Introduction and Point of View
Grupo Mondelo is a Mexican beer maker established in 1922. The company was a local beer maker up to the late 1970s when it ventured outside Mexico into the United States of America. The company has become one of the major brewers as well as distributors in the global beer market, thanks to ingenious marketing initiatives.
This has made the company revenues grow tremendously. In addition the company has been settled most of its liabilities, thus becoming one of the most stable companies in global beer manufacturing. As such the company records high profit margins as well as high return on investment getting the company shareholders high returns on their investment. Thus, from an investors point of view the company stability coupled with huge profits makes it a worthy investment option.
Important issues
There are a number of important issues pertaining Grupo Mondel’s success. One of the most important issues to consider for a potential investor is the company’s profitability. The company’s earnings before interest and tax increased by 2.4 % for the one year period ending Dec. 2005. Such profitability means that the company is on its upward growth. The company’s’ stock is therefore attracts both small scale and large scale investors. As such the future looks promising for Grupo Mondelo (Som 257).
Other than profitability, the issue of employee quality and productivity also puts the company at an advantage in regard to profitability. While the company reduced the number of employees for the one year duration ending 2005, the company’s profits within the same period increased.
This means that the company is able to retain a fewer employees whose quality of production is able to guarantee the company profitable returns. This implies that the human resource management issue within the company is effective and efficient (Som 257).
Another key issue within the company is the issue concerning company’s future growth prospects. A number of factors point out the fact that the company will continue to grow in future. These include ratio of company assets to liabilities, which is at 8:1 implying that the company holds a health asset portfolio. This, coupled with reduced capital expenditure, implies that the company has already acquired enough capital assets for its current and future use.
Furthermore Grupo Mondelo’s price per share earnings as well as dividend per common share have significantly increased over the one year period ending 2005. This makes the company’s stock attractive to investors. As such there will be no shortfall of capital for future investment should the company need to raise it (Som 257).
Another of the key issue for Grupo Mondelo’s success is the company’s marketing strategies. Grupo Mondelo acknowledges that other than having a unique beer taste for its products, the company has identified marketing as a key issue towards its successful growth. These initiatives have seen the company come up with creative marketing drives that challenge people opinion and attitudes about taking beer.
As such, Grupo Mondelo marketing has seen the company gain new consumers for its products in America as well as other markets the company ventures. Grupo Mondelo marketing philosophy can be summed up in one of the company’s former president’s assertions that “people drink marketing and not beer” (Som 254, 253).
The potential of the global beer market is another issue that relates to Grupo Mondelo’s success. The global beer market has progressively developed from expansion to consolidation. This implies that major world beer makers such as Grupo Mondelo, seek to consolidate large markets and then establish control over those markets. In this regard the company has consolidated its market control in the Americas, a region which represents one of the biggest beer consumer markets in the world. Such control ensures stable business.
Finally, the company is also able to make strategic alliances with strategic partners to enable it expand and venture into previously restricted markets. In this regard, Grupo Mondelo has formed alliances with such partners as Anheuser-Busch, Coca Cola and Heineken to enable it venture into the United States of America. These alliances have not only helped Grupo Mondelo circumvent entry barriers into new markets but also increased its revenue earnings (Som 251, 254).
Analysis of KEY issues for potential investors
One of the key issues for potential investors is the company’s future growth prospects. There are a number of key indicators showing the company’s future growth is on the upward trend. One of the key indicators of a solid future is the company’s acid test ratio.
An acid test ratio (assets: liabilities) measures a company’s credit worthiness and evaluates a company’s asset that can be converted into cash (Q Finance 1). In this case, the company assets to liability ratio are 8:1 implying that the company has eight times more assets than liabilities (Som 257).
The very high ratio has implications. The fact that assets outstrip liabilities by eight to one implies that the company has been able to settle most of its liabilities such as insurance premiums, suppliers among others. It also means that the company has a lot of assets for utilization of future expansion plans. This is one of the key issues that potential investor look out for
The company capital expenditure is also another indicator of a strong future for the company. In this case the company registered a reduced level of capital expenditure by -9% in 2005 as compared to 2004 (Som 257).
This can be attributed to a number of factors. The company has made significant investment in manufacturing infrastructure which includes its production machinery as well as distribution channel. This makes the company able to facilitate expansion plans into foreign markets including the USA (Brown, Roath and Pheann 15).
Furthermore, the company also lets its strategic alliance partners control part of the capital investments such as distribution channels (Som 252). As such the company does not have to undergo maintenance cost for running such an infrastructure. With reduced liabilities the company is able to position itself in a better position than its competitor in the market for growth. This definitely attracts potential investors.
Grupo Mondelo’s earnings per share as well as dividend per common share are very attractive to potential investors (Som 257). For the duration ending Dec. 2005,
Grupo Mondelo’s earnings per share as well as dividend per common share increased by 14.1% and 17.8 % respectively (Som 257). This is attractive to potential investors in buying the company’s stock as the returns are good. Coupled with the fact that this company has limited liabilities which guarantee future growth prospects, this assures potential investor.
The company’s profitability another key issue for potential investors is. For the duration that ended Dec. 2005, the company’s earnings before interest and tax rose by 2.4 %. Furthermore, for the ten year period preceding 2005, the company registered a solid 7.8 % growth in net sales.
This is also facilitated by an increase in volume of beer sales for that period in both domestic and export market, which rose by 4% and 12.3 % respectively (Som 256). This signifies that the company beer brands are increasingly becoming acceptable and dominant in the world market (Americas Greatest Brands 43).
Such statistics are attractive to investors since, with a global acceptance, it means that the company’s beer brands are able to outdo competition. This further guarantees the company solidified presence in the global market. As such, any investor willing to make a solid investment will consider Grupo Mondelo as potential investment.
Grupo Mondelo’s financial position portrays a different and unique financial structure than its rival in the market (Brown, Roath and Pheann 11). One of the key indicators of this phenomenon is the company’s profitability ratios, which evaluate the company’s business related expenses Vis a Vis the company’s earnings. The company has seen its net operating income grow by 1.4%, while its net sales grew by a significant 7 % for the one year period ending Dec. 2005.
Within the same period, the company saw its earnings before interest and tax grow by 2.4 % while the return on equity changed by a +0.7 %. Such growth is realized against a situation within which the company has been able to maintain its cost and expense at very low levels. This is reflected in the company’s ability to register a -6.9% growth in liabilities and a -9.4% growth in capital expenses.
Such attractive balances within the company financial books means that the company is able to make better return for inventors. This is reflected in the company’s earning per share margins which increased by 14.1% while the company’s stockholders earned a 17.8% increase in dividend returns (Som 257). This is a reflection of the company’s 17% growth in share value for the same period (Gard, Smith and Weber para 5).
This makes the stock even more attractive to investors. Furthermore, the company is more liquid as compared to its rivals. For the year that ended 2005 the company was able to cover its liabilities eight times over. This signifies a very high liquidity ratio (Som 257). This further implies a good financial outlay since the company has been able to cover most of its liabilities while the existing liabilities are only short term. As such the company has a very good financial outlook.
Summary, Conclusions and Recommendations
A number of key issues are significantly important to Grupo Mondelos business success as well as future growth. The company’s marketing strategies are very strategic positioned to exploit both existing and new markets.
This is attained by creative advertising methods that ensure maintenance of local an export markets while attracting non beer drinkers to try its brands. The issue employee quality and productivity has also been able to guarantees sustained productivity, while the fact that the company is able to make strategic alliances ensure that its brands are able to penetrate into previously restricted markets.
Furthermore, there is enormous potential in the global beer market, which has grown from expansion to consolidation. The fact that the company has been able to consolidate its positions as market leader in the Americas means a very stable business. However, it is the company’s profitability as well as growth prospects that would interest the potential investor.
The company balance sheets paint a very healthy financial outlook for the future as it is able to maximize profits with minimum expenses. Moreover, the company has made significant investments in infrastructure to an extent that it is able to manufacture and distribute its brands to major markets such as the Americas. All these issues paint a very stable company going into the future.
In the current state of affairs it can therefore be concluded that the company is very stable. If the current trend persists, a number of things are likely to happen. To begin with, the company assets value will continue to rise as its liabilities decrease further. This means that the company’s will continue to accumulate assets to an extent that some of them will lay an-utilized.
Furthermore, reduced capital expenditure means increased revenues, but with time capital investment might depreciate in value to an extent that they company’s production capacity might be affected negatively due to wear and tear as well as lack of replaced for worn out equipment.
With reduced production capacity, the company profitability will be negatively affected, and so will the shareholder returns as well as dividends. The company is also likely to loose it market dominance due to reduction in production capacity.
To mitigate these likely affects, a number of things are recommended. To begin with the company needs to protect its future growth prospects. This will be attained through a number of activities. The company should consider venturing into the low calorie drink market to cater for the increasing number of health conscious drinkers.
This is a potential market that guarantees considerable profits. This means that the company will have to reinvest some of its capital in equipment to expand its production capacity to meet this new demand. Secondly, the company is very profitable as it stands.
These profits also need to be protected. This can be attained through putting those profits into uses that will guarantees better future returns. These include expanding into other untried markets such as China and Australia as well as diversify its production into spirits and wines. This will see that company able to capture those clients who have preferences for such drinks, and further increase its income and profits.
Works Cited
Americas Greatest Brands. “Corona Extra.” n.d. Web.
Brown, Chris, Roath, Jennifer and Pheann, Janissa. “Corona Beer: From a Local Mexican Player to a Global Brand: Case Analysis.” 2009. Web.
Gard, Lauren, Smith, Geri and Weber, Joseph. “Life’s A Beach For Corona — Or Is It? Sales growth is slowing in the U.S., so Grupo Modelo is searching for better margins and new customer.” BusinessWeek. 2005. Web.
Q Finance. “Acid-Test Ratio.” n.d. Web.
Som, Ashok. Corona Beer: From a Local Mexican Player to a Global Brand. Paris: ESSEC Business School. 2008. Print.