Forget the Limes, its Modelo Time!

It’s Modelo time, foo.

Last year, Modelo Especial, a Mexican import, dethroned Bud Light as the top-selling beer in the U.S.

Bud Light’s controversial marketing campaign featuring transgender influencer Dylan Mulvaney accelerated the takeover, but don’t be fooled - Modelo has been steadily gaining share for years.

The story behind how Modelo - a brand not advertised in English until 2015 - managed to penetrate a saturated and fiercely competitive market, already dominated by two major players, is a fascinating one thanks to the deal of the century, an American bureaucrat on a mission, and textbook execution of the Four P’s.

Beer & Me

Before we take a sip, let’s talk about my history in the beer industry. During business school, I briefly considered a path outside of consulting.

My summer internship during business school was at Miller Brewing in Milwaukee, Wisconsin.

My job?

I tracked the pilot of Mickey's Stinger, a new caffeinated malt liquor.

I spent days Secret Shopping the c-stores of California’s inland empire. I made a cross-country tour of U.S. Air Bases, testing Mickey’s Singer in the enlisted Airmen’s clubs with the “Mickey Stinger Girls.”

They wore small green clothes, and I wore Ann Taylor. It was a new world.

During that time, I learned a few things:

• Most “promo girls” are lovely humans and teach school by day.

• Most beer is purchased in cans by women in grocery stores.

• Caffeinated beer would persist as a growth category.

• I could make a lot more money in consulting.

Let’s get into it.

A Race to Dominate

The global beer industry, once a vibrant tapestry of local breweries, embarked on a race to consolidate in the early 2000’s.

• 2002: South African Breweries and Miller Brewing Company join forces to create SABMiller.

• 2004: Brazilian AmBev Merges with Belgian Interbrew SA to create InBev.

• 2008: SABMiller merges with Molson Coors to form MillerCoors.

• 2008: Anheuser-Busch merged with global giant InBev, creating ABInBev.

By 2008, ABInbev and MillerCoors were global giants, holding a combined 80% share of the U.S. beer market. And thus, it was time for global beer giants to leverage NAFTA and their position in the U.S. to conquer Mexico. 

The Deal of a Lifetime

While the global beer companies were consolidating the U.S. market, Grupo Modelo was already established as the largest brewer in Mexico. The company, holding ~60% share, dominated with brands like Corona and Modelo Especial.

With few large beer markets left unacquired, Mexico was a critical market for both MillerCoors or ABInBev. ABInBev offered $20 billion to acquire the rest of Grupo Modelo.

Only a small speed bump stood in front of them.

Unfortunately, that speedbump went by the name of Bill Baer, Assistant Attorney General, leader of the Department of Justice’s Antitrust Division.

Baer saw a significant anti-competitive threat. Thanks to NAFTA, beer could be produced cheaply in Mexico and imported into the U.S. A player with a brewery in Mexico would have a high-margin opportunity to take share and secure a dominant position in the U.S., riding a demographic wave that was about to change the face of the industry.

ABInBev believed it could distract the DOJ by granting temporary U.S. distribution rights for Grupo Modelo’s brands to smaller liquor distributor Constellation Brands.  It believed this would pacify Baer and the DOJ enough to allow the merger in Mexico to go through.

In ten years’ time, ABInBev would then be free to retake U.S. distribution rights and consolidate its position in the United States. Oh, how clever.

Baer was not amused. The DOJ sued ABinBev to block the Mexico acquisition of Grupo Modelo. Baer, as it turns out, was a real fighter. The DOJ filed suit to block the acquisition and used legal discovery to expose a price fixing scheme between ABInBev and MillerCoors in the U.S.

With both giants’ collusion made public, they were blocked from the deal.

And thus, with no real competition, small liquor distributor Constellation Brands became the only viable buyer. It bought Grupo Modelo’s U.S. rights and its Piedras Negras brewery for just five billion dollars.

Here’s a timeline of events: 

Act 1: The Gates are Opened

• The North American Free Trade Agreement (NAFTA) frees ground trade between the U.S., Mexico, and Canada.

• Grupo Modelo, a Mexican brewer, fears that AB InBev, a global beer giant, will flood the Mexican market with Budweiser.

Act 2: A Defensive Move

• To protect its turf, Grupo Modelo sells a stake in their company to AB InBev, essentially forming a non-compete agreement. This ensures Modelo remains on Mexican shelves and is not replaced by Budweiser.

• However, the deal doesn't give ABInBev control over Grupo Modelo's U.S. operations.

Act 3: AB InBev's Ambitions vs. The DOJ

• Seeking a path to bring Mexican brands to the U.S., AB InBev enters into an agreement to acquire the remaining shares of Grupo Modelo for a hefty $20 billion.

• The U.S. Department of Justice (DOJ), already wary of AB InBev's dominant market share (~ 50%), blocks the deal due to antitrust concerns.

Act 4: A Side Deal Emerges

• Grupo Modelo and AB InBev attempt to work around the DOJ by partnering with Constellation Brands, a smallish liquor & wine distributor based in upstate New York.

• With ABInBev’s consent, Grupo Modelo grants their U.S. importation rights to Constellation Brands for 10 years, forming a joint venture for distribution.

• AB InBev plans to buy out Constellation after 10 years, pacifying the DOJ's concerns now and securing the path to dominance later.

Act 5: The DOJ Strikes Back 

• The DOJ’s Antitrust Division, led by Assistant Attorney General Bill Baer, believes that AB InBev’s acquisition of the Grupo Modelo - even without the rights to distribute in the U.S. - would increase their market power and reduce competition.

• Baer and the DOJ sue AB InBev to block the Mexican merger.

• During discovery, Baer requires ABIn Bev to produce documents that expose a price-fixing scheme between the beer giants, blocking a U.S. merger now or in the future.

Act 6: An Unexpected Twist and Constellation's Big Win

• To appease the DOJ and allow the Mexican merger to proceed, AB InBev agrees to let Constellation Brands acquire Grupo Modelo's U.S. operations outright, including its Piedras Negras brewery in Mexico.

• Constellation Brands, now the only viable buyer, acquires Grupo Modelo in the U.S. for a fraction of its initial price, ~$5 billion.

Constellation Brands, now owners of Grupo Modelo, became the third-largest beer supplier in the U.S. overnight at a fraction of the initial price.

A Classic Case of the Four P’s

After the acquisition, Constellation Brands got to work.

They embarked on a plan to invest heavily in its new hero brand, Modelo Especial. My opinion is they executed the classic Four Ps to perfection, but on steroids, driven by a fifth “P” - People.

This investment in creating a differentiated brand, at the right time, put Modelo on a path to the top. 

People: Riding the Demographic Wave

Timing for Modelo was perfect. A tidal wave of Hispanic Americans were reaching drinking age as the acquisition closed - ready to embrace what was always theirs, now in the U.S.

Modelo took advantage, initially offering the beer in states with significant Hispanic populations, like California. Hispanic drinkers took quickly to Modelo, making it a staple at parties, birthdays, and sporting events.

“It’s Modelo time, foo” went viral, boosting popularity as celebrities hopped on the trend to drink Modelos.

Modelo grew with non-Hispanic customers too. Mexican beer was already growing in popularity, with Mexican beer imports doubling in the last decade. Non-Hispanic customers now make up 45% of its customer base.

Product: “El Especial,” The Special One

Constellation Brands poured their resources into positioning Modelo Especial as an affordable luxury brand.

It was shown as a different, high-end alternative to American Light beers, a reward deserved after a hard day's work. Its name stays close to its roots - its name Especial keeps the Mexican heritage and pride alive.

Its traditional distinctive packaging played this up, using unique stubby bottles with gold foil and gold-rimmed cans. 

Importantly, Modelo has always been accepted as beer drunk from cans. In my opinion, this has been the most critical enabler of its growth. The majority of beer in America is purchased in cans, by women, in grocery stores.

Modelo’s can-first approach placed it on the shelf next to share leaders, putting it within reach for women shopping for their family’s daily drinker.

And sometimes, next to the milk, as I found last month at the Great Hills Target in Austin. 

Price: Trading Up, but Just a Little Bit

Historically, Grupo Modelo had held Modelo’s price relatively flat, choosing to increase the price for Corona instead.

Constellation retained the pricing model, pricing Modelo just slightly above Bud Light, Miller Lite, and Coors Light. The price delta reinforced its specialness and quality.

It was easy to reach for the Modelo at the store over the Budweiser because why not treat yourself a little?

Promotion: Differentiating the Brand as a Fighter

Grupo Modelo already had a popular Mexican beer in the market with Corona. But Corona was a beach beer, sipped with a lime in a bottle, sitting in the sun with friends.

Constellation positioned Modelo as beer for the people. It held its head higher, embodying the “fighting spirit” which represented hard work, ambition, and tenacity.

Partnering with the UFC (Ultimate Fighting Championship) was a genius move. At the time, UFC was on a steep growth curve, rocketing ahead in popularity.  It perfectly aligned with Modelo's "fighting spirit" branding and allowed them to tap into the growing popularity of the sport, reaching a targeted audience who shared the brand's values.

Another Blunder, Another Ascension

By 2020, just five years after its first English-language advertising campaign, Modelo Especial was on track to become the top-selling beer in America. It had already succeeded Miller Lite and Coors Light in retail share and was on track to overtake market leader Bud Light by 2025.

But in the summer of 2023, a controversial marketing scheme by Bud Light featuring a transgender influencer accelerated Modelo’s rise. Conservatives boycott Bud Light and sales plummeted.

Modelo Especial was handed the crown.

Can They Keep Fighting?

The question remains, can Modelo hold its spot at the top?

Recently, Bud Light has doubled down with a campaign targeting core fans. White male celebrities are back, with ads featuring Zach Bryan, Post Malone, and comedian Shane Gillis as the brand tries to recapture buyers that once held up the beer giant.

They have wrestled the UFC deal from Modelo, now becoming the official beer partner of the UFC.

I don’t know about you. Maybe you like bro country. Maybe you like the UFC. But as long as Modelo stays next to the milk, I know what I’m bringing home to the Patel boys.  

Remember, the path to success is paved with continuous learning and embracing fresh perspectives.

Let's stay connected, share ideas, and elevate your consulting business.

Stay curious, friends.

TheConsult.co brought to you by Keenan Reid Strategies

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