Case Discussion
Collapse Headquartered in London, United Kingdom, SABMiller is a beer and soft-drink company that employs about 70,000 in over 80 countries. In SABMiller's fiscal year ending March 31,2014, the company sold over 315 million hectoliters (8.3 billion gallons) of beer, generating revenues of $26.72 billion, making the firm the second-largest brewer in the world, trailing only Anheuser-Busch InBev. In total, SABMiller produces over 200 styles of beers, including famous brands Peroni from Italy-Pilsner Urquell from the Czech Republic, Miller Genuine Draft from the United States, and many more.
The firm owns a 57 percent share of MillerCoors. SAB Miller also produces its own soft-drink brands, and is one of the world's largest bottlers of Coca-Cola. Shares of SABMiller can be purchased and sold on both the London and the Johannesburg stock exchanges. SABMiller distributes Coca-Cola products in Africa, Honduras, and El Salvador. In July 2015, SABMiller reported a I percent decline in larger volumes for the 3 months ending June 30; the company's soft-drink volumes rose 4 percent.
The company's beer volumes were down across Europe, led by a 15 percent decline in Poland. Unfavorable currency movements against the dollar also pushed SABMiller's European revenues down by 10 percent during the period. In the last year or two, the company's soft drinks sales have been up and its beer sales down.
In China, SABMiller brews Snow beer through a joint venture with China Resources Enterprise, and those sales are increasing. SABMiller's biggest single market in Latin/South America is Colombia, where Jager volumes rose 9 percent during the quarter, led by Aguila Light and alcohol-free Aguila Cero brands linked to sporting events. The company's overall lager volume in Latin America grew by 4 percent, and its soft-drink revenues were up by 7 percent.
In Africa, the company's lager and soft-drink volumes rose 4 percent each, with the highest growth in Nigeria and Zambia. SABMiller derives about 30 percent of its profits from Africa and plans to increase its revenues in Africa by more than 10 percent over the next 3 to 5 years. SABMiller traces its roots back to South Africa in 1895.
The initials SAB stand for South African Breweries, with the name Miller being added to the company in 2002 to reflect the 57 percent acquisition of Miller Brewing Company. SAB first went public in 1897 in Johannesburg and was listed in London just one year later. In 1955, SAB acquired Ohlsson's and Chandlers, both rival firms in South Africa, giving SABMiller 98 percent market share in the South African beer market. SABMiller acquired Bavaria S.A. in Colombia in 2005. Bavaria was South America's second-largest brewer and producer of both Agulia and Club Colombia.
SABMiller engaged in the hostile takeover of Australia-headquartered Fosters in 2009, but the acquisitions did not include European sales of Fosters, as Heineken owned rights to this market. In 2014, SABMiller divested its 39 percent stake in Tsogo Sun Holdings Limited, a casino and hotel group. In 2014, SABMiller gained a 57 percent stake in the newly fanned Coca-Cola Beverages Africa, which supplies 40 percent of all Coca-Cola beverage volumes in Africa. The two companies have combined their soft-drink bottling operations in southern and eastern Africa. As part of the deal, Coke paid $260 million to obtain world rights to SABMiller's Appletiser, a carbonated apple juice, and rights to another 19 nonalcoholic brands in Africa and Latin America.
Coke benefits by having a broader spectrum of offerings away from its base of Coke, Sprite, and Fanta, while SABMiller increases its soft-drink volume to nearly 21 percent of all sales, up from 17 percent in 2009. Soft drinks grew 5 percent for SABMiller in 2014, compared to 1 percent for beer. Soft drinks are easier to produce than beer, even though margins are less.
Organizational Structure & Segments SABMiller operates from a divisional-by-geographic region type of structure. Critics suggest that the company, however, should have more divisional presidents, and perhaps should be designed on a by-product basis. Also, note the company has no COO, so that "everyone" reports to CEO Clark at SABMiller.
Except for Sue Clark, Managing Director of SABMiller Europe, all top executives are white males at the company. The company recently dissolved its Director of Group Strategy position. A common beverage industry term net producer revenue (NPR) is defined as "group revenue less excise duties and other similar taxes including our share of associates' and joint ventures' excise duties and other similar taxes." SABMiller reports that its NPR growth in Latin America was 5 percent in fiscal 2014; however, taking into account exchange rates, the total reported NPR declined I percent, due to a strong U.S. dollar appreciation on many currencies worldwide, including Latin American currencies. However, the firm's lower production costs and fixed costs improved fiscal 2014 profitability.
Soft drinks now make up 20.6 percent of SABMiller's total sales by volume, compared with 17.2 percent in 2009. Sales of soft drinks rose 5 percent for the company in its most recent fiscal year, compared to a 1 percent rise for beer. In 2014 the Latin America Group accounted for 23% of SABMiller's total revenue, the Europe Group for 18%, the North America Group for 16%, the Asia Pacific for 16%, the South Africa Group for 15%, and the Africa (excluding South Africa) Group for 12%. Latin America SABMiller's Latin American segment is its largest, comprising 33 percent of all earnings being generated from this region.
The regional office for Lain America is in Miami, Florida. Primary strategies of the firm moving forward in Latin America include increasing light-beer sales and international brands, improving sales service, expanding bulk packaging to make beer more affordable, and improving distribution efficiencies. SABMiller is Latin America's largest brewer, operating mainly in Colombia, Ecuador, El Salvador, Honduras, Panama, and Peru. SABMiller also exports beer to Chile and Paraguay and is the third-largest brewer in Argentina. SABMiller's beverage volumes grew across Latin America by 1 to 3 percent depending on the category, but were down slightly in both Panama and Peru due to a new excise tax increase in 2013 by these governments on beer sales. Sales in Peru of Miller Lite remain strong, though, and the beer currently accounts for 52 percent of the premium beer segment and 20 percent of the total beer segment in Peru. Soft-drink sales in Peru were up 14 percent as well.
Bulk pack sales of beer, common in the United States but not in all world markets, continued to grow in Honduras, Colombia, and EI Salvador. SABMiller also offers cheaper beers to customers in these regions, as many are considered low income. Light-beer sales have also been strong in this region. In Colombia, top brand Poker hit record sales volumes of 8,500,000 hectoliters, giving Poker a 41 percent market share in Colombia and the top brand for SABMiller in Latin America, SABMiller produces soft drinks across Latin America, including Coca-Cola products in both EI Salvador and Honduras. Soft drinks comprised 30 percent of all SABMiller hectoliters of beverages sold in 2014 in Latin America. Europe SABMiller's European sales accounted for only II percent of the company's 2014 earnings the lowest of any region it operates.
SABMiller's European headquarters are located in Zug, Switzerland. The firm's primary breweries in Europe are located in the Czech Republic, Hungry, Italy, Poland, Romania, Slovakia, Canary Islands, and the Netherlands. SABMiller is the number one or two producer of beer by market share in these primary European markets. The firm also brews products in 16 additional countries in Europe and exports heavily to seven additional European nations, with the United Kingdom and Germany being the largest.
NPR for the company's European region increased 6 percent in 2014, partly due to the consolidation of Coca-Cola lcecek in Anadolu Efes. SABMiller bottles Coca-Cola products across Turkey and neighboring countries. Efes is a poplar Turkish beer. Furthermore, SABMiller's soft-drink production in Europe doubled from 2013 to 2014.
However, SABMiller's earnings were down 10 percent in Europe; the Czech Republic and Poland experienced 4 and 9 percent declines in lager, respectively. Italy experienced a I percent decline, although Peroni, an Italian beer especially popular in southern Italy, did well. Sales in the United Kingdom, Romania, and the Netherlands were up 5, 2, and 2 percent, respectively, in fiscal 2014. Turkey and Russia experienced strong soft-drink sales growth for SABMiller but lower beer sales, mostly blamed on increased regulatory measures in both countries on alcohol.
North America About 12 percent of SABMiller's 2014 earnings were derived from its Canada, U.S., and Mexico operations. SABMiller's North American operations are headquartered in Chicago, with a wholly owned Miller Brewing International being based in Milwaukee. SABMiller has a 57 percent share in MillerCoors, the second-largest brewer in the United States, having a 34 percent market share. One notable flavored beer is Redd's Apple Ale, the company's fastest-growing U.S. brand since 2013, which focuses mostly on 21- to 34-year-old individuals. Total North American EBITA was 8 percent higher in 2014, despite flat revenues.
Coors Light and Miller Light both experienced volume declines between 2 and 5 percent, respectively, but each gained in market share as the beer industry as a whole was relatively worse. Miller High Life and Keystone, both considered economy beers, experienced declines around 5 percent in volumes, while premium beer Miller Genuine Draft experienced a double-digit decline in sales. Coors Banquet, however, was able to enjoy volume growth of nearly 10 percent.
In total, beer struggled in North America, with the most promise being in craft beers, flavored beers, and premium beers such as Coors Banquet. Africa (excluding South Africa) SABMiller's African operations are considered "everywhere in Africa other than South Africa," which is its own segment. Regional offices are located in Johannesburg with brewing operations in 15 countries, and another 21 nations have SABMiller products through associates.
In most nations in Africa where SABMiller has a brewery, it is the number-one brewery in that respective nation. The firm also has a large soft-drink presence in Africa, bottling Coca-Cola products for 21 different markets. The company's NPR and earnings growth was 4 and 12 percent, respectively. The company's top-selling beer, Castel Lite, was up 31 percent, and soft drinks were up 6 percent due in large part to gains in Ghana and Zambia. Asia Pacific Regional headquarters for SABMiller in Asia are in Hong Kong with brewing operations in Australia, China, India, and Vietnam.
About 13 percent of the company's total EBITA is derived from the Asia Pacific region. A key initiative is building CR Snow's market leadership in China, where SABMiller enjoys a 20-year partnership with China Resource's Enterprise Limited, the largest brewer in China and producer of the most popular beer in China, Snow. SABMiller controls a 49 percent stake in Snow but Snow has a limited appeal outside of China. Total beer volume was up 6 percent in fiscal 2014, but both NPR and earnings were down for the year.
In India, the company's NPR growth fell 3 percent, but in China NPR grew 17 percent, in large part to Snow's success. South Africa SABMiller's South African office is located in Johannesburg and is the largest producer of both beer and soft drinks in South Africa. In addition, the firm also has a 40 percent stake in Tsogo Sun Holdings, the largest casino hotel group in South Africa. About 17 percent of total earnings was derived from this region. Beer and soft-drink volumes remained the same in 2014, but the company was able to make market share gains overall.
Top-performing brands are Castle Lite and Castle Milk Stout, both reporting 10 percent gains in 2014. Also, the firm introduced its first fruit-flavored beer, Flying Fish, in fiscal 2014 to the region. Competitors The global beer market is dominated by Anheuser-Busch InBev, SAB Miller, Heineken, Crown Imports, Carlsberg, Asahi, and others. In the United States alone, AB InBev, SAB Miller, Crown Imports, and Heineken account for 46, 33, 6, and 4 percent of the total market share, respectively (and thus 89% is accounted for by only 4 players). Other sizable brewers include Pabst, makers of Pabst Blue Ribbon, as well as Boston Beer (makers of Sam Adams), Yuengling, and Sierra Nevada, all based in the United States.
Further consolidation is expected but many new micro and craft breweries are started each year. There are over 2,500 brewers in the United States, all competing on price, quality, brand, perception, distribution, and, importantly, shelf space in retail establishments. As measured by employees AB Inbev more than doubles SABMiller in size (155,000 vs. 70,000), while both dwarf Boston Beer (with 1,200 employees). Additionally, Anheuser generates the highest revenue per employee with about $45 billion in revenue translating to over $238,000 per employee (versus $17 billion/~$238,000 per employee and $740 million/~$58,000 per employee for SABMiller and Boston Beer respectively). Boston Beer has the highest EPS, but is small compared to SABMiller and AB Inbev.
Between the two largest companies AB Inbev more than doubles SABMiller's EPS (5.53 vs. 2.25). Anheuser-Busch InBev AB InBev is the largest brewer in the world with a 4S percent market share in the United States and a 25 percent share globally. Headquartered in Leuven, Belgium, the firm produces more than 200 brands, including Budweiser, Stella Artois, Becks, Leffe, Michelob Ultra, Corona, and many others. Anheuser recently purchased Mexico's Grupo Modelo, but Anheuser does not have U.S. rights to Grupo Modelo products; Constellation Brands does. Anheuser has 17 brands that generate over $1 billion each.
In Argentina and Brazil, the firm controls 78 and 68 percent of the beer market and 21 and 18 percent of the soft-drink market, respectively. Anheuser has long viewed advertising especially at sporting events as a key part of its strategy. The company is the only beer advertiser during the Super Bowl every year. Anheuser also has been the lead sponsor for several world cups, and most recently the Confederations Cup in Brazil.
For AB Inbev Latin America North was the second-largest income-producing region, mostly thanks to Brazil, which is in this segment; however, the segment experienced declining revenues of 3.5 percent in 2013. European sales were also down, largely due to a 16 percent decrease in Russia. Sales in China were up 9 percent in 2013. Heineken N.V. Headquartered in Amsterdam, Netherlands, Heineken is one of the world's largest breweries with revenues over $24 billion assuming 1 USD = 1.30 Euros.
Heineken operates in over 70 nations with 190 breweries and over 200 beers. Heineken also manufactures wines, spirits, and soft drinks, but beer accounts for 85 percent of company revenues. Heineken recently purchased Asia Pacific Breweries for $4.6 billion, giving it excellent exposure in China and southeast Asia. Heineken advertises heavily during sporting events and serves as a sponsor for the U.S. Open Tennis and the Champions League soccer in Europe. Top global beer brands include Heineken, Sol, Amstel, Desperados, and Strongbow Apple Cider. Heineken's large increase in revenues in the Asia Pacific region reflects its recent acquisition of Asia Pacific Breweries.
Also, like other brewers, Heineken's sales in Europe, as a whole, were down 4.5 percent in 2013. In total, other than the acquisition of Asia Pacific, sales overall were down in all regions Heineken operates. Boston Beer Better known by their brand, Sam Adams, Boston Beer was founded in 1984 in Boston Massachusetts, and is the largest craft beer producer in the United States, having 21 percent market. share. The company produces 2.5 million barrels of beer annually and is famous for producing seasonal beers, wheat beers, fruit beers, and other specialty beers.
The firm sells 96 percent of its beer in the United States, and reported revenues of $740 million in 2013. Boston Beer employs around 1,100 people. Carlsberg Group Founded in 1847 and employing 45,000 people, Carlsberg is a Danish company that controls 8 percent of the world beer market, not counting the United States. The company is focused on Europe and Asia but also sells products worldwide. The firm reported 2013 revenues of 66 billion Danish Krone, or approximately $11 billion. Carlsberg produces over 500 local beers, including Carlsberg, Tuborg, Kronebourg, Somersby Cider, Baltika, and many more. Several beers contain high alcohol content, such as Baltika #9, which is 8 percent alcohol. Baltika and many other Carlsberg beers can be purchased in the United States. Types of Beer Beers are often categorized into these broad categories: premium, sub-premium, super premium, adult beverages. malt liquor, and. craft beer.
Premium beer is the largest and most popular category in the United States. Premium brands include Budweiser, Coors Light, Miller High Life, and others. They are sold in the United States in bulk packaging ranging from 6 to 30 packs. The. category represents 42 percent of all beer sales in the states, although this category has seen declining recently in sales. Globally, in many emerging markets, customers who are used to sub-premium beers are trading up to the premium beer category. Sub-premium beers are generally more affordable than their premium counterparts and include brands such as Natural Light, Busch Light, and Keystone Light. Interestingly enough, many customers associate these beers as inferior, but in reality they are often close to the quality of premium beers. The major difference IS a much lower advertising budget the premium beers have. About 17 percent of all beer sales in the United States are in the sub-premium category.
Super premium beers account for ]4 percent of the total market in the United States and include brands, such as Michelob Ultra and Budweiser American Ale. Sales in this category have remained relatively stable over the last 5 years. The classifications of beers are often misleading with respect to the beers' quality. Super premium beers often simply contain a higher advertising budget and status among drinkers and do not differ materially in quality. Craft beers are one of the fastest-growing segments in the beer industry. There are many different definitions of what constitutes a craft beer, with some analysts suggesting any brewery that produces less than 6 million barrels, or one that is 75 percent independently owned.
Some even label craft beers based on the methods in which the beer is produced. Thus, there are no strict or set quality standards to be labeled a craft beer, but they do generally have high-quality hops, barley, and other additives. The largest craft beer producer in the United States is Boston Beer, which produces 2.5 million barrels of beer annually and controls 21 percent of the craft beer market in the country. Adult beverages is another area growing rapidly.
Apple ales, twisted teas, and hard lemonades are all examples of this category that represents 6 percent of U.S. industry revenue. Malt liquor represents 6 percent of U.S. sales and is considered any product with over the normal alcohol content for a beer, which, in the United States, is about 5.9 percent. Many customers consider malt liquor to be brands such as Ole English and Colt 45. Global Beer Market The outlook for beer in markets such as Africa, Latin America, and Asia should remain strong moving forward, with western Europe and the United States performing better with craft beers. In fact, there is a trading up of products worldwide.
In developing markets, consumers are drinking premium beers more often, such as Miller Lite, Coors Light, and many European-based beers, whereas in developed markets, consumers are trading up to craft and specialty beers along with wine and mixed drinks. Another trend is younger drinkers no longer consider lager beer their default choice, often choosing specialty beers or other mixed drinks. Cider is increasingly popular in western Europe and Australia, as well as dark beers.
However, traditional lager style beers still dominate the world beer market. In the United States, beer sales declined just over I percent in 2013, after a small increase in 2012, to resume a downward trend present from 2009 through 2011. Total revenues from beer sales in the states has declined from 56 percent in 1999 to 48 percent in 2013, largely blamed on increased liquor and wine consumption. Equally troubling in the numbers is that micro-breweries such as Boston Beer and Sierra Nevada Ale have taken market share away from traditional breweries. In 2013 alone, craft beer volumes were up 17 percent in the United States. Imports are also key drivers in the U.S. market. Four of the top import brands are Mexican beers, which, as a whole, make up 50 percent of all imported beers in the United States.
One way the larger beer producers have hedged against falling beer consumption is by producing various malt beverages. Various ciders, lemonades, teas, and fruit-flavored drinks have produced good sales, but remain a relatively small percent of total revenue for such behemoths like AB InBev and SABMiller. There are several ongoing regulatory concerns for beer producers. Furthermore large multinational companies in the industry must deal with additional complexity navigating regulations (due to the fact that regulation in the beer industry varies greatly from country to country, state to state, and city to city). Many countries, such as Turkey and Russia, have recently tightened down on alcohol sales. Also many counties in the United States are dry, not allowing beer or alcohol sales on Sundays or after certain hours at night. In some counties, there is an outright ban on all beer sales. In addition, the manner in which firms can label, advertise, and the amount of alcohol content is all heavily regulated and varies by location.
Many countries have strict laws on alcohol consumption and some nations have zero tolerance laws in place regarding drinking and driving. Further Consolidation? In late 2014, AB InBev was reviewing financing options to purchase SABMiller for the staggering amount of $122 billion. The risk of a hostile takeover from AB InBev loomed for SABMiller throughout 2014 and 2015, especially considering SABMiller has stronger presence in emerging markets where the real growth is present. Industry analysts predicted that if AB InBev were to acquire SABMiller, likely on anti-trust grounds, the 57 percent stake in MillerCoors controlled by SABMiller would have to be divested. Many analysts suggest that AB InBev NV could and should acquire SABMiller, the world's number- two brewer by revenue. A key driver of this potential merger is that Anheuser desires more global exposure and SABMiller already holds 57 percent of the newly created Coca-Cola Beverages Africa company (Coke owns 11.3 percent).
The remaining portion is owned by Gutsche Family Investments, a major shareholder in Coke's African bottling operations. The looming possibility of a merger necessitated a clear strategic plan to assure it gets the highest offer possible if a buyout offer were to materialize. Indeed, SABMiller's board of directors agreed to a merger proposal in 2016 (after several offers by AB Inbev). As predicted, several divestments were made in preparation of the merger to ease anti-trust concerns. It remains to be seen how effectively the new company will be able to maintain the dominant position it holds the industry.
Furthermore, it is unclear how effectively future growth could be achieved through additional acquisitions, given the concerns that have been raised with each merger leading to the current juggernaut (Interbrew with Ambev, Inbev with Anheuser-Busch, SAB PLC with Miller Brewing).
Answer to only 1 questions:
In North America, Coors Banquet had growth while other beers struggled, what made Coors Banquet more profitable?
Does Coors Banquet have a sustained competative advantage in this market?
What can SABMiller do through aquisitions and mergers to expand in this market?
Do you think AB InBev should purchase SABMiller for 122 billion?
What kind of strategic relatedness do these companies share?
Do you think this would be a profitable for the bidding firm or target firm?
What made SABMiller conquer so successfully the Latin American market?
How does SABMiller stand against its competitors and how does its organizational structure affect it?
List the type of values that can be created by AB InBev and SABMiller's merger, Assume the merger between AB InBev and SABmiller has not been approved as of today and you have been asked to evaluate the values.
Which firm would benefit more?
Using the FTC categories, evaluate the competitive implications given by the proposed merger between SABMiller and AB InBev.
*NO REFERENCE NEEDED IT*