Presented by

Val Jiwa & Robin Allen

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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
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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
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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

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
 5

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.

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,
 6

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.

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
 7

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 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
 8

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
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
 9

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 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
 10

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
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
 11

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.

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
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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
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
 13

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,
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).
 14

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
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
 15

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
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
 16

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
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

 17

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
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
 18

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.

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
 19

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
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.
 20

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).

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.
 21

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).

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)
 22

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.

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
 23

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
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
 24

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
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.
 25

• 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.
 26

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/E
meraldFullTextArticle/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.
 27

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.
 28

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
 29

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
 30

Appendix III

Financials of SABMiller
 31

(SABMiller, 2007, p.1)

Appendix IV: JSE share prices (Rands)
 32

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

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

(SAB, 2007)

Appendix V: London Share Prices (pounds)

 33

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

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

(SAB, 2007)

Appendix VI: SABMiller Major Competitors

 34

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
 35

Appendix VII: Global Beer Market Share

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