The most dominant business characteristic of the global beer industry was stated by Heineken's president Michael Foley: “There is no mystery about brewing beer. Everyone can do it… Beer is all marketing. People don't drink beer, they drink marketing.” Today's competitive beer markets are concentrated with several key multinational players at the top and many thousands of smaller producers ranging from brewpubs to regional breweries. More than 133 billion liters (35 billion gallons) are sold per year—producing total global revenues of $294.5 billion in 2006. While many main markets such as the United States are becoming more saturated, the real growth came from increased consumption in developing countries, especially China, which has now overtaken the United States as the largest beer market in the world.
Grupo Modelo is the number one beer producer in Mexico. It owns several main beer brands of the domestic market including Corona, Dos Equis, and Sol while also exports Corona Extra, Corona Light, Model Especial, Pacifico Clara, and Negra Modelo to the United States market. Since its inception in 1922, Groupo Modelo has shifted its humble aim to focus only on Mexico City and surrounding areas to global markets. Their corporate mission is “To grow as a multinational competitor in the beverage market, inspiring pride, passion and commitment, and generating value for our stakeholders.” In 1997, Corona became the number one selling imported beer in the United States, surpassing Heineken and is now one of the top five selling beers worldwide. However, its top position as the world’s most recognizable Mexican beer was being threatened by ever more intense competition, global consolidation of big players, main markets approaching saturation, as well challenges of international expansion to create sustainable global presence.
Five Forces Analysis:
Threat of Substitution
High – There are many choices for consumers in terms of beverages other than beers. Some of them include wine, liquor, flavored alcoholic drinks, non-alcoholic beer, and other non-alcoholic beverages.
Threat of New Entrants
Low – Starting up a brewery business requires a large investment capital. In addition, smaller breweries cannot compete with global companies like Grupo Modelo because of cost disadvantages as well as lack of established distribution channels. The main drivers to operating margins in the beer industry are vertical integration and economies of scale.
Bargaining Power of Buyers
High – Since customers have many choices available in the market, they seem to have a high bargaining power over the suppliers. Consumers are price sensitive and beer companies must set their prices according to the market demand. In addition, consumers have low switching cost to buy other brands of beer and substitute products.
Bargaining Power of Suppliers
Low – Big players such Grupo Modelo has higher bargaining power over their suppliers due to its size and market share. Since the supplies are mainly commodity products, they are easily sourced and replaceable. As long as Grupo Modelo can maintain a healthy number of different suppliers and not relying their production on a particular one, it should be able to exert more bargaining power. Some companies have decided to integrate vertical to be in control of their integral supplies.
Competition in the global beer industry can be described as intensely fierce as more top players attempt to grow through mergers and acquisitions, which created high level of competition among the leading brands and a fight to gain market shares.
The analysis presented above using Porter's Five Forces Model clearly highlights the brewing industry trends where barriers to entry are low, bargaining powers of suppliers is low, bargaining power of buyers is high, substitutes are high, and rivalry among existing competitors is...