Industry Dynamics: Cervecería Centroamericana.pdf

Advanced Business Strategy Client: Cervecería Centroamericana SA Presented by: Delmy Alvarenga Date: Aug. 1st, 2016

Introduction Cervecería Centroamericana SA is a well established company in Guatemala with 125 years in the market 1, owned by the Castillo Family. Cervecería Centroamericana SA is the national beer2 production company in Guatemala. From late XIX century to 1960’s, the company took advantage of fiscal and political arragements, monopolizing the market, building one of the largest corporations in the country: the Corporatión Castillo Hermanos. For the purpose of this analysis, the growing alcoholic drinks industry and the company’s main portfolio, 
 we will focus on the beer industry.

Competitive Landscape For over a century, Cervecería Centroamericana SA held the monopoly on the production and sale of beer in Guatemala. They gained market competitiveness by keeping the prices high compared to other products in the market and imposing the law on their side. For instance, micro-brewers making a few kegs of beer for a local bar would run the risk of receiving a visit from Gallo’s legal team who could prosecute them on any number of grounds given that the Cervecería held not only a monopoly on beer, but also on beer bottles, beer taps, beer fridges and beer kegs. 3 This monopoly ended in 2004 when Brazilian Company AmBev entered the Guatemalan market with their signature beer, Brahva. Ambev, now Anheuser-Busch InBev, the world’s largest brewer with a 25% share of the global market and annual revenues of over $1 billion entered the market in 2004 with a clear objective to win over the Central American beer drinker. They are responsible for the production of more than 200 brands, including Budweiser, Corona, Stella Artois, Beck’s, Quilmes and Presidente. It’s their size what allows them the luxury to drop prices to acquire market segments, and this has been their chosen strategy for gobbling up national beer companies who cannot keep the battle with such fierce competition.4 For over a century, Cervecería Centroamericana dominated the market, imposed their monopoly, and lowered entrant possibilities keeping the market dynamics flat. Ambev’s entry changed the dynamics. Since 2004, Ambev has introduced more than 15 reowned international beer brands disrrupting the market with options, innovation, quality, and affordability. This strategy has been accompanied by a war on prices, dropping the category from standard to economy beer. Despite the price war, Cervecería Centroamericana SA keeps their leadership on a mature market thanks to their strong brand positioning, their wide product portfolio that ranges from economy to premium beer and their strong distribution channels that allow them to reach small independent stores across the country, both in urban and rural areas. To satisfy new market needs and create new market opportunities, Cervecería Centroamericana plays along emerging trends deveolping in-and-out seasonal innovations and new flavours beers to reach niche markets. [Exhibit 1: Competitive Life Cycle]

1

Cervecería Centroamericana. “Nuestra historia” http://www.cerveceriacentroamericana.com/conoce-la-cerveceria/nuestra-historia/

2

Cervecería Centroamericana. “Cervezas” http://www.cerveceriacentroamericana.com/cervezas/

3

Beer Wars. http://xelawho.com/?p=20396

4

Beer in Guatemala Report. http://www.euromonitor.com/beer-in-guatemala/report

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Internationalization Strategy Cervecería Centroamericana SA core business is the production of beverages using local supply. Due to its large production plant; distribution chain; glass bottle and packaging production; and local water supply capabilities, Cervecería Centroamericana SA internationalization strategy rather than acquiring breweries or merging with existing breweries elsewhere where strategy alignment and synergies are difficult to achieve, their internationalization strategy is best addressed by product export to foreing markets. Their iconic beer “Gallo” is distributed to Central American countries, Mexico, France and United States5 reaching both, international and nostalgic consumers.

Diversification Strategy The Corporación Castillo Hermanos S.A. operates as a holding company, which though its subsidiaries, produces beer, sweetened drinks, and carbonated beverages; taking advantage of their first market position, supply chain, glass bottles manufacturing, packaging, production plants, distribution network, financial, technical, legal, and administrative personeel. The company also operates in financial services, snacks, shopping centers, and packaging sectors.6 It is clear that Cervecería Centroamericana has utilized its current capabilities to diversify in similar businesses such as bottled water Salvavidas, a 80 year old brand in the guatemalan market, and Alimentos Maravilla, a soft drinks company. From a business perspective, this diversification responds to an operational shared-capabilities strategy, where new businesses are created sharing existing capabilities such as people, machinery, distribution alliances, water sources, bottling and packaging capabilities, technical, legal and financial expertise, providing them more opportunities to capitalize on existing resources [Exhibit 2. Diversification Matrix]. StakeHolder Strategy Historically, Cervecería Centroamericana SA has commanded a strong competitive position in the market that satisfied its shareholders by effectively aligning its values, opportunities and capabilities. However, due to the competitive pressures mentioned above, Cervecería Centroamericana SA has in recent years struggled to deliver sufficient value to its shareholders, especially

5

Gallo. https://en.wikipedia.org/wiki/Cervecer%C3%ADa_Centro_Americana

6

http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=323356387

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Exhibit 1. Dynamic Strategy

Phase

Disruption

Timing

Severity

Disruption occured in 2004 when Ambev enters the market with its signature brand Brahva.

Sever. Ambev entered the market with it’s signature beer Brahva, offering lowcost imported beer to the masses, targeting young consumers.

Annaeling

This phase is still going on. Ambev strategy is to bring more exported premium beers. Cervecería strategy is to innovate on lfavours and seasonals SKU.

Multiple options. Ambev strategy consist on flooding the market with its exported premium portfolio with no sign to diminish.

Shakeout

As the war price stopped in 2015, both companies find themselves in the innovation/premiumization trend/trap.

Duopoly. The market is dominated by two giants thatt makes other brands, distributors and/or producers to compete.

Overall

The category is slow to change. The two giants (Cervecería and Ambwev) makes it difficult to new entrants to compete.

Cervecería Centroamericana SA still enjoys a first mover advantage, taking distribution, production chain and national pride its side.

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Exhibit 2. Diversification Matrix

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Exhibit 3. Stakeholder Strategy

Customers

Employees

Primary Suppliers Stakeholders

Distributors

Communities

Government Secondary Satekholders Media

HIGH. Quality. Ubiquity. Affordability. Cervecería Centroamericana SA is a company that offers products nationwide. Demand is supplied easily due to its strong distribution channels and their prices remain competitive enough to satisfy consumer’s wallet. HIGH. Growth Opportunities and Reliability Cervecería Centroamericana SA supports the guatemalan talent. It offers personal and family growth, allowing their employees to develop.

HIGH. Supply Chain Control. Cervecería Centroamerica controls all their supply chain, from ingredients, water supply, to packaging and glass bottle production.

HIGH. Partnerships and Exclusivity. Cervecería Centroamerica is commited to local growth. Its strong distribution network allows distributors to sell their products with a variety of offers and facilitates payments. A happy distributor is a loyal seller. HIGH. Social Responsibility. Cervecería Centroamericana SA has stron social responsibility programs that allows communities to develop both, socially and economically.

HIGH. Legislation Cervecería Centroamericana SA has strong ties with politics in Guatemala, legislations and regularions are established to ensure maket advantage.

HIGH. Public Relations Cervecería Centroamericana SA requires that the company actively engage with media groups to help ensure new products are developed and considered as part of the country’s economy overall development.

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