Presented byPresented byVal Jiwa & Robin AllenVal Jiwa & Robin Allen

TABLE OF CONTENTS

Abstract 4

1. History 5

2. Operation in the Market Place 6

2.1 Supply Chain Partnerships 6

2.2 Constantly Raising the Performance of Local Businesses 7

2.3 Owner- Drivers 8

3. Differentiators 9

3.1 Varied Portfolio of Locally Produced Brands 9

3.2 Economies of Scale 10

3.3 Well-Established Distribution Network 10

3.4 Well-Established Brands 10

3.5 Favorable Public Image 11

3.6 History 11

4. SABMiller Share Price 11

5. Competitors 12

6. Past Strategic Initiatives 13

6.1 Trade-Brewer Concept 13

6.2 Preferential Procurement 13

6.3 Acquisition of ABI 14

6.4 AIDS Counseling and Testing 14

6.5 SAB Training Institute 14

6.6 Owner-Driver Programme 15

7. Some management Issues 15

7.1 1999 Main Listing being taken to LSE 15

2

7.2 Acquisition of Miller Brewing Co. of USA in 2002 15

7.3 Expansion to China in 2003 16

7.4 Takeover ABI in 2004 16

7.5 Takeover of Bavaria of Columbia in 2005 16

7.6 Forays into India and Vietnam in 2006 16

7.7 Withdrawal of Amstel License in March 2007 16

7.8 Dealing with Country Infrastructural Problems and Supply

Shortages in 2007 17

8. Warning Signs 17

8.1 SA Infrastructure 17

8.2 Global Supply problems 18

9. Reasons for On-Going Success 19

9.1 First-Mover Advantage 19

9.2 Industry-Foresight 20

9.3 Good Corporate Governance 20

9.4 Performance Management 21

9.5 Good Marketing 22

10. Other Issues of Note 22

11. Conclusion 23

References 25

Appendix I 27

Appendix II 28

Appendix III 29

Appendix IV 30

Appendix V 31

Appendix V1 32

Appendix V11 33

3

Abstract

South African Breweries (SAB), a beer manufacturing company, has a long and

interesting history that often reflects the economic and social history of South Africa. The

company was founded in 1895, and listed on the Johannesburg Stock Exchange in 1897,

becoming the first industrial share to do so and a year later listed on the London Stock

Exchange. One of the key focus areas in SAB Miller’s supply chain priority is working

with farmers to improve the quality of raw materials and improve their well-being. As

SABMiller seeks to understand consumer preferences and create brand portfolios that are

relevant and appealing, they have a strong competitive advantage in their ‘market

mapping’ system – a formal process identifying the main clusters of consumer preference

in any given market and comparing these with the brands currently on offer. The

following statement taken from an article in Finweek reflects how the markets have

viewed SAB Miller's performance: "The capital markets have recognized the value of the

balanced portfolio, rewarding the brewer with a 37% rise in share price in the 12 months

to 31 March 2006. Since its UK listing in 1999 SABMiller has provided shareholders

with a total return of 215%". By focusing on superb performance measures, while not

forgetting issues like corporate social responsibility and corporate social investment,

SABMiller has proven to be a good corporate citizen in every sense of the words.

4

1. HISTORY

South African Breweries (SAB), a beer manufacturing company, has a long and

interesting history that often reflects the economic and social history of South Africa. The

following is a summary compiled from information obtained from the SA Breweries

corporate website (SAB, 2007)

The company was founded in 1895, and listed on the Johannesburg Stock Exchange in

1897, becoming the first industrial share to do so and a year later listed on the London

Stock Exchange.

Displaying the foresight which has become so typical of the company, in 1911 it

stimulated the barley industry by supplying farmers with imported seed free of charge,

and contracted to buy the crop at market prices. A year later it repeated this foresight by

collaborating with the Ohlsson’s breweries to explore the hops industry. Similarly, to

counter glass bottle shortages during World War I, SAB took over the defunct Union

Glass in 1917.

The company continued with its acquisitions by acquiring a stake in the Schweppes

carbonated soft drinks company in 1925, giving a glimpse of things to come.

In 1950 the decision was made to move the SAB headquarters to London

In 1953 work begins on the Castle Brewery site at Isando, constituting the largest brew

house in Africa at the time. By 1956 Castle Breweries was able to buy out Ohlsson

Breweries and Chandlers Union Breweries. The company then becomes known as South

African Breweries for the first time.

From the 1950’s onwards the company started the expansion of its asset base to include

businesses not necessarily related to its core competency of beer and beer related

activities. In addition, SAB became involved in the property industry in a joint venture

with Anglo American and also launched the Southern Sun Hotels in 1969.

5

1972 saw a short-lived threat to SAB by Louis Luyt through Luyt Breweries which had

been later taken over by the Rembrandt Group and resurrected as Intercontinental

Breweries which sparked a 7-year war that interestingly and fortuitously led to an

increased interest in beer and also led to increasing sophistication and innovation in the

beer industry. SAB eventually purchased the beer interests of the Rembrandt Group in

1979, giving it a 99% share of the market.

Through the 1980’s SAB continued its expansionist acquisition of both beer and non-beer

assets. With the advent of a democratically-elected government in 1994, and the

relaxation of stringent exchange control regulations, SAB started selling off non-core

business assets in 1997 and in 1999 makes the decision to move its primary listing to the

London stock Exchange in order to raise capital to continue its expansion both into Africa

but also globally.

With the acquisition of the Miller Brewing Company in the USA in 2002, a new era

begins with the company assuming the name SABMiller plc. This heralds the further

global expansion of SAB as SABMiller in to Europe, South America, India, Vietnam and

China as well as deeper into Africa. By 2005, following its acquisition of the Colombian

based brewer, Grupo Empresarial Bavaria, SABMiller becomes the second largest brewer

by volume.

In March 2007, the 40-year agreement to allow SABMiller plc to distribute Amstel Lager

in South Africa is terminated by Heineken, signalling the beginning of a new era of

competition in South Africa for the “hearts and minds” of those who consume products in

the beverages industry (See Appendix I & II for market setting and Appendix III for

financial performance).

2. OPERATION IN THE MARKET PLACE

2.1 SUPPLY CHAIN PARTNERSHIPS

For many companies future growth will be fuelled by emerging markets. The list of

companies that are expanding in emerging markets is getting longer. These companies

6

are forging supply chains that are uniquely adapted to the rigors of emerging markets.

Given the unique market conditions found in developing countries, manufacturing,

sourcing and distribution decisions must be made early in the product design phase.

Manufacturing processes that leverage local suppliers can give companies a sustainable

competitive advantage.

One of the key focus areas in SAB Miller’s supply chain priority is working with farmers

to improve the quality of raw materials and improve their well-being. Not only do these

partnerships create additional employment and help to alleviate poverty in local

communities but also encourage understanding, ownership and improved performance on

sustainable development issues throughout the value chain. Such a supply chain reflects

the company’s values and commitment.

According to Financial Management (2007) the idea behind Supply Chain Management

is that coordinating the activities of the different businesses of the supply chain can save

costs while also adding value.

Regardless of the opportunities, many companies will consider the bottom of the pyramid

to be too risky. On the contrary, partnerships can limit risk; another option is to enter into

consortia. Investing where powerful synergies exist will mitigate risk (Prahalad &

Hammond, 2002, p.6).

2.2 CONSTANTLY RAISING THE PERFORMANCE OF LOCAL

BUSINESSES

SAB Miller aims to win even at the point of sale. This activity varies from market to

market; however, the underlying skills are the same – improving distribution logistics,

segmenting and analyzing the channels to market, and ensuring the right conditions and

consumer experience at the point of sale.

In China, the priority is to reduce the many tiers between SABMiller and the restaurants,

bars, supermarkets, stores and street kiosks that carry their products. South American

7

businesses, on the other hand, are developing their skills in segmented channel

marketing. Columbia – a country with around 340,000 outlets – channels are broken

down by type of drinking occasion. Their European businesses have led the way in

creating 3D installations and ‘beer theatres’ with related promotions and events to lift the

image of the product and create a more exciting experience for the customer at large

super and hypermarkets. In South Africa, the informal taverns or ‘shebeens’ that serve

the bulk of the population are in the process of being legalized. Once they become

legitimate business owners, licensed taverners can borrow money against their properties

and have an incentive to invest in, and upgrade, their premises. For SAB Ltd, the change

means they can now deliver straight to the point of sale, making the delivery and

distribution more efficient.

In the future, success will come to those companies, large and small, that can meet global

standards and tap into global networks. Sweeping changes in the competitive landscape,

including the presence of foreign competitors in domestic markets, are driving businesses

to rethink their strategies and structures to reach beyond traditional boundaries. At the

same time, communities are under considerable pressure to understand what they need to

do to enhance – and in some cases even preserve – their local vitality. To avoid a clash

between global economic interests and local political interest, businesses must know how

to be responsive to the needs of the communities in which they operate even as they

globalize (Kanter, 2003, p. 1).

2.3 OWNER DRIVERS

Over half of SAB’s national distribution in SA is covered by its Owner Driver initiative,

introduced in the late 1980s to enable company employees to become independent

business people. This black empowerment programme was particularly designed to

ensure high levels of customer service and productivity. Well over R2.5 b has been

invested in this broad-based empowerment project since inception. Today, 235

companies, operating around 352 vehicles, account for 60% of all SAB’s deliveries. Each

of these drivers employs a crew of at least four people. As a result, this 300-million a

8

year project has provided at least 1,500 jobs and created 235 independent, sustainable

businesses, each truck owned by an owner driver is worth around R800,000.

Recently SAB announced an enhancement to the Owner-Driver programme through the

Distribution Operator (DO) phase. More than 60 drivers around the country have

enhanced their distribution businesses following this launch, which has increased their

turnover as much as R2 million a year.

Owner-Drivers distribute about 60% of SAB’s beer volumes and 25% of this is

distributed by DOs. SAB’s soft drink division has its own owner-driver programme, with

202 owner-drivers delivering 50% of the division’s volumes. In the beer division, the

company has some 53 distribution centers; including 41 SAB owned depots, 10

independently owned distributors and two HoneyBEE franchised distribution centers.

SAB’s distribution programme will increase with the growth of retail licensing, which in

turn will grow opportunities for previously disadvantaged South Africans.

SAB’s distribution and marketing lie at the heart of the success of the company and it is

acknowledged that a key component of SAB’s success is its logistics network and

distribution capabilities. In perspective, SAB’s distribution fleet covers 57 million

kilometers each year – or about 150 trips to the moon!

3. DIFFERENTIATORS

3.1 VARIED PORTFOLIO OF LOCALLY PRODUCED BRANDS

As SABMiller seeks to understand consumer preferences and create brand portfolios that

are relevant and appealing, they have a strong competitive advantage in their ‘market

mapping’ system – a formal process identifying the main clusters of consumer preference

in any given market and comparing these with the brands currently on offer. In new

markets, some consumer needs are ignored while others are over-served by too many

undifferentiated brands. SABMiller then begin the process of adjusting the portfolio to

9

span the market either by refreshing and repositioning their brands, importing brands

from elsewhere, adding innovation to existing brands or creating new brands altogether.

3.2 ECONOMIES OF SCALE

With a presence in more than 60 countries, SABMiller use their scale to generate

maximum value and competitive advantage. Leveraging scale is not simply a case of

putting two or more businesses together and saving costs. While some synergies are

possible, the real benefits arise in driving sales using the scale to grow the business. Scale

helps them to develop their brands, help them grow by transferring skills, methods and

technologies around the group, and also provides opportunities for cost savings and

efficiencies. Procurement is a case in point. In recent years, raw materials such as malt,

glass and aluminium have been rising in price and one way SABMiller mitigate these

effects is by using their global scale to purchase more efficiently.

3.3 WELL-ESTABLISHED DISTRIBUTION NETWORK

SAB Ltd currently distributes its range of products through a network of 53 distribution

centers, comprising SAB depots, contracted distributors and franchised distribution

centers. Growth in sales volumes over the past two years has placed a strain on the

capacity of many of the company’s distribution centers and, going forward, increased

retail licensing may very well contribute to an increasing need for further distribution

points.

3.4 WELL-ESTABLISHED BRANDS

SAB distributes brands such as Sarita, Castle Lite, Peroni, Nastro Azzurro, Pilsner

Urquell, Hansa Marzen Gold, Miller Genuine Draft, Hansa Pilsener and Castle Lager.

The Buisness Report reported on the 1st of October that consumers should brace

themselves for a shortage of their favorite beer in the next few weeks. SAB said it was

experiencing shortages as a result of the “unusually high” demand for its brands. The

shortfall has been caused by the shortage of glass, mainly the green and flint or clear

glass, which is used for Sarita and Miller brands. To mitigate the shortage, SAB would

import 50,000 tonnes of glass, which was expected to arrive next month.

10

3.5 FAVORABLE PUBLIC IMAGE

Many savvy companies are starting to realize that a good name can be their most

important asset—and actually boost the stock price. SAB has enjoyed a great reputation

among investors for its ability to acquire and manage brewers in fast-growing emerging

markets. Since mid-2003 SABMiller’s stock has soared from around 24 to 60.

3.6 HISTORY

SABMiller's history is one of exceptional growth and returns to shareholders. With its

global footprint, strong portfolio of brands, investment in human capital and spread of

operations in both mature and developing markets, SABMiller is well placed to continue

its growth. Along with this history of good dependable performance comes also the

history of “the good old days”, the shared special moments that entrenches a brand in the

Psyche of people. It is this aspect along with the history of exceptional financial and

business performance that sets SAB apart from its competitors.

4. SABMILLER SHARE PRICE

Appendices IV and V are graphical depictions of the movement of the SABMiller share

prices over the past 5 years, as listed on the Johannesburg Stock Exchange (JSE) and the

London Stock Exchange (LSE). The share-price graphs for major competitors to

SABMiller are also listed as comparators along with the FTSE 100.

As can be seen from the charts, from the first quarter of 2003 the SABMiller share price

has shown a steady growth in price over the last five years, reflecting a positive regard of

the market for the initiatives undertaken by the company. Significantly, its major

international competitors such as Anheuser-Busch and Heineken do not seem to enjoy the

same vote of approval from the market that SABMiller does.

Of significance as well is that the fact that, from early 2003 where the price of shares had

been below that of the FTSE 100, the price continued its steady rise to a point in the first

11

quarter of 2005 from where it then began to outstrip the FTSE 100, and continued to do

so up to the present moment.

Interestingly, the LSE listing shows the share price outstripping the FTSE 100 from as

early as the final quarter of 2003 and continuing to do so to the present day. Clearly it

would appear that the LSE had more confidence in SABMiller than the JSE (see

appendix I for the equivalent LSE graph).

The following statement taken from an article in Finweek reflects how the markets have

viewed SAB Miller's performance: "The capital markets have recognized the value of the

balanced portfolio, rewarding the brewer with a 37% rise in share price in the 12 months

to 31 March 2006. Since its UK listing in 1999 SABMiller has provided shareholders

with a total return of 215%" (Masango, 2007, p108).

5. COMPETITORS

Given the global scale of SABMiller’s operations, it is easy to accept that the number of

competitors would be large in a market valued at $356.3 billion with a forecast value in

2011 of $389.1 billion (Datamonitor, 2007, [p.7]).

According to a report compiled by the Datamonitor Company (Datamonitor, 2007,

[p.25]), the leading competitors of SABMiller are as shown in appendix VI.

It may be well worth noting that included in this list are companies such as PepsiCo and

Nestle S.A., reflecting the fact that for SABMiller any beverage that is consumed by the

potential customer base would be considered competition for one the company’s

products. This would then include beverages such as tea and coffee as well.

In South Africa, where previously market share held had been as high as 99% at one

point (see history above), based on current listing on the JSE, the market share is at

93.7%. Significantly there is the new threat posed by the brandhouse company which was

formed in 2003 and is composed of a joint venture between Namibian Breweries,

12

Heineken and Diageo. Together these companies pose a significant threat to SABMiller

in South Africa since the portfolio of brands now on offer from brandhouse does match,

if not exceed, that of SABMiller, based on variety and quality of products.

The pie charts in appendix VII give an idea of how the global market is structured with

respect to the regions and major players.

Since the publication of these charts it would appear that the proportions of market share

have changed since SABMiller make the claim in their corporate brochure of 2006/2007

that it is the second largest brewer by volume in the world (SAB, 2006, p.3).

6. PAST STRATEGIC INITIATIVES

6.1 TRADE BREWER CONCEPT

In 1997, SAB Ltd launched the Trade brewing Concept to promote the growth and image

of SAB and its products by entrenching a beer culture amongst employees and

consumers. Today the company has six trade brewers based at key breweries throughout

the country. Annually they engage with more than 12,000 customers and consumers

through various initiatives aimed at bridging the gap in consumer beer knowledge and

dispelling myths about beer. Internally over 1,500 employees have been on the

Ambassador Programme, an experiential training intervention designed to equip

employees with a better understanding of the company and its brands and to ensure that

SAB’s best ambassadors – its people – are passionate about beer.

6.2 PREFERENTIAL PROCUREMENT

The company has a dedicated preferential procurement executive to ensure that SAB’s

commitment to transformation and black economic empowerment extends fully into its

13

supplier base. A particularly successful programme has been the focused linking of SAB

KickStart recipients to SAB’s procurement system. Those entrepreneurs who have

become successful through an SAB social investment programme are then give the

opportunity to supply SAM to make their businesses even more sustainable.

6.3 ACQUISITION OF ABI

SABMiller’s combined carbonated soft drink volumes make it one of the top five Coca-

Cola bottlers in the world. In December 2004, SABMiller bought out ABI’s minority

shareholders and delisted the company from the JSE Securities Exchange. SABMiller

consequently sold ABI’s business assets and liabilities to its South African Breweries

Limited (SAB). ABI is now SAB’s Soft Drink division, and is managed by a Soft Drinks

Operating Committee. For the last three decades, ABI has had a franchise agreement with

the Coca-Cola Company to manufacture and distribute Coca-Cola brands.

6.4 AIDS COUNSELLING AND TESTING (ACT)

SAB Ltd acknowledges that HIV and Aids is a significant risk which has the potential to

impact on the business from a number of different perspectives and believes that with the

appropriate, proactive strategy the associated costs and impact can be managed and

reduced. The two areas of major focus internally are to manage existing infections

through voluntary counseling and testing and early diagnosis and managed health care

which includes anti retro-viral treatment and secondly to reduce and prevent new

infections through effective education programmes. In this role they are an invaluable

resource and make a significant contribution to the workplace and the community.

6.5 SAB TRAINING INSTITUTE

SAB’s purpose-built Training Institute – or “TI” as employees call it, provides both

“Corporate University” programmes, aimed at enhancing core competence and

developing cover ratios, and short term programmes aimed at enhancing operational

expertise. TI was opened in 1992 with an investment of R35-million. Over time, this has

evolved and now, facilities on site are used to support the full spectrum of training and

14

development activities undertaken by SAB. An average of about 7,000 delegates attends

courses or meetings at TI every year. Where possible, learning science is applied in

courses offered, with an outcomes-based approach, productivity measurement, evaluation

methods and appropriate adult learning methods.

6.6 OWNER-DRIVER PROGRAMME

A key component of SAB’s success is its logistics network and distribution capabilities.

It is only one of a few companies which can deliver its products to any area in South

Africa within a very short space of time. The SAB Owner-Driver Programme was

introduced in 1987 to enable company employees to become independent businesspeople.

Today, this project accounts for more than half of all SAB Ltd’s deliveries through some

250 companies, operating more than 432 vehicles. As a result this R415-million per

annum project has provided at least 1728 jobs and created 260 independent businesses.

7. SOME MANAGEMENT ISSUES

7.1 1999 MAIN LISTING BEING TAKEN TO LSE

The year 1999 was a pivotal year in SAB's history for a host of other reasons as well.

Seeking access to capital markets better endowed that those at home, the company in

early 1999 shifted its headquarters back to London--reincorporating itself as South

African Breweries plc--and moved its primary stock exchange listing from Johannesburg

to London, retaining the former as a secondary listing. As part of its London listing, it

raised £300 million to fund further international expansion. There were also changes on

the management front.

7.2 ACQUISITION OF MILLER BREWING CO. OF USA IN 2002

By fiscal 2002, just eight years after its first brewing acquisition outside of Africa, 55

percent of SAB's $4.36 billion in revenues were derived from its non-South African

operations. This figure would shoot up to an even more remarkable 75 percent just one

year later following the company's boldest move yet--its takeover of Miller Brewing

15

Company, the number two beer maker in the world's largest beer market, the United

States, whose main brands included Miller Genuine Draft, Miller High Life, Miller Lite,

and Milwaukee's Best. Consummated in July 2002, the deal consisted of a stock swap

with Miller's owner, Philip Morris Companies Inc.

7.3 EXPANSION TO CHINA IN 2003

The firm spent $87 million for a 29.6 percent stake in Harbin Group Limited, China's

fourth largest brewer and the leader in that country's northeastern region.

7.4 TAKEOVER ABI IN 2004

In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries, which

became the Soft Drink division of SAB Ltd, and the largest beverages company in South

Africa was formed. Total SABMiller group volumes exceed 187 million hectoliters and

SAB Ltd contributed 42% to group EBITA.

7.5 TAKEOVER OF BAVARIA OF COLUMBIA IN 2005

The JSE traded at record-breaking high as the market cheered news that in July 2005

SABMiller acquired Colombian based brewer, Grupo Empresarial Bavaria, making it the

second largest brewer in the world by volume. SABMiller shares rocketed 9.39% to close

at R113.70 after trading at a highest on record R115.

7.6 FORAYS INTO INDIA AND VIETNAM IN 2006

SAB’s extension of its influence into India and Vietnam made the company the second-

largest brewer on the Indian subcontinent and added to its existing beer portfolio. The

intention was to extend Foster’s lager nationally in India through its network of 10

breweries and seek significant cost benefits from brewing and distributing the brand

locally by bypassing the Indian interstate duty levied on all alcoholic products.

7.7 WITHDRAWAL OF AMSTEL LICENSE IN MARCH 2007

Analysts say that the break-up became inevitable as early as 2002, when SAB began

pursuing a global expansion programme by acquiring Miller, the US’s second- largest

16

brewer. The arbitration panel found that SABMiller’s selling of 15% of its shareholding,

worth $7,8bn, to South American brewer Bavaria in 2005 constituted a material change

in shareholding of the group, and which could be regarded as inimical to the interests of

Heineken. SABMiller beat Heineken, which was also bidding for Bavaria. Analysts say

this must have been the last straw for the Dutch brewer, forcing it to pull the plug.

7.8 DEALING WITH COUNTRY INFRASTRUCTURAL PROBLEMS

AND SUPPLY SHORTAGES IN 2007

South Africa faces huge problems in terms of poor infrastructure due to a lack of

investment. These infrastructure backlogs have caused numerous and severe power

interruptions. The smaller municipalities are generally in poor shape and often do not

deliver the quality of supply required of them.

8. WARNING SIGNS

8.1 SA INFRASTRUCTURE

Survival is tougher for SABMiller to operate in an economy like South Africa where it is

challenged by poor infrastructure. However, the opportunities are more enticing than ever

and it can overcome such disadvantages, for three reasons.

First, when multinational companies from the developed world explore business

opportunities in emerging markets, they must confront the same institutional voids that

local companies face. However, executives from multinational companies are used to

operating in economies with well-developed institutional infrastructures and are therefore

ill-equipped to deal with such voids. By contrast, the managers at SABMiller know how

to work around institutional voids because they’ve had years of experience doing so.

Their familiarity with the local context allows them to identify and meet customers’

needs effectively and this would allow them to compete effectively with foreign giants.

17

Second, SAB has demonstrated a degree of success which enables them to tap capital and

talent markets in developed countries. This has allowed the company to retrain their

existing managers and to hire people with the same skills that executives in multinational

companies possess.

Third, multinational companies are reluctant, sometimes rightly so, to tailor their

strategies to every developing market in which they operate. They find it costly and

cumbersome to modify their products, services, and communications to suit local tastes,

especially since the opportunities in developing countries tend to be relatively small and

risky. Further, their organizational processes and cost structures make it difficult for them

to sell products and services at optimal price points in emerging markets; they often end

up occupying small, premium niches. SABMiller don’t suffer from those constraints,

particularly since they operate in fewer geographic markets (Khanna & Palepu, 2006,

p.1).

8.2 GLOBAL SUPPLY PROBLEMS

SAB’s Supply Chain is the engine that ensures that there is sufficient beer and soft drinks

available to meet the demand from customers and consumers. The Supply Chain co-

ordinates many of the operational activities in the business including procurement,

storage, brewing, mixing, packaging, warehousing and distribution. As these activities

drive much of SAB’s product cost, it is critical that they are planned to take place in the

most efficient and cost effective manner possible.

According to Lee (2004) the best supply chain aren’t fast and cost-effective. They are

also agile and adaptable, and they ensure that all their companies’ interest stay aligned.

Lee’s research suggests that top-performing supply chains possess three very different

qualities. First, great supply chains are agile. They react speedily to sudden changes in

demand and supply. Second, they adapt overtime as market structures and strategies

evolve. Third, they align the interests of all the firms in the supply network so that

companies optimize the chain’s performance when they maximize their interests. Only

18

supply chains that are agile, adaptable, and aligned provide companies with sustainable

competitive advantage.

When Lee describes such a triple-A supply chains to companies, most of them

immediately assume it will require more technology and investment. Nothing could be

further from the truth. SABMiller already have the infrastructure in place to create triple-

A supply chains. What it needs is a fresh attitude and a new culture to get their supply

chains to deliver triple-A performance. The company must give up the efficiency mind-

set, which is counterproductive; be prepared to keep changing networks; and, instead of

looking out for its interest alone take responsibility for the entire chain. This can be

challenging to them because there are no technologies that can do those things, only

managers can make them happen.

9. REASONS FOR THE ON-GOING SUCCESS

There are numerous reasons why SABMiller will continue to enjoy ongoing success, but

the following 5 have been identified as those which are of the most significance.

9.1 FIRST-MOVER-ADVANTAGE

It is known that first or early industry movers are more likely to succeed and continue to

succeed in an industry because of being able to establish and build brand loyalty; acquire

and tie up the available distribution networks; develop relationships with customers;

develop scale economies; develop and tie up the supply chain; establish firm relationships

with legislators.

SABMiller has done this in South Africa and makes use of the knowledge and experience

acquired in South Africa to drive their global expansion.

A first-mover advantage is also maintained by being aware of the pace at which the

technology of their product is evolving and the pace at which the market for their

products is expanding (Suarez & Lanzolla, 2005, p. 1).

19

9.2 INDUSTRY FORESIGHT

An important component of the success of SABMiller has been its ability to forecast and

predict what it will need to do to remain successful.

This foresight is demonstrated in the way they stimulated both the local hops and barley

industry; the acquisition of the Union Glass factory; the establishment of the Owner-

Driver and later Distribution Operator categories of former employee empowerment

initiatives and the various corporate social investment initiatives that the company

embarked upon well before legislation dictated or society demanded these initiatives.

SABMiller is and has always been well-ahead of the industry in developing and

commercializing new technologies - from incremental improvements to radically new

approaches - as long as those technologies address the next-generation performance

needs of their customers. Using rational and analytical investment processes, SABMiller

identifies customers’ needs, forecast technological trends, assess profitability, allocate

resources across competing proposals for investment, and take new products to markets

(Bower &Christensen, 1995, p.1)

9.3 GOOD CORPORATE GOVERNANCE

The importance of corporate governance cannot be underestimated. Shareholders look at

how well a company is managed and whether it behaves in an ethical manner.

SABMiller do understand this and do everything they can to ensure that they are seen to

be functioning as an ethical Corporation.

As stated in the company's Corporate Brochure, the purpose of good corporate

governance is “to ensure that SAB achieves long term strategic goals by meeting the

needs of stakeholders, and concerns itself with the structures and processes associated

with management to achieve long-term strategic plans as set out by the company” (SAB,

2006, p.58).

20

The implementation of good corporate governance by a process of having regular reports,

a strong, fully-mandated audit committee that sits twice a year and a culture of

measurement, recording and reporting.There are both internal and external audits that

take place, and in addition, there are various mechanisms established to ensure adherence

to good practice such as an ethics call-line and a whistle-blowing call-line.

This attitude towards good corporate governance is echoed in a statement made by

Howard Davies, the chairman of the Financial Services Authority of the UK, who said

"in my view, investment in good corporate governance arrangements, and good

regulation all those arrangements, is among the most effective and rewarding

investments a developing market can make, and there are figures to prove it."(Davies,

2002, p.15)

Executives at SABMiller are aware not only the importance of their company’s

reputation but also how vulnerable the company is to anything that damages its

reputations (Eccles, Newquist &Schatz, 2007, p.1).

9.4 PERFORMANCE MANAGEMENT

SABMiller prides itself on the fact that it pays much attention to performance

management and demands superior performance from both its personnel and machinery.

This ensures that processes, people and everything it takes to produce peak performance

are all optimized as much as possible.

The culture of peak performance and superior workmanship is part and parcel of working

at SAB Miller. There is a deliberate strategy of recruiting and retaining the best

personnel, and then training them to meet the company's stringent specifications and

requirements. Hence, much effort is placed upon training, capacitating and rewarding

personnel.

21

9.5 GOOD MARKETING

Marketing is considered a key function at SAB Miller. In fact, in its brochure, the

company states that it is a marketing-led organization, and that marketing is too important

to be to be left to the marketing department. Marketing consists not only of the

advertising of the company's products but also involves an intimate knowledge of, and

close relationship with, the customer.

It has been with clever and insightful marketing that SAB Miller has been able to capture

market share not only in South Africa but also in the other countries where it has

established itself. An example of this has been in Colombia where, by realigning the

expectations of the customer with respect to beer, through clever marketing, the sales of

beer have increased.

In an environment where consumers have a greater number of choices, more complex

choices and channels through which to pursue them, simple, integrated solutions to

problems win the allegiance of the time-pressed consumer (Meyer & Schwager, 2007,

p.1).

10. OTHER ISSUES OF NOTE

Even though in North America US consumption of beer was down 0.7% on an organic

basis, it would appear that the company is doing very well in other areas some of the

global market.

For example, the company recorded a 17 percent growth in law the volumes for the

quarter ending June 30, 2007. In Latin America, namely Colombia and Peru, whose

growth of 12 percent in law the volume. Similarly for Europe, there was an overall 70

percent growth in volume.

An even more impressive growth in lager volume was recorded in Africa and Asia with

organic growth of 23 percent being recorded. In South Africa, however, the main income

22

earner for the company, the increase in lager volume was less impressive showing only a

four percent increase. (Datamonitor, 2007)

SAB Miller continues to grow, and the most recent joint venture between SAB Miller and

Molson Coors on 9 October 2007, shows the company's intentions to take on Anheuser-

Busch in an attempt to capture the lucrative American beer drinker market. Analysts

speculate that the new venture, to be known as MillerCoors, will command 29 percent of

the American beer market. (Economist.com, 2007).

11. CONCLUSION

In conclusion, there is much that can be said about SAB Miller. It is a truly South

African company that has a long-standing history that stretches over more than 100 years.

During this time, it has learned how to develop into a business that can be described as

being truly global. While some would say that the company practices in a way that

appears to be monopolistic, a brief look at the way the global beer industry is structured

would indicate that there is much opportunity for SAB Miller to expand throughout the

world, and take the leading role in this industry.

It is clear that since the company took the step to focus on its core competency, namely,

brewing beer, the company has done well in expanding to the rest of the world. By

implementing what it does in South Africa, namely establish, perfect and sustain an

operation that incorporates all the elements of manufacturing, sales and distribution,

marketing and finance through the optimal utilization of well-trained human resources,

on the background of good corporate governance, SAB Miller has been able to move into

global markets where it is rapidly becoming one of the leading beer manufacturers in the

world.

By focusing on superb performance measures, while not forgetting issues like corporate

social responsibility and corporate social investment, SABMiller has proven to be a good

corporate citizen in every sense of the words. The fact that for three years running in

South Africa, it was voted the best company to work for, speaks volumes of how the

23

company is seen within society, as well as by its own workforce. The many initiatives

SABMiller embarked upon with respect to Broad Based Black Economic Empowerment,

long before this matter had become legislation; indicate a foresight that stands the

company in good stead. It is this foresight, coupled with courage, balanced risk

assessment and sustainable business model that predict a bright future for SAB Miller.

Important learning points from the SAB Miller story are the following:

Invest in your workforce.

Reward good performance.

Secure your supply chain.

Secure your distribution network.

Practice good corporate governance.

Know and understand your customer and maintain good relationships while

partnering with your customers.

Work to your strengths.

Always look for opportunities to learn and grow.

24

REFERENCES

Bower J.L & Christensen C.M, 1995, “Disruptive Technologies: catching the Wave”,

Harvard Business Review, January, p. 1.

Davies, H , 2002, “Corporate governance and the development of global capital markets”,

Balance Sheet, 10, 3 p.15 [electronic]. Available from:

http://www.emeraldinsight.com/Insight/viewPDF.jsp?Filename=html/Output/Published/

EmeraldFullTextArticle/Pdf/2650100302.pdf [08 October 2007]

Datamonitor, 2007, “Global Brewers – Industry Profile” [online]. Available from:

http://web.ebscohost.com/bsi/pdf?vid=1&hid=102&sid=a61a13fc-e07d-4820-99ac-

e282eb270aec%40sessionmgr104 [29 September 2007]

Datamonitor, 2007, “SABMiller - Company Profile” [online]. Available from:

http://web.ebscohost.com/bsi/pdf?vid=4&hid=105&sid=cdf393cc-76d4-4796-9fdc-

8a50d01e7ea5%40sessionmgr104 [23 September 2007]

Eccles R.G, Newquist S.C & Schatz R, 2007, “Reputation and Its Risks”, Harvard

Business Review, February, p. 1.

Economist.com, 2007, “Seeing Double” [online] Available from:

http://www.economist.com/business/PrinterFriendly.cfm?story_id=9933456

[10 October 2007]

Kanter R.M. 2003, “Thriving Locally in the Global Economy”, Harvard Business

Review, August, p. 1.

Khanna T & Palepu K.G, 2006, “Emerging Giants: Building World-Class Companies in

Developing Countries”, Harvard Business Review, October, p. 1.

25

Laurie D.L, Doz Y.L & Sheer C.P, 2006, “Creating New Growth Platforms”, Harvard

Business Review, May, p. 1.

Lee H.L. 2004, “The Triple-A Supply Chain”, Harvard Business Review, October, p. 1.

Masango, G, 2007, “A toast to good times”, Finweek Top 200, 29 March, p.108.

Available from:

http://web.ebscohost.com/ehost/pdf?vid=1&hid=106&sid=39727091-c052-4085-94a3-

2abe97902e8f%40sessionmgr107

Meyer C & Schwager A, 2007, “Understanding Customer Experience”, Harvard

Business Review, February, p. 1.

Prahalad C.K & Hammond A, 2002, “Serving the World’s Poor, Profitably”, Harvard

Business Review, September, p. 1.

SAB, 2006, “Corporate Brochure”, The South African Breweries Limited, Johannesburg.

SAB, 2007,“History” [online]. Available from:

http://www.sabreweries.com/SABLtd/Primary/ExploreSAB/History/Default [ 21

September 2007 ]

SAB, 2007, “Shares” [online]. Available from:

http://production.investis.com/sabtools/jsecharts/ [ 21 September 2007 ]

SABMiller, 2007, “Annual Report”, SABMiller plc, London

Suarez F & Lanzolla G, 2005, “The Half-Truth of First-Mover Advantage”, Harvard

Business Review, April, p. 1.

26

APPENDICES

Appendix I: Porter’s Five Forces

• Bargaining Power of Customers

- until recently not significant

- SAB had 98% market share, choice not great for customers

• Threat of New Entrants

- the threat of new entrants is not significant – currently there is a

war brewing that would make new entry into the market very unlikely

• Bargaining Power of Suppliers

- recent supply difficulties of resources have highlighted that this

may prove a significant factor in the future

• Threat of substitutes

- with 98% market-share this had not been a major problem but with the

forced removal of Amstel from the SAB stable of brands the market has

started to look less stable

• Rivalry between firms

- the withdrawal of SAB’s license to brew Amstel seems to have been a shot

across the bows, signalling the start of what may become a war of note

27

Appendix II: PESTLE Analysis

• Political environment is relatively stable but there may be some instability in

the future as the ANC leadership battle heats up with some posturing from

organizations

• Economic environment has been favourable but recent jitters due to the sub-

prime fiasco has started to raise concerns and a few creaks in the economic

framework have been reportedly heard

• Society has become increasingly vocal about its expectations from companies

but also is becoming more sophisticated in tastes as income levels increase

• Technology is becoming increasingly important in the drive to achieve the best

performance and product, but also increases demands for skilled staff

• Legislation of significance here is that relating to BBBEE Act, the Liquor Act

and the Competition Act

• Environment and the protection thereof has become part of any major firm’s

concerns, being part of the triple bottom line approach to sustainable success

28

Appendix III

Financials of SABMiller

29

(SABMiller, 2007, p.1)

Appendix IV: JSE share prices (Rands)

30

-- SABMiller – FTSE All Share Beverages -- Anheuser-Busch

-- FTSE 100 -- Scottish and Newcastle – Interbrew – Heineken

(SAB, 2007)

Appendix V: London Share Prices (pounds)

31

-- SABMiller – FTSE All Share Beverages -- Anheuser-Busch

-- FTSE 100 -- Scottish and Newcastle – Interbrew – Heineken

(SAB, 2007)

Appendix VI: SABMiller Major Competitors

32

Anheuser-Busch Companies, Inc.

Asahi Breweries, Ltd.

Heineken N.V.

Kirin Brewery Company, Limited

Marriott International, Inc.

Nestle S.A.

PepsiCo, Inc.

MGM MIRAGE

ACCOR

Carlsberg

Inbev

Burtonwood Brewery Plc

Merrydown Plc

Grupo Empresarial Bavaria

Royal Grolsch NV

Foster's Group Ltd.

Fraser and Neave Ltd

Brau Union AG

National Beverage Corp.

Tsingtao Brewery Company Ltd

Fuller Smith & Turner P.L.C.

Young & Co's Brewery PLC

Pivovary Staropramen a.s.

Molson Coors Brewing Company

33

Appendix VII: Global Beer Market Share

(Datamonitor, 2007, [pp.11-14])

34