{"id":21065,"date":"2017-11-07T19:36:21","date_gmt":"2017-11-08T00:36:21","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ice-cold-corona-get-it-here-for-a-35-higher-price\/"},"modified":"2017-11-07T19:36:21","modified_gmt":"2017-11-08T00:36:21","slug":"ice-cold-corona-get-it-here-for-a-35-higher-price","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ice-cold-corona-get-it-here-for-a-35-higher-price\/","title":{"rendered":"Ice, Cold Corona \u2013 Get it here for a 35% higher price!"},"content":{"rendered":"

A Beer Empire at NAFTA\u2019s Mercy<\/strong><\/p>\n

In June 2013, Constellation acquired the remaining 50% interest in Modelo\u2019s U.S. beer business that it doesn\u2019t already own, thereby gaining exclusive perpetual brand rights to import, market, and sell Corona and other Mexican beer brands such as Modelo, Pacifico, and Victoria in the U.S.[1]<\/a>. Constellation owns the brewery in Mexico that produces about half of its Mexican beer supply and also formed a joint venture with Owens-Illinois, the world\u2019s largest glass container manufacturer, to make beer bottles in a glass production plant located adjacent to the brewery. The remainder of its Mexican beer production capacity is fulfilled in Mexico through an interim supply agreement with Anheuser-Busch InBev [2]<\/a>.<\/p>\n

Figure 1 – Corona\u2019s supply chain map highlights the web of trade relationships between U.S.-based Constellation Brands, its Mexico-based breweries and glass plants, and the U.S.-based farms that supply raw materials\u00a0<\/em>[3]<\/a>.<\/em><\/p>\n

Under NAFTA, Constellation enjoyed no tariffs on its beer imports from Mexico. However, with Trump\u2019s rumored repeal of the trade agreement, Constellation could potentially face tariffs or new border taxes ranging from the pre-NAFTA level of 2%[4]<\/a> to as high as 35%[5]<\/a>. With 53% of its total net sales and 64% [6]<\/a>\u00a0of its total earnings coming from the Mexican beer import business, Constellation is facing tremendous business uncertainty.<\/p>\n

Action Plan in Response to Trump<\/strong><\/p>\n

In the short term, Constellation will continue to engage in frequent discussions with House Speaker Paul Ryan and U.S. Senate Majority Leader Charles Schumer to express concerns about Trump’s proposed trade and tariff plans [5]<\/a>. Over the medium term, the company has also come up with a contingency plan to minimize the impact of any potential new tariffs. Currently, most of the glass bottle supply for Constellation\u2019s Mexican beers come from the glass plant at its Nava brewery in Mexico and other Mexico-based suppliers\u00a0[3]<\/a>. Constellation can purchase more packaging materials from inside the U.S. instead of from Mexico and could also make its glass bottles with more U.S. natural gas rather than rely on mostly Mexican natural gas as it does now\u00a0[5]<\/a>. Passing on the impact of tariffs to consumers by increasing imported beer prices is another possibility.<\/p>\n

Additional Considerations<\/strong><\/p>\n

In my opinion, Constellation should work more with other large beer importers such as Heineken and Anheuser-Busch InBev in the short-run to consolidate bargaining power at the negotiation table with U.S. policy makers. In the medium term, it could also consider shifting manufacturing from its own Mexican breweries to more partnership supply agreements with other importers operating in Mexico to share the burdens of capital investments and any import tariffs. Finally, while completely moving manufacturing from Mexico to the U.S. has been ruled out by CEO Robert Sands, as he believes imported Mexican brands can only be authentically produced in Mexico[5]<\/a>, because the Mexican beers are actually made from hops, barley, and other grains that are produced in the U.S.[3]<\/a><\/a><\/em>, Constellation can test a product line of U.S.-made versions of its popular Corona and Modelo brands. These products can be sold at a cheaper price point than their Mexican-manufactured counterparts, post-tariff, to see if there is any customer demand. After all, the recipe and taste should be largely identical\u2013 it all comes down to effective branding!<\/p>\n

As Constellation Brands thinks through how to adapt its operations in the face of unfavorable trade policies, what impact will the changes mentioned above have on its employees \u2013 particularly those based in Mexico? And how can Constellation start to communicate those potential changes? What can the company do to continue motivating its work force in this period of uncertainty and transition?<\/p>\n

 <\/p>\n

(782 words)<\/p>\n

 <\/p>\n

[1]<\/a> Constellation Brands, 2016 Annual Report (New York: Constellation Brands, 2016), p. 2.<\/p>\n

[2]<\/a> Constellation Brands, 2016 Annual Report (New York: Constellation Brands, 2016), p. 6.<\/p>\n

[3]<\/a> Nick Carey, \u201cWhat it takes to get a Corona from Mexico to a U.S. heartland bar,\u201d Reuters, January 28, 2017, accessed November 2017.<\/p>\n

[4]<\/a> Michelle Shuey, \u201cLiquid gold: Corona conquers market share,\u201d Business Mexico vol. 4, nos. 1, 2 (1994): 56, ABI\/INFORM via ProQuest, accessed November 2017.<\/p>\n

[5]<\/a> Matt Egan, \u201cCorona has a Trump-Mexico Problem,\u201d CNN, January 17, 2017, http:\/\/money.cnn.com\/2017\/01\/17\/investing\/corona-trump-constellation-brands\/index.html, accessed November 2017.<\/p>\n

[6]<\/a> Laura Berman, \u201cConstellation Brands sells off as investors brace for trade turbulence with Mexico,\u201d TheStreet, November 9, 2016, https:\/\/www.thestreet.com\/story\/13886931\/1\/constellation-brands-sells-off-as-investors-brace-for-trade-turbulence-with-mexico.html, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

Soon, it might become a lot more expensive for you to enjoy a bottle of your favorite import beer. U.S.-based Constellation Brands, best known for selling Mexican beer Corona in the U.S., is one of the world\u2019s largest importers and producers of beer, wine, and spirits. The potential renegotiation of the North America Free Trade Agreement (NAFTA), espoused by Trump and his isolationist policy agenda, could drastically hurt Constellation\u2019s business, as almost its entire import beer portfolio is manufactured in Mexico. <\/p>\n","protected":false},"author":9844,"featured_media":21066,"comment_status":"open","ping_status":"closed","template":"","categories":[62,3236,3237,2515,3239,341,3238,3219],"class_list":["post-21065","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-ab-inbev","category-constellation-brands","category-corona","category-international-trade","category-isolationism","category-mexico","category-modelo","category-nafta","hck-taxonomy-organization-constellation-brands","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nIce, Cold Corona \u2013 Get it here for a 35% higher price! - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ice-cold-corona-get-it-here-for-a-35-higher-price\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ice, Cold Corona \u2013 Get it here for a 35% higher price! - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Soon, it might become a lot more expensive for you to enjoy a bottle of your favorite import beer. 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