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Grupo Modelo CEO Carlos Fernández spoke with Kellogg School executive MBA students Feb. 8 during his visit to Coral Gables, home of the the Kellogg-Miami Program campus.

Grupo Modelo CEO visits Kellogg-Miami Program

EMBA students gain strategic insights into major beverage industry firm

By Marianne Armshaw and Chuck Farris

2/13/2007 - Coral Gables, Fla.,  - French president Jacques Chirac drinks it at state dinners. Clint Eastwood remains an avid fan. And Americans – well, they seem to guzzle it at any price. Grupo Modelo’s Corona Extra beer vies with chocolate and chiles as the most beloved exports of Central America’s economic powerhouse.

Modelo is the Mexican conglomerate that slakes the worldwide thirst for Corona and a growing portfolio of beverages. CEO Carlos Fernández discussed the company’s zeal for maintaining both quality and economic advantage during his presentation and Q&A session on Feb. 8 with executive MBA students at the Kellogg School of Management’s campus in Coral Gables, Fla.

“Control of every step of the process is our key,” Fernández told the members of the Kellogg-Miami Program. Energetic and dapper, Fernández became Modelo CEO in 1997. The board appointed him chairman in 2005.

He explained how Modelo’s corporate structure touches every aspect of brewing and distribution — from the growing of malt, manufacture of bottles and caps, through bottling and distribution to 150 countries worldwide.

Fernández told students the story of a company founded more than 80 years ago by Spanish emigrants in Mexico. Savvy acquisitions, ruthless attention to quality and smart marketing ensured prosperity and growth.

By the 1980s Corona was the No. 2 U.S. beer import. The company had a presence in Europe and was shipping to Asia. In 1994 Grupo Modelo began trading on the Mexico stock exchange (GMODELOC). In the 1990s Corona rose to the No. 1 slot among U.S. imports — a position it maintains.

Today, the company has grown far beyond the family owned brewery of the 1920s. Company loyalty remains part of the culture, Fernández explained. Many employees serve tenures of 20 years or more.

“Our most recent retiree had 40 years with us. So it’s still very much a family,” he said.

That family has bite. Fernández sports a wolf on his attaché. “Spirit of a Lion” served as the slogan for this year’s sales conference. Fernández held up his wrist to show students the rubbery blue bracelet he gave to each of the company’s 37,000-plus employees. Stamped on the bracelet: Winning is the only option.

In Mexico, Modelo’s seven breweries — including the world’s second largest — can produce up to 60 million hectoliters. A planned eighth facility will increase capacity more than 15 percent. Fueled by a strong distribution network, Modelo commands nearly 58 percent of Mexico’s beer market.

The global picture seems equally promising: Modelo beers are sold on five continents with Corona ranked as the world’s No.4 beer. U.S. suds drinkers buy enough Modelo cerveza to catapult three of the company’s brands into the top 10.

Fernández emphasized the company’s growth.

“We form strategic alliances with brewers, with producers of malt, hops and glass,” he said. “We aren’t growing through acquisitions and buy-outs. Our growth is organic.”

Local production and awareness of customer sensibilities and economics inform Grupo Modelo’s product mix and stratified pricing strategy.

“Let’s face it, there aren’t that many people who can pay seven dollars and fifty cents for a beer,” Fernández said. “In many parts of the world, that’s a very small market.”

Attention to details and a willingness to buck accepted wisdom have served Modelo well. Fernández recalled the company’s controversial decision to adopt clear glass bottles.

“Everyone said you can’t do that; beer comes in amber bottles. Period,” Fernández recalled. Darker glass protects the beer from light, which can degrade quality. Yet clear glass allowed customers to see the beer’s color and clarity, to view that lime wedge settling into the immaculate glass. This beer had nothing to hide.

Quality control and timely delivery keep the beers pristine and flavorful.

How good does Modelo believe its beers taste? So good that Corona needs few supporting players in its commercials.

The class watched televised spots filmed on an idyllic beach. Instead of famous faces or bikini-clad models, the camera focuses on the iconic Corona bottles enjoyed by two faceless actors. Using no spoken words and scored with a soundtrack composed of gentle waves, soft wind and tropical bird calls, the ads use understatement to link its beer to paradise.

Paradise, however, can be pricey. What about customers at the lower end of the economic ladder, a student asked. “You cannot charge export prices for a local product,” Fernández cautioned.

Recognizing economic realities, Modelo markets different brands at varying price points. The affluent drink Corona Premium. Mainstream and regular beers — the brewery equivalent of vin ordinaire — reflect modest pricing.

With the company’s 12 beers soaking up the lion’s share of Mexico’s domestic market, how does the company prevent cannibalization, another student wanted to know.

By mining their market research, Fernández answered.

“We found that different people drink different beers. Men drink Corona. Women drink Corona Light. So there was no cannibalization,” he said.

The company also segments regionally. Mexican states along the country’s west coast quaff Pacifica, for example. Those in the Yucatán enjoy Montejo.

The Modelo family has big plans for 2007. The company recently announced a joint venture with Constellation Brands and will distribute Tsingtao in Mexico. A strategic partnership with Nestlé’s bottled water improves its portfolio of “healthy beverages.”

Modelo has exclusive rights to import and distribute Anheuser-Busch beers in Mexico. Despite Anheuser-Busch’s 52-percent stake in Grupo Modelo, Fernández stressed that control of the company remains with the Mexican partners.

He also discussed the company’s recent announcement that Anheuser-Busch will distribute Corona in China, and commented frankly on the perils of doing business there. He shared a story about a police raid on a Chinese ‘entrepreneur” who had been flooding the local market with ersatz Corona. Police uncovered a surprise during their sweep.

“He had a warehouse full of [counterfeit] Heineken and Bud,” Fernández said.

Asked whether economic realities could lead Modelo to begin production outside Mexico, Fernández answered without hesitation. “No,” he said. “We will do what we have to do to keep production in Mexico.”

Patriotism and Mexican pride are part of the Modelo success recipe. Fernández aims to keep it that way.

“There is a romance and a mystery to something made only in Mexico. It could never be the same if we were making it next door,” he explained. At the same time, he believes that Modelo is “on the verge of becoming a truly global company.”