Grupo Modelo's Strategy

Sami Charouk

Grupo modelo's strategy for expansion was mainly built on two main criteria: First by strategic partnership with distributors that had an important role in internationalization and secondly the marketing plan that played a role in differentiation of the brand.

Grupo Modelo faced fierce competition in the beer market locally and internationally:

Local Market :

When Grupo Modelo first opened in the 1920s, its aim was to focus on the local market.

Modelo's beers were differentiated with their clear quarter bottles and tastes that were consumer driven.

In the mid of the 20th century Modelo was pursuing domestic power while the competitors were busy going international.

At that time Mexico became industrialized and the infrastructure allowed large scale business and distribution. Modelo strategy was direct distribution and profit sharing. These strategies led Grupo Modelo to rapid growth and to become Mexico's largest beer company.

There are two main beer companies in Mexico that compete locally and internationally; they are Grupo Modelo and FEMSA. There is a kind of duopoly in the beer business with these two groups and rivalry was always present between them to achieve the biggest market share.

These two companies saw the high potential of business in Mexican beer since Mexico is highly populated and beer is highly consumed and liked even though it is not the primary alcohol drink for the Mexicans.

The corona family had 50% of the market share in 1989 and 63% in 2007.

There was always economic instability in Mexico and the Mexican peso was fluctuating, so in the late 1970's Modelo and FEMSA decided to attack the international market to limit its risk and also to expand business.

Both companies wanted to expand internationally but unfortunately there were entry barriers. First there were a lack of knowledge in the international market and secondly there was a heavy competition with global brands such as Heineken and Interbrew.

Internationalization:

Distribution Channels:

Both companies wanted to attack the international market but could not do it alone, considering the entrance barriers.

In 1979 Grupo Modelo entered the United States market.

There are several reasons why Grupo Modelo and FEMSA started with the United States as the first step of internationalization:

- Geographic reasons, it is a common strategy for the companies that want to expand internationally to start with its neighbor countries.(familiar with customs and near distance)

- USA is the largest beer consumption per capita in the world thus it is a huge potential market.

- Distribution channels availability

- Challenging competition.

Grupo Modelo entered the United States market with the help of its distributor that provided knowledge and expertise in the US market. The distributor selection is very critical because he is going to reflect your image in the host country and he should have an extremely high level of expertise and knowledge in the market.

Grupo Modelo continued to produce in Mexico its beer and its distributors were in charge of transportation, insurance, custom clearance, pricing, marketing and advertisement-everything except production.

Modelo selected two distributors: Barton Beers LTD that was the largest beer importer in the US and imported the corona beer to the 25 western states and in 1986 Modelo added another distributor to supply the eastern states which is Grambrinus Inc. Modelo gave the distributor autonomy to market the product but also maintained an involvement in the decision making process.

They also made a contract with Procermex Inc. to coordinate, support and supervise the two distributors.

Concerning FEMSA, its strategy slightly differed. It has chosen to control its products from production to point of sale. But the company also made relations in the US by supplying Coca Cola in Mexico and opening the biggest convenient store in