Sabmiller Case Study

Question 1a

PESTEL Analysis

Political

(T1) Political influence is important for companies in entering a marketplace due to political sensitivity with government, partners and local communities. The brewing industry is also affected by international or regional policies. Example Apartheid Regime in South Africa (SA) restrictions to prevent trades with them.

Multi-racial democracy establishment has a positive impact on a country’s stability.

Economy

(T2) The difference in the nature of emerging and matured markets can serve as a challenge for companies. Companies have to practice differentiation to suit each market.

(T3) Economic instability can influence market growths and companies’ expansion. Economic crisis in 2009 caused much uncertainty around the consumer disposable income for beer due to high unemployment and rising cost of raw materials.

(O1) As the brewing industry is highly fragmented, some companies would be negatively impacted, while others see it as a chance to expand and increase profits.

(T4) Currency fluctuations also have a significant impact on companies’ profits.

Technology

(Key-O2) Companies continuously invest in better technologies, finer ingredients and improved brewing methods to be cost efficient and yet produce premium beer.

Social

(Key-O3) Consumers’ preferences are constantly evolving, such as an increased in demand from the female population. Hence companies have to constantly innovate.

Legal

(T5) The complexity of country laws and taxation system can pose a challenge to companies.

From the PESTEL analysis, the key drivers would be economy and social. Economic factors are mostly beyond a company’s control, such as nature of market, market growth and currency risks, therefore companies have to design capabilities to overcome them. Social is important as the purchase of consumers is the main revenue source for companies hence there is a need to monitor the changes in demand and innovate to keep up.

 Porter’s Five Forces 

High Competitive Rivalry

(Key-T6) The saturation of matured markets due to low market growth and few key players with huge market share creates intense competition. Companies like SABMiller and Heineken would battle out to defend or expand their territory. For emerging countries, though higher growth potential, rivalry is still high due to huge players. Example would be the merger of SAB and Grupo Empresarial Bavaria in SA whom has 90% market share locally, assured SABMiller’s position as the world’s second largest brewer.

It is highly fragmented in the emerging markets hence companies will seek the opportunity to compete fiercely to build economics of scale to lower its unit cost. Example, SABMiller acquired several brewery firms to seek operational improvement and efficiency.

There are also high exit barriers due to the high investments, especially in M&A. Hence companies will continue to compete fiercely to stay in the competition.

Low Threat for Substitutes

(Key-O4) Consumer preferences appeared to be steering towards wines, liquors and spirits. However it is still the minority.

Low Threat of Entrants

Due to big players in both emerging and matured markets, new entrants would to have the experience and start-up capital to be successful. Retaliation by price wars would also discourage new entries.

New entrants would need to establish good distribution channels. However these channels might have been dominated major players, making entry difficult.

Relatively High Buyers’ Power

(Key-T7) With the increased of beer choices, customers have more variety to choose from. It is further encouraged by no switching costs involved.

(O2) There is also no distinctive differentiation among beers, hence companies would find it hard to convince consumers to choose their product over others. Example would be SAB find it difficult to persuade consumers that there is much difference between their Miller Light and Coors Light when they are priced similarly.

Low Suppliers’ Power

The bargaining power of suppliers (equipment, raw materials and rental spaces) is low because of limited number of buyers in the industry. SABMiller having 99% market share would mean the suppliers in turn have to fight for their sales from SABMiller.

From Porter’s Five analysis, we can conclude that the brewing industry is not attractive due to high competitive rivalry and high buyers’ power. Huge start-up capital is needed to enter the industry where major players could easily reliate in terms of price-wars. Consumers can easily switch between brands are proven to be undesirable for new entrants.

Overall, the external analysis indicates that the industry is unfavourable for new competitors. Firstly, the key drivers in the social or economy are factors that are beyond their control hence success rates are not guaranteed. Secondly would be the overall brewing industry are shrinking due to consolidation by major players, making it an environment of high dominance of key players and low market growth.

Question 2a