Reinventing San Miguel Corporation

Introduction
San Miguel is South East Asia’s largest food and beverage company. Traditionally
diversified among three main products, which are food, beverage and packaging. It’s flagship
product San Miguel beer Pale Pilsen maintained the lead in its industry and owns seven of the
top the selling beer brands in the Philippines. Meaning with its large market share the volume
of its sales has started to pose a slow growth and started to depend on the Philippines
population growth for more volume. Facing these and other new economic realities San
Miguel Corporation started to re-think and change it’s business model as the first decade of
the millennium drew to a close. San Miguel decided to pursue and shift into non-allied
businesses in the Philippines following important trends for it’s and the Philippines future
growth such as energy, mining, infrastructure and other utilities, forgoing its international
expansion plans.
San Miguel Corporation before its diversification into non-allied businesses in the
Philippines pursued growth through international expansions. In has invested in a number of
countries such as China, Indonesia, Australia, Vietnam, Thailand and other countries
although it dropped its Australian assets in 2008 in pursuit of its new change in direction. Its
strategy had allowed san Miguel to maintain its space among the top ten beer companies in
the Asia Pacific region but remain a relative minor player on a global scale and soon
dropping it’s market share in the Asia-Pacific region in the late 2000’s.
When San Miguel started to reinvent the company and focus on a new direction it
sold off its Australian Assets which were National Foods in 2007 to it’s strategic partner
Kirin Holding and J. Boag & Son in 2008 at a higher price than when it was purchased and
42.2% stake in its joint venture with NutriAsia group. It also started to reorganize its food
business, concentrating and placing a deeper focus on the brands it fully owned and finally
turning its beer division into a separate subsidiary called San Miguel Brewery becoming a
separate entity in the Philippine stock exchange. This was done in order to raise capital and
isolate the beer business from the potentially negative impact of the company’s new
direction. After San Miguel has diversified into a number of business such as energy, oil,
telecommunications and even proposed on a project which involved the construction of a
dam, hydropower plant and water treatment and storage facilities. In 2008 in acquired 27% of
Meralco but later had to unload its stock due to PLDT’s continued pursuit for the said
company. It also acquired 50.1% of Petron and upon its take over implemented a number of
changes, transferring key personnel to Petron. Lastly it pursued a joint venture with Qtel and
in 2009 acquired 32.7 percent stake in Liberty Holdings, Inc. Aside from its successful
acquisition it also had numerous failed attempts in acquiring other business concerning
energy.
During the late 2000’s San Miguel has already began gaining most of its profits from
its new businesses. Having the Philippines larges and most dominant oil company and
becoming the largest electric power producer in the Philippines despite its few set backs the
previous years failed attempts in acquiring contracts. But this does not mean that the
company has left its traditional businesses to rot. Improving sales both nationally and
internationally in its beer operations and gaining revenue growth in both its food and
packaging operations. San Miguel how ever was not successful in all its new divestitures. Its
telecommunication business was still a small player in its industry and a few of its
infrastructures are still at its infancies. Recently San Miguel had acquired Exxon Mobil
Malaysia and 49% of Philippine airlines and plans of investing heavily in both businesses.

Analysis
San Miguel’s is the leading beer company as we can see from the facts. Seven out ten
of the most bought or top ten beers in the Philippines is owned by San Miguel and by a very
large margin although its sales percent volume dropped steadily from 89.7% in 2004 to
87.6% 2007. It is likely due to its divestiture in foreign and different markets and the increase
in preference for other foreign beers in the Philippines. Although the article did mention that
there was an increase by 10% in operating income it did not mention an increase in percent
volume when compared to other companies in the industry. Still the company is the leading
beer franchise in the Philippines, which does mean that volume sales were to hit a plateau
because it is close to impossible to completely monopolize the industry that is why investing
internationally to bring its products to other countries as well as diversifying into new
markets was a good strategic plan for the company to pursue further growth.
The company has already been investing in its international expansion since 1913
when it began exporting beer to Hong Kong, Shaghai and Guam so the company has been in
the international seen for some time and this change of focus from its international expansion
to diversifying into different industries in the Philippines was a big step. San Miguel did a
number of things before they made their various acquisitions. Although they are indeed a big
company with a large amount of funds they needed more resources in order to acquire and
safe guard its tradition business before diversifying into non-allied businesses. San Miguel
sold its Australian Assets where in it gained a huge amount of funds, gaining a larger amount
from than the amount they purchases them for. Such as National Foods which was acquired
in 2005 for US$1.6 billion and sold in 2007 for US$2.6 billion and J. Boag & Son which was
acquired in 2000 for US$92 million and sold in 2008 for US$300 million and creating the
subsidiary San Miguel Brewery turning it into a separate entity, safeguarding it if their new
course of action was not successful and raising funds in the process since it sold stocks to its
strategic partner Kirin Holdings. The Australian arm of the company for beer before being
sold brought in a large amount of funds about 81,821 million in 2007 before being sold
causing a huge difference in the 2007 and 2008 total gross revenue from 241,970 million in
2007 to 168,222 million in 2008. Showing that this was a highly profitable market. This is
probably the reason why the company could sell J. Boag & Son for a larger sum. This was a
big move for the company but much needed in order to gain shares in their target companies.
San Miguel acquired a number of companies and planned to divest in more companies in the
near future, most of them profitable such as its acquisition of Petron and its penetration in the
energy industry and becoming the largest electric power producer in the Philippines. But
some of them such as its continuous pursuit to penetrate and acquire a large share of the
telecommunication industry did not push through.
During its transition years it has made very good strategic decision in its acquisitions.
It was a good move for the company to have stuck with their own bid price when it started
bidding for the privatizing of power supply contracts only paying for what they think it was
worth since they did in the end gained these contracts and became the largest energy producer
in the Philippines. San Miguel gains more than 50% of its revenue from these new
acquisitions. It does not mean though that the company forgot their traditional businesses
since the growth in income is still substantial although some of its investments in foreign
companies did not perform so well such as Southern China, Thailand and Vietnam that could
have brought the company an even bigger profit.
 More recently in acquisition a downstream business Exxon Mobile Malaysia that
would reduce their raw material costs and expand their business into Malaysia. This would
greatly increase their profit from an already profitable enterprise Petron. Since they own the
supplier of their own raw materials it would not only reduce the costs but would not any more
require the negotiation between buyer and supplier, lessen any communication barriers and
lessen any complication when it comes to raw suppliers. Also San Miguel acquired 49%
Philippine Airlines and given full management control. There are many issues concerning
Philippine airlines and thus turning it profitable again is not an easy task and would require a
huge fund which San Miguel seems to be capable of as they are capable and planning to build
their own airport. Having your own airlines on your own airport would greatly help the
service capability of their airline as they can reduce the amount of delays for a flight.

Recommendations
My recommendations are for
San Miguel to drop it’s telecommunications arm as of the moment since it already
has a number of different businesses in its portfolio of which are profitable and could still be
grown in the industry such as Petron, Philippine Airlines and their energy business. Even if
these companies are the biggest or the most profitable in their own respective industry they
are still capable of growth and would need the funds and focus of the company. Make their
position stronger in each of its profitable businesses by following trends and maybe purchase
companies that are associated with their current businesses to improve their services.
The company should not build more infrastructures until they finish the ones they
have started and should continue to plan or build infrastructure that are associated or can help
their current businesses such as their airport or the dam to be able to position themselves
better in the market.
Develop its flaship products in other countries where in it has little growth such
Southern China, Thailand and Vietnam and to not forget San Miguel Beer here in the
Philippines as it might loose in volume percentage sales if left. As its percent share from
2004 – 2007 was steadily declining from 89.7% to 87.6%.

Sources:
Richard Ivey School of Business. Reinventing the San Miguel Corporation (A). The
University of Western Ontario, 2009
Richard Ivey School of Business. Reinventing the San Miguel Corporation (B). The
University of Western Ontario, 2012