Growth StrategyClient: Cervecería Centroamericana SAPresented by: Delmy AlvarengaDate: Jan. 16th, 2017�

Introduction

Cervecería Centroamericana SA is a well established company in Guatemala with 125 years in the market , owned by the Castillo Family. Cervecería Centroamericana SA is the national beer production 1 2

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.

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. 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.3

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 developing in-and-out seasonal innovations and new flavours beers to reach niche markets.

Cervecería Centroamericana. “Nuestra historia” http://www.cerveceriacentroamericana.com/conoce-la-cerveceria/nuestra-historia/1

Cervecería Centroamericana. “Cervezas” http://www.cerveceriacentroamericana.com/cervezas/2

Beer in Guatemala Report. http://www.euromonitor.com/beer-in-guatemala/report3

� of �1 5

Scenario Analysis

Trends:- Flavoured seasonal innovations to reach new markets.- Niche markets: independent breweries have a perception of higher quality.- National pride: local breweries wake up consumer’s national pride and raises their willingness to pay

more.

Uncertainties:- Perception of higher quality: consumers perceive international beer as premium.- Market Share: Ambev strategy to saturate the market with imported beer to decrease Cerveceria’s beer

brands visibility.- Brand’s market saturation: international imported beer market will reach a plateau, lowering prices and

demanding premiumisation.- Local breweries grow brand value consolidating as a third player.

Figure 1: Market Share vs. Beer Quality

Scenario A: Commodity Trap. This is the worst case scenario, whereas international beer saturates the market flooding consumers with brand options and no differentiation. War price. Since Ambev has a wide portfolio, they could flood the market to drop prices, leading Cervecería to lose margins and drop prices to remain competitive and defend market share.

Scenario B: Emergent Player. Local breweries could consolidate their market position by uniting and leveraging distribution channels. Depending on local breweries value, price strategy and production line, either Cervecería Centroamericana or Ambev could use them as an strategic growth opportunity, by acquiring breweries or creating alliances for premiumisatiom.

Scenario C: Market Consolidation. Imported beer will find a niche market in the higher consumer segments and will set a price standard for premium beers.

Scenario D: Quality Standarization. Local breweries could capitalize on national pride to build premium brands, defend market share and establish price standards.

Imported Beer Local Breweries

Market ShareIncrease

Scenario A:Commodity Trap

Scenario B:Emergent Players

Premium Niche Markets

Scenario C:Market Consolidation

Scenario D:Quality Standarization

� of �2 5

Game Theory Analysis

From the previous analysis, Scenario C: Market Consolidation more than a growth strategy, it’s a market blocking strategy either key player can use as a wild card. Both Cervecería’s or Ambev’s have the financial capabilities to purchase local breweries. For Cervecería, the key component would be to acquire local breweries to block Ambev’s growth opportunities.

The arrow indicates in which direction Cervecería Centroamericana should grow.

Figure 2: Local Breweries Alliance Formation vs. M&A

�

� of �3 5

Acquisition Analysis

Potential Strategic Moves

Figure 3: Cervecería Centroamericana vs. Ambev’s Potential Strategic Moves towards local breweries

Notes: During the creation of this report, no information was found regading the state of local breweries production. All scenarios and analysis are made solely on market and consumer’s observation, without financial data to support this hypothesis.

Cervecería Centroamericana Ambev

Develop Capabilities

Cervecería Centroamericana controls the whole value and production chain. Developing the capabilities to include artisan beer among their portfolio is a strategy that allows them to reach higher paying consumers. Taking advantage of their on-premise distribution channels, they could position the new artisan brands as a higher quality product, leveraging market share, corporate reputation and national pride.

Ambev controls the value and production chain of the second beers in Guatemala, however, developing local production capabilities is not a foreseeable strategy since Ambev’s strenght relies on international imports.

Alliance Formation

Cervecería Centroamericana’s mission and corporate values are “to develop Guatemalan by creating job opportunities and supporting national production.” By controlling the main distribution channels off-premise and on-premise, Cervecería’s partnership with local breweries helps them to capitalize on distribution channels, reach new markets, product portfolio expansion, and raise positive corporate reputation (commited to the country’s development).

Alliance Formation with local breweries would be an unexpected strategy from Ambev’s known trajectory, however it is viable strategy to block Cervecería’s potential niche markets consolidation.

MergersBoth Cervecería Centroamericana and Ambev’s structures are big and well

developed that a merger threats the integrity of the “artisan concept”, losing the growth potencial value

Acquisitions

Cervecería Centroamericana acquisition of local breweries could facilitate economies of scale, integrate production lines, expand portfolio (diversification), consolidate innovation market and raise corporate governance and reputation.

To deliver its corporate strategy to create enduring bonds with consumers and clients, providing them with the best brands, products and services, Ambev’s international and financial muscle could outbid Cervercería Centroamericana and buy artisan breweries allowing them to keep their independence; blocking Cervecería’s growth opportunity.

� of �4 5

Synthesis of Findings

The beer market in Guatemala presents growing opportunities for every player: national beer producer Cervecería Centroamericana, international beer importer Ambev, and local breweries emerging players.

Cervecería Centroamericana strategy includes value and production chain ownership, channels distribution control, on-premise exclusivity, brand heritage and national pride. The foreseeable growth strategy for Cervecería Centroamericana is either the formation of alliances to raise market share,

Cervecería Centroamericana’s best growth scenario is the acquisition of local breweries since it would enable the reduction of redundancies, economies of scale, production lines integration, portfolio diversification, consolidation of the innovation/premiumisation market, governance and corporate reputation. However, for acquisitions to be succesful, Cervecería should leverage their first-mover advantage and utilize its distribution channels to expand artisan beer distribution and grow market share. It should also allow local breweries to keep their brands “independent”, separated from the main portfolio to capitalize on consumer’s national pride and minimize “industrialization” perception.

Figure 4: Options Analysis for Local Breweries Acquisition

�

� of �5 5