Presented Presented by Val Jiwa & Robin Allen
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TABLE OF O F CONTENTS
Abstract
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1. History
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2. Operation in the Market Place
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2.1 Supply Chain Partnerships
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2.2 Constantly Raising the Performance of Local Businesses
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2.3 Owner- Drivers
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3. Differentiators
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3.1 Varied Portfolio of Locally Produced Brands
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3.2 Economies of Scale
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3.3 Well-Established Distribution Network
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3.4 Well-Established Brands
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3.5 Favorable Public Image
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3.6 History
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4. SABMiller Share Price
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5. Competitors
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6. Past Strategic Initiatives
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6.1 Trade-Brewer Concept
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6.2 Preferential Procurement
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6.3 Acquisition of ABI
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6.4 AIDS Counseling and Testing
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6.5 SAB Training Institute
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6.6 Owner-Driver Programme Programme
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7. Some management Issues 7.1 1999 Main Listing being taken to LSE
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7.2 Acquisition of Miller Brewing Co. of USA in 2002
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7.3 Expansion to China in 2003
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7.4 Takeover ABI in 2004
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7.5 Takeover of Bavaria of Columbia in 2005
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7.6 Forays into India and Vietnam in 2006
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7.7 Withdrawal of Amstel License in March 2007
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7.8 Dealing with Country Infrastructural Problems and Supply Shortages in 2007
8. Warning Signs 17 8.1 SA Infrastructure
17 8.2 Global Supply problems
18 9. Reasons for On-Going Success 19 9.1 First-Mover Advantage
19 9.2 Industry-Foresight Industry-Foresight
20 9.3 Good Corporate Governance
20 9.4 Performance Management
21 9.5 Good Marketing
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10. Other Issues of Note 22 11. Conclusion 23 References
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Appendix I
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Appendix II
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Appendix III 29 Appendix IV 30 Appendix V
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Appendix V1 32 Appendix V11 33
Abstract South South Afri Africa can n Brew Brewer erie iess (SAB (SAB), ), a beer beer manu manufa fact ctur urin ing g comp company any,, has has a long long and and interesting history that often reflects the economic eco nomic and social history h istory of South Africa. The company was founded in 1895, and listed on the Johannesburg Stock Exchange in 1897, becoming the first industrial share to do so and a year later listed on the London Stock Exchange. One of the key focus areas in SAB Miller’s supply chain priority is working with farmers to improve the quality of raw materials and improve their well-being. As SABMiller seeks to understand consumer preferences and create brand portfolios that are relevan relevantt and appeali appealing, ng, they have a strong strong compet competiti itive ve advanta advantage ge in their their ‘marke ‘markett mapping’ system – a formal process identifying the main clusters of consumer preference in any given market and compari comparing ng these these with with the brands currently currently on offer offer.. The
5 following statement taken from an article in Finweek reflects how the markets have viewed SAB Miller's performance: performance: "The capital markets have recognized the value of the balanced portfolio, rewarding the brewer with a 37% rise in share price in the 12 months to 31 March 2006. Since its UK listing in 1999 SABMiller has provided shareholders with a total return return of 215%". By focusing on superb performance performance measures, while not forgetting issues like corporate social responsibility and corporate social investment, SABMiller has proven to be a good corporate citizen in every sense of the words.
1. HISTORY South South Afri Africa can n Brew Brewer erie iess (SAB (SAB), ), a beer beer manu manufa fact ctur urin ing g comp company any,, has has a long long and and interesting history that often reflects the economic eco nomic and social history h istory of South Africa. The following is a summary compiled from information obtained from the SA Breweries corporate website (SAB, 2007)
The company was founded in 1895, and listed on the Johannesburg Stock Exchange in 1897, becoming the first industrial share to do so and a year later listed on the London Stock Exchange.
Display Displaying ing the foresigh foresightt which which has become become so typica typicall of the company company,, in 191 1911 1 it stimulated the barley industry by supplying farmers with imported seed free of charge,
6 and contracted to buy the crop at market prices. A year later it repeated this foresight by collaborating with the Ohlsson’s breweries to explore the hops industry. Similarly, to counter glass bottle shortages during World War I, SAB took over the defunct Union Glass in 1917.
The company continued with its acquisitions by acquiring a stake in the Schweppes carbonated soft drinks company in 1925, giving a glimpse of things to come. In 1950 the decision was made to move the SAB headquarters to London
In 1953 work begins on the Castle Brewery site at Isando, constituting the largest brew house in Africa at the time. By 1956 Castle Breweries was able to buy out Ohlsson Breweries and Chandlers Union Breweries. The company then becomes known as South African Breweries for the first time.
From the 1950’s onwards the company started the expansion of its asset base to include busine businesse ssess not necessa necessaril rily y relate related d to its core compete competency ncy of beer and beer relate related d activities. In addition, SAB became involved in the property industry in a joint venture with Anglo American and also launched the Southern Sun Hotels in 1969. 196 9.
1972 saw a short-lived threat to SAB by Louis Luyt through Luyt Breweries which had been been later later taken taken over by the Rembra Rembrandt ndt Group Group and resurr resurrecte ected d as Interc Intercont ontine inenta ntall Brewer Breweries ies which which sparke sparked d a 7-year 7-year war that that intere interesti stingly ngly and fortui fortuitou tously sly led to an increased interest in beer and also led to increasing sophistication and innovation in the beer industry. SAB eventually purchased the beer interests of the Rembrandt Group in 1979, giving it a 99% share of the market.
Through the 1980’s SAB continued its expansionist acquisition of both beer and non-beer asse assets ts.. With ith the the adven adventt of a democr democrat atic ical ally ly-el -elect ected ed gover governm nmen entt in 199 1994, 4, and the the relaxation of stringent exchange control regulations, SAB started selling off non-core business assets in 1997 and in 1999 makes the decision to move its primary listing to the
7 London stock Exchange in order to raise capital to continue its expansion both into Africa but also globally. globally.
With the acquisition of the Miller Brewing Company in the USA in 2002, a new era begins with the company assuming the name SABMiller plc. This heralds the further global expansion of SAB as SABMiller in to Europe, South America, India, Vietnam and China as well as deeper into Africa. By 2005, following its acquisition of the Colombian based brewer, Grupo Empresarial Bavaria, SABMiller becomes the second largest brewer by volume.
In March 2007, the 40-year agreement to allow SABMiller plc to distribute Amstel Lager in South Africa is terminated by Heineken, signalling the beginning of a new era of competition in South Africa for the “hearts and minds” of those who consume products in the beverages industry (See Appendix I & II for market setting and Appendix III for financial performance).
2. OPERATION IN THE MARKET PLACE 2.1 SUPPLY CHAIN PARTNERSHIPS For many companies future growth will be fuelled by emerging markets. The list of companies that are expanding expan ding in emerging markets is getting longer. These companies are forging supply chains that are uniquely adapted to the rigors of emerging markets. Given the unique market conditions found in developing countries, manufacturing, sourcing and distribution decisions must be made early in the product design phase. Manufacturing processes that leverage local suppliers can give companies a sustainable competitive advantage.
One of the key focus areas in SAB Miller’s supply chain priority is working with farmers to improve the quality of raw materials and improve their well-being. Not only do these part partner nersh ship ipss creat createe addit additio iona nall empl employ oyme ment nt and and help help to alle allevi viat atee pov pover erty ty in local local communities but also encourage understanding, ownership and improved performance on
8 sustainable development issues throughout the value chain. Such a supply chain reflects the company’s values and commitment.
According According to Financial Management (2007) the idea behind Supply Chain Management is that coordinating the activities of the different businesses of the supply chain can save costs while also adding value.
Regardless of the opportunities, many companies will consider the bottom of the pyramid to be too risky. On the contrary, partnerships can limit risk; another option is to enter into consort consortia. ia. Invest Investing ing where where powerfu powerfull syner synergie giess exist exist will will mitiga mitigate te risk risk (Prahal (Prahalad ad & Hammond, 2002, p.6).
2.2
CONS CONST TANTL ANTLY Y RA RAIS ISIN ING G THE THE PERF PERFOR ORMA MANC NCE E OF LOCA LOCAL L
BUSINESSES SAB Miller aims to win even at the point of sale. This activity varies from market to market; however, the underlying skills are the same – improving distribution logistics, segmenting segmenting and analyzing analyzing the channels channels to market, market, and ensuring the right conditions conditions and consumer experience at the point of sale.
In China, the priority is to reduce the many tiers between SABMiller and the restaurants, bars, supermarkets, stores and street kiosks that carry their products. South American busi busine ness sses es,, on the the othe otherr hand hand,, are are devel developi oping ng thei theirr skil skills ls in segm segment ented ed chann channel el marketing. Columbia – a country with around 340,000 outlets – channels are broken down by type of drinking occasion. Their European businesses have led the way in creating 3D installations and ‘beer theatres’ with related promotions and events to lift the image of the product and create a more exciting experience for the customer at large super and hypermarkets. h ypermarkets. In South Africa, the informal taverns or ‘shebeens’ that serve the bulk of the population are in the process of being legalized. Once they become legitimate business owners, licensed taverners can borrow money against their properties and have an incentive to invest in, and upgrade, their premises. For SAB Ltd, the change means
9 they can now deliver straight to the point of sale, making the delivery and distribution more efficient.
In the future, success will come to those companies, large and small, that can meet global standards and tap into global networks. Sweeping changes in the competitive landscape, including the presence of foreign competitors in domestic markets, are driving businesses to rethink their strategies and structures to reach beyond traditional boundaries. At the same time, communities are under considerable pressure to understand what they need to do to enhance – and in some cases even preserve – their local vitality. To avoid a clash between global economic interests and local political interest, businesses must know how to be responsive to the needs of the communities in which they operate even as they globalize (Kanter, 2003, p. 1).
2.3 OWNER DRIVERS Over half of SAB’s national distribution in SA is covered by its Owner Driver initiative, introd introduced uced in the late late 1980s 1980s to enable enable company company employees employees to become become indepe independen ndentt busine business ss people. people. This This black black empowe empowerme rment nt program programme me was partic particula ularly rly design designed ed to ensure high levels of customer service and productivity. Well over R2.5 b has been inves investe ted d in this this broa broadd-ba base sed d empo empower werme ment nt proj project ect sinc sincee ince incept ptio ion. n. Today oday, 235 companies, operating around 352 vehicles, account for 60% of all SAB’s deliveries. Each of these drivers employs a crew of at least four people. As a result, this 300-million a year proje project ct has provid provided ed at least least 1,500 1,500 jobs jobs and create created d 235 indepe independen ndent, t, sustai sustainabl nablee businesses, each truck owned by an owner driver is worth around R800,000.
Recently SAB announced an enhancement enhancement to the Owner-Driver Owner-Driver programme programme through through the Distri Distribut bution ion Operat Operator or (DO) (DO) phase. phase. More More than than 60 driver driverss around around the country country have enhanced their distribution businesses following this launch, which has increased their turnover as much as R2 million a year. year.
Owne Ownerr-Dr Driv iver erss dist distri ribut butee about about 60% of SAB’ SAB’ss beer beer volum volumes es and and 25% of this this is distributed by DOs. SAB’s soft drink division has its own owner-driver programme, with
10 202 owner-drivers delivering 50% of the division’s volumes. In the beer division, the compa company ny has has some some 53 dist distri ribut butio ion n cent center ers; s; incl includ udin ing g 41 SAB SAB owne owned d depot depots, s, 10 independently owned distributors and two HoneyBEE franchised distribution centers. SAB’s distribution programme will increase with the growth of retail licensing, which in turn will grow opportunities oppo rtunities for previously disadvantaged South Africans.
SAB’s distribution and marketing lie at the heart of the success of the company and it is acknowledged that a key component of SAB’s success is its logistics network and distri distribut bution ion capabil capabiliti ities. es. In perspe perspecti ctive, ve, SAB’ SAB’s distri distribut bution ion fleet fleet covers covers 57 millio million n kilometers each year – or about 150 trips to the moon!
3. DIFFERENTIAT DIFFER ENTIATORS ORS
3.1 VARIED PORTFOLIO OF LOCALLY PRODUCED BRANDS As SABMiller seeks to understand consumer preferences and create brand portfolios that are relevant and appealing, they have a strong competitive advantage in their ‘market mapping’ system – a formal process identifying the main clusters of consumer preference in any given market and comparing these with the brands currently on offer. In new markets, some consumer needs are ignored while others are over-served by too many undifferentiated brands. SABMiller then begin the process of adjusting the portfolio to span the market either by refreshing and repositioning their brands, importing brands from elsewhere, adding innovation to existing e xisting brands or creating new brands altogether.
3.2 ECONOMIES 3.2 ECONOMIES OF SCALE With a presence in more than 60 countries, SABMiller use their scale to generate maximum value and competitive advantage. Leveraging scale is not simply a case of putting two or more businesses together and saving costs. While some synergies are possible, the real benefits arise in driving sales using the scale to grow the business. Scale helps them to develop their brands, help them grow by transferring skills, methods and technologies around the group, and also provides opportunities for cost savings and
11 efficiencies. Procurement is a case in point. In recent years, raw materials such as malt, glass and aluminium have been rising in price and one way SABMiller mitigate these effects is by using their global g lobal scale to purchase pu rchase more efficiently. efficiently.
WELL-ESTABLISHED DISTRIBUTION NETWORK 3.3 WELL-ESTABLISHED SAB Ltd currently distributes its range of products through a network of 53 distribution centers, centers, comprising comprising SAB depots, depots, contracted contracted distributor distributorss and franchised franchised distributi distribution on centers. Growth in sales volumes over the past two years has placed a strain on the capacity of many of the company’s distribution centers and, going forward, increased retail licensing may very well contribute to an increasing need for further distribution points.
3.4 WELL-ESTABLISHED WELL-ESTABLISHED BRANDS SAB distri distribut butes es brands brands such such as Sarita Sarita,, Castle Castle Lite, Lite, Peroni Peroni,, Nastro Nastro Azzurro, Azzurro, Pilsne Pilsner r Urquell, Hansa Marzen Gold, Miller Genuine Draft, Hansa Pilsener and Castle Lager. The Buisness report rted ed on the the 1st of October October that that consume consumers rs should should brace brace Buisness Report repo themselves for a shortage of their favorite beer in the next few weeks. SAB said it was experiencing shortages as a result of the “unusually high” demand for its brands. The shortfall has been caused by the shortage of glass, mainly the green and flint or clear glass, which is used for Sarita and Miller brands. To mitigate the shortage, SAB would import 50,000 tonnes of glass, which was expected to arrive next month.
3.5 FAVORABLE PUBLIC IMAGE Many savvy companies are starting to realize that a good name can be their most important asset—and actually boost the stock price. SAB has enjoyed a great reputation among investors for its ability to acquire and manage brewers in fast-growing emerging markets. Since mid-2003 SABMiller’s stock has soared from around 24 to 60.
3.6 HISTORY 3.6 HISTORY SABMiller's history is one of exceptional growth and returns to shareholders. With its
12 global footprint, strong portfolio of brands, investment in human capital and spread of operations in both mature and developing markets, SABMiller is well placed to continue its growth. Along with this history of good dependable performance comes also the history of “the good old days”, the shared special moments that entrenches a brand in the Psyche of people. It is this aspect along a long with the history of exceptional financial and business performance that sets SAB apart from its competitors.
4. SABMILLER SHARE PRICE Appendices IV and V are graphical depictions of the movement of the SABMiller share prices over the past 5 years, as listed on the Johannesburg Stock Exchange (JSE) and the Londo London n Stoc Stock k Ex Excha change nge (LSE (LSE). ). The shar sharee-pr pric icee grap graphs hs for for majo majorr compet competit itor orss to SABMiller are also listed as comparators along with the FTSE 100.
As can be seen from the charts, from the first quarter of 2003 the SABMiller share price has shown a steady growth in price over the last five years, reflecting a positive regard of the market market for the initia initiativ tives es underta undertaken ken by the company company.. Signif Significa icantly ntly,, its major major international competitors such as Anheuser-Busch and Heineken do not seem to enjoy the same vote of approval from the market that SABMiller does.
Of significance as well is that the fact that, from early 2003 where the price of shares had been below that of the FTSE 100, the price continued its steady rise to a point in the first quarter of 2005 from where it then began to outstrip the FTSE 100, and continued to do so up to the present moment.
Interestingly, the LSE listing shows the share price outstripping the FTSE 100 from as early as the final quarter of 2003 and continuing to do so to the present day. Clearly it would would appea appearr that that the LSE had more more confi confiden dence ce in SABM SABMil ille lerr than than the the JSE JSE (see (see appendix I for the equivalent LSE graph).
The following statement taken from an article in Finweek reflects how the markets have viewed SAB Miller's performance: performance: "The capital markets have recognized the value of the
13 balanced portfolio, rewarding the brewer with a 37% rise in share price in the 12 months to 31 March 2006. Since its UK listing in 1999 SABMiller has provided shareholders with a total return of 215%" (Masango, 2007, p108).
5. COMPETITORS Given the global scale of SABMiller’s operations, it is easy to accept that the number of competitors competitors would be large large in a market valued at $356.3 billion billion with a forecast value in 2011 of $389.1 billion (Datamonitor, 2007, [p.7]).
Acco Accord rdin ing g to a repo report rt comp compil iled ed by the the Data Datamo moni nito torr Comp Compan any y (Data Datamo moni nito torr, 2007,[p.25]), the leading competitors of SABMiller are as shown in appendix VI.
It may be well worth noting that included in this list are companies such as PepsiCo and Nestle S.A., reflecting the fact that for SABMiller any beverage that is consumed by the potenti potential al custom customer er base base would would be consid considered ered competi competitio tion n for one the company company’’s products. This would then include beverages such as tea and coffee as well.
In South Africa, where previously market share held had been as high as 99% at one point (see history above), based on current listing on the JSE, the market share is at 93.7%. Significantly there is the new threat posed by the brandhouse company which was formed formed in 200 2003 3 and is compose composed d of a joint joint venture venture between between Namibia Namibian n Brewer Breweries ies,, Heineken and Diageo. Together these companies pose a significant threat to SABMiller in South Africa since the portfolio of brands now on offer from brandhouse does match, if not exceed, that of o f SABMiller, SABMiller, based on variety and quality of products.
The pie charts in appendix VII give an idea of how the global market is structured with respect to the regions and major players.
Since the publication of these charts it would appear that the proportions of market share have changed since SABMiller make the claim in their corporate brochure of 2006/2007 that it is the second largest brewer by volume in the world (SAB, 2006, p.3).
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6. PAST STRATEGIC INITIATIVES 6.1 TRADE BREWER CONCEPT In 1997, SAB Ltd launched the Trade brewing Concept to promote the growth and image of SAB SAB and and its its prod product uctss by entr entrenc enchi hing ng a beer beer cult cultur uree amon amongs gstt emplo employe yees es and and consumers. Today the company has six trade brewers based at key breweries throughout the country. Annually they engage with more than 12,000 customers and consumers through various initiatives aimed at bridging the gap in consumer beer knowledge and disp dispel elli ling ng myth mythss about about beer beer.. Inte Intern rnal ally ly over over 1,500 1,500 empl employ oyees ees have have been been on the the Ambassa Ambassador dor Progra Programme mme,, an experi experienti ential al traini training ng interv intervent ention ion design designed ed to equip equip employees employees with a better understandin understanding g of the company and its brands and to ensure that SAB’s best ambassadors – its people – are passionate about beer.
6.2 PREFERENTIAL 6.2 PREFERENTIAL PROCUREMENT The company has a dedicated preferential procurement executive to ensure that SAB’s commitment to transformation and black economic empowerment extends fully into its supplier base. A particularly successful programme has been the focused linking of SAB KickSt KickStart art recipi recipient entss to SAB’ SAB’s procur procureme ement nt system system.. Those Those entrep entrepren reneur eurss who have have become successful through an SAB social investment programme are then give the opportunity to supply SAM to make their businesses even more sustainable.
6.3 ACQUISITION 6.3 ACQUISITION OF ABI SABMiller’s combined carbonated soft drink volumes make it one of the top five CocaCola bottlers in the world. In December 2004, SABMiller bought out ABI’s minority shareholders and delisted the company from the JSE Securities Exchange. SABMiller consequently sold ABI’s business assets and liabilities to its South African Breweries
15 Limited (SAB). ABI is now SAB’s Soft Drink division, and is managed by a Soft Drinks Operating Committee. For the last three decades, ABI has had a franchise agreement with the Coca-Cola Company to manufacture and distribute Coca-Cola brands.
6.4 AIDS 6.4 AIDS COUNSELLING AND TESTING (ACT) SAB Ltd acknowledges that HIV and Aids is a significant risk which has the potential to impact on the business from a number of different perspectives and believes that with the appropriate, proactive strategy the associated costs and impact can be managed and reduced reduced.. The two areas areas of major major focus focus intern internally ally are to manage manage existi existing ng infect infection ionss through voluntary counseling and testing and early diagnosis and managed health care which which includ includes es anti anti retroretro-vir viral al treatm treatment ent and second secondly ly to reduce reduce and preven preventt new infections through effective education programmes. In this role they are an invaluable resource and make a significant contribution to the workplace and the community. community.
6.5 SAB 6.5 SAB TRAINING INSTITUTE SAB’s purpose-built Training Institute – or “TI” as employees call it, provides both “Cor “Corpor porat atee Univ Univer ersi sity ty”” prog program ramme mes, s, aime aimed d at enhanc enhancin ing g core core comp compet eten ence ce and and developing cover ratios, and short term programmes aimed at enhancing operational expertise. TI was opened in 1992 with an investment of R35-million. Over time, this has evolved and now, facilities on site are used to support the full spectrum of training and development activities undertaken by SAB. An average of about 7,000 delegates attends courses or meetings at TI every year. Where possible, learning science is applied in courses offered, with an outcomes-based approach, productivity measurement, evaluation methods and appropriate adult learning methods.
6.6 OWNER-DRIVER PROGRAMME A key component of SAB’s success is its logistics network and distribution capabilities. It is only one of a few companies which can deliver its products to any area in South Africa within a very short space of time. The SAB Owner-Driver Programme was introduced in 1987 to enable company employees to become independent businesspeople. Today, this
16 project accounts for more than half of all SAB Ltd’s deliveries through some 250 companies, operating more than 432 vehicles. As a result this R415-million per annum project has provided at least 1728 jobs and created 260 independent businesses.
7. SOME MANAGEMENT ISSUES
7.1 1999 MAIN LISTING BEING TAKEN TO LSE The year 1999 was a pivotal year in SAB's history for a host of other reasons as well. Seeking access to capital markets better endowed that those at home, the company in early early 1999 shifte shifted d its headqua headquarte rters rs back back to LondonLondon--r -rein eincor corpor porati ating ng itself itself as South South African Breweries plc--and moved its primary stock exchange listing from Johannesburg to London, retaining the former as a secondary listing. As part of its London listing, it raised raised £300 million to fund further international international expansion. expansion. There were also changes on the management front.
7.2 ACQUISITION 7.2 ACQUISITION OF MILLER BREWING CO. OF USA IN 2002 By fiscal 2002, just eight years after its first brewing acquisition outside of Africa, 55 percent of SAB's $4.36 billion in revenues were derived from its non-South African operations. This figure would shoot up to an even more remarkable 75 percent just one year later following the company's boldest move yet--its takeover of Miller Brewing Company, the number two beer maker in the world's largest beer market, the United States, whose main brands included Miller Genuine Draft, Miller High Life, Miller Lite, and Milwaukee's Best. Consummated in July 2002, the deal consisted of a stock swap with Miller's owner, Philip Morris Companies Inc.
7.3 EXPANSION 7.3 EXPANSION TO CHINA IN 2003 The firm spent $87 million for a 29.6 percent stake in Harbin Group Limited, China's fourth largest brewer and the leader in that country's northeastern region.
7.4 TAKEOVER TAKEOVER ABI IN 2004
17 In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries, which became the Soft Drink division of SAB Ltd, and the largest beverages company in South Africa was formed. Total SABMiller group volumes exceed 187 million hectoliters and SAB Ltd contributed 42% to group EBITA. EBITA.
7.5 TAKEOVER OF BAVARIA OF COLUMBIA IN 2005 The JSE traded at record-breaking high as the market cheered news that in July 2005 SABMiller acquired Colombian based brewer, Grupo Empresarial Bavaria, making it the second largest brewer in the world by volume. SABMiller shares rocketed 9.39% to close at R113.70 after trading at a highest on record R115.
7.6 FORAYS INTO INDIA AND VIETNAM IN 2006 SAB’s extension of its influence into India and Vietnam made the company the secondlargest brewer on the Indian subcontinent and added to its existing beer portfolio. The intention was to extend Foster’s lager nationally in India through its network of 10 breweries and seek significant cost benefits from brewing and distributing the brand locally by bypassing the Indian interstate duty levied on all alcoholic products.
7.7 WITHDRAWAL OF AMSTEL LICENSE IN MARCH 2007 Analysts say that the break-up became inevitable as early as 2002, when SAB began pursuing a global expansion programme by acquiring Miller, the US’s second- largest brewer. The arbitration panel found that SABMiller’s selling of 15% of its shareholding, worth $7,8bn, to South American brewer Bavaria in 2005 constituted a material change in shareholding of the group, and which could be regarded as inimical to the interests of Heineken. Heineken. SABMiller SABMiller beat Heineken, which was also bidding bidding for Bavaria. Analyst Analystss say this must have been the last straw for the Dutch brewer, forcing it to pull the plug.
7.8 DEALING DEALING WITH COUNTRY COUNTRY INFRASTRUC INFRASTRUCTURA TURAL L PROBLEMS PROBLEMS AND SUPPLY SHORTAGES IN 2007 South Africa faces huge problems in terms of poor infrastructure due to a lack of invest investmen ment. t. These These infras infrastru tructu cture re backlo backlogs gs have caused caused numero numerous us and severe severe power power
18 interruptions. The smaller municipalities are generally in poor shape and often do not deliver the quality of supply required of them.
8. WARNING WARNING SIGNS 8.1 SA 8.1 SA INFRASTRUCTURE Survival is tougher for SABMiller to operate in an economy like South Africa where it is challenged by poor infrastructure. However, the opportunities are more enticing than ever and it can overcome such disadvantages, for three reasons. Firs First, t, when when mult multin inat atio iona nall compa compani nies es from from the the deve develo loped ped worl world d expl explor oree busi busines nesss opportunities in emerging markets, they must confront the same institutional voids that local companies face. However, executives from multinational companies are used to operating in economies with well-developed institutional infrastructures and are therefore ill-equipped to deal with such voids. By contrast, the managers at SABMiller know how to work around institutional voids because they’ve had years of experience doing so. Their familiarity with the local context allows them to identify and meet customers’ needs effectively and this would allow them to compete effectively with foreign giants. Second, SAB has demonstrated a degree of success which enables them to tap capital and talent markets in developed countries. This has allowed the company to retrain their existing managers and to hire people with the same skills that executives in multinational companies possess. Third, Third, multin multinati ationa onall compani companies es are relucta reluctant, nt, someti sometimes mes rightly rightly so, to tailor tailor their their strategies to every developing market in which they operate. They find it costly and cumbersome to modify their products, services, and communications to suit local tastes, especially since the opportunities in developing countries tend to be relatively small and risky. Further, their organizational processes and cost structures make it difficult for them to sell products and services at optimal price points in emerging markets; they often end
19 up occupying small, premium niches. SABMiller don’t suffer from those constraints, particularly since they operate in fewer geographic markets (Khanna & Palepu, 2006, p.1).
8.2 GLOBAL SUPPLY PROBLEMS SAB’s Supply Chain is the engine that ensures that there is sufficient beer and soft drinks available to meet the demand from customers and consumers. The Supply Chain coordinat ordinates es many of the operat operation ional al activi activitie tiess in the busine business ss includ including ing procur procureme ement, nt, storage, brewing, mixing, packaging, warehousing and distribution. As these activities drive much of SAB’s product cost, it is critical that they are planned to take place in the most efficient and cost effective manner possible. According to Lee (2004) the best supply chain aren’t fast and cost-effective. They are also agile and adaptable, and they ensure that all their companies’ interes interestt stay aligned. Lee’s research suggests that top-performing supply chains possess three very different qualities. First, great supply chains are agile. They react speedily to sudden changes in demand and supply. Second, they adapt overtime as market structures and strategies evolve. Third, they align the interests of all the firms in the supply network so that companies optimize the chain’s performance when they maximize their interests. Only supply chains that are agile, adaptable, and aligned provide companies with sustainable competitive advantage. When When Lee Lee desc descri ribe bess such such a trip triple le-A -A supply supply chain chainss to compan companie ies, s, most most of them them immediately assume it will require more technology and investment. Nothing could be further from the truth. SABMiller already have the infrastructure in place to create tripleA supply chains. What it needs is a fresh attitude and a new culture to get their supply chains to deliver triple-A performance. The company must give up the efficiency mindset, which is counterproduct counterproductive; ive; be prepared prepared to keep changing networks; and, instead of looking out for its interest alone take responsibility for the entire chain. This can be challenging to them because there are no technologies that can do those things, only managers can make them happen.
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9. REASONS FOR THE ON-GOING SUCCESS There are numerous reasons why SABMiller will continue to enjoy ongoing success, but the following 5 have been b een identified as those which are of the most significance.
9.1 FIRST-MOVER-ADVANTAGE It is known that first or early industry movers are more likely to succeed and continue to succeed in an industry because of being able to establish and build brand loyalty; acquire and tie up the available distribution networks; develop relationships with customers; develop scale economies; develop and tie up the supply suppl y chain; establish firm relationships with legislators. SABMiller has done this in South Africa and makes use of the knowledge and experience acquired in South Africa to drive their global expansion. A first-mover advantage is also maintained by being aware of the pace at which the technology of their product is evolving and the pace at which the market for their products is expanding (Suarez & Lanzolla, 2005, p. 1).
9.2 INDUSTRY 9.2 INDUSTRY FORESIGHT An important component of the success of SABMiller has been its ability to forecast and predict what it will need to do d o to remain successful. This foresight is demonstrated in the way they stimulated both the local hops and barley industry; the acquisition of the Union Glass factory; the establishment of the OwnerDriver and later Distribution Operator categories of former employee empowerment initia initiativ tives es and the variou variouss corpor corporate ate social social invest investmen mentt initia initiativ tives es that that the company company embarked upon well before legislation dictated or society demanded these initiatives.
21 SABM SABMil ille lerr is and and has has alwa always ys been been well well-a -ahe head ad of the the indus industr try y in devel developi oping ng and and commercializing new technologies - from incremental improvements to radically new approaches - as long as those technologies address the next-generation performance needs of their customers. Using rational and analytical investment processes, SABMiller identifies customers’ needs, forecast technological trends, assess profitability, allocate resources resources across competing proposals for investment investment,, and take new products to markets markets (Bower &Christensen, 1995, p.1)
9.3 GOOD CORPORATE GOVERNANCE The importance of corporate governance cannot be underestimated. Shareholders look at how well well a compan company y is mana managed ged and and whet whethe herr it beha behaves ves in an ethi ethical cal manne mannerr. SABMiller do understand this and do everything they can to ensure that they are seen to be functioning as an ethical Corporation. As stat stated ed in the the compa company ny's 's Corp Corpor orat atee Broc Brochur hure, e, the the purp purpos osee of goo good d corp corpor orat atee governance is “to ensure that SAB achieves long term strategic goals by meeting the needs of stakeholders, and concerns itself with the structures and processes associated with management to achieve long-term strategic plans as set out by the company ” (SAB,
2006, p.58). The implementation of good corporate governance by a process of having regular reports, a stro strong ng,, full fully y-mand -mandat ated ed audi auditt comm commit itte teee that that sits sits twic twicee a year year and and a cultu culture re of measurement, recording and reporting.There are both internal and external audits that take place, and in addition, there are various mechanisms established to ensure adherence to good practice such as an ethics call-line and a whistle-blowing call-line. This attitude towards good corporate governance is echoed in a statement made by Howard Davies, the chairman of the Financial Services Authority of the UK, who said view,, inve invest stme ment nt in good good corpo corporat ratee gover governan nance ce arran arrange geme ment nts, s, and good good "in my view regul regulat atio ion n all all those those arrang arrangem ement ents, s, is amon among g the the most most effec effecti tive ve and rewar ewardi ding ng
."(Davies, investments a developing market can make, and there are figures to prove it ."(Davies, 2002, p.15)
22 Executives at SABMiller are aware not only o nly the importance of their company’s reputation but also how vulnerable the company is to anything that damages its reputations (Eccles, Newquist &Schatz, 2007, p.1).
9.4 PERFORMANCE 9.4 PERFORMANCE MANAGEMENT SABM SABMil ille lerr prid prides es itse itself lf on the the fact fact that that it pays pays much much atten attenti tion on to perf perfor orma manc ncee management and demands superior performance from both its personnel and machinery. This ensures that processes, people and everything it takes to produce peak performance are all optimized as much as possible. The culture of peak performance and superior workmanship is part and parcel of working at SAB Miller Miller..
There There is a delibe deliberat ratee strateg strategy y of recrui recruitin ting g and retainin retaining g the best
personnel, and then training them to meet the company's stringent specifications and requirements requirements.. Hence, much effort effort is placed upon training, capacitatin capacitating g and rewarding rewarding personnel.
9.5 GOOD MARKETING Market Marketing ing is consider considered ed a key functio function n at SAB Miller Miller. In fact, in its brochure brochure,, the company states that it is a marketing-led organization, and that marketing is too important to be to be left left to the the mark market etin ing g depar departm tmen ent. t.
Mark Marketi eting ng consi consist stss not not only only of the the
advertising of the company's products but also involves an intimate knowledge of, and close relationship with, the customer. customer. It has been with clever and insightful marketing that SAB Miller has been able to capture market share not only in South Africa but also in the other countries where it has established established itself. itself. An example of this has been in Colombia where, by realigning realigning the
23 expectations of the customer with respect to beer, through clever marketing, the sales of beer have increased. In an environment where consumers have a greater number of choices, more complex choices and channels through which to pursue them, simple, integrated solutions to problems win the allegiance of the time-pressed consumer (Meyer & Schwager, 2007, p.1).
10. OTHER ISSUES OF NOTE Even though in North America US consumption of beer was down 0.7% on an organic basis, it would appear that the company is doing very well in other areas some of the global market. For example, the company recorded a 17 percent growth in law the volumes for the quarter ending ending June 30, 2007. In Latin America, America, namely Colombia Colombia and Peru, whose growth of 12 percent in law the volume. Similarly for Europe, there was an overall 70 percent growth in volume. An even more impressive impressive growth in lager volume was recorded in Africa and Asia with organic growth of 23 percent being recorded. In South Africa, however, the main income earner for the company, the increase in lager volume was less impressive showing only a four percent increase. (Datamonitor, 2007) SAB Miller continues to grow, and the most recent joint ven ture between SAB Miller and Molson Coors on 9 October 2007, shows the company's intentions to take on AnheuserBusch in an attempt to capture the lucrative lucrative American American beer drinker market. market. Analysts Analysts speculate that the new venture, to be known as MillerCoors, will command 29 percent of the American beer market. (Economist.com, 2007).
11. CONCLUSION
24 In conclusi conclusion, on, there there is much much that that can be said about about SAB Miller Miller. It is a truly truly South South African company that has a long-standing history that stretches over more than 100 years. During this time, it has learned how to develop into a business that can be described as being truly global. While some would say that the company practices in a way that appears to be monopolistic, a brief look at the way the global beer industry is structured would indicate that there is much opportunity for SAB Miller to expand throughout the world, and take the leading role in this industry. industry. It is clear that since the company took the step to focus on its core competency, namely, brewi brewing ng beer, beer, the company company has done done well in expandi expanding ng to the rest rest of the world. world. By implementing what it does in South Africa, namely establish, perfect and sustain an operation that incorporates all the elements of manufacturing, sales and distribution, marketing and finance through the optimal utilization of well-trained human resources, on the background of good corporate governance, SAB Miller has been able to move into global markets where it is rapidly becoming one of the leading beer manufacturers in the world. By focusing on superb performance measures, while not forgetting issues like corporate social responsibility and corporate social investment, SABMiller has proven to be a good corporate corporate citizen in every sense sense of the words. The fact that for three years years running in South Africa, it was voted the best company to work for, speaks volumes of how the company is seen within within society, society, as well as by its own workforce. workforce. The many initiatives initiatives SABMiller embarked upon with respect to Broad Based Black Economic Empowerment, long long before before this this matter matter had become become legisl legislati ation; on; indica indicate te a foresi foresight ght that that stands stands the compa company ny in good good stead stead.. It is this this fore foresi sigh ght, t, coup coupled led with with coura courage, ge, balanc balanced ed risk risk assessment and sustainable business model that predict a bright future for SAB Miller. Miller. Important learning points from the SAB Miller story are the following: •
Invest in your workforce.
•
Reward good performance.
•
Secure your supply chain.
25
•
Secure your distribution network.
•
Practice good corporate governance.
•
Know and understand your customer and maintain good relationships while partnering with your customers.
•
Work to your strengths.
•
Always look for opportunities to learn and grow.
26
REFERENCES Bower J.L & Christensen C.M, 1995, “Disruptive Technologies: catching the Wave”, Harvard Business Review, January, p. 1.
Davies, H , 2002, “Corporate governance and the development of global capital markets”, Balance Sheet , 10, 3 p.15 [electronic]. Available Available from:
http://www.emeraldinsight.com/Insight/viewPDF http://www .emeraldinsight.com/Insight/viewPDF.jsp?Filename=html/Output/Published/E .jsp?Filename=html/Output/Published/E meraldFullTextArticle/Pdf/2650100302.pdf [08 October 2007]
Datamonitor, 2007, “Global Brewers – Industry Profile” [online]. Available Available from: http://web.ebscohost.com/bsi/pdf?vid=1&hid=102&sid=a61a13fc-e07d-4820-99ace282eb270aec%40sessionmgr104 [29 September 2007]
Datamonitor, 2007, “SABMiller - Company Profile” [online]. Available Available from: http://web.ebscohost.com/bsi/pdf?vid=4&hid=105&sid=cdf393cc-76d4-4796-9fdc8a50d01e7ea5%40sessionmgr104 [23 September 2007] Eccles R.G, Newquist S.C & Schatz R, 2007, “Reputation and Its Risks”, Harvard Business Review, February, p. 1.
Economist.com, 2007, “Seeing Double” [online] Available Available from: http://www.economist.com/business/PrinterFriendly http://www .economist.com/business/PrinterFriendly.cfm?story_id=9933456 .cfm?story_id=9933456 [10 October 2007] Kanter Kanter R.M. R.M. 200 2003, 3, “Thriv “Thriving ing Locall Locally y in the Global Global Economy Economy”, ”, Harvard Harvard Business Business Review, August, p. 1.
Khanna T & Palepu K.G, 2006, “Emerging Giants: Building World-Class Companies in Developing Countries”, Harvard Business Review, October, p. 1.
27 Laurie D.L, Doz Y.L & Sheer C.P, 2006, “Creating New Growth Platforms”, Harvard Business Review, May, p. 1.
Lee H.L. 2004, 2 004, “The Triple-A Supply Chain”, Harvard Business Review, October, p. 1. Masango, G, 2007, “A toast to good times”, Finweek Top 200, 29 March, p.108. Available Available from: http://web.ebscohost.com/ehost/pdf?vid=1&hid=106&sid=39727091-c052-4085-94a32abe97902e8f%40sessionmgr107 Meyer Meyer C & Schw Schwage agerr A, 200 2007, 7, “Unde “Unders rsta tand ndin ing g Cust Custom omer er Ex Exper perie ience nce”, ”, Harvard Business Review, February, p. 1.
Prahalad C.K & Hammond A, 2002, “Serving the World’s Poor, Profitably”, Harvard Business Review, September, p. 1.
SAB, 2006, “Corporate Brochure”, The South S outh African African Breweries Limited, Johannesburg.
SAB, 2007,“History” [online]. Available Available from: http://www.sabreweries.com/SABLtd/Primary http://www .sabreweries.com/SABLtd/Primary/ExploreSAB/History/Default /ExploreSAB/History/Default [ 21 September 2007 ]
SAB, 2007, “Shares” [online]. Available Available from: http://production.investis.com/sabtools/jsecharts/ [ 21 September 2007 ]
SABMiller, 2007, “Annual Report”, SABMiller plc, London Suarez F & Lanzolla G, 2005, “The Half-Truth of First-Mover Advantage”, Harvard Business Review, April, p. 1.
28
APPENDICES
Appendix I: Porter’s Five Forces
•
Bargaining Power of Customers
- until recently not significant - SAB had 98% market share, choice not great for customers •
Threat of New Entrants
- the threat of new entrants is not significant – currently there is a war brewing that would make new entry into the market very unlikely •
Bargaining Power of Suppliers
- recent supply difficulties of resources have highlighted that this may prove a significant factor in the future •
Threat of substitutes
- with 98% market-share this had not been a major problem but with the forced removal of Amstel from the SAB stable of brands the market has started to look less stable •
Rivalry between firms
- the withdrawal of SAB’s license to brew Amstel Amstel seems to have been a shot across the bows, signalling the start of what may beco me a war of note
29
Appendix II: PESTLE Analysis
•
Political environment is relatively stable but there may be some instability in the future as the ANC leadership battle heats up with some posturing from organizations
•
Economic environment environment has been favourable but recent jitters due to the sub prime fiasco has started to raise concerns and a few creaks in the economic framework have been reportedly heard
•
Society has become increasingly vocal about its expectations from companies but also is becoming more sophisticated in tastes as income levels increase
•
Technology is becoming increasingly important in the drive to achieve the best performance and product, but also increases demands for skilled staff
•
Legislation of significance here is that relating to BBBEE Act, the Liquor Act and the Competition Act
•
beco me part of any major firm’s Environment and the protection thereof has become concerns, being part of the triple bottom bo ttom line approach to sustainable success
30
Appendix III
Financials of SABMiller
31
(SABMiller, (SABMiller, 2007, p.1) Appendix IV: JSE share prices (Rands)
32
-- SABMiller – FTSE All Share Beverages -- Anheuser-Busch
-- FTSE 100 -- Scottish and Newcastle
– Interbrew – Heineken
(SAB, 2007)
Appendix V: London Share Prices (pounds)
33
-- SABMiller – FTSE All Share Beverages -- Anheuser-Busch
-- FTSE 100 -- Scottish and Newcastle
– Interbrew – Heineken
(SAB, 2007)
Appendix VI: SABMiller Major Competitors
34
Anheuser-Busch Companies, Inc. Asahi Breweries, Ltd. Heineken N.V. Kirin Brewery Company Compan y, Limited Marriott International, Inc. Nestle S.A. PepsiCo, Inc. MGM MIRAGE ACCOR Carlsberg Inbev Burtonwood Brewery Plc Merrydown Plc Grupo Empresarial Bavaria Royal Grolsch NV Foster's Group Ltd. Fraser and Neave Ltd Brau Union AG National Beverage Corp. Tsingtao Brewery Company Compan y Ltd Fuller Smith & Turner P.L.C. Young & Co's Brewery PLC Pivovary Staropramen a.s. Molson Coors Brewing Company
35 Appendix VII: Global Beer Market Share
(Datamonitor, 2007, [pp.11-14])
