SABMiller - the Rivalry between Existing Sellers - Case Study Example

SABMiller is a South African company which has been producing beer since 1985. This company has a long history which “reflects the economic and social growth of the company”. (SAB Website, 2010) Since, its operation from 1985 it has “become the largest brewery and is having its presence all around the globe”. (SAB Website, 2010) The company is a major beer producer. It has been “listed in the Johannesburg Stock Exchange since 1987”. (SAB Website, 2010) The company achieved this feat by becoming “the first industrial company to achieve it”. (SAB Website, 2010) After this it found a place on London Stock Exchange in 1988. With the vision SABMiller “simulated the barley industry by ensuring that they got crops at lower prices and for this they supplied seeds to the farmers free”. (SAB Website, 2010) This turned the fortunes. SABMiller was able to enter into partnership with Ohlsson’s breweries. They used this framework and continued with this strategy. The company by continuing similarly “acquired stake in Schweppes in 1925”. (SAB Website, 2010) This decision proved sound. It helped them to move ahead. Slowly with the passage of time SAB in 1950 moved its headquarters to London. Since, then the company started to move ahead by entering into areas which was not its core competency. The company by that time had become renowned in the beer industry. The company moved ahead and “opened the Southern Sun Hotels in 1969”. (SAB Website, 2010) This was a joint venture and ensured that SABMiller moved into other avenues. Competition was slowly intensifying. In 1972, SABMiller faced competition from Luyt Breweries. This fight among this company continued for years. This helped both as more and more people started to know about the beer industry. Eventually, SABMiller continues with its “strategy of acquisition and acquired the company in 1979, thereby giving them a 99% share in the market”. (SAB Website, 2010) SAB continued in the same manner. It grew both its core and non core business. The formation of the democratic government in 1994 changed the complexion. SAB Miller started to hive off its non core business. It started concentrating on beer. This helped SABMiller to move global. This gave them an opportunity to tap various countries. The vanishing of borders also helped SABMiller to move ahead. The company then “acquired Miller Brewing Company in the USA in 2002 and converted itself to SABMiller Plc”. (SAB Website, 2010) This strategy helped the company. They were able to move into Europe, South America, India, Vietnam and China. This process continued and slowly SABMiller became the second largest brewery Today “SABMiller has presence in over 60 countries and over 50,000 employees”. (SABMiller, 2010) The company has outlets all around. The development of breweries and more employment worldwide has helped them. The company looks forward to see itself as a leader and then come with new innovations. This has helped the company to have more than 200 brands. Some of the brands are “Castle Lager, Grolsch, Miller and Peroni”. (SABMiller Plc, 2010) In addition to this the company has more than 100 breweries. The company with such a strong presence is bound to grow. The Porter’s Five Model Analysis will help to find out how an industry and a firm get affected due to factors beyond their control. These are factors which are external to the organisation. To be successful it is important that SABMiller understands these factors and find out how it influences their business. This model according to Kotler, 2001 are as follows “The rivalry between existing sellers” (Kotler, 2001) “The bargaining power of customers” (Kotler, 2001) “The bargaining power of suppliers” (Kotler, 2001) “The potential threat of new entrants” (Kotler, 2001) “The threat of substitutes product” (Kotler, 2001) A company who has been able to successfully “identify the factors and their effect on the business has been successful as they have been able to put their resources in the right direction”. (Kotler, 2001) Analysing the above factors will help to identify how it affects SABMiller. The rivalry between existing sellers The degree of rivalry is very intense. There are many producers of beer locally intensifying competition. When we look at the degree of competition it appears that SAB Miller has been able to create brand awareness. This is helping them to see that they have loyal customers. The problem of competition is still there. There are companies on similar business line. This is more on a local level. This is especially the case “in countries where the consumers are price conscious”. (SABMiller Profile, 2010) When we look on a global scale the competition is tough because of many producers. SABMiller has “tough competition from Anheuser-Busch InBev as both are trying to lead the industry”. (SABMiller Profile, 2010) To lessen competition the company has “entered into partnership by acquiring Molson Coors so that they could take over Anheuser-Busch InBev”. (SABMiller Profile, 2010) SAB Miller also faces competition from “Asahi Breweries Ltd, Heineken, Kirin Brewery Company, PepsiCo, Carlsberg and many more”. (SABMiller Profile, 2010) This can further be substantiated from the fact that “the industry stands at $390 billion which itself speaks about the volume of competition”. (Data monitor, 2009) The rivalry is such that companies offer similar products. The offerings are similar so customers prefer brand. Creating this is helping companies. SABMiller due to rivalry has seen a dip in its market share in South Africa from 99% to 93.7%. The rivalry has increased by “formation of a company by entering into a venture between Namibian Breweries, Heineken and Diageo in 2003”. (SABMiller Profile, 2010) They are a real threat to SABMiller. The company has “many brands which are similar to SABMiller and has more brands than SABMiller and are offering those at competitive rates thereby getting more loyal customers”. (Kanter, 2003) This competition has intensified as the license of SABMiller to brew Amstel has been removed. This is making more companies follow similar lines. The rivalry is so strong that in India it is seen that SABMiller is loosing on revenues. Their profits have shown a dip. Kingfisher has been able to draw a large chunk of the market. This is making companies to eye locally. SABMiller needs to ensure that they deliver superior in house strategy. They need to ensure that customers be loyal to them so that they are able to able to hold them and increase their penetration level. The bargaining power of customers The bargaining power of customer is determined by “the size and concentration of customers”. (Kotler, 2001) The customers have a high bargaining power. This is because of the availability of lot of similar product. The advantage for SABMiller here is that “customers are mostly innovators and they prefer new launched brands of beer”. (Meyer & Schwager, 2007) The difference here considered to other sectors is that “customers prefer only those newly launched beer by their own brand”. (Meyer & Schwager, 2007) SABMiller has been able to build a pool of loyal customers. This is helping them because it is helping to reduce the bargaining power of the customers. They remain loyal and SABMiller as a result can ensure that they charge the customer on similar lines to the competitors. The switching cost for customers is low. The availability of substitutes gives ample opportunities. The fact that the customers want to be loyal as it creates an image is helping SABMiller. The customers’ being loyal makes it easy to market and ensure that the prices charged are reasonable. SABMiller has been able to work on this front. This is also reflected by the share prices which are soaring high. This shows the customer preference for the brand. This is making SABMiller ensure that their strategies are also directed in such a way that customers pay a good price for the beer. To improve more customer loyalty SABMiller has decided to improve its operation has “tied with Infosys which will help them identify the in store marketing campaigns and the amount of positives the company is getting form it”. (Askus, 2010) The company for this is using “Shopping Trip 360 to analyze its brand and improve awareness among the public”. (Askus, 2010) Bargaining power of suppliers The supplier power depends on “the size and concentration of suppliers”. (Kotler, 2001) There are lot of suppliers due to which “the suppliers have a high bargaining power”. (Lee, 2004) This is seen by the fact that the company brings a change in the prices according to the price of raw materials. The emergence of many suppliers in the market is making it tough for the company to get the best procurement. This is a factor which is a concern for SABMiller. This difficulty is encountered by SABMiller in developing countries. Here, “the unique condition of the market along with suppliers, distribution and manufacturing process is harping growth”. (Lee, 2004) SABMiller on this field is on an advantageous position compared to its competitor. SABMiller has improved their supply and reduced the bargaining power to a certain extent by “working with farmers to improve the quality of inputs and ensure that they get a ready supply at the lowest price”. (SABMiller Profile, 2010) SABMiller is improving its supply chain. This will help the company to “ensure that their stores don’t run dry by developing and testing new ways which will ensure that customers are provided with the supply every time”. (Goodwin, 2009) This will also help to improve its relation with suppliers. The improvement of this chain will increase efficiency. The company looks to do so by integrating SAP. This will ensure that there is timely delivery. The lack of proper infrastructure especially “for the suppliers has also improved their bargaining power as SABMiller has no option but to rely on them thereby having to pay more and ensuring that they get a ready supply”. (SABMiller Profile, 2010) The problem gets intensified in the global markets. Here, the suppliers have even more bargaining power compared to the locals. The fact that they are few suppliers and the concentration is limited has given them a huge boost. The suppliers are able to squeeze SABMiller and charge more. Thus, the bargaining power for supplier is strong. SABMiller as a result of this has to face the consequences and have to abide by their terms. Threat of new entrants The threat of new entrant is determined by “economies of scale, cost advantage, regulations, differentiation and cost of entry”. (Kotler, 2001) SABMiller has little or no threat from new entrant. The reason being the competition on the brewery industry is making few new entrants enter it. “SABMiller has been able to achieve economies of scale by ensuring that their source for procurement is sound has helped them achieve economies of scale”. (SABMiller, 2010) the presence in more than 60 countries has added to it. It has ensured that “if the price rises in one country then the procurement can be made from elsewhere to reduce cost and see that it is in limits”. (SABMiller, 2010) The increase in prices of glass and other materials are a cause of worry. SABMiller being able to work on a global arena has been able to get it at low cost. This brings down the threat of new entrant. The fact that, “new entrant has to come with similar product as there is little differentiation among the products of different companies and already the intensifying competition is making very few entrant think on similar lines”. (SABMiller, 2010) The other thing that “SABMiller has very strong distribution network and the new entrant will find it hard to match those has also ensured that few new entrants are there”. (SABMiller, 2010) SABMiller has more than 53 established centres. This is used for distribution. A new entrant might find it hard to match those. The existence of a rand for SABMiller has also ensured that few new entrants take the risk of entering the market. With an already good public image and a lot many brands has made it tough for a new entrant to match it. Thus, SABMiller has little or no threat of new entrant. The amount of competition and brand image already present will find few takers. The level of competition and economies of scale already achieved and other factor which goes against a new entrant will make it tough for a new entrant to enter. Availability of substitutes The availability of substitutes s determined by “how easily a customer is able to replace the product he uses with another”. (Kotler, 2001) The beer industry offers a lot many substitutes. This is putting pressure on SABMiller as they have to ensure that the customer remain loyal to their brand. SABMiller has a lot of substitute because “their stable brand Amstel, which had already created a good public image, has been removed from their brand list”. (SABMiller, 2010) This has made the customers who were loyal to Amstel move to other brands. The availability of different brands like “Asahi Breweries Ltd, Heineken, Kirin Brewery Company, PepsiCo, Carlsberg and many more” (SABMiller Profile, 2010) has made it easy for users to move. The cost of switching being low also has ensured that customers move out. The availability of substitutes in the way of hard drinks like whisky, scotch, gin and others are also creating problem for SABMiller. The shift in trends towards this form of substitutes is also a worrying factor for SABMiller. Customers also have the leverage to move to another brand. Since the companies offer the same beer with slight difference so customers have a chance to move. Even the availability of different variants of beer makes it a concern for SABMiller. SABMiller thus, has a lot many substitutes available. It makes it important that SABMiller continue to hold its customer base. Since, customer are loyal in the beer industry so SABMiller can use its experience and ensure that they are less affected compared to others when it comes to substituting the product for another. SABMiller thus is affected by the external factors. Porter’s Five Force Model helps to identify the areas where SABMiller has a strong hold. It also shows areas of concern and areas it needs to work. It provides the opportunities where SABMiller can work on and ensure that its experience in the beer industry comes handy. SABMiller thus from the above model can develop its future strategy and also see areas which is affecting them. It highlights how the factors external to the organisation is affecting SABMiller. The company can work on those areas and improve its share and look forward to become a market leader in the brewery industry. References Askus, “SABMiller enhances in store marketing through Infosys”, 2010, retrieved from on March 11, 2010 Goodwin B, “SABMiller revamp supply chain management”, retrieved from on March 11, 2010 Data monitor, “Global Breweries-Industry Profile”, 2009 Kanter R, “Thriving locally in a global economy”, Harvard Business Review, page 1, 2003 Kotler P, (2001), Marketing Management, page 201, 11th edition, Prentice Publication, Upper saddle River, New Jersey Lee H, “The Triple-A Supply Chain”, Harvard Business Review, page 1, 2004 Meyer C & Schwager A, “Understanding Customer Experience”, Harvard Business Review, page 1, 2007 SAB Website, “History”, 2010 retrieved from < http://www.sabreweries.com/SABLtd/Primary/ExploreSAB/History/Default> on March 11, 2010 SABMiller, “Who is involved”, 2010, retrieved from on March 11, 2010 SABMiller Profile, “Competition”, 2010, retrieved form on March 11, 2010 SABMiller Plc, “Company Description”, 2010, retrieved from on March 11, 2010 Read More