BM4407 (Strategic Management) Semester: May 2022 Case Study: SOUTH AFRICA BREWERY (SAB) SAB was incorporated in 1895 and was listed in the Johannesburg Stock Exchange in 1897 and then on the London Stock Exchange in 1898. In the period 1948-1994, the South Africa government introduced the racist system of apartheid where the black people were separated from the white people. The rest of the world imposed economic sanction on South Africa where no country could trade with South Africa and no South African business could trade in the international market. During this period of apartheid, SAB focused its business only in South Africa and became fully incorporated in South Africa in 1970. Next the South African government imposed heavy tax on beer and the black Africans were prohibited from consuming beer. Subsequent to these developments, SAB was concerned to dominate the domestic beer production by acquiring the competitors and then rationalised the production and distribution facilities. SAB obtained licenses to brew locally Guinness, Amstel and Carling Black Label. SAB also diversified into other businesses such as hotels and gambling by acquiring the Sun City casino resort, and through joint-ventures involved in businesses involving food, property, retail, clothing, footwear and manufacturing of safety matches (1987). In 1994 the Government of Tanzania invited SAB to revitalise its brewing industry and this was followed by Zambia, Mozambique and Angola.By 1997 SAB controlled about 99% of the market in South Africa and held commanding position in the nearby states: Swaziland, Lesotho, Rhodesia and Botswana. In 2000 SAB dominated the beer market in South Africa and there was no space for local expansion especially in alcoholic beverages. The next strategic expansion was to go into global markets. Actually, in 1993 SAB acquired the largest brewery, Dreker in Hungry and from here, SAB started to move into the beer markets in central European countries - the emerging economies. By 1994, SAB established operations in China by forming a JV with China Resources Enterprise Ltd to add China's biggest beer brand, SNOW to its portfolio. In 1995 SAB made acquisitions of beer operations in Eastern European countries like Poland, Romania, Slovakia and the Czech Republic and the central Russia in 1998 through establishing a 'green field' brewing near Moscow. The success of SAB entry into the developing economies in Africa, Asia and Europe was due to the fact that the breweries there were fragmented and small in scale, localised and producing low-quality beer. This situation provided the opportunity for SAB to take a share in a brewery with a local partner and transforming the business while retaining the brand, thereby giving the local drinkers a better quality and consistency beer. SAB helped to improve marketing and distribution and productivity and capacity. The market expanded from regional basis to national level. SAB had applied its skills it had acquired over 100 years operating in South Africa. Its management structure was basically decentralised, reflecting the local nature of best branding and distribution. It was able to attain efficiency in operations and distribution of beer and reduced the costs. This approach worked well in developing economies but not in developed countries. SAB realised that it has the ability to tap into deep local insights and win over the market. They do it by working alongside withthe retailers to help them grow their beer category and creating the beer that meets the local taste. By 2002, SAB owned more than 100 breweries in 24 countries and accounted for about 14% of annual revenues. Most of the company's brands were only sold on a local or regional basis but none had reached the global market like Heineken, Amstel or Guinness. Furthermore the South African money, the rank, was quite volatile. In 2002, SAB acquired Miller Brewery in USA and created SABMiller and became world's number 3 brewer in terms of production volume. Miller operates 9 breweries in the USA. In 2005, SABMiller merged with Grupo Empresarial Bavaria, the second largest brewer in South America. In 2008, SABMiller had a JV with Molson Coors in North America to gain more market share in the US beer industry. In 2011 SABMiller acquired the Australian Beer Group Fosters and became the second largest brewer by volume and profits in the world. By 2015, SABMiller's market share was 12% and its brands portfolio included international brands such as Pilsner Urquell, Peroni Nastro Azzurro, Miller Genuine Draft and Grolsch along with local country brands such as Aguila, Castie Lager, Miller Lite, VB, Snow and Tyskie. Three of SABMiller's main global competitors, Anheuser Busch, Interbrew and Ambev had merged in 2008, to form AB InBev, to claim market leadership with a consolidated 25% of global market share. In 2014 SABMiller attempted to takeover Heineken, a Dutch company but its bid was rejected. However in 2015 SABMiller received an offer from AB Inbev and SABMiller had agreed to the deal. SABMiller, considered their position and re-examined its four strategic priorities that were synthesized from what the company had learnt over its 100 years history and set out in 2010.' SABMiller's strategic priorities 1. Creating a balanced and attractive global spread ofbusinesses Our acquisitions in recent years have given us a wide geographical spread with good exposure to emerging markets. without being over-reliant on any single region. This allows us to capture new growth in developing markets. I'd . Developing strong. relevant brand portfolios in the local market Our aim is to develop an attractive brand portfolio that meets consumers' needs in each of our markets. In many markets. growth is fastest at the top end. as shown by the increasing popularity of our international premium brands. Another rising consumer trend is the shift towards fragmentation. Affluent consumers are varying their choices and becoming more interested in speciality brands. craft beers. foreign imports and other subdivisions of the premium segment. And a third trend is the growing importance of female consumers. 3. Constantly raising the performance of local businesses In order to raise our performance. we need to become more efficient. especially in our manufacturing processes. Efficiency is part of our day-to-day management and the rise in commodity costs compels us to do whatever we can to counteract the squeeze on our margins. All m operations strive to improve our products' route to market. to remove costs and to ensure that the right products reach the right outlets in the right condition. 4. Leveraging our global scale As a global organisation we are constantly seeking to use the benefits of our scale while recognising that beer is essentially a local business and that local managers are in the best position to identify and exploit local opportunities. Our aim is to generate maximum value and advantage from our size without becoming over-centralised and losing our relevance and responsiveness in each market. Region Beer Consumption in % Company Percentage share Middle East 0.8 AB InBev 39.0 Oceania 1,2 SABMiller 17.9 Africa 5.4 Heineken 11.6 North America 13.9 Carlsberg 4.6 South America 16.2 Asahi 3.1 Europe 27.0 Molson Coors 2.9 Asia 34.8 Others 20 SABMiller financial summary (US$m) for years ended 31 March 2015 2014 2013 2012 2011 Income Statements Group revenue 33,558 34,087 34,487 31,388 28,311 Revenue 22,130 22,311 23,213 21,760 19,408 Operating profit 4,384 4,242 4,192 5,013 3,127 Net finance costs -637 -645 -726 -562 -525 Share of associates' and joint venture' post tax 1,083 1,226 1,213 1,152 1,024 results Taxation -1,273 -1,173 -1,192 -1,126 -1,069 Minority interests -258 -269 -237 -256 --149 Profit for the year 3,299 3,381 3,250 4,221 2,408 Adjusted earnings 3,835 3,865 3,772 3,400 3,018 Balance Sheets Non-current assets 40,552 48,366 50,588 + 50,998 34,870 Current assets 4,359 5,385 5.683 4,930 4,244 Total assets 44,911 53,751 56,294 55,928 39,114Derivative nancial instruments -11 1 Borrowings - 12,544 Other liabilities and provisions -8,012 Total liabilities -20.556 Net assets 24,355 Total shareholders' equity 23,1?2 Minority interests in equity 1,183 Total equity 24,355 Total number of shares in issue (millions) 1,675.? 1,664.30 \\Vhat is next? SABMiller had agreed to the takeover by AB InBev but whether this was the best strategic option for the company was not clear. It was also important to consider other options in case the bid failed to close due to regulatory hurdles, of which there was approximately a 27% chance, and mm remained independent. Nevertheless, assuming the bid did close both Wand AB lnBev had to consider what a successful bid might mean for the combined business goingforwards. How might SABMiller be integrated effectively into the new group? Would the integration strategy destroy valuable mm heritage or enhance its value? How would the new company compete in the future? Whilst Wand AB InBev wrestled with satisfying regulators and planning for integration, the beer market seemed to have fewer opportunities for expansion; large transformational deals were hard to find and with lower prospects of high financial returns. The other global brewers were increasingly looking for growth from emerging markets as beer sales slowed in more developed consumer markets. Heineken was pursuing growth in Africa and Carlsberg aimed to expand into Asia. Japanese brewers were also becoming increasingly active in the Asian market. The added complication of the economic recession had also impacted on all beer markets, albeit with different degrees of severity. For all companies there were questions about the emphasis placed on local vs. global brands in their portfolios. Should they consider entering more profitable beverage segments? Could there be yet another market changing deal that should be shaped to win the battle in beer? Answer the following questions: 1. Briey explain the concept of a business strategy and identify the emergent strategies of SAB. 2. Explain the environmental situations faced by SAB when the country was in apartheid for 46 years and identify five (5) adverse effects on the beer industry in South Africa. 3. Critically evaluate in four (4) ways how SAB reacted to the apartheid situation in upholding its strategic position in South Africa. 4. Explain the opportunities and advantages that have enabled SAB to succeed in its strategies in the developing countries in Eastern Europe, Africa, China and South America but SAB could not penetrate the developed markets in Germany, Holland, France or England. . Assess the strategic market direction SAB has taken to expand its markets to achieve its strategic intent to become world number one in the beer industry. 'LJ'I