Corona Beer Case Study

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EXECUTIVE SUMMARY
Introduction: Corona Beer, produced in Mexico by Grupo Modelo since 1922, entered the United States beer market in 1979, and by 2007, was the number one imported beer in the United States (with 1.9% market share of the global beer industry) having recently taken that position from Heineken, a rival (with 1.6% market share of the global beer industry). Corona used a broad differentiation strategy with a “fun in the sun” marketing image. It also achieved strategic success by using a distinctive glass bottle and providing a light-tasting beer that attracted a broader market. Problem identification: The global beer industry was experiencing increasing competition due to the new and potential mergers and acquisitions of its competitors. One example was the partnership between Heineken and FEMSA, which was formed in an attempt to dethrone Corona as best-selling imported beer in the United States. In addition, with the introduction of NAFTA, Canadian and U.S. competitors were slowly beginning to penetrate the Mexican market, while FEMSA continued to experience steady growth and increase its local market share. Analysis: Financial analysis indicated that costs were increasing for Grupo Modelo, while competitive analysis indicated that Anheuser-Busch spent $192M on U.S. marketing in 1985 compared to a mere $5.1M spent by Grupo Modelo. This emphasizes the financial weakness of Corona and Grupo Modelo, yet underscores what the brand was able to achieve with the relatively minimal funds it spent. In addition, exporting costs increased due to the unstable peso, coupled with the fact all production occurred in Mexico, indicating the opportunity to produce/move operations. Alternatives: The use of franchising in the domestic market was considered in order to expand domestically while minimizing costs and risk for the company, however this feat may be difficult to achieve successfully. A second alternative is to merge with a large, powerful, global player within the beer industry to provide the company with increased power and resources to successfully compete in the dynamic global market; given the already strong relationship with Anheuser-Busch, this was the obvious choice. A final alternative is to expand into emerging countries, yet this would be complex due to a number of uncertain risks. Recommendation: A merger with Anheuser-Busch would provide the best results to effectively counter the changing climate of the beer industry. This merger would create a larger, more powerful organization that would be able to become a leader in this new competitive environment, and create benefits for both parties. BACKGROUND

Grupo Modelo (GM) is a large brewery in Mexico that was established in 1922 that originally focused on the local market of beer production and distribution. GM first entered the U.S. beer market in 1979 and its Corona brand became the second most popular imported brand by 1988, and the best-selling imported beer in the United States as of 1997. Since 2006-2007, the company was a leader in one of the world’s largest beer markets (the United States beer market), where three of its brands: Corona Extra, Corona Light, and Modelo, all ranked in the top 10 imported beers in the United States. In 1991/1992 when a federal excise tax on beer doubled, Corona experienced a growth slowdown in the import beer market in the United States, but a change in the pricing strategy involving Corona’s distributors, to absorb the tax instead of passing it to its customers, rectified this problem. To broaden its impact internationally, GM had also built a strategic alliance with Anheuser-Busch, a majority shareholder in GM. GM applied a broad differentiation strategy with the “fun in the sun” marketing image, which the Corona brand had achieved success with, by attempting to attract all potential beer consumers, instead of focusing on the classic target market of males between the ages of 25 and 45. In...
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