SABMiller plc: Case Study

Linda Tylečková, Andrew Carl Hansen

linda.tyleckova@gmail.com, ac.carl.hansen@gmail.com

Johan Winbladh

MBA 555 : Case Study

May 21, 2016

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BACKGROUND

SABMiller, in terms of size, is placed behind Anheuser-Busch InBev- the largest

multinational corporation (MNC) in the brewery and beverages industry. The industry is highly

competitive and SABMiller competes not only with InBev but also Heineken and Carlsberg.

SABMiller’s global reach does not insulate it from the need to maintain market share in each of

its regional markets because of the intense opposition it faces from rivals (Brewers Association,

March 31, 2015). SABMiller indentifies the issues in its annual report. The MNC faces the

challenge of a sluggish Europe and North American market where alcohol consumption is not as

male dominated and where people are more likely to try out different kinds of alcoholic

beverage. SABMiller maintains many regional brand name beers. It considers beer to be a

regional product where local tastes determine the type of preferred beer. An example is the liking

for ales in Northern Europe and Africa compared with lager’s global reach. Consumer

preferances are not the only factor that shapes the market. Excise duties, regional government,

trade areas, varying advertising regulations, NGOs that raise public awareness of alcohol related

health issues, in addition to direct competition, all contribute to squeeze profit margins

(SABMiller, n.d.).

The MNC can be considered the victim of its own history of relentless expansion and

acquisition of regional breweries. Its 1995 listing on the London Stock Exchange heralded a

relentless strategy of global expansion and SABMiller now operates in 80 countries. The MNC

now faces acquisition itself; from InBev, subject to US anti-trust findings (Jarvis, 2015). The

problem is how to increase the volume of sales given this ‘cocktail’ of inhibiting factors without

being over reliant on any region in particular.

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To analyse this problem and form recommendations the dominant issue of direct

competition needs to be understood. For this reason Porter’s Five Forces (Porter, 2011) is

deployed to map the industry in order to identify a possible strategy for SABMiller to adopt. Part

of this model is rivalry amongst competitors has already been assessed to be high.

RELEVANT DETAILS

Threat of new entrants: It is estimated that a new small brewery enters US market every 6

hours. Start-ups have better access to finance than ever before. However, volumes of scale and

established supermarket and outlet distribution protect MNCs from SMEs. Investment in

production facilities is a barrier to entry and government regulation can be an inhibiting factor. A

feature of new entrants is their foothold in premium and specialist and craft beers that prove

popular with customers. (Marketline, 2014). The threat of new entrants is moderate.

The bargaining power of suppliers: Ingredients, such as hops, are typically supplied by small,

local and numerous suppliers which drives down their ability to influence prices. Large

breweries can, in addition, acquire their own supply chain business through vertical integration.

Although raw materials are important for brewing and suppliers not only sell to brewers the

power of suppliers is judged as low. (Marketline, 2014).

The bargaining power of buyers: the distribution chain means that beer reaches the customer through

supermarkets and other retail outlets. Retailers need to attract customers with a wide variety of beverages

which can act to weaken barganing power given that beer has to be part of the choice offered to

customers. However, brewers need to sell through retailers who charge for premium shelf space. Despite

the presence of company-owned outlets, retail chains often have considerable buyer power, that

force down the prices that beer producers can obtain. In such a market, economies of scale work

for large breweries. Buyer bargaining power is judged to be high (Marketline, 2014).

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Threat of substitute products or services: US prohibition is highly unlikely to return but

governments can take direct action such as Indonesia outlawing the sale of beer through

convenience stores (Brummitt, 2015). Abstinence is a customer option. Wines are easier to store

and can compete on price and quality being the preferred beverage for special occasion and with

food. So called alco-pops and ciders are also a viable alternative. Soft drinks are a huge market

that caters for all customer ages and demographics. However, regional beers do have a loyal base

of customers. The threat of substitute product is judged as moderate.

RECOMMENDATIONS

The industry analysis points to SABMiller being locked into a highly competitive

situation from which it can neither escape nor ignore. Its history of acquisition and diverse

brands does point to a focus on competition rather than the customer. Profitability is directly

related to sales and market share on premium products. Customers need to be offered products

that are authentic and offer a unique experience. Specific marketing campaigns are necessary for

each of the following recommendations to take root and suceed:

Offer a brand new premium beer in developed markets

Offer a selection of world premium beers as speciality locally brewed foreign beers in

each region

As part of corporate social responsibility (CSR) establish partnerships with governments

in developing markets to support infrastructure – clean water, power and argriculture.

REASONS FOR RECOMMENDATIONS

Above all, as SABMiller recognises, beer is local and customer preferences and taste

directly determine beer sales (SABMiller, n.d). The popularity of craft beer has placed taste at

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the top of customer perceptions of premium beer. Taste is a decisive factor in the justification for

the higher prices brewers want from the sales of premium brands. 34% of beer drinkers are

willing to pay more for craft or specialist beers and 59% want to be able to taste the difference

over cheaper alternatives (Wisson, May 20, 2015). Brand positioning though is all important and

perceptual maps can be helpful in mapping SABMiller’s own and rival brands either on sales

volume or price. The aspirational quadrant draws 62% of beer sales where products are highly

desirable ( Dawar and Bagga, 2015). At the moment its brands are too mainstream and there

clearly is a need for a more distinctive and aspirational brand in SABMiller’s stable. This is why

SABMiller needs a premium brand. The second recommendation is highly linked to the first. The

reason for brewing locally, where ingrediants allow, is to drive down importation transport and

tariffs in order to increase gross margin.

Sustainability also plays important part of SABMillers operations made even more

important by its 27% revenue from its market in Africa where resources, such as clean water and

infrastructure can be an issue. Given SABMiller’s roots in South Africa it is uniquely placed to

already have a stronger presence in Africa than its rivals. The current strategy is the $1.00

premium lager to appeal to local customers. However, this does not address social issues such as

the black market for illegally made alcohol (Kell, 2015). It is argued that loyality in this market

would come from long-term partnership with the World Heath Organisation and government

agencies to help provide Africa with better infrastructure – the sustainable way to ensure market

growth. It can be seen that although leveraging scale is a factor, convincing the customer can

bring greater returns as part of strategy.

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References

Brummitt, C. (2015, March 27). Beer Today, Gone Tomorrow: Muslim Indonesia Curbs Ale

Sales. Bloomsbury Business. Retrieved on May 21, 2016 from the Bloomsbury Business

website: http://www.bloomberg.com/bw/articles/2012-10-25/99-facts-about-beer-on-the-

wall-dot-dot-dot

Dawar, N., & Bagga, C. (2015, June 01). A Better Way to Map Brand Strategy. Retrieved May

21, 2016, from https://hbr.org/2015/06/a-better-way-to-map-brand-strategy#

Kell, J. (2015, March 10). Here's how SABMiller plans to tap into Africa's nascent beer market.

Retrieved May 21, 2016, from http://fortune.com/2015/03/10/sabmiller-africa-beer-

market/

Jarvis, Paul (16 September 2015). "AB InBev Approaches SABMiller in Record Industry

Combination". Bloomberg Businessweek. Bloomberg L.P. Retrieved 18 May 2016.

Marketline (2014). Global Beer: April 2014. Retrieved on May 20, 2016 from the Global Mint

database

Porter, M. E. (2011). The Five Competitive Forces That Shape Strategy. In HBR (Ed.). HBR’s

10 Must Reads: On Strategy. Harvard Business Review Press

SABMiller. (n.d.). SABMiller plc: Annual Report 2015. Retrieved on May 21, 2016 from the

SABMiller website: http://www.sabmiller.com/investors/reports

Wisson, C. (2015, May 20). Just how important is branding in the beer market? Our analysts

blind taste and find surprising results. Retrieved May 21, 2016, from

http://www.mintel.com/blog/drink-market-news/just-how-important-is-branding-in-the-

beer-market-our-analysts-blind-taste-and-find-surprising-results