Business Operations of the Grupo Modelo - Term Paper Example

? Term Paper 2 Executive Summary This term paper will reflect the strategic issues related to the business operations of the Grupo Modelo. In the first part of the project, an overview of the top brand of the company ‘Corona Beer’ will be provided (as given in the case study) followed by the SWOT analysis and the industry analysis of the company. The SWOT analysis will help to analyse the strength, weakness, opportunity and threat of the company. In the last part, the term paper will analyse the ‘staying power’ of the company by means of eight strategic verticals. Brief summary and conclusion will also be provided at the end. Table of Contents Table of Contents 3 Introduction 4 Analysis 5 SWOT Analysis 5 Porter’s Five Forces Analysis 7 Staying Power 9 Summary and Conclusion 12 Works Cited 13 Name of the Student: Name of the Professor: Course Number: Date of the Paper: Strategic Analysis of Corona Beer Introduction This study has chosen Grupo Modelo in order to analyse the case study. In the first part of the study, the company overview will be provided followed by some information on its top brand ‘Corona Extra’. Grupo Modelo- Company Overview Grupo Modelo is a big and well known brewery company in Mexico. It was established in the year 1925. It alone holds 63 percent of the beer market in Mexico and exports its products to United Kingdom and United States. It has a joint venture with a company named Molson Coors Brewing Company UK Ltd. It exports mainly the Corona, Pacifico and the Modelo brands. Among them Corona Extra is one brand which is the fourth largest selling beer in respect of the volume. It is one of the leading brands sold worldwide. In the United States, the Corona Extra is at the top among the imported beers. Analysis SWOT Analysis Swot analysis is an important tool for strategic planning (Boone, and Kurtz 46; Ferrel, and Hartline 122). It helps in decision making after understanding the dependency and the relationship between a particular company and its environment (Pahl, and Richter 27). This business planning tool helps to overcome the threats and the weaknesses. It is one of the traditional methods of strategic management. Strength The top brands of Grupo Modelo have huge demand in the domestic as well as the international market. Corona Beer, which is one of the leading brands of the company, is the fourth largest selling beer in respect of the volume. The company leads the beer market in Mexico and hence enjoys the market share leadership. It possesses cost advantage due to the large volume of production. The leading position in the beer market not only enhances the sales of the company, but also strengthens its financial position. It has a strong management team which has a positive impact on the performance of the company. The overall unit cost of the products of the company is lower as compared to the competitors which help them to achieve competitive advantage in the market. The strong tradition that is followed while providing services attracts the customers and the quality of the services provided helps in retaining these customers and achieve success in the market. Weakness One of the main weaknesses of the company is that most of its brands are manufactured for the domestic market in Mexico. The company has lesser number of brands serving the customers in the international market. The company should make efforts to increase the brands delivered in the global market apart from serving as a leader in the Mexican market. The company has not performed much product innovation in the past few years. The changing tastes of the customers might result in losing them. Opportunity The company has the opportunity to expand its operations in new market segments. The expansion of the services in new and international markets will lead to a rapid increase in the growth of the company. It also possesses the opportunity to introduce some more products and expand its product line in order to accommodate with the changing tastes and preferences of the customers. It has the ability to increase and transfer its skills to different business units located in the domestic as well as the international market. The reduction in the rules and regulations related to the trade and ownership in the foreign countries enhances the company to expand in the foreign market. Threat The increasing tax regulation on the beer industry is one of the major concerns for the company. There are specific segments of the company in the domestic market which are declining. This is resulting in reduction in the industry growth rate. Moreover, the changing taste of the customers is a serious threat to the company. It should take immediate step towards the expansion of the product line. Porter’s Five Forces Analysis The five forces tool will help to understand the competitive advantage that is associated with a particular industry (Michael porter, 1980; 1985). The study will use the Porter’s five forces analysis to understand the microeconomic factors related to the industry. These five forces help to analyse five forces including the rivalry from the existing firms, threat of new entrants, threat of substitutes, bargaining power of the buyers and the suppliers. Rivalry from the existing firms- Rivalry between the firms arise when they compete with each other for attracting the customers. The rivalry can be based on the price competition or competition on product quality, customer service etc. The concentration level in an industry determines the extent to which the rivalry exists. When the industry is highly concentrated, the rivalry is less. The beer industry is highly concentrated which reduces the rivalry to some extent. On the other hand there are significant barriers to the exit of the companies from the beer industry which increases the rivalry between the existing firms. This neutralises the overall impact of rivalry on the industry. Threat of new entrants- It is the competition which may arise in the industry due to the entry of new companies in the existing market (Henry 71). The price competition along with the increasing production by the market leaders provides barriers to the entry of the new firms in the beer industry. The new entrant will have to face a large number of barriers in the present scenario from the economies of scale, huge capital requirements, brand loyalty, effects of product differentiation and the rules and regulations of the government. Thus the threat of the new entrant is low. Threat of substitutes- There are a lot of substitutes of beer. Some of the substitutes are wine, special drinks, wine cooler, soft drinks, tea, fruit juices, sports drink etc. The beer possesses a high threat from the soft drinks. There is high consumption of soft drink in the market. This increases the threat from the substitutes for the company. Bargaining power of the buyers- The buyers in an industry are mainly the end users who consume the products (Hill, and Jones 50). In case of the brewing industry, the buyers of beer are the distributors who distribute the products to the end users. When there are not much distributors in the market, the bargaining power of the buyers increase. The distributors are the ones who connect with the retailers and the customers to deliver the products. They control the price of the product based upon the margin of profit that they require. This is increasing the power of the distributors which can have a negative impact on the industry. Thus the bargaining power of the buyers is high. Bargaining power of the suppliers- The suppliers in an industry can extract the profit out of the companies operating there (Parnell 28). There are a large number of suppliers in the industry providing brewing equipments to the companies. Some suppliers provide additional products and services along with the brewing equipments because the brewing equipments cover only a part of the total operation. In order to keep this industry operational, continuous supply of the ingredients of beer is required. The brewing industry depends to a great extent on the supplier’s input. Moreover, the ingredients of beer have no substitutes. As a result supplier substitute is not possible. This increases the bargaining power of the suppliers. Staying Power 1. Clear Vision In the international market, specific brands of Grupo Modelo have achieved huge success. The vision of the company is “To obtain more than half of our revenue from the international markets by 2015 and to consistently strengthen our leadership in the domestic market, while maintaining profitability” (Grupo Modelo, “Mission, Vision and Values”). The company operates with integrity and focuses on the equitable treatment towards all the customers. It has a target to lead the international beverage market in the future years. 2. Environment for employees to thrive The company believes that it is the contribution of the employees which have resulted in the achievement of success (AbInBev, "Employees"). It aims at having the best employees. The company wants employees who will contribute and build a company and not just their individual career. The employees work in accordance with the business policies and values in order to maintain transparency in the company. They work with punctuality, loyalty and devotion in order to strengthen the work environment and enhance the performance of the company. 3. Business Model Among the global brewers which are having strong hold in their domestic market also is Grupo Modelo. It is famous mainly because it is the owner of an international success story i.e. Corona’s achievement in the global market. The manager of Modelo believes that if the brews are expanded internationally then there is more growth waiting for the company. The ‘go- it- alone strategy’ was becoming tough for the company. Thus, Anheuser-Busch InBev invested in the 50 percent of the total stake of Modelo. This can be taken as a positive step in favour of the company. This will help the company to maintain its financial stability. The company made one of the biggest rivals of Anheuser-Busch InBev its distributor for one of the brands in Britain. It holds 56 percent of the total Mexican market which has made it one out of the top ten brewery companies in the world. 4. Stay flexible Grupo Modelo made a quick progress in the international market even in the changing environment of the beer industry. One of the strongest competitors of the company is Heineken. The company exported five main brands to the United States to achieve competitive advantage in the market. Among them Corona was the best selling beer imported in the United States. The company tried to focus only on beer rather than adding any other beverage in the product portfolio. The company is taking steps towards the expansion in the international market. 5. Stay on top of financials The financial statement of the company from 31 December 2009 to 31 December 2012 has been shown below: (Source: “Financial Statements for Grupo Modelo S.A.B.-Ser C.”) From the aforementioned financial statement, it is evident that the company has shown an increasing trend in the net profit from the year 2009 to 2012. Thus the performance of the company is impressive and will help to achieve the ‘vision’. 6. Effective market and sales strategy The main success of the company lies in the internationalisation marketing strategy. In this strategy the autonomous control is given to the experienced distributors. The distinguishing feature of the market campaigns conducted by the company is that it does not focus on any particular target market. It focuses on imposing the power to the top distributors in the international market in order to increase the sales. 7. Board of Advisers The organisational structure of the company is composed of 1) CEO headed by Carlos Fernandez Gonzalez 2) Vice Chairman of the Board headed by Valentin Diez Morodo and 14 directors who are advised by the CEO of the company. The effective organisational structure of the company has helped to achieve success globally. 8. Consistent quality It is clearly visible from the SWOT analysis that the consistent qualities of the products and services that are provided by the company have been its strength. This has helped the company to become a market leader in the domestic land and expand in the international market. Summary and Conclusion The beer market, as a whole, is highly product diversified. The forces driving the competition in the market are also high. Moreover, the customers have different offers from large number of competitors in this market. Grupo Modelo needs to expand the product line as well as its operational market in order to achieve competitive advantage over its competitors. Thus, the next step that must be taken by the company is to change the product line along with the changing taste of the customers and increase the number of brands exported to the international market. There are various substitutes of beer which is a major concern for the company. It needs to perform product innovation in order to reduce the threat from the substitutes. Works Cited Boone, Louis. E. and David L. Kurtz. Contemporary Marketing. Connecticut: Cengage Learning, 2011. Print. “Financial Statements for Grupo Modelo S.A.B.-Ser C.” Bloomberg Businessweek. BLOOMBERG L.P.,2013. Web. 19 Mar 2013. “Mission, Vision and Values.” Grupo Modelo. n. p., n. d. Web, 19 Mar 2013. Ferrel, Odies C. and Michael D. Hartline. Marketing Strategy. Connecticut: Cengage Learning, 2010. Print. Henry, Anthony. Understanding Strategic Management. England: Oxford University Press. 2008. Print. Hill, Charles and Gareth R. Jones. Strategic Management Theory: An Integrated Approach. Connecticut: Cengage Learning, 2009. Print. Pahl, Nandine and Anne Richter. Swot Analysis - Idea, Methodology and a Practical Approach. Munich, Germany: GRIN Verlag, 2009. Print. Parnell, John. Strategic Management: Theory and Practice. New Delhi: Dreamtech Press, 2003. Print. Porter, Michael E. Competitive Advantage. New York: Free Press, 1985. Print. Porter, Michael E. Competitive Strategy. New York: Free Press, 1980. Print. Read More