TEAM06 Anheuser Busch PRESENT Ver.09.06

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Bidding War In Chinas Beer Industry
Anheuser-Busch VS Sabmiller
Case Study by: Team 06

Carlos Alayon, Cristian Leiros, Jennifer Defazio, Kristina Barrios, Free Powerpoint Templates Adonis Sardinas
Overview Beer Measurement 101

Some Background

Growth of Chinese Beer Industry Current Chinese beer market Return of Foreigners and Industry Consolidation SABMiller and China Resources Brewery

Part I - Introduction to Case
Anheuser-Busch in China
SABMiller PLC China Resources Brewery (CRB) Acquiring Qianjiang Building a National Brand Alliance with Tsingtao Brewery Harbin Brewery The Bidding Game
The Bidding War

Prof Newburry Part II - Analysis of Case
Case Question
Beer Measurement 101

X 3 Bottles
22 U.S. fl oz 650.6 ml
2 Liter 2,000 ml
.5 hectoliters
X 77 Bottles Keg est. 50 liters
each
3.5 kiloliters 924.60 US
X 3,500 Bottles Or x70 kegs Free Powerpoint
Templates
Growth of Chinese Beer Industry

& First Foray of the Multinational Enterprises
late 1970s, Beer supply had become scarce No Beer!
Growth of Chinese Beer Industry

& First Foray of the Multinational Enterprises
So Central & Local governments adopted a series of preferential policies to encourage beer production 1980s, Beer industry grew at an average annual rate of more than 30%. 1988, number of brewers in China reached 813

aggregate annual output of 65.6 million hectolitres Chinas global ranking moved from the 26th place in 1979 to 3rd
Current Chinese beer market -GDP

From 1995 to 2005, the Chinese economy GDP surged from US$54.5 billion in 1993 to US$1,410 billion in 2003.9
GDP (in US$)
12 10 8 Axis Title 6 4 2 0
Gross domestic product (GDP) refers to the market value of all final goods and services produced in a country
Current Chinese beer market -GDP per capita
GDP per capita More than doubled
from US$460 in 1993 to US$1,091 in 2003, GDP per capita (in US$)
12 10 8 6 4 2
GDP per capita : An approximation of the value of goods produced per person in the
B a n k
Current Chinese beer market -Bank Savings per capita
s a v i n Axis g Title s p
Personal Savings per capita (US$)

12 10 8 6 4 2 0 Free Powerpoint Templates
B e e r c o n s u m p t i
Current Chinese beer market -Beer consumption
W o r l d s l a r g e s
Current Chinese beer market -Beer consumption
Total Sales
Total Consumption Volume
Return of Foreigners and Industry Consolidation

Early 2000s, there was a new round of foreign investment Multinational breweries took a different approach
chose to ally or acquire a domestic brewery instead of setting up a new company Aware now that:
they could not beat domestic brewers vast sales networks and low production costs, they were buying into some of the largest local players
Part I - Introduction to Case

SABMiller and China Resources Brewery (CRB)
W o r l d s s e c o n d
SABMiller PLC
about
SABMiller
about
B o a s t e d o f a p
SABMiller PLC
S A B M i l l e r e n t e
China Resources Brewery (CRB)

acquisition # 1
Acquiring Qianjiang
acquisition # 2
March 2004
Joint venture Qianjiang & CRB

CRB 70% equity interest Qianjiang held the remaining 30%.
Zhejiang Qianpi Group, - largest brewery in Zhejiang Province
CRBs annual production capacity increased by about 480,000 kiloliters to approximately 4.56 million kiloliters with breweries in
north eastern, south western, central and Free Mainland China. eastern regions ofPowerpoint Templates
Building a National Brand

concerned with the lack of a national brand
CRB, concerned with the lack of a national brand that could be marketed across China
focused on the development of one master brand To ensure that SABMiller was well positioned to exploit the exploding Free Powerpoint Templates Chinese market in the

big plans for snowflake
CRBs brand; Snow (AKA Snowflake).
SABMiller Through CRB
increased its stake in 3 breweries that jointly owned the Snow beer brand
China Resources (Shenyang) Snowflake Brewery, Shenyang Snowflake Beer Company Shengyang Beer Company
gaining total control of the important brand
One brand to rule Them all
S n o w b e e r h a d b e

big plans for snowflake
R a p i d i n v e s t m e

the key for snowflake
Ari Mervis, Managing Director, SABMiller Asia
what you know about this?

Based in St. Louis, Missouri, USA worlds biggest brewer Budweiser brand, the worlds bestselling beer

locally brewed in 10 countries Sold in more than 80 others worldwide
F e b r u a r y 2 6 t h 1 9
Wuhan International Brewing Company
Alliance with Tsingtao Brewery
July 30th 2002,
points in time.
(largest brewer in China)
alliance with Tsingtao Brewery
October 21st 2002
Both signed an agreement that increased AnheuserBuschs stake in the company from 9.9% to 27% by 2010 boosted its market share to above 13% from just 2% in 1996 by acquiring more than 40 breweries across the country Tsingtao held a market share of 12.8% and its flagship brand, Tsingtao
2003
2004
Anheuser-Busch brought in its

the agreement
Capital Technology Corporate governance maintain its existing market share expand into new markets around the world.
Help Tsingtao

help to inform and educate AnheuserBusch about the growing Chinese economy and beer industry Help Anheuser-Busch sell its brands
in return
Signed an agreement with Golden Star Beer Group

The Golden Star Beer agreement
Acquire 30% for $50 Million late 2003 Located in the Henan province in western China Production of 10 million hectoliters a year ranked among the top beer groups in China
Would invest US$400 million to set up a beer production base in Sichuan
in return Golden Star
Increase production from 2.5 million hectolitres to 3.2 million hectolitres (+.7 HL) expected its annual production volume to reach 4 million hectolitres by late 2005
premium segment
the outcome
Middle & Lowed markets
MAP
The Bidding War
I n t h i s c a s e ,
Protagonist
r a n k e d 4 t h i n
Harbin Brewery
about
2003
Harbin Brewery
Harbin Brewery reported a 4% yr-on-yr increase in net profit US$14.66 million

(HK$114 million)
sales volume rose 27% yr-on-yr to 110 million hectolitres

Net Profit
12 10 8 6 4 2 0 Free Powerpoint Templates
2003
Harbin Brewery
Mass products accounted for more than 82% of sales
32% year-on-year increase
classic and premium products contributed the remaining 18%
The Bidding Game
S A B M i l l e r p a i d
The Bidding Game June 2003
The Bidding Game

March 2004
Harbin Government-owned Kwok Nea
parent company of Harbin Brewery
announced that it would off-load its stake of 29.1% to Global Conduit
which is owned by a group of independent investors
making it an entirely independent player in the market Owners held by three parties, namely,
Global Conduit, Gardwell (SABMiller) and public shareholders

The Bidding Game

May 2004
Anheuser-Busch issued a deal to buy 29.1% of the firm from Global Conduit Holdings for US$139 million or HK$3.70 (US$0.48) a share. This placed Harbin Brewery at the brink of a war between AnheuserBusch and SABMiller
a l s o o w n e d 4 9 % o
The Bidding Game

SABMiller
S A B M i l l e r r e s p
The Bidding Game

May 24th, 2004
A n h e u s e r B u s c h p
The Bidding Game

May 31st 2004
A n h e u s e r B u s c h o
The Bidding Game

April 1st 2004
The Bidding Game

Harbins managers
Made it clear that they preferred a partnership with Anheuser-Busch

asked its shareholders to reject SABMillers offer Expressing dissatisfaction with the alliance Also said that the 10-month co-operative relationship with SAB had failed
We had hoped SABMiller would offer marketing and technology support, but nothing has happened. The management team is doing everything Free Powerpoint Templates possible to derail SABMillers attempts to control the
C o m p a r a t i v e A d
Key Concepts
C o m p e t i t i v e A d
Key Concepts Cont.
C o m p e t i t i v e S t
Key Concepts Cont.
PRO F
Prof Newburry
Part
- Analysis of Case
S h o u l d S A B M i l l
Battle of the brewers What's @ Stake
Why did the first foray of a majority of international breweries fail?

They wanted to setup new companies, VS teaming up with existing companies that had already establish logistics and a strong brand
Compare the first foray and second foray of foreign entrants, and predict the possible outcomes.
They chose to ally or acquire a domestic brewery instead of setting up a new company, allowing new companies to learn the market faster. Domestic firms provided the knowledge acquired over the years while the foreign firms provided the technology and resources to Free Powerpoint increase volume and sales. Templates
What are the reasons for the success of Anheuser-Busch and SABMiller in the Chinese beer market?
Partnerships and acquisitions of existing brewerys Taking advantage of the brands already known in the market and the skills and knowledge of the companies they partner and or acquire Strong marketing skills to bring into new markets
Define the merits and demerits associated with variety of entry modes, and analyze the types of companies that use certain strategies to better effect. Market Entry:

does not require direct investment can enter through exports from home market allows company to maintain its corporate policies with little concern Unexpected demand may mean that the company is leaving money on the table Rooms to go, Ashley Furniture, Ikea
Pros:
Cons:
Examples
Entry Modes
Cooperative Entry Strategies
Cooperative Entry Strategies
range from technical training agreements through licensing, franchisees, and joint ventures Allows offshore production, product development and information processing. It can run contract manufacturing facilities Partners may see few practical reasons not to seek additional knowledge, and can abandon one partner for another offering a better deal McDonalds, Burger King, Disney Free Powerpoint Templates
Pros:
Cons
Examples:
Entry Modes
through Acquisition
Entry through Acquisition
allows multinational to access the resources and capabilities of local incumbent firms allows firm to compete locally but would also allow them to either start exporting product or transform knowledge without having to coordinate with a possibly resistant partner loss of organizational identity SABMillers, Anheuser-Busch
Pros
Cons
Examples
E n t r y b y S t a r t u p
Entry Modes
by Startup
w h e
In the bidding game under discussion, what is the impetus for Anheuser-Busch to propose such a high price; what are the costs and benefits?
To take over the 50% of North eastern China Costing $167 Million more than what SABMIller had offer
What should SABMiller do while facing the aggressive and dominant behavior of its competitor? Analyze how much the ROI will be and Either make a
counter offer or back off. They should speak with Harbin and explain why they havent given them everything they promised during the first investment and convince them they will hold up their agreement
What are the gains and losses in this game? Final outcomes are unknown but
SABMiller would have to counter offer over $720 million Together w/ CRB and Harbin SABMiller would be able to controll 60%-65% of the regional market. SABMiller would gain a pricing advantage and would not have toPowerpoint TemplatesHarbin compete with Free SABMiller could focus on the other Chinese
What happened?
T h e t w o b r e w e r i e
What happened?
A n h e u s e r B u s c h o
What happened?
T h e l o s s o f t h e
SABMiller 2004-Present
S A B M i l l e r s j o
SABMiller 2009
SABMiller 2011
There is an attempt to take over Australias Fosters but there are some setbacks:
SABMiller is offering $4.765 cash per share, which the Foster's directors intend to unanimously reject as undervaluing the company. SABMiller claims that Foster's has "no reasonable basis" for several "forwardlooking statements concerning the company's financial performance, and that even if there Free Powerpoint Templates basis, no was a reasonable information has been provided to enable
Goal was to boost stake in Tsingtao over 7 years to 27 percent March 2008- They announce plans to build a new Tangshan brewery to replace their small downtown brewery.
Anheuser Buschs 2004Present
The local government wanted to move industrial sites outside the city and redevelop the downtown area into a more residential and commercial area. "Anheuser-Busch has a long-standing commitment to support the communities where it operates," Y.R. Templates president, Cheng, Free Powerpoint Anheuser-Busch China
I n J u l y 2 0 0 8 , I
Anheuser Buschs Cont.
A n h e u s e r B u s c h
However, Carlos Brito, chief executive of InBev, will lead the new company. He is known for cost cutting and Anheusers home state, Missouri, was in deep opposition to this merger.
Britos cost-cutting changes 2009 and 415 1,400 U.S. employees (6%)
contractors were laid off For senior management, elimination of executive assistants and private secretaries End contributions to its pension plan for salaried employees in 2012 Announced that in January 2010, it will stop providing life insurance for retirees Elimination of tuition reimbursement for all but its highest rated employees
Cost-Cutting Cont.
Elimination of free beer program Anheuser Busch Hospitality Houses and Brewmasters Club formerly located at the theme parks On October 7, 2009 they announced the sale of its Busch Entertainment Corporation theme park division to The Blackstone Group. The sale was complete on December 1, 2009 and the division was renamed SeaWorld Parks & Entertainment Free Powerpoint Templates
C o s t c u t t i n g h
Anheuser-Busch InBev
They are trying other things to generate profits.
Anheuser-Busch InBev
They want to raise the price of its cheapest beers (Natural Light, Keystone) believing the price difference between those brands and its premium brands is too large. They are also starting to run new campaigns with newly designed cans to build brand name starting with CEO Britos home Brazil. The first of the campaigns is of the brand Brahma and its new beer can that can Free Powerpoint Templates transform into a cup once the lid is
U s i n g s B r a z i l s
Brahma Copaco

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Click to edit Master subtitle style

Free Powerpoint Templates

Bidding War In Chinas Beer Industry

Click to edit Master subtitle style

Case Study by: Team 06

Overview Beer Measurement 101

Part I - Introduction to Case

The Bidding War

Prof Newburry Part II - Analysis of Case

Free Powerpoint Templates

Beer Measurement 101

3.5 kiloliters 924.60 US

X 3,500 Bottles Or x70 kegs Free Powerpoint

Growth of Chinese Beer Industry

late 1970s, Beer supply had become scarce No Beer!

Free Powerpoint Templates

Growth of Chinese Beer Industry

Free Powerpoint Templates

Current Chinese beer market -GDP

Free Powerpoint Templates

Current Chinese beer market -GDP per capita

GDP per capita More than doubled

Free Powerpoint Templates

Current Chinese beer market -Bank Savings per capita

Personal Savings per capita (US$)

Current Chinese beer market -Beer consumption

Free Powerpoint Templates

Current Chinese beer market -Beer consumption

Total Consumption Volume

Free Powerpoint Templates

Return of Foreigners and Industry Consolidation

Free Powerpoint Templates

Part I - Introduction to Case

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SABMiller and China Resources Brewery (CRB)

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Free Powerpoint Templates

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China Resources Brewery (CRB)

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Joint venture Qianjiang & CRB

CRB 70% equity interest Qianjiang held the remaining 30%.

Zhejiang Qianpi Group, - largest brewery in Zhejiang Province

Building a National Brand

Building a National Brand

CRBs brand; Snow (AKA Snowflake).

SABMiller Through CRB

gaining total control of the important brand

One brand to rule Them all

Free Powerpoint Templates

Building a National Brand

Free Powerpoint Templates

Building a National Brand

Free Powerpoint Templates

Ari Mervis, Managing Director, SABMiller Asia

Free Powerpoint Templates

Free Powerpoint Templates

locally brewed in 10 countries Sold in more than 80 others worldwide

Free Powerpoint Templates

Free Powerpoint Templates

Alliance with Tsingtao Brewery

July 30th 2002,