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SAB Miller Strategy Essay

Miller grew on the basis of its strength in developing markets, first in Africa and then in other parts of world. With its first acquisition in a developed market, Miller in 2002, it has become the second largest brewer by volume in the world and finds itself faced with a new set of challenges. This case study explains the business’s development and the strategy of firm; it shows how the strategy has changed with time and provides the opportunity to consider its future at both the corporate and competitive strategy levels”SABMiller case studyII.Strategic position that SAB Miller finds itself in 20042

.1 SWOT ANAYLYS ISOVERVIEW

The brewing industry has been consolidating to secure brands and national positions. International brewers have also been investing for further growth, particularly in new and developing markets such as China, Latin America and Russia. Industry consolidation would raise the intensity of competition, which could lead to a loss of market share.

A.STRENGHTS

The company has a presence in more than 60 countries across six continents. SABMiller operates through five geographic regions including; North America, Latin America, Europe, South Africa and Africa and Asia. SABMiller operates in North America through its subsidiary, Miller Brewing Company (Miller), which is the second largest brewer in the US. The company’s operation in Latin America consists of six countries including Colombia, El Salvador, Ecuador, Honduras,Similarly, its brewing operations in Europe primarily consist of eight countries including the Czech Republic, Hungary, Italy, Poland, Romania, Russia and Slovakia.

In Asia and Africa, the company operates in around 31 African countries and other Asian countries including China, IndiaThe global scale helps SABMiller, to develop its brands on a global level and provides a valuable platform for distributing and selling its international premium brands Miller Genuine Draft and Pilsner Urquell. It also helps the company to develop regional brands such as Kozel in Europe and Eagle in Africa. In addition, with 200 brands, it is possible for individual businesses to select particular beers from company’s global portfolio and introduce them in their own markets as Miller is doing with a number of Latin American brands. The global scale allows SABMiller to share brand innovation. Redd’s, for example, originated in South Africa, moved to Poland, where it benefited from further innovation, and is now doing well in Russia.

A global scale enhances the brand value of the company and helps it to offer customized products to its customers across the globe.

In the other hand, SAB Miller was established more than 100 years. A long time history would help SAB miller get more operating experience of company, customer was easily to identify SAB Miller brand name and company was obtained a lot benefit from customers that was a loyal with company in a long time.

SABMiller made an unsolicited offer for Harbin Brewery Group, the fourth largest beer maker in China, worth $391 million in the 2004 year. However, SABMiller faced stern competition from Anheuser-Busch, the world’s largest brewer. The company subsequently withdrew its bid for Harbin Brewery Group. Because Chinese market was to be the biggest in the world by volume, so strong position in China would also help the company to consolidate its market share in the Asia-PacificIn Africa market, there was a certainly for excellent volume and market share performances in key countries.

The company has an excellent record of generating cash. Cash generated from operations increased by 226.5% in 2003 compared with prior year to reach $543 million. Net cash inflow from operating activities, before working capital movement (EBITDA), rose to $1568 million in 2003 compared with $975 million in 2002. Strong cash flow would help the company to pursue its expansion plans.

Company also focus to operational efficiency and work hard on strengthening SAB regional brands and market positions, pursuing acquisitive growth only where SABMiller can see the potential to add real value for shareholders. To strengthen marketing focus and coordinate the drive behind company international premium brands, companies have created a new role of group marketing director.

B.WEAKNESS

Beside of strength that SABMiller obtained in 2004, there was also some weakness that was challenges for company.

The SABMiller was difficult within management skill, with global operation in many countries and many geographic segments; company was difficult to manage effective ways for each culture and region. Managing a large organisation that spans regions and continents, against the backdrop of industry competitiveness, poses many information challenges. Global brewing giant, SABMiller is no exception to the problems created by ensuring accurate and timely data transfer between offices, operations, and employeesOn top of this there are fears, rejected by the company, that new competition laws in South Africa could force it to sell assets, and over the continuing weakness of SABMiller’s central American markets.

C.OPPORTUNNITY

With strategy position was presented by case in 2004, SABMiller was able to direct of many opportunities for company strategy.

The first opportunity that SABMiller could be matching to achieve growth within individual countries or geographic regions, where company can build strategy positions synergies achieve economies of scale.

Following the case, SABMiller strategy tended to seek value adding opportunities to enhance company position as global brewer.

Moreover, SAB miller belief that economic development, converging customer taste and lowering of trade barriers would achieve further consolidation of the beer market.

Dilsner Urquell, Miller Genuine Draff, peroni and Castle were company portfolio of premium brand, so SABMiller also belief there were real opportunities to increase sales in this growing segment through leverage distributing platforms around the world of SABMillerRussia remains a strategically important market for SABMiller, and this investment will enable it to maintain its strong growth profile in the premium segment, while reducing the company’s transport costs and at the same time improving its service levels to distributors and big retailers.

The most important trend to have shaped the global brewing business over the last decade is the volume growth, which has primarily come from emerging markets. SABMiller has strong presence in these emerging markets and can increase its revenue from these growing markets.

D.TREAT

The prices of key materials used in the production and packaging of beer including barley and aluminum is increasing.

“According to HSBC and ING Barings, by 2001 beer volumes in South Africa were declining at annualized rate of about 4 percent and there were few signs that growth in the rest of Africa was holding up. There were also concerns that costs of raw materials would rise.” In North America, “reflects the impact of the volume decline, as well as negative brand, pack and geographic mix, increase cost of raw materials and greater energy costs, partly offset by higher selling prices.”Increasing raw material prices would increase the operating costs of the company and adversely affect its margins if it is unable to pass on such cost increases to consumers.

The brewing industry has been consolidating to secure brands and national positions. International brewers have been investing for further growth. Further consolidation is expected as companies seek to broaden their global footprints in order to chase enhanced growth from emerging markets. Industry consolidation would raise the intensity of competition, which could lead to a loss of market share of the company.

2.2Stakeholder’s expectationManagement should identify both internal and external stakeholders and define their needs and expectations for a compliance and ethics program. External stakeholders include shareholders and regulatory agencies, as well as customers, suppliers and the community. An understanding of shareholder requirements is essential in planning program scope and objectives.

III.IDENTIFY AND AVALUATE STRATEGIC OPTIONS AVAILABLE FOR SABMILLER

SABMiller was using acquisition strategy to apply entire SBU level: Africa and Asia, South Africa, North America, Europe, Central America. Its acquisition strategy was really effective and it’s was major strategy of SABMiller. Company hadn’t to establish a new industry or infrastructure in other region and lose the time to perform activities. Strategic acquisition was ways that SABMiller bought beer industries in other countries and regions to become breweries industry of SABMiller.

3.1Africa and AsiaIn Africa, SABMiller chose the strategy with strong performances from three countries as Tanzania, Mozambique and Ghana to benefit from acquisition.

In Asia, Chinese joint venture performed will with key area of achievement being the successful integrating of the Wuhan and Blue Sword acquisition. In India was also same acquisition strategy by expanding base of four operating units, including the acquisition of the Rochees brewery in Rajastan.

Following the case, currently SABMiller strategy in Africa and Asia was intensify development and investment, Africa and Asia was developing market and the best potential to company gather the benefit in the near time.

The Africa and Asia business again delivered good growth in volumes, revenue and EBITA. Company is driving growth by building full brand portfolios, developing distribution and point of sale materials, and driving down costs.

Asia continues to grow strongly. On an organic basis SABMiller have consolidated company position as the largest brewer by volume. However, profitability remains low with price increases offset by higher distribution costs, and by investments in marketing and in new breweries. In India, we’re benefiting from moves to deregulate the beer industry and we are investing in new capacity to meet the growth in demand.

The businesses in Africa continue to grow and we see plenty of opportunity to further strengthen our brand portfolios, in-trade investments and execution, and improve efficiency in the relatively undeveloped African markets. For example, expanding Eagle (a subsistence level sorghum beer) to other countries, and finding opportunities to expand selectively within Africa. In China, CRSnow continues to concentrate on creating more efficient routes to market, developing brand equity, and achieving the scale to realize production efficiencies and improved pricing. In India we will continue to improve our business model and work with the government for regulatory improvements. We have also announced an arrangement with a local distribution partner to build a Greenfield brewery in Vietnam, one of the fastest growing beer markets in the world, due for completion by the end of this year.

3.2South AfricaBy increasingly stable macroeconomic environment, provides a significant opportunity for SAB to grow volumes over the long term.

SABMiller chose strategy to create wealth and higher employment, also result in increased consumer expenditure. Company was greatly helped by the quality of people and strong culture of performance management. Employees at every level are empowered and accountable, with clearly-defined goals. In stretching our people, company also support them with world class training and developmentThe other strategy selection of company in South Africa that increase market share in the total South Africa liquor market by making beer the alcoholic drink of the first choice for more people primarily through better channel segmentation distribution and promotions.

Looking forward, the recent economic momentum in South Africa is expected to continue and will drive strong consumer spending and provide a solid platform for the future growth of the businesses.

The key focus areas for SAB include continuing to provide a balanced, strong and differentiated portfolio of brands in both the lager and sparkling beverage businesses. For lager the emphasis will be in sustaining the current momentum in premium beer volume growth, and strengthening mainstream beer offerings with respect to both brands and packaging, and building a platform of strong still beverages to complement the strong position in sparkling beverages. As a result, the business will increasingly look to innovation for further sources of growth.

Other focus areas include developing its routes to market, and more specifically improving its market penetration. The business has embarked upon an extensive program of growing its customer base through direct delivery to the informal on-premise points of sale (known locally as “Shebeens”). The outlets are participating in the process of formal licensing, initiated by the South African government, which is actively supported by the business as a result of its commitment to investing in the South African community.

Licensing holds significant benefits for South African society in legitimising the sales of beer in the informal on-trade, thereby raising the image of the industry as a whole. It will also have a significant impact on formal job creation. Licensing also enables SAB to deliver directly to Shebeens as they become legitimised and this gives SAB greater control over its routes to market, including an existing sales service base of some 45,000, greater flexibility in brand and pack channel management, channel mark-up management and price compliance. There are also potential long term top-line benefits as Shebeen owners are motivated to re-invest in their businesses, driving greater consumption in the enhanced points of sale.

3.3North America SABMiller focus on core brands following the introduction of four FMBs and some understandable disruption during the transaction and subsequent integration into SABMiller.

One of strategy options, SABMiller expanded market development by exports and international sales of Miller brands, led by MGD, to provide volume growth and stable income. This strategy was evaluated by further growth in this area through leveraging the distribution the current year.

To develop product in existing market, the company was on rebuilding the Miller brands and reshaping the portfolio. Prioritization of local market, improved channel management, strengthening and reorganizing company sales force and improved management of distributors.

The performance management systems was upgraded across the organization and be taking appropriate actions to implement a productivity and cost reduction progamme.

In developed economies, the growth is fastest at the top end of the market. Indeed, in a number of mature markets, including the USA, the premium sector is the only source of growth. For this reason, company is working hard to develop a strong portfolio of premium brands, both local and internationalSABMiller business in North America had another challenging year, with larger volumes flat in terms of sales to retailers. Results suffered from higher commodity costs, declining Miller Lite volumes and price competition in the economy segment. Miller’s strategy, now, is to strengthen the brand portfolio and move it into areas of higher-margin growth while working more effectively with distributors, continuing to drive down costs and restoring the growth of Miller Lite.

3.4 Europe Product development strategy of SABMiller by a new brand Debowe, competing in the strong beer segment, had a highly successful.

Company announced the acquisition of Browar Dojlidy, its provided for company with an economy brand in the mainstream segment, adding a third production facility and improving Kompania Piwowarska representation in the east of the country.

Currently strategy in Europe is mention to expand premium Pilsner Urquell brand grew, assisting margin expansion. International premium brand Pilsner Urquell (PU) continued to perform will in the key export market of the USA, Germany and the United KingdomIntegrate brand Pilsner Urquell (PU) and Miller brewing company operation provide strong platform for the future potential of the brand in this market.

Introduction of cans, a new brand Tri Bogatyrya launched into the growing mainstream segment, and the newly licensed production of Kozel from company Czech brand portfolio, this is also a important strategy by diversification.

In Hungary, the price strategy was effective by price stability overall industry profitability.

Ongoing synergy developments from the prior year’s Timisoreana acquisition boosted Romania’s profitability albeit off a small base.

Slovakia continues to benefit from management and marketing integration with the Pilsner Urquell group.

Europe region represents and contains much of what we’re trying to achieve worldwide. SABMiller are building strong, highly differentiated brand portfolios, consistently rejuvenating our core mainstream brands, growing aggressively in the premium sector and performing well at the point of sale3.5 Central AmericaThere were two strategies that SABMiller applied to Central America in this case.

Major structural change, I each country SAB have merged the sale and distribution functions for beer and CSDs. SAB have rationalized packaging assets in the business and closed certain production and distribution site, across the region SAB have merged back office operation and integrated company financial systems.

The strategy continued the conversion of the company into a marketing focused enterprise with strong portfolio of relevant brands, A number of brand and packaging changes are planned and these should support improved performance in the market place.

In Central America the main work of reconstructing the business has been completed and the focus going forward will be to continue to build full brands portfolios and invest in points of purchase to enhance consumption environments and drive volume growth.

IV.RECOMMNED THE STRATEGY THAT SABMILLER SHOULD FOLLOW.

SABMiller’s strategy should be creating balanced global spread of businesses, develop strong brand portfolios, constant improvisation of its local business and enhance its global scale. SABMiller’s strategy is designed to take advantage of, and generate value from, the dominant trends in the global beer market.

These include the growing importance of emerging markets, the move towards premium brands and greater competition and sophistication within local markets. In many cases, we were ahead of the industry in identifying the trends and were able to gain early advantage. We were one of the first brewers, for example, to see value in emerging markets. While others were reluctant to take the risk, we pioneered the buying of emerging-market businesses and were able to build leading positions.

4.1Creating a balanced and attractive global spread of businessesThe company has, over the years, created a well conceived, international spread of businesses, it has been active in shaping and developing its portfolio, buying and building production capacity, forming partnerships to take advantage of new markets and acquiring new brands. In China, the world’s largest beer market by volume, CR Snow, the company’s associate, pushed ahead with an energetic programme of buying existing breweries and building new ones. The company’s business strategy in China is to strengthen its position in existing and nearby provinces, take advantage of the company’s scale to reap significant synergies, and then build up its brands and distribution with particular emphasis on Snow brand. Similarly in Vietnam, the company built a new brewery near Ho Chi Minh City, and has a distribution capability through its local partner, Vinamilk.

The company should expand with its international expansion strategy by forming a joint venture with Coca-Cola in Australia Amatil, a local company with a strong sales and distribution infrastructure. The joint venture imports, markets and distributes SABMiller’s three international premium brands – Peroni Nastro Azzurro, Pilsner Urquell and Miller Genuine Draft. With the premium beer market in Australia expanding at year, the deal provides another attractive growth opportunity for SABMiller. Brought new brands into the company to strengthen its premium offering or to fill strategic gaps in the portfolio

4.2 Developing strong, relevant brand portfolios in the local marketIn every market, the consumer’s choice of beer is influenced by a range of needs and preferences. The company’s strategy is to develop an attractive brand portfolio that meets consumers’ needs in each of its markets. In many markets, because the growth is fastest at the top end, SABMiller has been focusing on its international premium brands such as Peroni Nastro Azzurro and regional brands such as Kozel in Europe. To develop beer brands according to local taste, the company has been focusing on innovation. Innovation also extends to the way beers are served. In Europe, stylish new dispensers for Peroni Nastro Azzurro have helped to reposition the brand in bars and clubs.

In Africa, the company is concentrating on the low-end segments, because there are large numbers of subsistence-level consumers who currently drink home-brewed alcohol but would like to upgrade to affordable and branded alternatives. One of SABMiller’s answers is the Eagle brand available in Uganda, Zambia, Zimbabwe and Tanzania. The innovation in this case is to make the beer from locally grown sorghum rather than imported raw materials. This creates a cash crop opportunity for local farmers, which in turn encourages tax breaks from governments, and this translates into a cheaper selling price.

4.3 Constantly raising the performance of local businessesSABMiller continuously focuses on its manufacturing capabilities to improve its productivity, efficiency and flexibility and the quality of the end product. In order to achieve it, the company has developed best practice and knowledge in the SABMiller ‘Manufacturing Way’ – a set of tools and processes developed centrally but applied locally to raise standards across the group.

The company is also focusing on its distribution logistics, segmenting and analyzing the channels to market and ensuring the right conditions and consumer experience at the point of sale. In China, for example, SABMiller’s priority is to streamline its route to market by reducing the tiers between it and the restaurants, bars, supermarkets, stores and streetkiosks that carry its products. SABMiller is capitalizing on the popularity of the Snow brand to build close relationships with its distributors. The company’s South American businesses, meanwhile, are developing their skills in segmented channel marketing.

The company’s 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 consumer at large super and hypermarkets. The Europe division has also formalized best practice when it comes to winning at the point of sale. This has led to the launch of SABMiller Trade Marketing Way, a standardized process now being rolled out to other businesses.

4.4 Leveraging its global scaleWith a presence in more than 60 countries, SABMiller aims to use its scale to generate maximum value and competitive advantage for the company. The global reach provides the company a valuable platform to distribute and sell its international premium brands -Peroni Nastro Azzurro, Miller Genuine Draft and Pilsner Urquell. The global scale has helped the company to develop regional brands such as Kozel in Europe and Eagle in Africa. The global scale allows it to share brand innovation.

SABMiller also uses global scale as a strategy to help it grow by transferring skills, methods and technologies around the company. In South America, for instance, the rigorous application of SABMiller tools and techniques and the infusion of talent from around the company is generating tremendous growth and transforming the beer market in the region.

The global scale provides opportunities for cost savings and efficiencies. In recent years, the prices of raw materials such as malt, glass and aluminum have been and the company mitigated these effects by using its global scale to purchase more efficiently. For instance, its Europe division has been buying malt on a regional basis rather than country by country basis for a number of years and made considerable savings in the process

REFERENCE

GERRY JOHNSON KEVAN WHITTINGTON, EXPLORING CORPORATE STRATEGY, SEVEN EDITIION PUBLISHED 2005.

LINKS:http://www.sabmiller.com/sabmiller.com/en_gb/APPENDIX:le 2: SABMiller – Other Locations and SubsidiariesOther Locations and SubsidiariesTable 2: SABMiller – Other Locations and SubsidiariesSABMiller Latin AmericaCalle 94 7A-47BogotaColombiaT: 57 1 638 9000Miller Brewing Company3939 West Highland BoulevardMilwaukeeWisconsin 53201-0482United StatesT: 1 414 931 2000F: 1 414 931 2000SABMiller EuropeVaci ut 22-241132 BudapestHungaryT: 36 1 452 9900F: 36 1 452 9901SABMiller ChinaResource Building 605B6th Floor8 Jianguomen North AvenueDongcheng DistrictBeijing 100005ChinaT: 86 10 8519 2913F: 86 10 8519 2915SABMiller India LimitedJalahalli Camp RoadYeshwantpurBangalore560022IndiaT: 91 80 221 98800F: 91 80 221 98997Empresa de Cervejas N’golaCaixa Postal 1233Estrada da MapundaLubangoAngolaT: 244 61 30077F: 244 61 22707VALUE CHAIN ANALYSISSABMiller is engaged in the production and retailing of beer, malts and carbonated soft drinks. The company operates across the value chain with the exception of the services segment.

Table 9: SABMiller – Value Chain AnalysisRaw material* →Manufacturing* → Distribution / Sales → Marketing → ServicesSABMiller procures all its raw material (including barley malt and hops) requirements from third party suppliers and joint venture partners.

SABMiller has global manufacturing location including theUS, Europe,Africa and Asia.

SABMiller distributes and sells its products either through its own distribution channels or through other distributors and retailers.

SABMiller adopts independent advertising and marketing activities to build its brand.

*Denotes presence in value chainSource: Datamonitor D A T A M O N I T O RTop CompetitorsSABMiller’s brands operate in a highly competitive industry. The brands compete against strongly positioned global, regional, and local brands in several categories and price points across alcoholic and
non-alcoholic beverages. The following companies are the major competitors of SABMiller.


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