SABMiller case study 2009.

SIAMAK MOULAEIFAR 20207133

Introduction:

SABMiller (SAB) plc is the second largest brewers in the world with brewing interests or distribution agreements in over 75 countries across six continents. The groups brands include premium international beers such as Miller Genuine Draft, Peroni Nastro Azzurro and Pilsner Urquell, as well as an exceptional range of market leading local brands also SABMiller is one of the worlds largest bottlers of Coca-Cola products. (The SAB Miller, 2009)

Exhibit below provides a summary scope of SABMiller operation today. (Below figures refer to year ended 31 March 2009)

200 + br n s owne

US$ 4,129 million EBITA

Almost 70,000 employees

US$ 25,302 million group revenue

210 million hectolitres of lger sol

Source: www.sabmiller.com The purpose of this report is to discuss the strategic position of SABMiller in 2009 (SWOT analysis), the SABMiller acquisition strategy in particular the acquisition of Miller in 2002 along with issues rose in acquisition. It will also set out to recommend a strategic development plan for future.

The strategic position of SABMiller in 2009 Understanding the strategic position is concerned with identifying the impact on strategy of the external environment, an organisations strategic capability (resource and competent) and the expectations and influence of stakeholders. (Johnson & schools & Whittington, 2008)
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The st tegi position that SABMiller has chosen to follow is to continue to p rotect and further develop its operations, whilst investing for growth in its international beer business, several acquisitions in last few years have given them a wide geographical spread which allows them to capture new growth in developing markets and v alue growth as consumers around the wor ld trade up from economy to mainstream and premium brands.

Exhibits below summar ise SABMiller Group growth performance today.

To analysis better understanding of the current position of SABMiller examination will be done regarding the ext ernal and internal environment of the company.

External analy i

In order, to formulate an analysis of the external environment in which SABMiller is operating, an evaluation will be made in terms of industrial and competitive context. Both, the competitive context and the macro environment factors of the company can be eva luated by using the PESTEL analysis. Although the factors which are most identified from the case are political, economical and social factors.

Politicall , SABMillers strategy demands a great political sensitivity in dealing with governments, partners, local communities and the workforce, considering several acquisitions made by SABMiller. (See appendix A)

Economicall , in most emerging markets, consumption of beer is directly related to the level of disposable income at consumer level. (See appendix B)

Social conditions have also played a major role in the development of SABMillers products across these markets. (See appendix C)

Moreover, the competitive context of the macro environment should also be examined. It can be seen that there are two major trends in the brewing industry:

1. Globalization: companies operating in such an industry usually tend to establish strong presence worldwide. ( SABMiller operates in 75 countries across six continents) 2. Mergers and acquisitions : mergers and acquisitions are of the most important tools which organizations use in order to achieve globalization.

Furthermore, The SABMiller competitive position could be considered in near monopoly that has been achieved due to competitive advantages SABMiller has, these competitive advantages mainly are: economies of scale, low prices, and efficient distribution.

Internal Anal sis (SWOT) To further investigate the strategic position of SAB, a better look into its internal environment can be explored by using SWOT analysis. Stacey (2000) maintains that the environmental opportunities are only potential opportunities unless the firm can employ resources to take advantage of them. Therefore it is crucial to evaluate environmental opportunities in relation to the organisations strengths and weaknesses in terms of resources, culture and the environment in which it operates.

Table below summarise SWOT analysis for SABMiller considering the external environment in brewing industry and strategic capability of the company.
STRENGTHS
y
Good gl obal coverage: SABMiller has operations spread th rou gh out th e globe. It is well place to take advantage of growt h in some growin g market such as India, china, Vietnams and markets in Africa. Good worldwide or ganisation with history and knowled ge of enterin g foreign markets successfully with a brewin g presenc e in 75 countries. Market dominance: SABMiller is the second l argest brew er in the world by volume.

WEAKNESSES
y
Lack of assets in Western Europe: SABMiller has only lim ited operations in W estern E urope which produce beer. It does have import regi on but these are limited in size. This leaves it under represented in this key value regi on. N o assets in key growth markets: In some key markets SABMiller still lack a presence, notably Brazil, Mexico, Thailand and several c ountries i n Asia Pacific. Th e consumption of beer is directly related to disposable i ncome so th e purchasing of beer still remains highly fragmented, peopl e who are on a bud get tend to l ook out for the best deals and arent specifically brand loyal whilst others tend to stick to one brand and as SAB beer is not well known i n parts of Europe and t he UK t here is a probl em of brand rec ognition.

Competitive advantages: SAB has a competitive advantage which is the ability to sustain and improve in 4 areas: (1) Value addin g capability, (2) Cost leadership, (3) Economies of scale and (4) Efficient distribution . Stron ger in US: in th e key US market th e combi nation of Molson C oorss and SABMillers operation gives th em a stronger sec ond place against a dominant rival.

OPPORTUNITIES
y
Weakeni ng ec onomic climate: SABMiller compared to some of the oth er major brew ers is well placed to make acquisitions of any divestments by ot her brew ers, or to make investments in brew ers that may be stru ggling i n the current ec onomic climate. Oth er brewers lookin g internally to pay debt: In recent years SABMiller has not made a major acquisition unlike most of its competitors. This does put SABMiller in a good position to look for growt h while assets are a lot cheaper than a year ago. Th e Middle East is marked out as a key area for non-alco holic beer, such as Iran, United Arab Emiratis and Saudi Arabia .

THREATS
y
Th e acq uisition of A n heuser-B usch by InB ev will introduc es several of the c ost improvements that InBev has devel oped over th e y ears, and c oul d result in a stronger c ompetitor in th e US, which is a major market for SABMiller. Tradin g dow n: SABMiller has managed to capture a high er perc entage of the premium lager growth from its rivals. In a period of consumers watchin g their spending this segment could be facing tou gh times in the future. Big brands are set to bec ome bigger, Stella Artois, Carling, Fosters and Budw eiser. Agein g population means less beer drinkers. Price competition from substitute supermarket brands and promotional discounts

y y

The acquisition of Miller in 2002 Acquisitions are often made as part of a companys growths strategy whereby it is more beneficial to take over an existing companys operations and niche compared to expanding on its own. According to Johnson & schools (2008) an acquisition is where an organisation takes ownership of another organisation. SAB acquired Miller Company in July 2002, with the acquisition of Miller Brewing Company the size and geographic reach of SABMiller plc changed dramatically from that of the former SAB plc. Chart below provide summary of major changes. Year 2002 2004 Beer volume (m HL) 70 138 Global brewers ranking 4 3 Market capitalisation ($ bn) 6.4 16.3 Source: http://www.sabmiller.com

The rationale and motivation One plus one makes three: this equation known as synergy in business strategy, this is almost certainly the rationale for SABs to acquire Miller. SAB believed that synergy could be created in number of ways such as,
1.

Gain a significant market share and improve its quality by acquiring Miller, this acquisition also help SAB to increase economics of scale, which gave SAB company access to a larger market by allowing them to operate with greater geographical reach (US market) as well as shearing back office system. Improved market reach and industry visibility, SAB reach new markets and grows revenues and earnings. Acquisition of Miller also expands marketing and distribution of SAB and giving them new sales opportunities. The Table below shows, the financial summary before and after acquisition of Miller in Central America.

2.

Financial summary Turnover Sales volume (hls 000s)

y y y

2003 514 US$m

2002 186 US$m

Lager CSDs Other Beverage

1,747 6,257 2,499

624 2,231 824

Source: SABMiller annual report 2003

3.

Shearing a brand name and Miller potential, this allowed SAB to establish SABMiller as strong no.2 in brewing industry.
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4.

Speed of entry: by acquiring Miller in 2002 SAB made quick successful entering to US market (USA Wor lds largest profit pool .

5.

By acquisition of Miller SAB has achieved to establish an excellent global business network. By doing so, the company increases its turnover and its profits, which without doubt satisfies stakeholders expectations.

Additionally, the other motives behind the acquisition of Miller was to createa lot of benefits to SAB such as, strong cash flow, an improved credit profile with a significantly lower cost of capital and the ability to continue to participate in ongoing consolidation of the global beer market, furthermore the benefit of having Phillip Morris as a supportive long -term shareholder.

SAB strategy behind acquisition of miller brewing company:

Acqu i in (u nd - lued) ssets in d evelopin / e erging m rkets

Building loca l m arket sca le a nd lea dership around a portfolio of (loca l) mainstream brands

ecur in g r o u te-to m arket con tr ol

Drivin g op era tion a l and cost leadership

Enhancing industry conduct and pricing

Issues rose in acquisition

There are the two most common problems when acquiring another company, finance and culture problems.

1. Finance Typical acquisitions, the acquiring firm purchases the acquired firm (Target Company) for a market price plus a premium which means, the acquiring organization must overpay for the target company in order for the transaction to happen. The case study revealed, that in the first full year of SABMiller operating Miller, its share price of the company had dropped from 530 pence on the day of acquisition of Miller to 456.5 pence. According to Folklore, the shear price of acquire inevitably drops on the announcement of acquisition but in a properly valued acquisition, that does not have to be true. This statement establish that SAB paid premium price (US$3.6bn) to acquire Miller but, synergy value is not as much as the premium price as a result, SABMiller must be work more efficient until, acquisition will contribute more value to business.

2. Culture Along with the financial problem acquisitions can have negative impacts on the firm's management and overall culture. First issue involves the high turnover levels of the Millers management after the transaction took place, SABMiller appointed Norman Adami, previously head of its Beer South Africa, as head of Miller. Therefore, in the beginning of the new managements attention, focuses on preparing the company for the assumption of the new firm rather than on current operations. Furthermore, to increase the probability of a successful acquisition, both SAB and Miller need to have similar cultures. However, case study reveals millers culture is routinely rated all staff at the highest level whereas SABs culture is making clear that employee who consistently scored unsatisfactorily would be dismissed. Therefore, trying to adapt an organic SAB culture to previous Miller culture would be difficult challenge for Norman Adami the head of Miller.

Recommend a strategic development SWOT Analysis (also known as TOWS analysis) is a powerful technique for structuring high-quality strategic development. SWOT summarises the key issues from the business
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environment and the strategic capability of an organisation that are most likely to impact on strategy development. (Johnson & schools & Whittington 2008, p119) Chart below illustrate strategic development for SABMiller:
 Stret 

Opportunity and strengths

Good worldwide organisation with history and knowledge of entering foreign markets successfully with a brewing presence in 75 countries Competitive advantages  S B has a competitive advantage whic h is the ability to sustain and improve  in 4 areas  (1 Value adding capability, (2) Cost leadership, (3) Economies of scale and (4) Efficient distribution.

Opport itie!
y
The Middle East is marked out as a k ey area for non alcoholic beer, such as Iran, United Arab Emiratis and Saudi Arabia. Weak ening economic climate " SABMiller compared to some of the other maj or brewers is well placed to make ac#uisitions of any divestments by other brewers, or to make investments in brewers that may be struggling in the current ec onomic climate.

A$ q %i& ition/mer' er of ZamZam cola in IRAN(

Justi i ati n behind the acquisiti n of ZamZAm cola concerning SFA: y According to Euromonitor International report on non-alcohol beer (2009) The Middle East is marked out as a key area for non -a lcoholic beer, and generate rapid growth in markets such as Iran, United Arab Emiratis and Saudi Arabia. In these primarily Muslim countries, consumers are starting to choose for non-a lcohol beer over standard soft drinks, due to the fashionable, Western image they carry.

Growth Markets for Non-alcohol Beer 2003 - 2008 Iran 27)5% Saudi Arabia 12)9% United Arab Emiratis 8.4% Source: Euromonitor international Global Alcoholic Drinks April 2009. y In terms of Market strategic development its the time for acquisitions and mergers as in recent years SABMiller has not made a major acquisition unlike most of its competitors. This does put SABMiller in a good position to look for growth while assets are a lot cheaper than a year ago.

The experience and skills SABMiller has can decrease the high risks of implementing these strategies. This allows SABMiller to fully consolidate its position in both the developed and developing economies, while gearing itself up for the number one position. The strong growth forecast in Muslim countries such as Iran, Saudi Arabia will continue as these countries are less affected by the downturn. Also, in Western markets such as Spain where low-/non-alcohol beer has shown strong growth historically due to stricter drink-driving laws, this opportunity allows SABMiller to produce non alcohol beer in cheap labour country such as IRAN and export them to western markets. (Euromonitor international Global Alcoholic Drinks, 2009)

Chart below shows the leading five players in non-alcohol beer. Therefore acquisition of ZamZam cola provides competitive opportunity for SABMiller to compete with big player such as Heineken and Inbev.
1. Hei0eke0 2. Grup1 Mah1u-Sa0 Miguel 3. ZamZam 4. Diage1 5. I0Bev

Source: Euromonitor international Global Alcoholic Drinks 2009.

Geographically good Middle East coverage: ZamZam cola has operations spread throughout the Middle East. It is well place to take advantage of growth in some growing market such as United Arab Emiratis and Saudi Arabia. Also good shipping access through Persian Gulf to Europe. ( The ZamZam, 2008)

Conclusion: This research project has given the operational activities of the SABMiller (SAB) plc. This report has also discussed the strategic position of SABMiller in 2009 (SWOT analysis), the SABMiller acquisition strategy in particular the acquisition of Miller in 2002 along with issues rose in acquisition. It has also set out to recommend a strategic development plan for future.

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References:

 Johnson, G. Scholes, K. Whittington, R. eds.2008.Exploring corporate strategy.8th edition. Harlow: Financial Times Prentice Hall.

 Stacey. 2000. Strategic management and organisational dynamics: the challenge of complexity, prentice hall  Euromonitor International .2009. Global Alcoholic Drinks. Available http://ezproxy.tvu.ac.uk:2100/Portal/ResultsList.aspx [Accessed 1 Dec 2009]  Euromonitor International.2009. SABMiller plc. Available at: http://ezproxy.tvu.ac.uk:2100/Portal/ResultsList.aspx [Accessed 1 Dec 2009]  www.SABMiller.com Annual report 2002 Annual report 2003 Annual report 2008 Annual report 2009 Available at: http://www.sabmiller.com/ [Accessed 1 Dec 2009]

at:

Sustainability and environmental theory globalization principles of governance situational ethic

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Appendix A:

Political Beer sold in cans is not a general feature throughout Europe, this is due to environmental reasons i.e. beer cannot be purchased in Denmark by law. (threat) Changes in laws and regulations, including changes in accounting standards, taxation requirements, (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign regulations.(opportunity/threat) Changes in the alcoholic business environment. These include, without limitation, competitive product and pricing pressures and their ability to gain or maintain share of sales in the global market as a result of action by competitors. .(opportunity/threat) Their ability to penetrate developing and emerging markets, which economic and political conditions, and how well they are able to strategic business alliances with local packaging firms and infrastructure enhancements to production facilities, distribution equipment and technology. (opportunity) also depends on acquire or form make necessary networks, sales

Governments are campaigning strongly against drunken driving, affecting the propensity to drink beer in restaurants, pubs and bars.(threat)

Appendix B: Economical Last year the economy was strong and nearly every part of it was growing and doing well. However, things changed. Most economists loosely define a recession as two consecutive quarters of contraction, or negative GDP growth.(threat) Due to low interest rates it can use the borrowing on research of new products or technology. As researching for new products would cost less the European brewing industry will sell its products for less and the people will spend as they would get cheap products from European brewing industry.(opportunity) Increase in number of Consumers. Consumers are now increasing their normal habits, going to the high streets, car shopping, and eating out at restaurants. (opportunity) Super markets and pub are offering great deal and discount to consumers which have a huge impact on sales. (opportunity) Overcapacity within the beer industry, this has resulted in it becoming a saturated market (threat)
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Appendix C:

Social Foreign beer is perceived to be of higher quality. Though in their country of origin it may be perceived as an ordinary beer. (opportunity/threat)

Many people are practicing healthier lifestyles. This has affected the European brewing industry in that many are switching to non-alcohol product, bottled water and diet colas instead of beer and other alcoholic drinks. The need for bottled water and other more convenient and healthy products are important in the average persons dayto-day life.(threat)

Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition. Since many are reaching an older age in life they are becoming more concerned with increasing their longevity. This will continue to affect European brewing industry by reducing the demand overall and in the healthier drinks.(threat)

There is increasing awareness of the effect of alcohol on health and fitness.(threat)

More beer is sold through supermarkets in Europe. (opportunity)

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