Posted: May 25th, 2022

Strategic management at SAB Miller

Strategic management: SAB Miller

Strategic Position of SAB Miller

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The position of SAB Miller has remained relatively unchanged from its position on May 30, 2002 when the name of the company was changed with the long expected sale of Miller brewing Co. Of the cigarette maker, Philip Morris Cos. made to South African Breweries for a sum of $5.6 billion, which was a little more than the earlier expected price of $5 billion. (South African Breweries buys Miller) The name of the companies was also fixed as the present name then. From that time, corporate governance has been fixed as per the standards of Britain and United States, as the company has been listed now in UK and is committed to meeting the standard corporate governance codes set out in the Combined Code. This is part of the listing rules of the United Kingdom Listing Authority and includes the Turnbull Report on Internal Control. It is clear that the company has substantial operating existence in the United States and thus the company is also trying to comply with the Sarbanes-Oxley Act of 2002 and concerned regulations. (Introduction and Sources) Thus one can say that it has to follow all the restrictions of an international company.

The shift to reporting in London had started for the company after it had got listed as South African Breweries plc from March 1999 and was the successor parent company of The South African Breweries Limited group. In earlier years, the company had reported its results in Rand, but with the shifting out from only South African business, the company had started reporting in U.S. Dollars for all their operations outside South Africa as the other countries have many varied countries. This shows clearly that the company had decided clearly to have an international outlook from 1999 itself, and possible earlier. Thus when reviews of the performance of the company have to be made, it is in a mixture of currencies. From earlier years itself, the volume of sales in South Africa had dropped and the drop was as much as 2%. Thus the looking out was also a needed measure for survival. (South African Breweries p l c)

At the same time, the company had embarked on cost containment and productivity increase measures which had led to an increase in the profit margins there by 1.7% to 25.3% in different units. The best performances were in other countries like Poland, Botswana, china and Russia. This was due to the key capability of the company to invest correctly in brewing in different countries before the consumer demand started booming. This permitted them to get market share in those markets early and before the market itself grew. This can be seen in the case of China where they had gained a market of eight million hectoliters in the second largest beer market of the world, and the market is also growing. (South African Breweries p l c)

The total market position has fixed the strategy of the company into a mixture of strategies for different countries. The first concentration will be to look at the existing operation in South Africa, the operations in rest of Africa, Europe, United States and China. All these markets are expected to grow in the years to come. These positions are expected to provide yields in the short-term. For growth in medium term, the company will have to start getting profits from the acquired brands of Miller and Peroni as there is a feeling that they have the capacity to provide profits in the long run, Regarding increase in selling volumes of beer, the company should plan to concentrate on China and India, both of which can later give much higher volumes of sale. The situation in Africa, though similar, is a little uncertain. The general trend of the market should be to move to greater acceptance of beers with higher value, and international brands, and the company has already started on the path to this. The company is building up a global platform of high value, international brands, and has to develop the capacity to distribute these brands suitably. (Group Strategy) The increase in sales of high value brands will lead to greater increases in profits. It is clear from the performance of the company over the last few years that they are slowly, but surely moving to this goal.

Strategic Options for SAB Miller

In terms of options, the group will clearly have different options for the different areas of the world that they operate in. Let us first look at what they should feel as their home market or South Africa. Here, their growth cannot be in large market shares or market volumes as they already have market share in the range of the middle of 50s meaning that the share is around 55%. The company feels that there is still scope for growth. (South African Breweries p l c) The growth will have to come from the shifting of individuals who are using other drinks, mainly hard liquor and through channel segmentation, distribution and promotions. The company has now taken on a large number of international brands, and some of them are viewed to be premium, and there may be some attempts to increase volume through promotion of those brands. The operation may be termed as a holding operation.

Now let us look at the market in the rest of Africa, and here the picture is not as promising as the local companies all have the support of the local government. As an example, let us take the case of Namibian National Beverage Company which was the associate of South African breweries in Namibia and their competitors – Namibia Breweries. The names of the two companies were very similar and that led to Namibian National Beverage Company changing its name to Castle Brewing Namibia. This had the advantage of directly connecting the name of the company to the best selling beer in the area – Castle. The company has also been increasing its market in the north of the country, but the competitor is stopping all efforts of Castle Brewing to set up a new brewery, so that larger supply of beer will become difficult. (SAB strives to capture Namibian beer market) This is the situation in most of the balance part of Africa, though the company has interests in as many as 13 countries. The strategy here should be to hold on to the existing market.

Let us now look at Europe and United States. Here SAB Miller has been lucky enough to acquire a premium brand in the Czech Republic called Pilsner Urquell, and other brands like Radegast, Gambrinus and Kozel. Why the term of lucky is being used is that the matter was resolved in favor of SAB Miller through an auction. These brands all together give the company a 44% share of the market for beer in the country. At the same time, Urquell is also well-known in the rest of Europe and even in United States. The company now owns the brand and efforts should be made to promote the brand all over Europe and United States so that the total market share and corporate image of the company can improve. The company also owns Miller Draft which has the best image outside United States. This cannot be done through the other Miller brands which do not have so high an image. Once the image improves, then in line with the companies thinking, the marketing efforts should slowly move to the premium segment and thus gain greater market share in that segment. (South African Breweries p l c)

Regarding the new markets where the company feels the greatest growth will come, China and India, let the company follow the strategy it has used to increase its market share in new countries and has already started in China. The process has been to acquire one brewery and then slowly move beyond the original market area of the brewery, and after a reasonable period of time cover the entire nation. To achieve this, the company has often acquired more breweries in the country but had a concentration on its brand portfolio. This achievement is achieved as the management structure of the company is decentralized which the company believes is the best way to market beer. In countries of this type, consumption of beer is directly related to the disposable income of the consumers. Thus the markets in these areas are developing as it is known that incomes in these countries are increasing. This has led to SAB selling eight million hectoliters in China and growing by 38% in a year. The total market in China is estimated at about 200 million hectoliters and the income of the population is growing by 6 or 7% a year. There is also support from the government as they want to switch the consumers away from hard drinks. The company can thus increase its sales and also get better profits through higher prices and that will be commanded by supplying better beers. (South African Breweries p l c)

Strategy to be followed

Parts of the possible strategy have been discussed earlier and let us seek justification for the strategies that have been talked about. It is clear that SAB has good operating practices and sales as that has enabled to go beyond its original base through acquisition of breweries in Eastern Europe, Asia and Central America during the last few years and operate them well. Regarding the increased sales in foreign countries, now the company also has Miller Genuine Draft produced by Miller and Pilsner Urquell. Both these brands are now in the Miller distribution system and this is expected to improve sales in United States. Earlier Miller had been loosing market share in United States but now the leadership has been transferred to a large, growing beer company which is ready to compete. All the deals that the company has completed makes it a very large brewer and thus capable to take on competition. (South African breweries buy Miller) Even within the company, the view is positive as mentioned by Malcolm Wyman, the corporate finance and development director in his statement “Certainly, we have already identified some key markets. The key developed markets would include markets such as Germany, the United States – which is a very strong market for imported premium beer – and the United Kingdom.” (SAB wins Pilsner Urquell auction)

Thus it is clear that any strategy to be followed would have to be in line with the existing thinking of the company as has been discussed in the first part and that cannot be changed. The company has developed over the years in a particular way and found some methods to be useful and they are just trying to continue on it. The other aspect is that the nature of marketing in the world has changed and all brands are international in nature as the nature of media makes it so. The only restrictions are from languages and thus the products will have to be made successful in as wide a range as is possible.

References

Group strategy. Retrieved August 12, 2005, from the World Wide Web: http://www.sabmiller.com/SABMiller/Our+business/Global+leadership/Group+strategy/

Introduction & sources. Retrieved August 12, 2005, from the World Wide Web: http://www.sabmiller.com/SABMiller/Our+business/Corporate+governance/Introduction%20and%20sources

Moyo, Tabby. SAB strives to capture Namibian beer market. Retrieved August 12, 2005, from the World Wide Web: http://www.namibian.com.na/Netstories/Econ3-99/castle.html

South African Breweries buys Miller. 2002. May, 30. Retrieved August 12, 2005, from the World Wide Web: http://www.realbeer.com/news/articles/news-001720.php

South African Breweries p l c. Retrieved August 12, 2005, from the World Wide Web:

www.sabmiller.com/results/prelim_2000/downloads/commentary.pdf

SAB wins Pilsner Urquell auction. 1999. October, 7. Retrieved August 12, 2005, from the World Wide Web: http://www.realbeer.com/news/articles/news-000284.php


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