![#](www.e-malt.com/images/left_top_corner16x200.gif) | E-Malt.com News article: South Africa: SABMiller’s success story overview![Brewery news](https://e-malt.com/Images/BeerBullet2.gif)
South African Breweries (SAB) owned brands that could be counted on two hands 20 years ago, and four of them were Castle: Lager, Draught, Lite and Milk Stout. The other big brands were Carling Black Label and Hansa, BDLive reported on April 7.
The previously iconic Lion Lager was slowly being squeezed to death, there were labels of little consequence and some licence agreements.
Founded in 1895, SAB took a commanding grip on the domestic beer market and saw off many aspirant interlopers through ruthless attention to detail, costs and distribution channels. Marketing was largely irrelevant.
In the ’70s and ’80s, SAB chairman Frans Cronje and CEO Dick Goss were two of the most influential business leaders in SA. The beer division was larger than most of SAB’s other businesses, but an integral part of the Byzantine financial structures created when most doors around the world were closed to South African business.
In 1994, democracy arrived and new opportunities, the global stage and there was a need to recalibrate quickly. Graham Mackay was installed as SAB group MD, former investment banker Malcolm Wyman became financial director and long-serving chairman Meyer Kahn, more a retailer than a beer man, made up the top team. Norman Adami, who became known as "Mr Fixit", was never far behind.
These four men catapulted SAB to where it is today. The choice of Mackay was inspired, given his strategic and analytical background, with an ability to grasp the most complex situations and act on them quickly.
During apartheid, it was difficult for South African companies to invest offshore, and many large companies including SAB, became industrial conglomerates.
By 1994, SAB held stakes in retailers (OK Bazaars, Edgars and Amrel), furniture companies, a shoe manufacturer and other beverage companies including ABI, a Coke bottler and Appletiser.
It also used the little foreign capital it had to acquire a growing US beer brand, Rolling Rock, but had to dispose of it when questions were asked about the company’s parentage. The group managed to take Appletiser offshore with a holding company, Indol, in the Netherlands and called it Appletise.
In mid-1996, there was a meeting between Mackay and Jeremy Sampson, who had recently returned to SA representing the global brand consultancy Interbrand and who had worked extensively with the group in the past.
Mackay was weighing up his future options: what business was SAB in, what were its assets, where was the potential? It was agreed to carry out an audit and valuation of the main beer brands.
Some CEOs seem more concerned with the tangible assets of bricks, mortar and machinery than the increasingly crucial intangible assets of intellectual property, dominated by brand value.
At Interbrand’s subsequent presentation, there was great consternation at the poor results. One major factor for the strength of any brand is international reach, so reducing risk. And, SAB did particularly badly.
Mackay and his team set about refocusing the business, slimming down the nonbeer operations, while growing beer and relationships with Coca-Cola bottlers.
With it came the realisation that SAB had a considerable talent pool, with exceptional management skills, especially for working in emerging countries and cutting costs. There was an urgent need to break out of SA, while maintaining SAB’s domestic dominance, to unlock access to serious money.
Also, SAB owned no brands with global potential at a time that brands the world over were being bought, and companies were being bought purely for their brands.
SAB went shopping. The purchasing power of the rand was becoming a limiting factor, and being based in Johannesburg, was not helpful. A presence was established in London quickly with a listing on the London Stock Exchange.
Although the group made a few acquisitions in Hungary and Poland in the mid-1990s, the first iconic acquisition was in the Czech Republic — Pilsner Urquell in 1999, for £420 mln. A steady stream of acquisitions followed, with the big one — Miller in the US — in 2002, and growing Snow to the largest Chinese brand by volume. SAB acquired iconic brands such as Peroni (in 2003, at €563 mln for 60%) and Grolsch (2007, €816 mln).
While the lack of a global brand would have been a major hindrance to most brewers, SAB saw it as a challenge. The group went into many far-flung jurisdictions, buying up brands, cleaning up their production processes and marketing them relentlessly.
In Poland and Romania, dominant market shares were quickly attained in the face of fierce competition from entrenched European competitors such as Heineken, Brau Union and Interbrew.
By the end of the noughties, SAB’s global acquisition strategy had paid off handsomely. It had a broader geographical footprint than any other multinational brewer, with operations in north, south and central America, Australia, most of Africa, China, India, Vietnam, large parts of Europe and Russia.
While the top echelons of SAB’s management remained predominantly South African, it was commonplace to find Polish brewers in Colombia and Peru.
South America is the largest contributor to the group’s revenue and profits.
Of all the South African companies that made London their domicile in the 1990s — such as Anglo American, Old Mutual and Dimension Data — SAB was by far the most successful. The group had a burning desire to be number one or a good number two in every jurisdiction in which it operated and largely succeeded.
It applied the basic fundamentals that it had learned under the apartheid regime. SAB’s licence had been continuously under threat from the National Party government, which had many members who owned wine farms in the Western Cape.
SAB had to be ruthlessly efficient in all its production processes, so that by 1994, it produced the lowest-cost beer in the world.
It kept its price increases below the rate of inflation, thereby deflecting criticism that it was abusing its near-monopoly power. Kahn coined the phrase: "SAB is not a monopoly; it is a temporary sole supplier of beer in SA."
The company launched a series of empowerment programmes aimed at its black employees from the 1970s. The most famous was the owner-driver scheme, in which beer truck drivers were encouraged to own vehicles, with financial assistance from SAB.
In 1997, Kahn uttered the memorable phrase "Africa is ours". In 2002, SAB established a strong working relationship with the Castel Group in France and today the two groups have a presence in 44 out of the 54 countries in Africa.
This was undoubtedly one of the main reasons that Anheuser-Busch InBev paid a 50% premium in the past year to gain control of SABMiller.
Many of those 54 countries are relatively poor and some are Muslim. Mackay and his SAB Africa team realised a different strategy would be required in Africa; the integrated beverage approach.
This meant offering a selection of beverages in Africa, ranging from a full menu of malt beer, sorghum beer, carbonated soft drinks, mageu and bottled water in more affluent countries and, perhaps, just soft drinks and water in the poorest. Recognising there is an endemic problem in Africa of toxic home-brew consumption, SAB investigated whether it was possible to produce beer from the cheapest and most widely grown form of starch on the continent, cassava. In 2011, the group produced a commercially viable, clear beer from cassava called Impala.
By late 2014, when Mackay died, SAB was the second-largest brewer in the world by volume, and owned more than 200 brands. Some would argue that Mackay ranks among the top South African captains of industry of all time.
What would Mackay make of SABMiller today? Belgian brewing behemoth AB InBev had to sweeten its offer four times before agreement was finally reached for a takeover, putting a value on the business of $108 bln (R1.6-trillion).
The market capitalisation of the business was R37bn in 1996, when Mackay became group managing director.
AB InBev-SABMiller is the largest brewer by volume, but in order to navigate regulatory issues has had to sell off the trophy brands Peroni, Grolsch and Snow.
Why the takeover? With the aggressive demands of the investment community for greater business efficiencies, greater scale and continuous improved profitability, all companies face the challenge to perform.
Some argue that beer is a sector in which brands tend to be country-, region-or even town-specific, and rarely international.
With the threat of slow growth among traditional brands, the emergence of craft beers and the different consumption habits of the millennials, the fight for share of throat has never been more aggressive.
Between Anheuser-Busch, InBev, SAB and Miller, a new global giant is emerging with sales of $55 bln, owning nine of the top 20 brands by volume, about 30% of the world’s beer market and about 70% of the action in the US.
The company is domiciled in Belgium and the CEO is a 55-year-old Brazilian dynamo Carlos Brito, a protégé of the dealmaker, Jorge Paulo Lemann, founder of 3G Capital, who are heavily involved.
Mackay, interviewed for the Interbrand publication The Future of Brands in 2000, said: "We don’t sell beer anywhere, we sell brands. The difference revolves around what customers are prepared to pay for, what they think makes something relevant for them … a brand must have the ability to deliver an interesting margin stream."
Brito said recently during a visit to SA: "We take our reputation very seriously. When we commit, we deliver — investors know that. The things we can control, we deliver on."
In just 20 years, SAB has transformed from a country-dominant player to being part of the global number one.
A brand is a promise made and a promise kept. That applies to all brands — including people and politicians.
08 April, 2016
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