Beer for All

1. Beer for All: SABMiller in Mozambique. Pg. 183
   1. Describe the Mozambican context from a social and economic perspective.
   2. How has SABMiller shifted its traditional model to suit the Mozambican market?
   3. In what ways has SABMiller innovated in response to the context?
   4. Good business models create virtuous cycles where strategic choices reinforce each other in contributing to the overarching goal. Map out the key strategic choices made and indicate whether they reinforce each other and, if so, how?

Case 3.3 Beer for All: SABMiller in Mozambique 183 After briefly outlining his strategy, Hamilton and suggested a lack of support from the acknowledged YA had not yet achieved the administrative departments was also a concern. volume and market penetration he was seeking. His proposed solution was to ask for another He argued, however, it was inappropriate and year to pursue his original strategy, as he was premature to cut sales offices, raise prices, or confident YA would achieve its objectives in shift product strategy because his team needed that time. more time to deliver on his plan. He believed When Hamilton sat down, the silence was attempting to upgrade the product focus or deafening. With the lunch break approaching, engage specialty bicycle retailers without suffi- Hsieh suggested that Hamilton and Zonghan use cient resources to establish the brand or provide that time to resolve their differences. When they strong support risked failure. He also touched reconvened after lunch, he expected to hear how on the delivery and transfer pricing problems they planned to move forward. IVEY Publishing CASE 3.3 BEER FOR ALL: SABMILLER IN MOZAMBIQUE Professor Margie Sutherland and Dr. Tashmia Ismail wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any mearis without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, NGG ON1, (t) 519.661 3208; (e) cases@ivey.ca, www.iveycases.com. Copyright @ 2014, Richard Ivey School of Business Foundation Version: 2014-05-12 Gerry van den Houten, SABMiller Africa's Sogakape, a dusty town 150 kilometres from director of Enterprise Development, sat in his the Ghanaian capital Accra. "I really like this Johannesburg office reading a Reuters website drink.*2 describing the rollout of cassava beer into Ghana. A quote about a customer caught his eye: Van den Houten reflected on the journey SAB- Miller had taken since unveiling its first cassava- Eugene admits he is no beer expert, but he'll based beer in Mozambique 18 months earlier. tell you the bottle of Eagle lager he treats He wondered how many times SABMiller could himself to every week is a step up from the replicate this business innovation and whether a murky homebrew that had been his preferred product and process could be too successful. tipple. He now saves saves so on Saturdays he has the 61 cents' for an Eagle. "Eagle is my first experience with beers," he says as he settles Ekow Dontoh and Janice Kew, "SABMiller Sells Cassava Into a plastic chair at a roadside bar in Beer to Woo African Drinkers, " Business Week, May 23, 2013, www.businessweek.com/articles/2013-05-23/ sabmiller-sells-cassava-beer-to-woo-african-drinkers. All currency is shown in USS. as at July 2013. accessed August 10, 2013.Developing Transnational Strategies 184 its minimum legal salary of $78 per month." The economy was also not immune to inflation: in Mozambique 2008, bread prices rose by 50 per cent; and, after In 2012, Mozambique, a long thin country on the a further 17 per cent price rise was announced in Indian Ocean coastline of Southern Africa, had a 2010, riots broke out across the country. " The population of 24 million and a per capita gross bulk of the economy's annual growth rate domestic product (GDP) of $583 per person. ' The Global Competitiveness Index 2012/13 ranked it stemmed from natural resource extraction by 138th overall out of 144 countries : 10Ist for foreign organizations with the resource being domestic market size' and 41st for foreign direct exported and turned into manufactured products investment (FDI) and technology transfer." in other countries and thus had little direct bene- Mozambique's official language was Portuguese, fit for the average Mozambican." Subsistence a remnant from its colonial era, and its median agriculture employed 81 per cent of the popula- population age was 16.8 years with an adult liter- tion and nearly 90 per cent of arable land was acy rate of 56 per cent.' When Mozambique was still undeveloped; however, one of the main crops granted its independence from Portugal in 1975, it grown in Mozambique was cassava. was rated as one of the world's poorest countries. Within a year of gaining its independence, almost all 250,000 Portuguese had left the country. For Cassava the next 15 years, an intense and destructive civil Cassava is a drought-resistant, starch-rich root war ensued, lasting from 1977 to 1992. vegetable that was introduced to Africa by the The return of political stability brought with it Portuguese who brought it from Brazil about a turnaround in the country's economic traject 400 years ago. Cassava, known as a "rough and tory. Between 1997 and 2007, Mozambique had ready" crop, had long been the foundation of one of the fastest growing economies on the food security in Africa. Among its unique prop- continent, with a growth rate of 9 per cent per annum, after dipping to a very low base. Despite erties were its ability to thrive in marginal soils, impressive growth in 2008, half of the country's its being a non-seasonal crop (it could be planted population continued to live below the poverty at any time of the year and, depending on di- line, and more than half of the country's annual mate, would be ready for harvest 12 to 16 months budget came from foreign assistance." later) and its ability to survive intact in long-term Since 2008, Mozambique's economy had con- underground storage before being harvested. The downside of cassava is the need to process it tinued to grow at 7 per cent annually, but despite within a day or two of harvesting; otherwise. having one of the world's fastest growing GDPs, the country remained very poor, as evidenced by the tuber turns black and becomes unpalatable and useless for processing. In Africa, 500 million people eat cassava World Economic Forum, The Global Competitiveness every day, each consuming, on average, 80 kilo- Report 2012-2013, p. 266, www.reports. weforum.org/ grams of cassava annually.'? The tubers are high global-competitiveness-report-2012-2013/, accessed February 15, 2014. Ibid. Ibid; Domestic market size - gross domestic product + value of imported goods and services. Wageindicator Foundation, www.wageindicator.org/ Ibid, p. 267; FDI and technology transfer were measured 10 main/salary/minimum, accessed March 1. 2014. as an opinion to the question "To what extent does "Cassava Revolution Takes off in Mozambique, " www foreign direct investment (FDD) bring new technology freshfruitportal.com/2013/07/04/cassava-revolution- into your country?" takes-off-in-mozambique/, accessed The World Fact Book, "Mozambique," https://www.cia "Mozambique Food and Drink Report (1 2013, www gov/library/publications/the-world-factbook/geos/mz marketresearch.com/Business-Monitor-International - Ibid. html, accessed July 9, 2013. v304/ Mozambique - Food-Drink -Drink - Q1-72647901. accessed March 1, 2014. International Institute of Tropical Agriculture. "Cassava, " www.lita.org/cassava, accessed July 9. 2012.Case 3.3 Beer for All: SABMiller in Mozambique 185 in starch, and the protein-rich leaves, a spinach- SABMiller like vegetable, are also eaten by farmers' fam- ilies. Mozambique's agricultural census of SABMiller, one of the world's largest brewers, 2010 indicated 2.3 million cassava farms, with was listed on both the London and Johannesburg the majority of the farmers never taking their stock exchanges and had more than 200 beer products to market," as very few had any brands and 70,000 employees in over 75 coun- method of transportation besides walking. The tries. In the financial year ending March 31, average farm size was two hectares, and the 2013, international revenue was $31.3 billion working tools were simple and of little value. with SABMiller paying 77 per cent of its taxes The farmers' homes were built from adobe brick to governments in emerging and developing with leaf, grass or straw roofs. * Compared with economies. The group's portfolio included both other crops, cassava required little labour to global brands, such as Pilsner Urquell, Peroni, plant and grow but was extremely labour- Miller Genuine Draft and Grolsch, and the intensive in the post-harvest stage to make it leading local brands in many countries, such as consumable. Of the total domestically produced Castle in South Africa, Snow in China and Aguila cassava, nearly one-third was estimated to be in Colombia. Beer was a local product the world lost through waste. According to van den over - typically brewed, sold and consumed in Houten, "Cassava is the biggest crop in Africa the same community. SABMiller was also one but the least commercialized."15 The lack of of the world's largest bottlers of Coca-cola commercialization was probably due to the products. severe logistical challenges in collecting the SABMiller generated two-thirds of its world- roots for commercial use: firstly, the smallholder wide profits in emerging markets; in Africa, the farmers were very widely dispersed; secondly, group operated in 37 countries." Sustainability cassava was subject to rapid perishability; was one of SABMiller's four global strategic pri- thirdly, the irregular sizes and shapes of the orities. As explained by then chief executive, large tubers and fourthly their high water con- Graham Mackay, in the company's 2012 annual tent, and thus their weight, made them unsuit- Sustainable Development Report, SABMiller able for transporting over long distances, integrated sustainable development into its busi- especially on the rutted roads of rural Africa. ness: "The greatest contribution we can make to The launch of SABMiller's beer in Mozambique the economies in which we operate is to run marked the first time that cassava had been used successful, profitable businesses that create jobs, to brew beer on a commercial scale, despite pay taxes and stimulate local enterprise while making efficient use of limited resources." One cassava having been used by generations of home brewers in Africa. of the three global focus areas within the stra- tegic priority of sustainability was "local enter- prise development in the value chain," and, as stated by the company. "By sharing knowledge "Cassava Revolution Takes off in Mozambique," op. cit. and working collaboratively with our stakehold- International Fertilizer Development Center, ers, we are confident that we can deliver innova- Commercialized Cassava Produ tive solutions at a local level." SABMiller was iva Production in Mozambique Helps Farmers," FDC Report, vol. 37, no. 2, 2012. also determined to ensure its "licence to trade" www.ifke.org/Nations/Mozambique/ Articles/ by implementing its 10 pillars of sustainability, Commercialized Cassava-Production-in-Mozambique- Hel, accessed July 9, 2013. FAOSTAT, 2007, http://faostat fao.org/agp/agpc/gods/ en/strategy, accessed March 2014. 17 Ekow Dontoh and Janice Kew, "SABMiller Sells David Smith, "Cassava Beer Debuts as Commercial Cassava Beer to Woo African Drinkers, " Business Week, Brew in African Bars," The Guardian, November 1. May 23, 2013, www.businessweek.com/search?q=sells 2014, www.theguardian.com/world/201 1ov/01/ + beer+to+woo, accessed August 10, 2013. cassava-beer-commercial-brew 15 www.sabmiller.com/files/reports/2012_SD_report.pdf. 2013, l-brew-africa, accessed July 9. accessed March 1, 2014.Developing Transnational Strategies 186 which included sourcing locally grown inputs posing health risks to consumers and leading to Into brewing and nurturing its relationships with a range of social problems. The commercial beer all its stakeholders. SABMiller considered a good market in Africa, home to 16 per cent of the of worldwide volumes, with four players control- corporate reputation to be fundamental to its world's population, represented only 5 per cent business success. SABMiller invested in Mozambique in 1995, ling 80 per cent of the market. Two of those acquiring two breweries, one in the south, in the players were SABMiller and Diageo. SABMiller capital Maputo, and one in the centre of the regarded its biggest competitors in Africa as "the country, in Beira. In 2010, the local subsidiary, guy or gal" who made beer at home and the known as Cervejas de Mocambique (CDM). built a commercial illicit alcohol producers and retailers. new brewery in Nampula, in the rural north of On most of the continent, commercial beer was the country, home to nearly half of the country's an aspirational product to the many who could population. Nampula had grown from a popula- not afford it. tion of 126,000 in 1970 to 478,000 in 2007. It An article in the Economist noted, "Brewers are had few Western-style hotels, restaurants or betting that Africa's fast-growing middle class shopping malls. In 2012, CDM employed 1,100 will want to trade up. Homebrew can be excel- people and had a 92 per cent share of the national lent, but it is highly variable, sometimes lumpy and lacks a certain cachet." A Wall Street beer market, where the average beer consumption Journal article noted that the idea was *to create was nine litres per capita per year. 20 a ladder for Africans to climb as their disposable incomes rise." They might start by drinking The Beer Market in Africa Chibuku (a milkshake-like opaque *homebrew Africans had traditionally drunk mainly home- beer" that SABMiller sold at 50 cents per serving brewed beer made from a wide range of ferment- in 12 countries), then later trade up to low-price able ingredients, such as sorghum, millet and lagers made from local ingredients and, ultim- bananas, with the homebrew market being four ately, they might be able to purchase and drink times the size of the formal beer market, as meas- premium beers. The extent of this challenge. ured by volume. " The main reason for the however, was evidenced by the fact that to afford greater homebrew market was that homebrew a commercial beer an African needed to work, on prici was considerably less costly than commercially average, three hours, compared with 12 minutes man brewed beer. On a continent where so many people were living in poverty, price often deter- of work for a European.2 Africans drank, on grow mined their choice. Another feature of the alco- average, eight litres of commercially brewed beer hol industry in Africa was the prevalence of "informal" commercial spirits and the illicit alco- hol market. These sectors were unregulated, 32 https://www.moodys.com/research/Moody's alcoholic Mut untaxed and often had poor if any quality con- beverage companies to benefit from growing consumer War trols. Thus, homebrew was often viewed as market. PR_245336, accessed March 18, 2013. Marc Gunther, "SABMiller: Beer at the Bottom of the Han Matt Pyramid," January 12, 2012, www.maregunther.com/ sabmiller-beer-at-the-bottom-of-the-pyramidi. March 15 Agencia of Informacao de Mocambicue - Mozambique access census, http://allafrica.com/stories/20091 1240685 accessed July 9, 2013. 34 "From Lumps to Lager," March 24, 2013, op cit. Reuter .html, accessed January 3, 2014. SABMiller, "Where We Operate: Mozambique," www 25 Paul Sonne. Devon Maylie and Drew Hinshaw, "With "1 - From 9, 2013. sabmiller.com/index. asp?pageid- 1 161, accessed July West Flat, Big Brewers Peddle Cheap Beer in Africa," Wall Street Journal, March 19, 2013, http://online.west 13 Clinch, 25, 20 "From Lumps to Lager," The Economist, March 24. .comews/articles/SB100014241278873240349045 Sonne, 2013, www.economist.comode/21551092, accessed July 9, 2013. 78348533702226420, accessed February 17, 2014 20 Reuters, "Africa's Beer Thirst," Fin24, June 19, 2012. David www.fin24.com/Companies/Industrial/Africas-beers- Affordat thirst - 20120619, accessed July 9. 2013. com/an EBECAUCase 3.3 Beer for All: SABMiller in Mozambique 187 a year, compared with the average American's by volume and to increase its earnings by annual consumption of 70 litres." 10 per cent. Key to this strategy was using Africa's economic outlook was rapidly locally grown crops as a brewing ingredient to changing, and the continent's real GDP grew an create a portfolio of high-quality, affordable average of 4.7 per cent per year between beers for local lower-income customers." The 2000 and 2010, a rate double that of the 1980s success of this strategy had been demonstrated and 1990s. "As a result of a host of opportunities in Uganda, where SABMiller had sold a being created, Africa was "open for business" and sorghum-based beer since 2002. There, its sales was one of the last remaining frontiers for beer," constituted 50 per cent of its 55 per cent beer where volumes were expected to grow at double market share, with the sorghum being sourced the global rate. Africa's population of more than from 9,000 small-scale farmers." one billion was set to double by 2050, " sparking the interest of global beer producers who were keen to expand into Africa as they sought growth Impala Beer markets to compensate for flat and falling beer In November 2011, CDM launched the first-ever sales in the rich developed world. " One strategy commercial-scale, cassava-based clear beer, behind successfully tapping into these opportun- Impala,"named after the widespread African ities was to become a dominant player by being antelope. The beer was made at the Nampula the first to market and entrench a brand.2 brewery using 70 per cent locally grown cassava According to Bernstein Research, Africa was in place of expensive imported malted barley. The probably the most attractive region for long-term beer, bottled in 550-ml bottles, contained 6.5 per profit growth for global brewers. Diageo and cent alcohol and sold at two thirds the price of SABMiller were in a race, targeting low-income mainstream commercial beers," but double the earners, those who earned as little as $2 or $3 price of homebrew. Impala offered low-income a day, 34 earners a high-quality, affordable local beer and One of SABMiller's main African strategies aimed to attract customers in the vicinity who was to make beer more affordable and less of a had traditionally drunk homebrews and illicit luxury product. "We are looking at sub-inflation commercial spirits. Mackay said, "Very often pricing," said Mark Bowman, Africa's regional illicit alcohol is positively dangerous. What we managing director." The group aimed for annual are doing is offering a legal alternative to that growth in Africa at a rate of 6 to 8 per cent large percentage of alcohol that is homemade and for which governments get no taxes."40 When asked how the beer tasted, Andy Wales, SABMiller's global head of sustainability, replied, 27 "From Lumps to Lager," March 24, 2013, op.cit. 2 Mutsa Chironga, Acha Leke, Susan Lund and Arend van "It's excellent, not too dissimilar from a regular Wamelen, "Cracking the Next Growth Market: Africa," lager. It looks like any other beer - golden Harvard Business Review, May 201 1, pp. 117-122. and sparkling with a foam head." Bowman " Matt Clinch, "Beer and Africa: A Recipe for Profit?" commented, "The cassava beers are more bitter March 25, 2013, www.cnbc.com/id/ 100587943, accessed July 9, 2013. " Reuters, "Africa's Beer Thirst," Fin24, June 19, 2012. "From Lumps to Lager," March 24, 2013, op.cit. 34 Dutch Agricultural Development and Trading Ekow Dontoh and Janice Kew, May 23, 2013. Company, "SABMiller," www.dadico.nl/sabmiller, "Clinch, "Beer and Africa: A Recipe for Profit?," March accessed July 9, 2013, 25, 2013, op.cit. 37 Gunther, "SABMiller: Beer at the Bottom of the Sonne, Maylie and Hinshaw, March 19, 2013, op.cit. Pyramid," January 12, 2012, op.cit. David Jones, "SABMiller Strives to Make Beer www.sabmiller.com/files/reports/2012_SD_report.pdf. Affordable in Africa," March 13, 2012, www.reuters op, cit. .com/article/2012/03/ 13/sabmiller-africa-idUSL5 39 Ibid. 4 Smith, November 1, 2011. op.cit. EBECUZ20120313, accessed July 9, 2013. " Gunther, January 12, 2012, op.cit.Developing Transnational Strategies 18B than the barley lagers, " adding that the new beers The units were housed in modified 40-foot were "not supposed to be quite the same as main- (12-metre) containers that had self-contained power supplies, but required water on site from stream beers, in terms of taste. The difference could be a turnoff for some drinkers accustomed either a borehole or river. The unit processed to smoother, more expensive quaffs. "Bowman cassava tubers by chopping and rasping them further said that "low cost, locally sourced beers into a slurry that was turned into a plastic- could double or triple the size of the beer market wrapped, easy-to-transport "cake" that could be as people move away from homebrew. Those stored for at least six months." The AMPU could process 3.8 metric tons (MT) of cassava roots into beers are a clear way to reach a market that wants two MT of cake within an hour. The AMPU to drink beer but can't afford to. "13 produced very little effluent (which was pumped But it had been a complex journey. Van den onto neighbouring farming land as free irriga- Houten had conceived of the idea of making beer from cassava 20 years previously but had tion), and the peels of the cassava were turned been assured by SAB technical researchers that into compost for the farmers. doing so would be impossible. In recent years, At the outset, DADTCO provided SABMiller however, SABMiller had run trials in Swaziland with cassava cake for brewing trials, information and Nigeria on producing beer from cassava but on cassava's particular starch characteristics and a fundamental problem had been getting a reli- advice on managing the supply chain from able supply of the crop to a centralized factory: smallholder farmers. DADTCO had a spare AMPU I had done the economics for that and which- in Nigeria, and SABMiller initially considered ever way you looked at it, it just didn't work buying it but that was not the arrangement out." On his many business trips in rural Africa, DADTCO wanted. A joint venture was then van den Houten had been frustrated by the considered but had many complexities. In April glaring poverty and suffering of rural farmers. 2011, the project was given the go-ahead, and an In late 2010, a chance discussion with a col- Africa-wide framework agreement was drawn up league in Kenya, who worked for the Africa between the two organizations. SABMiller agreed Enterprise Challenge Fund (AECF), had led to to invest in cassava beer projects and to supply a van den Houten becoming aware of the break- low-cost loan to DADTCO, which was in need of through cassava technology of the Dutch Agri- financing. In return, DADTCO agreed to exclus cultural Development and Trading Company sively provide SABMiller with product and value (DADTCO), one of the companies the AECF was chain know-how for brewing-related endeavours sponsoring A few months of email correspond- ence ensued, and then van den Houten visited a and to provide a team to manage the farmers and DADTCO site in Nigeria to see the technology the technology. 47 at work. SABMiller chose Mozambique after also considering South Sudan, Nigeria and Angola DADTCO's innovative solution was a mobile The deciding factors included proximity to the processing unit called the Autonomous Mobile Processing Unit (AMPU), which was taken from regional head office in Johannesburg in South one farming area to another. DADTCO's trade- mark saying was "If the farmer can't come to the factory: let's bring the factory to the farmer. "14 Melissa Rudd, "SABMiller's Cassava Beer Aims to Win over Home Brewers," www.africanbusinessrev za/money_matters/sabmiller-aims-to-win-over-home- " Ibid [kow Dontoh and Janice Kew. May 23, 2013, op.cit brewers-with-cassava-beer, accesse 2013, , accessed September 1. " Dutch Agricultural Development and Trading "Cassava Revolution Takes off in Mozambique, " www Company, "AMPU," www.dadtco.ni/ampu, accessed October 15, 2013. freshfruitportal.com/201 3/d takes-off-in-mozambique/, accessed July 9, 2013 Email from Peter Bolt to one of the case writers, August 9, 2013.Case 3.3 Beer for All: SABMiller in Mozambique 189 Africa, the excitement and support of the project organization (NGO), organized the information- expressed by the CDM managing director and the sharing events where DADTCO staff explained to ready support of the Mozambican government the farmers the process of selling their cassava for the project. roots to them. According to an estimate by van den Houten, $2 million in donor funds was The Underpinning Networks needed per year, for three years, to develop the Cassava+ was a public private partnership in smallholder farmer model and to maintain the cassava supply chain in Mozambique. Mozambique comprising three partners: As van den Houten had learned, "the best DADTCO, the International Fertilizer Develop- knowledge sharing in Africa comes from being ment Center (IFDC) and the Dutch government's part of informal networks," The project was Directorate General for International Cooper- founded on a new approach involving multiple ation, the latter providing substantial funding stakeholder relationships. The public sector for the project. Drawing on the expertise of each involvement came through developing close partner, Cassava+ aimed to turn a subsistence relationships with Mozambique's government crop into a cash crop and to double Mozambi- ministers of agriculture, finance (responsible for que's cassava yield. IFDC, a non-profit organiza- excise taxes) and trade and industry, and by tion working in more than 100 countries, taking time to understand the government's assisted farmers to develop upstream compon- national agenda and then respond to it. The ents of a value chain, by giving them access government had previously commissioned con- to improved varieties of seed, fertilizer and sultants to produce a two-volume report on how training on appropriate crop practices via their to develop the cassava industry, but was under- field extension officers."It was also working resourced to implement the plan. Providing a with Mozambique's government-funded plan to help impoverished farmers was a National Institute of Agricultural Research to national imperative. Van den Houten noted that introduce new disease-free cassava planting business leaders in multinationals were not usu- materials. DADTCO, a small private sector com- ally skilled in engaging government to achieve pany, had 30 years' experience working with mutually beneficial goals. For example, SABMil- farmers in the developing world, creating ler had to learn how to engage with the Mozam- innovative technologies and business models." bican government by first learning "the The vision of DADTCO's chief executive officer, language" of the government and then, over Peter Bolt, was to decrease African countries' time, building trust with government officials. dependency on food imports and to give farmers Equally, governments in Africa had to learn realistic, competitive markets for their prod- how to engage with multinationals to assist them acts. 50 Other stakeholders in the system included in development. The Mozambican government Corridor Agro Limited that multiplied the had at first worried about what the project would improved varieties developed by the National mean for food security - would the farmers sell Institute. ORAM, a local non-governmental their subsistence crop for cash and leave their families hungry? However Cassava+ had pla- cated their concerns by illustrating how easy it was to double the cassava yield per hectare." 2013. www.dadtco.ni/sabmiller-dadico, accessed July 9. Van den Houten had found it important to build "SABMiller, "SABMiller Launches First Ever Cassava Lager in Mozambique, " www.sabmiller.com/index.asp? pageid-149finewsid-1748, accessed July 9, 2013. Rockefeller Foundatic undation, Catalytic Innovations in 5 Gerry van den Houten, presentation at Gordon Institute African Agriculture, Innovation for the Next 100 Years, of Business Science. Pretoria. South Africa, July 18, Centennial series, Mobile Cassava, DADTCO. Mozambique. 2013,Developing Transnational Strategies 190 a compelling case for government to utilize innovation. Van den Houten commented, "It's excise rates as one of the tools for addressing important to recognize possibilities - to see SABMiller also wanted to enhance its per- socio-economic issues including the abuse of potential in mistakes." illicit alcohol in unregulated (and untaxed) ceived "license to trade" in Africa. In line with markets. The next stakeholder group was the private the enterprise development principles of its sus- sector, represented by SABMiller and DADTCO, tainability strategy, SABMiller saw an opportun- which worked closely together despite the sig- ity to create a new market for subsistence farmers nificant differences in their scales of operation. in Mozambique and to help them earn an income. The final stakeholder group had two compon- often for the first time, by guaranteeing them a ents: the small-scale farmers themselves and the market for their crops." The farmers in this NGOs, which "helped keep all parties honest," extremely poor area had previously struggled to through their close relationships with, and sell more than one bag of cassava every two unique sensitivity to the dynamics of, people weeks. living in these remote communities. DADTCO DADTCO managed the cassava production value chain, and IFDC provided agricultural and some NGOs conducted baseline measures before the project was rolled out so that the extension services. Farmers sold their surplus socio-economic impact of the project could be cassava roots for cash to DADTCO, which offered a ready, accessible market and a purchase guar- assessed over a few years. Van den Houten had learned it was imperative antee in a one-page contract. The farmers were for all stakeholders' roles to be specified, recog- paid different rates, depending on whether they nized and adhered to. He felt that one of the delivered their crop to the AMPU or whether program's success factors was that it worked DADTCO collected the crop. The contract scheme from only a framework agreement and had no provided great opportunities for farmers to legal contracts between the parties. He believed increase their income with little risk." DADTCO that the win-win partnerships with government, produced the cassava cake at the AMPU, then NGOs, DADTCO and the farmers had led to sold the cakes to CDM, which, in turn, used the stronger and more effective relationships than cakes for the brewing of Impala beer at the Per those governed by legal ties. He also believed that Nampula factory. Of to be sustainable, the projects needed to deliver In recognition of the contribution of cassava- satisfaction to all the partners not only to the customers. based beer to the country's agricultural and man economic development, the Mozambican gov- sur ernment introduced, in 2011, a new excise are a The Implementation category for beer made from cassava that was they chang The drivers for the project were business impera- sold and consumed in the same community Whereas producers of malt-based beers paid a better tives: recent commodity price fluctuations, pletely exchange rate volatility and, in some global 40 per cent tax rate, the tax rate on Impala beer was set at 10 per cent. 55 In 201 1. CDM received list of markets, shortages of supplies of key materials. such as hops. As a result of these effects, way, t SABMiller was vulnerable to factors beyond its comple control. Thus, SABMiller's strategy was to drive down costs and waste by collapsing the supply Sa www.sabmiller.com/files/reports/2012_SD_report.par. chain, which, in rural Africa, was often very long op. cit. www.salim and expensive because of the continent's poor " Dutch Agricultural Development and Trading Company. "SABMiller," www.dadico.nl/sabmiller. enual rep infrastructure. This strategy was a business "Mozambiq necessity, but the process was "stumbled into" accessed July 9, 2013. Rockefeller Foundation, op. cit. Africa, Apri rather than the result of a planned process of Paul Sonne, Devon Maylie and Drew Hinshaw, March 201204051 Sore, Mayl 19, 2013.Case 3.3 Beer for All: SABMiller in Mozambique 191 the Best Taxpayer of the Year award from the Mozambican Revenue Authority for the second a tough struggle with the naysayers in SAB- Miller, day after day." consecutive year. " CDM was by far the biggest taxpayer in Mozambique, paying 7.2 per cent of Coordination presented some challenges because the total taxes collected in 2010 and generating farmers had limited access to phones, and some 2.4 per cent of GDP." SABMiller had guaranteed farmers, unaware that they needed to communi- that if the tax amount payable decreased, it cate with the company to arrange for pick up of would pay the government the difference, but their crops, had experienced crop spoilage. no decrease had occurred because of the volumes Other challenges were transporting crops on very that were sold. "Mackay, referring to developing poor roads and the high fuel costs required to these low-cost beers, said, "You can't do this move the AMPU. In response, DADTCO decided without hemorrhaging your margins - unless to establish regular pickups at collection sites and you can get the government to come to the to strategically rotate the AMPU to new areas party." Government officials acknowledged to minimize transportation costs throughout that cutting such deals had led to some benefits. the year. the "Alcohol and beer aren't good for health, but at Van den Houten added, "Africa is no place for the same time they bring revenue," said Hermi- sissies. It was difficult for a successful, huge nio Sueia, director general of Mozambique's rev- company, such as SABMiller, to shift its mindset. enue authority. The route to market - that is, getting previously The implementation process had been com- illicit liquor drinkers to change their habits to plex. Bolt recalled, include a mainstream local beer - was unknown and difficult to navigate. And with a global SABMillers' strength has been built on organization's high level of bureaucratic govern- repeating well-known processes worldwide ance controls, policies and procedures, it was a using global supply chains. The global scale difficult task to get SABMiller to lend money to a and mindset were not compatible at the start financially unsound organization."" with a new raw material, which is bought Bolt reflected on the critical success factors in locally from many, many smallholder farmers. the project, specifying the following: Personal relationships and the enormous drive The drive, commitment and vision of a few of van den Houten and Bowman and other managers made the organization capable of senior managers at SABMiller: The short surmounting this incompatibility. Brewers command lines and personal relationships between these senior managers allowed for are a traditional and conservative group and they battled to understand the need for quick decisions and forging ahead at great change. We see, albeit very slowly, SABMiller speed. The fact that SABMiller has great financial muscle while DADTCO had the tech- better understanding that this needs a com- nology innovation and know-how needed, but pletely different approach. There is an endless was cash strapped, made it necessary for both list of advantages which outweigh, in a large companies to become partners and be bound way, the challenges encountered to build a to each other with "mutually financial completely new supply chain. But there was chains." Both partners needed each other and had a mutual interest to make the project a success, The understanding on both sides that www.sabmiller.com/files/repris/ar201 1/CDMa CDM annual report for 201 1, accessed March 1, 2014. "Mozambique: CDM Planning Two New Breweries," All Africa, April 5, 2012, www.allafrica.com/stories/ 201204051 178.html, accessed July 9, 2013. " Email from Peter Bolt to case writer, August 9, 2013. Third. [bid. Sonne, Maylie and Hinshaw March 19, 2013, op-cit. 62 Rockefeller Foundation, op. cit, 63 van den Houten, July 18, 2013, op.cit.Developing Transnational Strategies 192 creating such a complete new raw material environmental implications, as local wood sup- plies were being decimated by charcoal produc- will have many challenges and that a process tion. Farmers in Nampula were working in a of change takes time was most important. new hub-and-spoke system, whereby newly developed commercial farmers assisted nearby Bolt's experience was that, at the level of the smallholder farmers, change could take decades; subsistence farmers. Bolt commented, "By creating a sustainable, and, in a multinational company, it could take at least five years. He concluded, "A process of vibrant market for their crops, buying from them change needs and takes a long time. If senior directly, helping them improve their yield, there management fails to grasp that and only looks is no doubt that this project will have a signifi- at the short-term profits, the change is doomed cant impact on the farmers' lives and the local economy." He recalled an elderly woman to fail,*64 walking 15 kilometres to the AMPU with a bundle of roots on her head. On receiving her Outcomes cash payment, she burst into tears - it was the Within two months of its launch, Impala had first money she had ever earned. Ernesto Sebas- taken 1.7 per cent of Mozambique's beer market tian, one of the farmers in the Nampula district and had boosted output of the Nampula factory. who sold cassava to DADTCO, told interviewers: Five months after the launch of Impala, the Nam- pula brewery had produced three million bottles "I have been able to buy a bike, clothes for the of Impala, which were sold through 400 retailers, children and school supplies." He had previ- most of which were located in remote rural ously occasionally sold dried cassava he had pro- areas." In April 2012, CDM announced it was cessed laboriously by hand to iterant traders but building two new breweries, in Tete and Sofala was now receiving the same price for heavy provinces, both of which would produce Impala unprocessed cassava and, through the input of alongside other brands. By December 2012, 12.5 the Cassava + consortium, he had doubled his cas- million bottles of Impala had been produced sava yield per hectare. using 3,800 tons of cassava root bought from Van den Houten, who retired from SABMiller nearly 1,000 farmers who had been paid a total in September 2012 after more than 30 years of $220,000. In 2012, the Impala brand won service, was re-engaged to continue to drive the the prestigious SABMiller Mercatus Global roll-out of the strategically important cassava Marketing Award." By June 2013, 18.5 million initiative across SABMiller's African businesses bottles of Impala had been sold, and van den Houten attested that "Impala has been an He felt deep personal satisfaction from the project extremely profitable initiative." as it "has a very, very strong business case, and a The project led to many spin-offs. For very strong socio-economic case. It's very satis- example, DADTCO was developing two new fying being able to put something back in to cassava-based products: flour made from cas- Africa and at the same time it is very much a sava, which could replace expensive imported game-changer for our company: It has opened up wheat products in Nigeria, and a cassava-based a whole new market." But van den Houten also bio-ethanol for use in ethanol cooking stoves, wondered how all the stakeholders would react if which would replace charcoal-based stoves. the process and product proved to be "too The bio-ethanol could have far-reaching successful"? ogy had Email from Peter Bolt to case writer, August 9. 2013. van den Houten, July 18, 2013, op.cit. Dutch Agricultural Development and Trading ance 2013. www.dadico.ml/sabmiller-dadtco. accessed July 9. Company, "Ethanol Production." www.dadtco.mly "van den Houten, July 18, 2013, op.cit. ethanol-production, accessed accessed October 15. 2013. Dutch Agricultural Development an COF ent and Trading faced Company, "SABMiller," op. cit. " Rockefeller Foundation. op. cit. Erie. John