QUESTION ONE

In 2002 SAB succeeded in acquiring a major brand in a developed market when it acquired 100 per cent of Miller Brewing Company, the second largest brewery in the USA, and becoming SABMiller in the process. The acquisition gave the group access, through a national player, to a growing beer market with the worlds largest profit pool, and at the same time diversifying the currency and geographic risk of the group. This acquisition made SABMiller the second largest brewery by volume in the world.

SABMiller appointed Norman Adam, previously Head of its Beer South African business, as Head of Miller who introduced the traditional SAB system of employee performance rating, making clear that employees who consistently score unsatisfactorily would be dismissed. This was a considerable change from Millers previous system of performance rating which routinely rated all employees at the highest level. SABMiller also announced that there would be rationalisation of Millers product portfolio from 50 brands to 11-12, meaning that market share would be down before it could go up again.

Having established a substantial presence in developed economies, the focus of SABMillers strategy seems to have shifted back to developing economies. The 2006 report notes that Our ability to succeed in developing markets (a skill we owe to our African origins) has proven to be a competitive advantage on the world stage.

The business in South Africa saw ongoing momentum in consumer spending with lager and soft drinks sales continuing to rise. While the growth in volumes moderated in the second half, earnings continued to benefit as consumers traded up to the premium segment. To meet the demands of changing consumption patterns, SAB miller introduced new sales and distribution systems and enhanced the flexibility of their production facilities. The licensing of more Shebeens is bringing these previously unofficial outlets into the retail mainstream. This means that they can operate more professionally and the firm can deliver to them directly which in turn raises the performance of the business. During the year the organisation trained over 6000 newly-licensed tavern operators in business skills.

The business in Africa continued to grow, helped by broader distribution and a clearer segmentation of the organisations brands. Volumes in Botswana were affected by the devaluation of the currency, but results were good in Tanzania, Uganda and Mozambique. The firm sees plenty of opportunity to keep improving efficiency in these relatively underdeveloped countries and the outlook for Africa as a whole is encouraging.

The worldwide trend towards premium brands makes this segment the fastest growing in the global beer market. Within the segment, its the international brands that are growing most rapidly at nearly four times the rate of the beer market as a whole. To compete in this segment SABMiller has a portfolio on international brands, each with its own distinct personality and attributes. While sales volumes are still small, they are growing rapidly. The largest brand, Miller Genuine Draft has been particularly successful in Russia while Pilsner Urquell is growing in Europe and the USA. Peroni Nastro Azzurro was recently repackaged and re-launched with a major global campaign and is growing particularly strongly in the UK.

Compared to mainstream and economy brands, the premium segment requires greater nurturing and specialised approaches to marketing, sales and distribution. These capabilities are now being refined across the group notably through a new programme to establish common techniques and disciplines for rolling out international premium brands in new markets. The programme was piloted during the year in Poland and the lessons learned are now being applied.

The 2006 report shows a change in emphasis stressing the need for consolidation rather than acquisition and emphasising the importance on global portfolio to ensure that it is balanced geographically and exposes the organisation to markets at different stages of development one that offers long-term growth in the form of new, developing markets while generating cash from profitable developed markets.

Having survived and grown for over hundred years, SABMiller had emerged onto the world market at a time when it appears that the twenty-first century may prove globally as turbulent as the twentieth century was in South Africa. The company notes that its operational productivity, which is already being benchmarked by competitors, cannot be a source of sustained competitive advantage. Its Africanist culture and fearlessness in tackling emerging markets is much less inimitable. However, as developed world tastes shift to wine and spirits SABMiller may find that the developing world is increasingly coveted by its competitors, with the battle with Anheurser-Busch over Harbin a foretaste of what is to come.

Adapted from: Johnson, Scholes and Whittington, (2010) Exploring Corporate Strategy

Required:

1. Using PESTEL Framework, discuss the impact of three (3) external factors on SABMiller, explaining how the organisation has responded to the impact. [6 Marks]
2. Conduct a partial SWOT analysis to establish SABMillers strengths and weaknesses. [6 Marks]
3. Establish SABMillers distinctive resources/core competences and determine the extent to which they match its Critical Success Factors. [6 marks]
4. Evaluate acquisition as a strategy that SABMiller used for growth as well as entering international markets. [10 marks]
5. Discuss with the help of a diagram the short-term and long-term restructuring outcomes of Downsizing, Down scoping and Leveraged buyout. [12 Marks]