The South African Breweries (SAB) has been operating since 1895 and holds 98% of the market share in the South African beer market. South African Breweries Vision statement states: "To be ranked amongst the top three brewers in any country in the world, by any key measure.
" Their mission statement says: "To be a leading brewer, manufacturer and marketer of fine quality beers and other long alcoholic drinks in a socially responsible and progressive manner." Graham Mackay, group chief executive of South African Breweries, has developed a strategic management strategy by encompassing the vision and mission statements into his plans for SAB's future. Mackay is trying to move SAB from a more diversified South African conglomerate to a more focused global beer company.Included in SAB's portfolio is a careful balance of long-established, well-known brands such as its flagship Castle Lager. This accounts for over 50% of SAB's sales. Other major brands include Carling Black Label, Hansa Pilsener and Lion Lager.
Both Castle Lager and Lion Lager have been established brands in South Africa since the beginning of the 20th century. Amstel, which is brewed and sold under license from Heineken by SAB in South Africa, is the premium brand leader in South Africa. Heineken completes the premium brand portfolio.By the end of 1999, SAB had become the fourth-largest brewer in the world by volume. Since SAB was a dominant force in Africa, one of SAB's goals was to grow globally by expanding into other emerging markets.
Brewing operations were initiated in Europe and Asia.Several things have caused environmental or secondary problems for the company as it plans its strategic moves. These include:* Floods ravaging Southern Africa* Civil Wars (Angola, Congo, Ethiopia, & Eritrea)* Political Instability, Risk, & Volatility* The rand & regional currencies plunging against US dollar* SAB's ratings on International finance market are affectedWith these challenges in mind, SAB is aiming to increase globalization efforts, while making acquisitions, and competing in developed markets. One step to SAB has taken to succeed in these endeavors is moving its headquarters to London and listing its stock on the London Stock exchange.
ProblemsThe major problem facing SAB is how to become a focused global beer company while trying to reach the same growth in hard currency while competing with global competitors. While at the same time the most urgent problem they are facing is whether to consolidate with other breweries or be acquired by another brewer.Major Problem:How can South African Breweries become a focused global beer company while trying to reach the same growth in hard currency while competing with global competitors? (pg C-447)Most Urgent Problem:The most urgent problem facing SAB is whether to consolidate with other breweries or be acquired by another brewer.Secondary Problems:* Floods ravaged Southern Africa (Mozambique)* Civil War in Angola - Wars (Congo/Ethiopia/Eritrea* Political Instability (Zimbabwe)-Political risk ; Volatility* Rand (African currency) ; Regional currencies plunged against US dollar* SAB's ratings on international finance market affectedIn resolving the problems of this case it is necessary to take a careful look at the full scope of South African Breweries operations and strategic plan.Case AnalysisProduct/Market AnalysisCurrent Products - South African Breweries current product continues to be beer.
Its original product was called "Castle Lager" (pg c-448). In the 1940's SAB expanded its brewing portfolio to include small hotels. In the 1960's SAB expanded to provide a wider range of products and acquired a winery. Other growth strategy diversification the company utilized included a hotel division, furniture, footwear and discount retailer. They also acquired the Pepsi bottling division of South Africa, the beer interests of the Rembrandt Group, Appletiser, and entered the apparel retail sector with the purchase of Scotts Stores Groups and Edgars.
They went on to invest in Lion Match Company, Da Gama Textiles, and Plate Glass. During the 90's SAB began to refocus on their core brewing activities. Non-core interests were sold, such as textiles, furniture, matches, and retail. Beer once again became their main focus or product.
Current Markets-The main markets include most of Africa with involvement in Swaziland, Botswana, Lesotho, Angola, Mozambique, Zimbabwe, Zamia, Tanzania, Kenya, Uganda and Ghana. The currently hold 90% of the lager beer market and 98% of the entire beer market in Africa. During the 1990's they expanded globally to expand in the world market. They acquired stakes in Hungary, China, Poland, Romania, Czech Republic, Romania, Slovakia, Russia, Canary Islands, and India.
By gaining control of The Czech brewers they became the largest brewer in Eastern Europe. The current markets include Africa, Europe and Asia. Differential Advantage- One of SAB's core advantage over competition is that its distribution skills are regarded as second to none in South Africa. They have two areas in which they display competitive advantage over competition.
These include value adding capacity and cost leadership. They target specific areas on which these two areas focus. They are:* Maintain and enhance product quality and brand equity.* Strengthen new product development capabilities.
* Pursue differentiated customer service and trade marketing.Situation AuditCurrently South African Breweries has 98% share of the African continent in market share of their domestic product of beer. Their strategic position for growth depends upon their global strategy. By the end of 1999 they had become the fourth-largest brewer in the world by volume.
As they became more focused as a global beer company they began expanding their brewing operations into Europe and Asia. South African Breweries identified two core challenges for the company.* First -was in continuing to make incremental operation improvements in the short term, while making the fundamental changes required of SAB, in order to be successful in the longer term* Second-was in balancing the demand to become international, and the need to be perceived as a leader by South African society.According to SAB the company's position is outlined as "notwithstanding our marketing and sales and distribution responses to these challenges, our long term defense will be critically dependent on our ability to simultaneously improve our product quality, brand portfolio, service excellence and cost leadership.Size and Financial ResourcesAccording to SAB's 200 annual report and as seen in "Chart 1" on page 8, sales and adjusted earnings grew. At constant exchange rates SAB's adjusted earnings grew 14% and they demonstrated the ability to add value by generating EVA (economic value added) of $220 million (US) during the year.
Earnings per share were 56.6 cents (US) were 5% ahead of the previous years 54.0 cents. Dividends per share for the total year were 25.
0 cents (US). Total sales of beer and other beverages rose (5 to 77 million hectolitres. Underlying margins grew strongly, and volumes in Poland & China were both up over 30%.As SAB's strategy to acquire and develop beer operations in selected international markets grows with earnings and volumes rising as seen in their annual report, the desire to merge becomes advantageous as a way to add profitable growth potential.
