Mgt 422 Grupo Modelo

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Mgt 422 Grupo Modelo

  1. 1. Newberry 1 Justin Scott Newberry MGT 422 – Mexican Economy and Markets Dr. Di Gregorio 3/3/2009 Grupo Modelo: An In-Depth Look Mexican grupos have survived, grown, and dominated in Mexican domestic and export markets for decades. A grupo can be defined as a single, unified conglomeration of various companies from usually very different sectors of the economy. Grupo Modelo has an expansive network including twelve brands of beer, bottling facilities, logistics companies, real-estate properties, sports teams, and other affiliates and subsidiaries, undeniably classifying it as a grupo (Grant). Historically, the trend has been that grupos have had significant influence and presence in the Mexican domestic and export market and they tend to be quite powerful economically. In this paper, I will describe and discuss Grupo Modelo’s history, scope, strengths and weaknesses, and current issues, performance, and strategy. The history of Grupo Modelo is a long and successful one. Nowadays, Grupo Modelo consists of an expansive network of beer producers and distributors with various affiliates and subsidiaries. Before I go into the current organization, progression, and strategy of Grupo Modelo, however, I will first describe the journey that has brought it to where it is today. After first describing its history and progression in terms of its primary activities of creating, acquiring, and selling popular and successful brands of beer and expanding its sales of these brands internationally, I will then proceed to outline its history of expansion as a grupo. The latter history includes its acquisition of companies and affiliates that both support the primary
  2. 2. Newberry 2 activities and branch out into new categories as has been the trend and definition of the Mexican grupo. Grupo Modelo was originally called Cervecería Modelo and was officially founded in Mexico City in 1925 by Pablo Díez Fernández and a group of a few other businessmen (Latin CEO: Executive Strategies for the Americas 1). From this first brewery in Mexico City came their first two brands of beer: Modelo and Corona (which would go on to become Grupo Modelo’s modern-day “crown jewel” and the number one most imported beer into the United States) (Latin CEO: Executive Strategies for the Americas 1, Grupo Modelo [reference 6]). After exploding in popularity and having sold more than 8 million bottles of these brands in Mexico within the first three years alone, Cervecería Modelo decided to launch a third beer in 1930, which was Negra Modelo (Grupo Modelo [reference 6]). With continued success of its brands, Cervecería Modelo continued on to the next stage in its corporate development and strategy: the exportation of its beer. After the massive popularity and success of its first three brands (Modelo, Corona, and Negra Modelo) in the late 1920s and early 1930s, Cervecería Modelo broadened its view of potential market capture north to the United States. In 1933 they began to “sporadically” export their beer to the United States (Grupo Modelo [reference 6]). In another two years, Cervecería Modelo began a long road of expansion generously spread throughout Mexico that would continue to present day. This long road of expansion began with their acquisition of their second brewery (Cervecería Toluca y Mexico) and its subsequent brands Victoria and Pilsener. With these five brands Cervecería Modelo continued its success, which can be summed up by its marketing slogan of 1943: “Y veinte millones de mexicanos no pueden estar equivocados (And
  3. 3. Newberry 3 twenty million Mexicans can’t be wrong…)” (Grupo Modelo [reference 6]). With this blossoming success as a firm foundation for the company, between the years 1954 and 1984 Cervecería Modelo went on to acquire and establish various other plants and their subsequent brands to make them all part of the Modelo family of beers. With this extensive family of popular brands of beer firmly in place, Cervecería Modelo once again looked out for international market share expansion. This time, however, they had their sights on markets a little further than their northern neighbor. Between 1985 and 1990, Cervecería Modelo expanded its distribution network to include (among others) Canada, Japan, Australia, New Zealand, China, Singapore, Greece, Russia, Africa, Holland, Germany, and Belgium, the latter three representing a significant accomplishment being that these have long been internationally well known for their beer (Grupo Modelo [reference 6], Grupo Modelo [reference 7]). Expansion of Modelo’s international presence in beer sales has continued to present day to a current sales presence in over 159 countries with the five brands they export (Corona Extra, Corona Light, Negra Modelo, Modelo Especial, and Pacífico) (Grupo Modelo [reference 6], Grupo Modelo [reference 7]). Modelo’s performance worldwide can definitely be classified as a success, with Corona Extra, Modelo Especial, and Corona Light occupying the first, third, and sixth positions of premium imported beer to the United States, respectively (Grupo Modelo [reference 6]. Additionally, according to Grupo Modelo, Corona Extra is the number one selling Mexican beer worldwide (Grupo Modelo [reference 5]). Without doubt, Modelo has definitely learned and mastered its presence in the domestic and export beer industry throughout its long history. However, there is more to Grupo Modelo than the simple production of their twelve brands in their seven plants
  4. 4. Newberry 4 throughout Mexico. There are also many affiliated companies under Modelo’s wings that support and even branch out classifying Grupo Modelo as a true Mexican grupo. I will now outline a brief history of these subsidiaries and proceed to describe Grupo Modelo’s current performance, issues, and strategies. Beyond Cervecería Modelo’s strict brewery operations, there have been many supporting affiliates that have helped the company to achieve the global success it has presently. These supporting and branching activities began in a significant capacity in the 1980s, when Cervecería Modelo began establishing separate malting facilities (most notably Cebadas y Maltas in Calpulalpan, Tlaxcala and INAMEX de Cerveza y Malta in Texcoco, Estado de Mexico) (Grupo Modelo [reference 6]). This distinction in Cervecería Modelo’s diversification of subsidiaries, being that it immediately precedes the massive worldwide expansion, perhaps explains its ability to produce effectively and efficiently and send out high quality and successful brands to the world. With this success and expanding network of subsidiaries, Cervecería Modelo was renamed as Grupo Modelo in 1991 and went public in 1994. Ever since then, Grupo Modelo vertically integrated itself with subsidiaries including six service companies, one bottling/lid company, one machinery manufacturing company, three malting facilities, five logistics companies, ten international companies, five various associates, thirty-two agencies and distributors, seven breweries (as of 2007, the eighth was being constructed in Nava, Coahuila), and four commercial companies (Grant, Grupo Modelo [reference 8]). As Tina Grant points out in her 1999 analysis of Grupo Modelo in International Directory of Company Histories Volume 29:
  5. 5. Newberry 5 “Grupo Modelo was, in 1997, operating 33 companies, which owned approximately 1,394 facilities, including one factory each for producing metal cans, plastic caps, glass bottles, and cardboard boxes, and convenience stores under the names Modeloramas, Super Flash, Circle K, and Stores 12+12. Other subsidiaries were involved in the production of ice and machinery and the operation and maintenance of warehouses and distribution centers, real-estate properties, a shipping fleet, and even a soccer stadium in Torreón” (Grant). Grant’s profile of Grupo Modelo provides an important look into the expansiveness of Mexican grupos and particularly an important look at Grupo Modelo. From this we can see just how significant the extensive network of affiliates and subsidiaries really is for Grupo Modelo. Beyond Grant’s analysis and jumping ten years into the future to present day, Grupo Modelo still maintains its extensive network in widely varying industries. For example, presently Grupo has affiliations with three sports teams (Club Santos Laguna [soccer], Yaquis de Obregón [baseball], and Venados de Mazatlán [baseball]). Additionally and of more economic significance, Grupo Modelo has an alliance with Anheuser-Busch, an American beer company. This alliance was established through Anheuser-Busch’s purchase of a fifty percent non-controlling interest in Grupo Modelo. Although this is a non-controlling interest, it is an influential alliance in Grupo Modelo’s strategy and competitive advantage because it gives them the exclusive right to distribute Anheuser-Busch’s products such as Budweiser, Bud Light, O’Doul’s, and 180 Energy Drink in Mexico. Also worthy of noting in regards to Grupo Modelo’s affiliates and distribution activities is its importation and domestic distribution of Carlsberg (beer from Denmark), Tsingtao (beer from China), San Pellegrino (sparkling water), Perrier (sparkling water), and
  6. 6. Newberry 6 Acqua Panna (water) (Grupo Modelo [reference 9]). Now that I have detailed the history, progression, and scope of Grupo Modelo’s extensive network of subsidiaries, I can now move on to describing the strengths, weaknesses, and the current issues, performance, and strategy of Grupo Modelo. Grupo Modelo has various strengths and weaknesses as a company. Appendix 1 to this paper shows a supplemental SWOT analysis ([Strengths, Weaknesses] – internal factors, [Opportunities, and Threats] – external factors) I have put together highlighting what I have found in terms of Grupo Modelo’s strengths and weaknesses and surrounding business environment. One of Grupo Modelo’s major strengths is its relationship with Anheuser-Busch, which grants them exclusive rights to distribute popular beers such as Budweiser and Bud Light in Mexico. With all competitive advantages in place, Grupo Modelo has been able to capture 63 percent of the domestic and export market in Mexico (Grupo Modelo [reference 5]). This is obviously a strength for Grupo Modelo because they have become the reputable and recognizable company in these markets, which is something that they have gained over time. A notable weakness for Grupo Modelo, however, is that like many grupos they can become over- diversified and forget about their core competencies. If Modelo starts forgetting about what it knows best, it will most likely begin to lose ground because of diving quality in their products. In terms of opportunities that exist in the Mexican market for Grupo Modelo, there is definitely a chance to take advantage of the fact that it currently has seven plants operating spread all over Mexico. This combined with the fact that certain vacation spots such as Cabo San Lucas, Cancun, Puerto Vallarta, and Puerto Peñasco attract international visitors, Grupo Modelo has an opportunity to introduce its products to an international market that it may not have had a chance
  7. 7. Newberry 7 to touch yet without having to go blindly into a country not knowing what to expect in terms of bottom-line returns or risks. Along these same lines we can also see a potential threat for Grupo Modelo. If Modelo gets too comfortable waiting for the market to come and show itself, they will surely miss out on opportunities that they would not have missed had they kept their eyes open and done a little research to find the next market opportunity. I will now discuss Grupo Modelo’s current issues, performance, and strategies for the future. One interesting distinction that I discovered upon researching Grupo Modelo and its history as a company/conglomerate is that it does differ in a fundamental way from other grupos. Although it does not seem to be an issue per se, it is a distinction quite worthy of mentioning in order to contrast it with other contemporary Mexican grupos. In his discussion paper, Taeko Hoshino opens with: “Indigenous firms in Mexico, as in most developing countries, take the shape of family businesses. Regardless of size, the most predominant ones are those owned and managed by one or more families or descendent families of the founders” (Hoshino [reference 11] 1). He goes on in his paper to talk about the leadership in Mexican grupos and how human resource limitations perpetuate the cycle of top-level management and control staying within the founding family primarily because of insufficient education and training (Hoshino [reference 11] 23-26). With all this being said about grupos and leadership trends in such grupos, Hoshino makes an important distinction regarding Grupo Modelo. He points out that although it would appear as if leadership and control of Grupo Modelo has remained in the founding family’s hands ever since 1925 (founded by Pablo Díez Fernández and current CEO is Carlos Fernández González), it has not:
  8. 8. Newberry 8 “MODELO […] was founded by several investors. One of them bought the majority of shares. As he had no offspring at the time of his retirement, he transferred his shares to various salaried managers. The founder’s nieces hold the post of president of the board, and his son is now the CEO. This son married the daughter of one of the salaried managers to whom part of the shares had been transferred. In the end, the founder families came to own the shares and now hold the principal management posts” (Hoshino [reference 11] 8, Hoshino [reference 12] 156, Modelo [reference 4] 410). Indeed this is an interesting distinction from many other grupos in that it shows a large period of time where outsiders (non founding family members) were able to come in and give their input in regards to the top-level management and handling of the company. This perhaps, among other things, could explain some of Grupo Modelo’s immense historical success being that it was able to circulate fresh management ideas over the years instead of having one family controlling the company with, in effect, a closed mentality. This, however, is only speculation to be pondered. Grupo Modelo’s performance has historically been very strong. This can be seen in its rapid expansion of brands and breweries in its first twenty years of operation and has only gotten stronger to the present day. In fact in June 2008, the magazine Expansión released its yearly report (for fiscal year 2007) on the top 500 companies with operations in Mexico, and Grupo Modelo was ranked 21st (Expansion 200). Additionally, Expansión ranked Grupo Modelo 10th for companies that increased absolute sales (non-percentage increment) and the 37th most profitable operation in Mexico for 2007 (Expansion 228). From Modelo’s 2007 financial reports, we see that they had a net income of 15.269 billion pesos and we also see that between the years 2003 and 2007 exports grew by 35.85% and net sales grew by 53.54% (Fernández
  9. 9. Newberry 9 González, Carlos (CEO – Grupo Modelo), Dr. Juan José Suárez Coppel 2-12). One question seems to still remain, however. What exactly has led to such constant financial success for Grupo Model? Again, Tina Grant in her analysis of Grupo Modelo in 1999 provides us with some insight into how we might explain Modelo’s success, even in times of economic hardship and devaluations of the peso: “Because the company had virtually no debt and was earning large quantities of dollars and other hard currencies, its shares even rose during the severe recession that gripped Mexico following the sudden and devastating devaluation of the peso in December 1994. In 1998 the stock increased 24 percent in price even though all shares on Mexico City's stock exchange fell an average of 24 percent during the year” (Grant). This seems to provide an excellent context of Grupo Modelo’s international presence and the financial security such presence gives the company. With this explanation, Grupo Modelo’s constantly strong financial performance does not seem so surprising anymore. Furthermore, with this explanation, I can now tackle the question of Grupo Modelo’s overall strategy and how effectively it can compete by employing this strategy. Grupo Modelo says its mission is: “To establish the leadership Model in the global beverages and consumer products market…” (Grupo Modelo [reference 10]). In order to do this, a big consideration for Modelo is its competitors and what they are doing. Although Grupo Modelo currently has a 63 percent share of the domestic and export market in Mexico, some of its main competitors are FEMSA Cerveza (Fomento Económico Mexicano – beer industry – Tecate, Dos Equis), FEMSA (Fomento Económico Mexicano – bottled beverage, juice industry
  10. 10. Newberry 10 competing against Modelo’s water distribution), and MillerSAB (beer industry – Miller Genuine Draft, MGD64, Miller Light). With its current domestic and international market share (and having the first, third, and sixth most imported premium beers to the United States), Grupo Modelo is in an excellent position to compete effectively, efficiently, and profitably (Grupo Modelo [reference 7]). Additionally with Grant’s explanation of Modelo’s financial success despite market instability, it remains clear that Grupo Modelo is quite capable of competing and accomplishing its goal of becoming the leader in the global beverages and consumer products market through increasing global reach to new markets. In conclusion, Grupo Modelo has definitely had a long, interesting, and successful history in the beer, beverage, and consumer products industries. Ever since its first two brands rolled into stores in the 1920s up until present day, Grupo Modelo has shown that it’s willing to provide the world with high quality products that really are what the people want.
  11. 11. References 1. Expansión. “Expansión 500: A Río Revuelto.” (Spanish) Expansión. June 2008 2. Fernández González, Carlos (CEO – Grupo Modelo), Dr. Juan José Suárez Coppel. “Facing the Future.” Grupo Modelo Annual Report (2007): 2-12. 1 Mar. 2009 http://www.gmodelo.com/inversionistas/informe_anual/informe_2007_en.pdf 3. Grant, Tina. “Grupo Modelo, S.A. de C.V.” International Directory of Company Histories. Vol. 29. St. James Press, October 28, 1999. 3 Mar. 2009. http://www.fundinguniverse.com/company-histories/Grupo-Modelo-SA-de-CV-Company- History.html 4. Grupo Modelo. Mexico. “Grupo Modelo, cimientos de una gran familia.” (Spanish). (2000): 410 5. Grupo Modelo. “¿Quiénes somos?” Grupo Modelo S.A.B. de C.V. 1 Mar. 2009 http://www.gmodelo.com/index-1.asp?go=hoy 6. Grupo Modelo. “Historia de Grupo Modelo.” (Spanish). Grupo Modelo S.A.B. de C.V. 1 Mar. 2009 http://www.gmodelo.com/index-1.asp?go=historia 7. Grupo Modelo. “Expansión Internacional.” (Spanish). Grupo Modelo S.A.B. de C.V. 3 Mar. 2009 http://www.gmodelo.com/index-4.asp?go=expansion 8. Grupo Modelo. “Estructura Corporativa.” (Spanish). Grupo Modelo S.A.B. de C.V. 3 Mar. 2009 http://www.gmodelo.com/index-1.asp?go=uens 9. Grupo Modelo. “Marcas Importadas.” (Spanish). Grupo Modelo S.A.B. de C.V. 3 Mar. 2009 http://www.gmodelo.com/index-1.asp?go=importadas 10. Grupo Modelo. “Mission, Vision, and Values.” Grupo Modelo S.A.B. de C.V. 3 Mar. 2009 http://www.gmodelo.com/index-1_en.asp?go=vision 11. Hoshino, Taeko. “Family Business in Mexico: Responses to Human Resource Limitations and Management Succession.” Institute of Developing Economies Discussion Paper No. 12 (2004): 8. 12. Hoshino, Taeko. “Ownership Structure of Large-Scale Mexican Enterprises: The Mechanism of Management Control by Owner Families.” (2003): 156. 13. Latin CEO: Executive Strategies for the Americas. Grupo Modelo Speaks for Itself. (August 2001). CEO Publishing Group, Inc. 3 Mar. 2009. http://findarticles.com/p/articles/mi_m0OQC/is_8_2/ai_100500722
  12. 12. Appendix 1. Strengths • Anheuser-Busch gives exclusive right to distribute its products • Gives Grupo Modelo a knowledgeable, experienced partner in the beer industry • Additional alliance with Carlsberg (Denmark) • Long, established presence in the market (Advertising slogan in the 1940s : “Y veinte millones de mexicanos no pueden estar equivocados…”) • Large market share (63%) • Production facilities throughout Mexico Weaknesses • Like many grupos, too much company diversification can lead to a loss of core competencies • Loss of product quality, loss of focus on what customers actually want
  13. 13. Opportunities • With significant tourism industry in key locations (Cabo San Lucas, Puerto Vallarta, Cancun, Puerto Peñasco), Grupo Modelo can expose/test a product with international customers that come to them • They don’t have to take a full risk of expanding operations, marketing, logistics to a new international market with uncertainty Threats • Along with this opportunity for new international segments simply coming to them at tourist vacation spots comes the threat that Grupo Modelo will become too comfortable with this advantage and lose international market share • They might stop doing their own research and miss out on expansion opportunities they would have otherwise missed

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