. From 2007, the growth of the global beer market also started its decline, as the recession hit the global economy. Since 2009, the world beer market has started to recover, mainly thanks to the high growth potential of the emerging markets and partial recovery of the developed markets. Despite global beer volumes growing by 1%, Modelo's volumes declined by nearly 2% in 2010. Modelo could not catch up to its main competitors, as it still relies on the performances of the US and Mexico, while its major rivals made several acquisitions to expand their global presence (Clapp, Lange, Voas, 2003, 78-85).

Modelo's International Expansion

Modelo's presence is concentrated mainly in Latin and North America, the company is committed to increase its export share, and to realize half of its revenues from international markets, as stated in the company's vision. Modelo exports to around 170 countries. Its main export market is the US, which generated 24% of Modelo's volume sales in 2011. Corona Extra is a well-known brand worldwide; it is the number one imported beer in more than 15 countries: China, India, Indonesia, Japan, Thailand, Vietnam, Australia, Bolivia, Chile, Costa Rica, USA, Canada, etc.

Besides generating revenue, expanding the company's global footprint could also help to mitigate the potential losses in case of any economic downturn in its core markets. Export is the key element of Modelo's growth. Corona's presence as the leading imported brand in the US beer market and its other export volumes generate a higher proportion of net sales than in its domestic Mexican market when compared to volumes (Fetscherin, Toncar, 2009, 106-114). In 2011 net export sales increased by 1.4%, thanks to the volume growth, although its share of total net sales fell from last year's 40.9% to 39.9% due to the reduction in the price per hectoliter.

Foreign Market that Modelo Should Enter

Modelo's presence is concentrated ...