SABMiller (SAB) plc is one of the world’s largest brewers with brewing interests or distribution agreements in over 60 countries across five continents. The group’s brands include premium international beers such as Miller Genuine Draft, Peroni Nastro Azzurro and Pilsner Urquell, as well as an exceptional range of market leading local brands (http://www.sabmiller.com/sabmiller.com/en_gb/Our+business/About+SABMiller/).
The purpose of this report is to outline the current position of SABMiller, the position in 2004 and the strategy followed by it, in the brewing industry. It will also set out to recommend a corporate strategy for future.
2. SABMiller’s Strategy Analysis
SABMiller has chosen to follow an aggressive strategic business plan in its overseas ventures, based on market expansion. SABMiller takes a share in a brewery with a local partner and whilst retaining the brand, transforms the business by upgrading the quality and consistency of the beer, for which people are prepared to pay more, thus giving a healthy profit margin. Once SABMiller has acquired an initial local strong hold they then advance into regions beyond the brewery’s original catchment area. They continue to build initial mass in the region and progress over time to a national basis.
SABMiller chooses to hold a portfolio of different brands of beer from different countries. International business is spreading, thus creating a portfolio effect, which can help to reduce setbacks in one or two individual countries, SABMiller claims, “an optimum brand portfolio gives us a better overall marketing proposition, increases total sales and delivers economies of scale in production and distribution”. Building a well-diversified portfolio works in much the same way as choosing a portfolio of shares that will ultimately create the lowest risk and the highest gains.
SABMiller was listed on the London Stock Exchange in 2000. The group believed it would place them in a better position by giving them greater access to world capital markets and providing it with the financial resources and flexibility it needs. What SAB has to realise with its London Stock Exchange listing is the increased competition it faces. SAB should continue to target the United Kingdom but it has to be emphasised that there are many well established brands in this country and with consumers becoming ever more brand focused and consuming more wine and fruit alcoholic beverages a successful acquisition of the British market will not be straight forward.
b) The strategic position in 2004
In 2001 SABMiller finds itself as the fifth largest brewer in the world. SAB has brewing operations in 21 different countries around the world with an annual output of “77 million hectolitres of beer. SABMiller also holds a chain of 77 Southern Sun hotels throughout Southern Africa and also owns three casinos.”(Johnson, G & Scholes, p897)
The strategic position that SABMiller has chosen to follow is to “continue to protect and further develop its South African operations, whilst investing for growth in its international beer business, where a profitable base, with critical mass in selected developing markets and regions has been achieved, incremental growth, both organic and through acquisitions is being pursued aggressively”. (Johnson, G & Scholes, p898)
SABMiller needs to make sure they are aware of the wider macro-environmental influences which affect their business, these influences, once they are combined will provide the company with structural drivers of change, those influences will affect the structure of an industry, market or sector.
In order, to formulate an analysis of the external environment in which SABMiller is operating, an evaluation will be made in terms of industrial and competitive context. Both, the competitive context and the macro environment factors of the company can be evaluated by using the PESTEL analysis. Although the factors which are most identified from the case are political, economical and social, however it must be mentioned that SABMiller was targeting towards various markets which were in the developmental stage. Furthermore, recently core differences has been occurred in terms of the target market and the core strategies particularly after achieving the most desirable aim which is entering the developed market in the USA.
Politically SAB’s strategy demands a great political sensitivity in dealing with governments, partners, local communities and the workforce.
Both South Africa and the European countries have been going through an instable condition. For example most of the east European countries have been through a transition period from communism to democratic state introducing higher competition in the economy.
Economically, in most emerging markets, consumption of beer is directly related to the level of disposable income at consumer level.
Although, the markets in which SAB is operating have been growing there have been occasions of depression. For example, Romania experienced high inflation, which in turn made SAB’s products not to capture the market share. While, political and economical factors have affected the performance of SAB.
Social Conditions have also played a major role in the development of SAB’s products across these markets. For example, the outburst of AIDS in South Africa has declined the demand for SAB’s products as people are spending more of their disposable income on medication.
Moreover, the competitive context of the macro environment should also be examined. It can be seen that there are two major trends in the brewing industry:
Globalization: companies operating in such an industry usually tend to establish strong presence worldwide. This in turn, helps them to reduce the impact of setbacks occurred in one or more countries of its operations.
Companies with strong domestic strategic situation usually try to invade attractive markets world widely.
Mergers and acquisitions: mergers and acquisitions are of the most important tools which organizations use in order to achieve globalization. This is done by one firm conglomerating with other firm/s in the industry. This in turn not only helps the companies to achieve economies of scale, but also to penetrate into new market segments and exploit them taking in consideration the high risk which might be encountered.
Other factors, which could also be used to understand the behavior of competition in the market of operations, are:
Demand: Although the brewing industry is considered to be a mature industry, one cannot say that it has stable demand. Therefore, different markets need to be examined in order to know the fluctuations in the demand levels relating to different customer groups.
Competitive Behavior: Even though much information in the case is not available regarding the behavior of the competitors in the brewing industry, it is mentioned in the case that, among SAB other major firms also follow the practice of merges and acquisitions. This itself can create competitive pressure on SAB.
Briefly, there is a considerable increase in the competition due to the political changes, democracy, economic change, emerging market and globalisation.
c) Current strategic position
SAB is already a worldwide organisation with a growing presence. A right combination of all resources not only helps SABMiller to have distinctive capabilities but also to acquire various businesses around the globe and enjoy great economies of scale. This also helps the organization to complement its global strategy.
* Good worldwide organisation with history and knowledge of entering foreign markets successfully with a brewing presence in over 40 countries.
* Acquired 100% of Miller Brewing Company in July 2002 and became the first international brewer to enter Central America to become the largest and brewer and soft drinks bottler there.
* Primary listing on the London Stock Exchange and secondary listing on the Johannesburg Stock Exchange. Is also a member of the FTSE 100 in the United Kingdom.
* In the financial year ended 31 March 2003 SAB invested US$13milion in contributions to their local communities, which represented 1.7% of group pre-tax profits.
* Market dominance: SABMiller is the second largest brewer in the world by volume and dominate more than 90 per cent of its domestic market in South Africa.
* Competitive advantages: SAB has a competitive advantage which is the ability to sustain and improve in 4 areas: (1) Value adding capability, (2) Cost leadership, (3) Economies of scale and (4) Efficient distribution.
* SAB is using its expertise which has been gained over 100 years in South Africa.
* Product or service quality: undoubtedly the proved high quality SABMiller products has is of the main strengths.
* The consumption of beer is directly related to disposable income so the purchasing of beer still remains highly fragmented, people who are on a budget tend to look out for the best deals and aren’t specifically brand loyal whilst others tend to stick to one brand and as SAB beer is not well known in parts of Europe and the UK there is a problem of brand recognition.
* In South Africa there was a 2% decline in profits as there was a shift in how people were spending their money, they were moving from immediate gratification to self improvement, i.e. instead of seeking pleasure for the short term they would rather spend their money on cars, doing up their homes, holidays, education etc…
* SAB targets each of their market’s individually which is fair enough as each country will respond differently to a marketing strategy, however SAB should hold one central office either in South Africa or in London from which the company can be reached and from which all their marketing plans stem from.
* The African heritage could be considered as a weakness for SABMiller.
* Further recognition in Continental Europe and the United Kingdom due to listing on the London Stock Exchange.
* Increased profits in Central America in future years once the business becomes established.
* Further saturation of Alco pops and soft drinks.
* Possibility to introduce further Southern Sun hotels and gamming facilities worldwide.
* Increasing market share in Poland due to rising numbers of beer drinkers in the younger market.
* SABMiller still has several Diversification opportunities world wide.
* Big brands are set to become bigger, Stella Artois, Carling, Foster’s and Budweiser.
* Ageing population means less beer drinkers.
* Price competition from substitute supermarket brands and promotional discounts
* Internet – Companies going on line. Wine Merchants – Lastorders.com offering 20% less then high street stores.
d) Future strategy
Obviously, SABMiller has implemented many of the common strategic options which have been available for it since it has been established.
In terms of Market strategic based it’s the time for acquisitions and mergers as so many multinational organizations are doing. The experience and skills SABMiller has can lower the high risk of implementing these strategies. This allows SABMiller to fully consolidate its position in both the developed and developing economies, while gearing itself up for the number one position.
To consolidate its position in the developed countries SABMiller should focus into acquiring the main competitors in Western Europe and the USA, that doesn’t mean this operation is simple.
But SABMiller still need the time to have enough experience in the developed markets because as shown in the annual reports since 2002 some ratios have been decreasing,
Assets reduction strategy can be followed by SAB as what happened in 1997 when SAB sold and closed non core operations that will generate a cash flow for SAB when insufficient capital experienced.
Doing so will make SAB able to concentrate in acquiring and operating in its main business which is breweries.
Revising the existing strategy: The financial review shows a steady decrease in the turnover of Hotels and Gaming. Moreover some revising for the existing strategy should be done to get higher results. That can be done by implementing a marketing strategy, selling assets or merging with another major hotels company.
SABMiller needs to revise it strategy in terms of the brand specially after entering the developed markets. Otherwise this would be considered as a potential weakness.
Cost based strategy is needed to consolidate the new markets SABMiller has entered in order to defend its strategic position.
Generally, the acquisition choice is adopted by so many multinational organisation, and recently this phenomenon has appeared more clearly .adoption of such strategy is due to many advantages it has for instance:
* Can be relatively fast
* May reduce competition from a rival, although such a move usually has to be sanctioned by government competition authorities.
* Cost savings from economies of scale or saving in shared overheads
* Maintenance of company exclusively in technical expertise
* Extend into new geographical area
* Buy market size and share
* Financial reasons associated with purchase of undervalued assets that may then be resold
* SABMiller has many core competencies allow her to overcome many obstacles in terms of this choice.
SAB has been following the acquisition strategy for many of years, to be able to expand geographically and also diversify its operations in different sectors. Although, we are assuming that SAB has been able to generate a high rate of ‘retained earnings’ and/or access to debt agreements with financial institutions, the ability to improve the marketing and distribution channels of its acquired businesses, underline the financial power of SAB.
Since the mission of the group is to be a world class manufacturer and deliver high quality beer, the strategy used by SAB is appropriate. SAB has been able to gain a significant market share and improve its quality by not only acquiring different companies around the globe, but by having a decentralized marketing and sales group within each country. This strategy has also helped it to increase the economies of scale by effectively utilizing its capacity and productive methods.
SAB, has been using its resources and capabilities as effectively as possible in order to follow and attain its strategies
SAB has achieved to establish a global business network. By doing so, the company increases its turnover and its profits, which without doubt satisfies stakeholders’ expectations. That’s why they should support the pursue of the strategy even if they feel insecure about certain acquisitions.
* Anon, no date. No title [Online]. Available from: http://www.sabmiller.com/sabmiller.com/en_gb/Our+business/About+SABMiller/[Accessed 15 Jan 2007]
* Johnson, G ; Scholes, 2002. Exploring Corporate Strategy 5th Edition. UK: Prentice Hall.