SABMiller Analysis - Case Study Example

? SABMiller Case Analysis BY YOU YOUR SCHOOL INFO HERE HERE SABMiller Case Analysis Background SABMiller faces many difficulties in attempting to gain market share and meet its priorities of developing a strong brand in its local regions of operations. Much of the problem associated with meeting SABMiller’s strategic priorities involves marketing focus and promotional strategy as it is linked with existing European markets and emerging market characteristics. The inability, as one example, to differentiate between light beer products in its Miller division gained from acquisition in 2003. Consumer attitude and behaviour as it is related to beer preferences and the pricing structure guiding light beer varieties is just one example of the consumer-based struggles facing SABMiller in the current operating environment. Therefore, marketing should be the strategic priority for readjustment in order to gain higher market share. Analysis of external environment The external environment for SABMiller in 2010 was conflicted by the inability to differentiate certain products in its portfolio of brands, namely the light beer categories, which accounts for 40 percent of total beer sales in the U.S; a significant volume. In Western Europe, well-established premium brands were estimated to be driving consumer demand based on their buying trends. This was a difficulty considering that new executive leadership worked toward reducing the Miller brand portfolio from 50 down to just 10 or 12 products. Divestment of premium brands that occurred during the earlier part of the 2000s seemed to limit the ability of SABMiller to re-establish brand presence for low-performing beer. Clearly, SABMiller is affected by the consumer behaviour preferences driven by trends or consumption patterns and must reengineer processes to meet these changing demands. In 2010, it was also clear that SABMiller is impacted by events in the external market, such as South African AIDS pandemics, confidence in certain currency markets related to the stock market and trading, and other events that limit their short-term potential to gain revenue and/or market share. However, SABMiller understood these limitations and worked to leverage other activities to the best of their ability, especially considering that some external events like the AIDS scenario was completely outside of the control of strategic leadership and focus. Additionally, the external market was driven by joint ventures from some of the major players in the beer industry, thus limiting the ability to consider this a quality strategy that had once served them well, such as with Coors and other brands. Even though these had short-term revenue opportunities and cost reduction improvements, or streamlining operational functions, their long-term value was diminishing. The external market provided opportunities to combine resources with competition, however this strategy has long-term brand problems at the marketing level when similarly-priced products in a joint venture are competing with one another. Thus, finding new opportunities based on the external market characteristics were becoming increasingly difficult to innovate and implement. SABMiller’s competitive advantage SABMiller’s competitive advantage had been the ability to coordinate resources for acquisitions in order to extend their portfolio of brands across Europe, emerging economies and the United States. This drove considerable success from 2001 until 2009, such as the acquisition of Grolsch, Sarmat Brewery in the Ukraine, and multiple brewery purchases in the Chinese market. As indicated by the company’s cash flow statements, the improvement in total brand portfolios gave it more resources to seek acquisitions as a strategy for long-term growth and opportunity in emerging economies and locally. SABMiller fits the profile of a strategic leader when it comes to seeking opportunity through acquisition and divesting poor performing brands when required through external analysis and business process reengineering. Portfolio management is “balancing technology, products, and projects and deciding which are worth pursuing to best meet organisational needs and priorities” (Igartua, Garrigos & Hervas-Oliver, 2010, p.42). Even though these acquisitions sometimes require the company to assume the debt load of acquired businesses, such as in the case of the Miller purchase, the long-term benefit is the ability to produce higher volumes of different brands once a strong marketing presence has been developed for each individual territory of operations. In 2010, Anheuser-Busch, the largest beer company in the world with the highest market share, had been focusing on cost reduction (Fuhrman, 2010). This would indicate that the company was also facing revenue problems and looking for opportunities to ensure new strategies. A-B has been doing much cost-cutting at the distributor level as part of marketing that impacts negatively how distributors are able or motivated to promote Anheuser-Busch products (Fuhrman). A-B makes cuts with those that the business is reliant upon to assist in the promotion of their products, which has a potentially noxious result at the motivational level or psychological level (or even related to strategic negativity for lost revenue opportunities from A-B as a major customer) that will have long-term consequences. Thus, SABMiller’s competitive advantage is cost reduction in non-essential areas through brand divestment of low-performing products in identified territories of operations. Critics might argue that SABMiller’s competitive advantage also lies in its identified decentralised management structure, however with today’s structure of SABMiller and its many acquisitions, a decentralised system is necessary to facilitate production, human resources, and many other business functions. Most large scale brewers have a similar structure due to the multi-cultural and multi-national flavour of their operations. Top-down methodology as related to some strategically-focused businesses would not serve the company well and this should not be considered a competitive advantage against large competition such as A-B. However, the flexibility provided by introducing new leadership at the executive level is a competitive advantage by bringing fresh talent into the portfolio management practice to assist in identifying contemporary consumer buying trends quickly to adopt new products. Growth patterns and strategic rationale The strategic rationale for growth as related to acquisitions is to seize future market share in emerging economies such as China and the Ukraine. These countries are developing their own productivity and labour bases that give more disposable income to people with better educational and job opportunities in the consumer marketplace. South African Breweries recognizes long-term trends and uses a strategic-minded approach to ensure growth over the long-term, even when taking on another acquired company’s debt load is a short-term burden. In the United States market, there is strong growth in the light beer category and the acquisition of Miller and the joint venture with Coors reflects a future-minded strategy to seize market share against large-scale competitors like Anheuser-Busch. Kesmodel (2009) supports this notion by suggesting that what is referred to as economy brews like Miller High Life have much stronger customer demand in the U.S. as part of a recession-based spending pattern by consumers. Growth rationale for light beer categories gained through acquiring Miller indicate that the rationale is to adjust business operations and principles to meet consumer demand and that the company understands changes in the external buyer market. Risk management is defined as “planning for, identifying, analyzing and monitoring potential risk in terms of cost, time, scope and quality” (dot.ca.gov, 2007, p.12). SABMiller, as identified in the case, has a risk culture and/or executive level risk assessment team that understands risks to the company as related to buyer behaviour and buying trends in key markets. The United States, as one example, is notoriously fickle and price sensitive about their product purchases as it relates to this type of spending on personal products. Even though the company wants to sell more of its profitable premium beers, it recognizes the true realities of buyer behaviour in large revenue-producing markets and moves quickly to capture this business whether independently or through joint ventures such as with Coors. Coors products and many products in the Miller brands are considered economy or low-cost brews and, being risk focused and long-term focused, has to somewhat shed its objectives for growth in premium sales to capitalize on economy brews in high-performing markets. This is the rationale for growth, especially in the United States consumer market. SABMiller considers the potential for growth in emerging economies, such as those in Latin America, to be long-term opportunities for revenue production. Though the case did not describe the specific advertising and branding strategies for these regions, the rationale is to improve brand visibility in these countries at a time where customer demographics are improving socio-economically. This is a forward-minded strategy, once again, that looks toward future revenue growth and the ability to meet the demands of customers in diverse markets by responding proactively to establish a presence before competitors use their strong brands and advertising budgets to intervene. The rationale, it seems, at SABMiller is rapid response to changing market demands and locating opportunities for growth where, currently, little exists. Through acquisitions in these emerging economies, such as in China, the company is able to seize pre-existing production facilities to avoid the costs of new construction from the ground up. This is a short-term cost savings that leads to long-term revenue growth if the business is able to capture local market attention from diverse and culturally-dissimilar markets across the world. Strategic options The 2010 priorities identified in Table 1 of the case study indicate the following: increase the spread and viability of global businesses in existing and emerging markets, develop strong local brands, raise local business performance, and leverage the global scale of the company. Each should be identified individually. As far as increasing global business presence, SABMiller is well on its way to establishing a name in key market regions, especially emerging economies. The business wants to capitalize on what it perceives as a consumer market willing to trade upwards to buy premium products rather than economy brands in its portfolio. A competitive example of success in premium marketing is Dos Equis beer from Mexico, a high priced quality beer advertised as such in key U.S. markets. The marketing strategy includes a “debonair and exotic” spokesperson who represents the brand image that Dos Equis wants to portray to its customers to engage them in buying this high-priced beer (Levy, 2009, p.8). Advertising is the most effective competitive tool for accomplishing changing buyer behaviour to trade upwards. SABMiller can accomplish its first two priorities together by taking a similar branding strategy for its premium products and make them relevant to local markets. For example, Chinese traditionalist buyers with ample resources are collectivist in nature. This is an aspect of behaviour where group needs are considered priority and they respect organization and group goals as part of culture (Blodgett, Bakir & Rose, 2008). In order to capture Chinese consumers with resources for premium beer purchases, localized and quality advertising using similar actors, despite costs, can improve their strategic options. The constraint is cash flow and budget related to advertising, especially after just assuming Miller’s $2 billion USD debt load and the costs of ongoing acquisitions. It was determined in the case study that some brands are difficult to differentiate from competition based on price or their overall texture and composition. This is a difficulty and when this occurs, buyers have very strong buying power as related to Porter’s Five Forces model of the external environment (quickmba.com, 2010). When buyers have considerable control over the internal operations and advertising strategy of the business, they can impose costs on forward growth opportunities. SABMiller will have a difficult time regaining this control unless they are able to make their premium brands or other high-performing brands a cultural symbol that relates directly to social factors in the buyer markets. Responsiveness in their current international markets as it relates to structure and management seem to have no real barriers so long as they remain devoted to quality human resources. There is no evidence whatsoever that the external environment can cause problems with remaining a decentralised and responsive organisation to fit consumer needs. Acquisition opportunities, on the other hand, have been essentially used up based on the current financial position of SABMiller and the existence of pre-existing efforts with combining competitive resources in joint ventures. The company is already stretched thin with its diverse portfolio of products and does not have the market stability in emerging markets, yet, to continue acquisition and therefore more emphasis should be on the marketing concentration. References Blodgett, J., Bakir, A. & Rose, G. (2008), A test of the validity of Hofstede’s cultural framework, The Journal of Consumer Marketing, vol.25, no.6, p.339. Dot.ca.gov. (2007), [internet] Project risk management handbook: threats and opportunities, 2nd ed. [accessed June 22, 2011 from http://www.dot.ca.gov/hq/projmgmt/documents/prmhb/caltrans_project_risk_management_handbook_20070502.pdf] Fuhrman, E. (2010), Beer: the middle is no place to be, Beverage Industry, vol.101, no.3, pp.12-18. Igartua, J., Garrigos, J. & Hervas-Oliver. (2010), How innovation management techniques support an open innovation strategy, Research Technology Management, vol.53, no.3, pp.41-53. Kesmodel, D. (2009), Economy Beers Give Brewers Lift in Downturn, Wall Street Journal, May 7, p.B1. Levy, P. (2009), Keeping it interesting, Marketing News, vol.43, no.17, p.8. Quickmba.com. (2010), [internet] Porter’s Five Forces: a model for industry analysis. [accessed June 23, 2011 at http://www.quickmba.com/strategy/porter.shtml] Read More