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SABMiller: Strategic Position in 2007 and its’ Future Implications
An Academic Report
Submitted By: Tom Jacob
Course Name: Module Name: Module Code: Submission Date: Submitted to:
Master of Business Administration Strategic Management MGTMEM008 April 2009 Sean Purcell
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A sly rabbit will have three openings to its den... (A Chinese Proverb) SABMiller, the second largest brewer in the world by volume, is a South African brewery, who has grown from strength to strength in the last fifteen years, fuelled by takeovers of breweries in developing markets. SABMiller decided on listing on the London Stock Exchange in 1999. SAB acquired Miller in 2002 and Grupo Empresarial Bavaria in 2005 thereby consolidating its position as the world number two This report explains the strategic position SABMiller finds itself in 2007. The strategic position of SABMiller is identified in terms of its’ business environment, its’ competences and capabilities, and stake holder expectations. The report then goes on to look at the implications of this position in the future. Key sensitising issues considered are as follows: SABMiller’s positioning in its’ business environments Core competencies and capabilities of SABMiller Stakeholder expectations Implications for the future Critical evaluation of analytical tools used
SABMiller’s business environments are analysed for strengths and weakness. It shows that there are nagging problems in SABMiller’s core markets as well as the western markets. External factors like political instability and HIV/AIDS are genuine threats for the profitability of SABMiller. SABMiller’s core competencies like environmental scanning skills and strategic flexibility are discussed in the next section. The report looks at how these capabilities helped SABMiller in the developing and mature markets. Stakeholder expectations will have an implication in the strategic positioning of a company. SABMiller entered the mature western markets due to the pressure of its stakeholders. This report looks at SABMiller’s stakeholders expectations and sees how it has influenced the company strategy Next, SABMiller’s current strategic position’s implications for future are discussed with options like Consolidation, Product Development, Market Development, Diversification and Joint Venture detailed. The final part of this academic report evaluates the analytical tools used for this report, with its’ advantages & limitations brought out. To sum it up, SABMiller is looking for choices on how best to improve its businesses. And like a sly rabbit SABMiller too have to keep it options open.
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Introduction Strategic Position of SABMiller in 2007
Business Environment Analysis Core Competencies and Capabilities Stake Holder Expectations
04 06 06
Implications for the Future
Consolidation Product Development Market Development Joint Venture Diversification
07 07 07 08 08
Critical Evaluation of Tools Applied in the Analysis Conclusion Appendix
08 09 10
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"Cheshire Puss ...Would you tell me, please, which way I ought to go from here?" asked Alice. "That depends a good deal on where you want to get to," said the Cat. (from Alice in Wonderland by Lewis Carroll 1865)
SABMiller, the second largest brewer in the world by volume, is a South African brewery, who has grown from strength to strength in the last fifteen years. SABMiller first showed its’ resourcefulness in the apartheid period of South Africa by using it as an opportunity to monopolize its’ home market. During that period, it diversified surplus cash in to resorts, hotels, gambling and match making industry, which showed its’ portfolio management nous. Throughout 1990s SABMiller grew inorganically, fuelled by takeovers of breweries in new markets. The remarkable flexibility of SABMiller management is evident in the fact that they switched to a corporate parenting strategy in this period with relative ease. Their reputation as a turnover specialist was enhanced by the way they handled Miller of USA. In recent years they have acquired ‘Grupo Empresarial Bavaria’ and there by consolidated their world number two position. Today (2007), SABMiller is on the rise in high growth markets like Asia, Eastern Europe, Latin America, Africa while holding its own in maturated markets like USA and Western Europe. SABMiller’s brand portfolio includes Castle, Miller Lite, Miller Genuine Draft, Snow, Peroni Nastro Azzurro and Pilsner Urquell. The first part of this report details the strategic position that SABMiller finds itself in different markets like South Africa, Asia, Eastern & Western Europe, USA, Latin America and Africa. The report discusses the core competences & capabilities and stakeholder expectations of SAB Miller in this part. The second part looks at the implications of its’ current strategic position on the future of SABMiller. In the last part, the tools used for the analysis of this case study are evaluated, explaining their uses and limitations.
Strategic Position of SABMiller in 2007
Johnson, Scholes & Whittington (2008) defines corporate strategy as sum of a companies’ objectives and goals and its’ plans for pursuing those purposes. According to Andrews (1980) corporate strategy can define the company policies, its’ range of businesses, its’ human and economic organization and its’ contributions to stakeholders. From these definitions it is clear that one should analysis SABMiller’s business environment, core competencies & capabilities and stakeholder expectations to identify its’ strategic position.
Business Environment Analysis Using PESTEL, Porters Five Forces, & SWOT
(Please see Appendix 1, 2, 3 & 4 for details) As of 2007, SABMiller is operating worldwide, in developing and mature markets, each with contrasting characteristics. This necessitates separate analysis of the different markets SABMiller operates in. The different markets can be grouped in to 1) South Africa, it home market 2) Rest of Africa 3) Asia & Eastern Europe 4) USA & Western Europe and 5) Latin America.
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This is a market which SABMiller knows well and have traditionally dominated. The industry is virtually monopolized by SABMiller. But the sales trends show a maturing market with low growth potential. One grace point is that the customers are trading up to the premium segments, thereby increasing the profitability. HIV/AIDS which have griped the nation poses a huge threat in terms of the availability of work force. This will also have a negative impact on the disposable income of the population which in turn will affect SABMiller. Overall, it can be said that the market is under threat.
Africa (except South Africa)
SABMiller has presence in Tanzania, Zambia, Mozambique, Angola, Botswana and Uganda. These businesses continue to grow, helped by broader distribution and clearer segmentation strategy. Although these markets have high growth potential, the political landscape is volatile. It is also noted that these markets trade in soft currencies which add to the risk as seen in Botswana. Analysts identified the prominence of African markets in SABMiller portfolio as a risk and this might lead to lose of confidence from the stakeholders. However the core competences of SABMiller were developed in these markets.
Asia and Eastern Europe
Both markets display synonymous characteristics like highly fragmented and developing market, and new found increase of disposable incomes. This has given SABMiller a great opportunity and a big incentive to enter in to these markets. The company have relied on buying out small breweries in these markets and then adding to it, their capabilities. SABMiller have faced problems like regulations and high competition in India and China. But they are still expanding in to markets like Vietnam.
USA and Western Europe
These markets are very different to the ones SABMiller used to operate, as these are highly saturated and concentrated markets was compelled in to entering the Western Europe and USA due to the perception by stakeholders they traded too much using ‘soft currencies’. The acquisition of Miller was also necessitated by the need for a mature cash cow. But Miller started losing market share quickly which prompted SAB to initiate a successful turnaround operation. SAB had to bring in its own performance rating system to monitor employees which suggests an authoritarian parenting style
After its stakeholder driven acquisitions in USA and Western Europe, SABMiller went back to what it does best, i.e. takeovers in developing markets. SABMiller showed the confidence to take on huge level of debt to acquire Grupo Empresarial Bavaria. This turned out to be a good bet as these markets are performing very well. SABMiller’s authoritarian parenting style is evident as they are ‘‘planning to create further value by applying SABMiller’s operating practices and man management skills’’.
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Core Competencies and Capabilities
Channon (1999) describes core competencies as ‘‘a set of differentiated skills, complementary assets and routines that provide the basis for a firm’s competitive capacities and sustainable advantage in a particular business.’’ From the very beginning, SABMiller had developed competencies in analysing its’ business environment. This made them proactive when dealing with macro factors. An example for this is their change of headquarters in 1950. The remarkable flexibility it showed when moving from a synergy management to portfolio management in the 1980s shows that the company was sitting on different options ready for the opportune moment. This foresightedness in forming strategic options can be seen throughout its’ history. Miller was acquired in 2002 to stem nagging doubts about its portfolio. The speed with which acted suggested that the company was looking in to these options for a long time The tough African roots have given SABMiller the confidence and self belief to weather the tough conditions in the developing markets. This resourcefulness can be seen when fire brigades were paid to pump water in to one of it’s’ breweries. The company is also very experienced in dealing with very sensitive governments and local communities. These efforts also show that they are very flexible SAB used its expert management skills learnt from Africa, to turnaround Millers’ fortunes. Traditional SAB system of employee performance rating was used in Miller. These efforts earned them the name turnaround specialists. The parenting style of SABMiller adds value to the breweries. In the new markets they retain the brand, but transforming the business by adding quality and consistency to the beer. They develop the marketing, distribution productivity and capacity of the business SABMiller is highly experienced in acquisitions and takeovers. This competency gave them the confidence to take risks and takeover high profile targets like Grupo Empresarial Bavaria. As in the case of Miller, SABMiller added further value in to the company by bringing its own operating practices and management skills.
Stake Holder Expectations
(Please see Appendix 6 for details) SABMiller had to make some strategic choices to please the key players. Its’ acquisition of Miller was largely due to the pressure from the LSE. Analysts felt that SAB was a risk due to it’s over reliance on the soft currency market. This resulted in a poor performance in the LSE in the year 2000. Even though their core competences were elsewhere, SAB went on with the takeover to please the stakeholders. Media and analysts have come out with unfavourable reports on SABMiller. They need to be pleased. Its’ Western European operations are a ‘dog’ and SABMiller should ideally get out of the market. But this won’t be possible due to the investor expectations of a market presence in Western Europe
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Implications for the Future
Analysis Using BCG Matrix and Ansoff Matrix
(Please see Appendix 4 & 5 for details) SABMiller’s current strategic position has provided us with a clear picture of the opportunities and challenges it face in its’ business environment. But Stake holder expectations, the core competences and market reality does not match, which will create a dilemma for SABMiller. There is a set of choices available to SABMiller. They are 1) Consolidation 2) Product Development 3) Market Development 4) Diversification and 5) Joint Venture
This is a failsafe strategy which will focus on reducing risks in markets like Western Europe, USA and Africa, while holding firm in the developing markets. This does not take in to account the competences developed by the company by initiating risky moves like the takeover of Grupo Empresarial Bavaria. This may be feasible as the company is highly efficient, but for South African Market where the markets share will ask for a different strategy. The company also need to take in to account the HIV/AIDS problems there. Acceptability is also an issue as stake holders won’t be really happy with this choice.
This is an aggressive strategy where by the SABMiller can respond to the market pressure by developing new products in to the market. This can be purely new products or transference of beer brands across markets. For most parts, this is a ‘business as usual’ strategy and will build on what SABMiller have been doing throughout the years. For example they have selling Castle beer throughout Africa. Premium beer segment is growing at a fast rate presenting SABMiller with product development opportunity. The future growth is very much in the balance and cannot be guaranteed as drinkers can be fiercely loyal to their existing brands. This is certainly feasible and surely is acceptable to stake holders
Growth fuelled by entering new markets or new market segments is known as market development. This strategy will definitely tap in to SABMiller’s core competencies as SABMiller has made a reputation for itself in this area. Africa markets do have high growth potential, but macro environment which SABMiller cannot control looks challenging. Political instability, HIV/AIDS and soft currencies are just some of the problems which will worry the stake holders if SABMiller decide to expand further in to Africa. In line with their continuing strategy, penetration in to developing markets like Asia, Eastern Europe and Latin America have already been high in the past years. It might be profitable for SABMiller to create premium segments in these markets which can result in high profitability. This strategy has already been a success in markets like Russia where Miller
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Genuine have been a runaway success. It is also noted that this segment is growing faster than any other segment in the market. Invading new markets can be a successful way to go forward as SABMiller can add value to the acquired brand (as evident from their takeover of Grupo Empresarial Bavaria) This will also suite the core competences of the company like considerable market knowledge in developing market. Stake Holder Expectations can be a problem and will depend upon the specific market conditions. For example, new European countries can find acceptance among the institution investors who need a hard currency portfolio. USA and the Western Europe continue to pose a huge dilemma for the management of SABMiller. Mainly driven by the stake holder expectations, this is a saturated market. While holding on its own (mainly due to the resourcefulness of the management), previous takeovers have failed to capture the imagination of the market. At the same time stakeholders want bigger presence in these markets
A joint venture with a major western brewer can be mutually beneficial. Whereas SABMiller have considerable expertise in the developing world, a major western brewer can bring to the table what SABMiller lacks, i.e. entry points in to a highly competitive and saturated market. It can be argued that SAB did precisely that when they brought out Miller, but SABMiller didn’t gain enough ground in the USA market to justify that point. It is also noted that this can be a risky business, opening up the developing markets to high profile competitor.
Diversification can be an option as well for SABMiller, but although a less attractive than the other options. The fact that SABMiller is a listed company makes it harder for true portfolio management as shareholder can manage their portfolio themselves. It will be interesting to see the benefits of a synergy portfolio logic and it can work in favour of SABMiller if can add businesses to its portfolio which can support and complement its’ core brewery business.
Critical Evaluation of Tools Applied in the Analysis
PESTEL analysis is a helpful instrument for understanding the “big picture” of the environment (macro) in which you are operating in and the opportunities and threats in that environment. By understanding the macro environment in which you operate, you can take advantage of the opportunities and minimize the threats. (Cheverton 2004) Limitations: Very difficult to plan as the modern world is very dynamic Difficult to forecast future trends
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Potter’s Five Forces
Michael Potter's five forces framework is used to decide the intensity of competition within an industry. The five forces are Entry, Rivalry, Substitutes, Buyers and Suppliers. In analysing each market force, the question is whether it is sufficiently strong to reduce or eliminate industry profits. (Collis & Montgomery 2005) Limitations: It assumes relatively static market structures Inability to take into account new business models and the newfound dynamism of the industries.
A technique created by Albert Humphrey, SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. (Stapleton & Thomas 1997) Limitations: Difficult to prioritise the main issues and act on those correctly Makes Strategic planning too formal
Interest and Power Matrix
This matrix helps to indentify stakeholders and their position in terms of influence on the strategic position. It also helps in forming strategy by taking into consideration the stakeholders’ expectations. Limitations Chances of misinterpreting stakeholder power
Developed by Ansoff (1965), Ansoff Matrix helps to decide their product and market growth strategy. It helps you on decisions like market development or product development Limitations The matrix only relates with the product and market strategy of an organisation Cannot be used in isolation i.e. should be backed by PEST or SWOT
Based on the product life cycle theory, BCG Matrix can be used for portfolio management. BCG Matrix does not make the mistake of one size fit all approach to strategy Limitations High Market share used as the only success factor Sometimes dogs can earn more cash than cash cows
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SABMiller have shown outstanding flexibility from its very beginnings. Its decisions during the apartheid period show a core competency in developing strategic choices and environmental scanning. The emergence of competitors in its prime markets is a case of concern. In future, SABMiller will have to face tough competition from its rivals; a glimpse was seen in its Chinese markets. The key to SABMiller’s success will be its strategic brand management and its brand portfolio.
Andrews, K.R. (1971), The concept of corporate strategy, New York: Dow Jones-Irwin Ansoff, H.I. (1965), Corporate strategy: an analytic approach to business policy for growth and expansion, London: McGraw- Hill. Channon, D.F. (1999), The Blackwell encyclopedic dictionary of strategic management, Oxford: Wiley-Blackwell Cheverton, P. (2004), Key marketing skills, London: Kogan Page Publishers. Collis, J.D., Montgomery, C.A. (2005), Corporate Strategy: A Resource-based Approach, London: McGraw Hill Professional. Johnson, G., Scholes, K. and Whittington, R. (2008), Exploring Corporate Strategy: Text and Cases, London: FT Prentice Hall. Stapleton, J., Thomas, M.J. (1997), How to prepare a marketing plan: a guide to reaching the consumer market, London: Gower Publishing
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Appendix – 1
Key Points from PESTEL Analysis
Political stability in certain countries like Botswana affects the productivity. Regulatory & Quality Laws differ from country to country making it hard for SABMiller to produce beer in large quantities and attain economy of scale. Great political sensitivity needed when dealing with governments.
Fragmented markets in developing markets facilitate easer takeovers. Devaluation of soft currencies can hurt SABMiller badly. SABMiller’s gearing ratio its Latin markets increased from 25.2 to 52.1 per cent making it harder to get money from the market. Profit margins are low in markets like China. Rising costs of energy and aluminium affects the profitability.
Lifestyles in emerging markets have changed due to the increase in the availability of disposable income, leading to an increase in beer consumption. Increase in the market share of premium brands in the developing countries has increased the profitability of SABMiller. New trends like wines and spirits will adversely affect SABMiller. An HIV/AIDS problem in South Africa is having a devastating effect on the workforce.
New packaging can be easily introduced as evidenced in Czech. Easier to manage the ever broadening distribution network. Different variations of beer can be introduced in to the market (Genuine Draft).
Weather conditions adversely affected SABMiller’s profitability in Latin American markets in 2006.
Takeover attempts may hit problems due to local laws. Work force laws also differ from country to country.
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Appendix – 2
Key Points from Potter’s Five Forces Analysis
Threat of Rivalry: Very High
High competition in every market except South Africa (E.g.: Anheuser-Busch in China). Major Internationals are becoming key players in developing markets.
Threat of New Entrants: Moderate
Initial investment needed to enter the market is very high. SABMiller’s developing markets are increasingly coveted by competitors (E.g.: AnheuserBusch in China).
Threat of Substitutes: Low
New social trends like wines and spirits.
Bargaining Power of Buyers - High
Drinkers tend to have fierce attachments to their local brew. No switching costs (customers are known to move on to premium brands).
Bargaining Power of Suppliers - Moderate
Rise in energy and aluminium costs, especially in USA.
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Appendix – 3
Key Points from SWOT Analysis
Very strong in the home market. Large brand & market portfolio. Very flexible and highly adaptable management. High efficiency (operational productivity). Skills to succeed in developing markets (due to African origins). High economy of scale due to large market shares in some markets. Strong marketing and distribution channels.
Tendency to take on debts for perceived advantages (USA and Latin American acquisitions). Expertise limited to the brewing industry. Over reliance in the ‘soft’ currency. Main markets are in highly volatile areas like Africa & Asia making governments a key player.
Emerging markets are growing strongly. Highly fragmented developing markets make it easy for SABMiller to buy in to a market. High growth in premium segments of the industry will improve profitability.
Rising costs of energy and aluminium affects the profitability. New trends like wines and spirits will adversely affect SABMiller. HIV/AIDS problems in South Africa. Strong competition.
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Appendix – 4
Key Points from BCG Matrix Analysis
Top quality premium brands (Miller Genuine Draft, Pilsner Urquel and Peroni Nastro Azzurro). Asian market except Vietnam. Eastern European market. Latin American market.
USA market. South African market.
Western European market.
Hotel and Gambling portfolio. Lion match company. Vietnam market. African markets except South Africa.
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Appendix – 5
Key Points from Ansoff Matrix Analysis
Introduce SABMiller’s premium brands to USA.
Expanding globally, particularly in develop markets. Boarder distribution channels in Africa. Miller Genuine Draft was re-launched in the US market, with a new positioning. Peroni Nastro Azzurro was repackaged in UK accompanied with major global campaign. New breweries in China and Vietnam.
Premium beer segment is growing at a fast rate presenting SABMiller with product development opportunity.
Already have a portfolio of hotels, gambling centres & a match factory.
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Appendix – 6
Key Points from Stake Holder Analysis
Consumers Suppliers Retailers and distributors Employers
Most Governments Share holders Partner companies Directors
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