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Paper: Business Strategy Analysis of ABInbev and merger with SAB Miller

By Pierre Pichot de Champfleury & Louis Goethals Prof.: Manfred Braüchle Universidad Finis Terrae 2016/2017

Analysis of ABInbev and merger with SAB Miller

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Executive summary........................................................................................ - 3 -

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Preface – Acknowledgements.............................................................................. - 4 -

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Introduction................................................................................................ - 4 -

4 External analysis........................................................................................... - 6 4.1 PESTEL........................................................................................................................................................- 6 4.1.1 Political...................................................................................................................................................- 6 4.1.2 Economical..............................................................................................................................................- 6 4.1.3 Social.......................................................................................................................................................- 7 4.1.4 Technological..........................................................................................................................................- 7 4.1.5 Environment............................................................................................................................................- 7 4.1.6 Legal........................................................................................................................................................- 9 4.2 Porter’s 5 Forces Framework.......................................................................................................................- 9 4.2.1 Force 1: Threat of entry..........................................................................................................................- 9 4.2.2 Force 2: Threat of substitutes...............................................................................................................- 10 4.2.3 Force 3: The power of buyers...............................................................................................................- 10 4.2.4 Force 4: The power of suppliers...........................................................................................................- 10 4.2.5 Force 5: Competitive rivalry.................................................................................................................- 10 4.3 Market analysis and industry.....................................................................................................................- 11 4.4 Analysis of competitors..............................................................................................................................- 12 4.5 Strategic group mapping............................................................................................................................- 13 5 Internal analysis.......................................................................................... - 14 5.1 Strengths and weaknesses..........................................................................................................................- 14 5.2 SWOT analysis of AB InBev.....................................................................................................................- 15 5.2.1 Strengths................................................................................................................................................- 15 5.2.2 Weaknesses............................................................................................................................................- 15 5.2.3 Opportunities........................................................................................................................................- 16 5.2.4 Threats...................................................................................................................................................- 16 6 6.1 6.2 6.3

Strategic purpose......................................................................................... - 16 Mission.......................................................................................................................................................- 16 Vision.........................................................................................................................................................- 17 Values & Objectives...................................................................................................................................- 17 -

7 Business strategy......................................................................................... - 19 7.1 Generic competitive strategies...................................................................................................................- 19 7.1.1 Competitive strategy/competitive advantage........................................................................................- 19 8 Corporate Strategy....................................................................................... - 20 8.1 Corporate Mission Statement.....................................................................................................................- 20 8.2 Strategy for growth....................................................................................................................................- 20 8.2.1 Dream people culture............................................................................................................................- 21 8.2.2 Brand Portfolio.....................................................................................................................................- 21 8.2.3 Point of connection...............................................................................................................................- 21 8.2.4 Leading market positions......................................................................................................................- 21 8.2.5 Strategy.................................................................................................................................................- 21 8.2.6 Financial discipline...............................................................................................................................- 22 9 10

Conclusion, Critical reflection & Recommendations (focus on merger point of view)...............- 22 List of references...................................................................................... - 25 -

Universidad Finis Terrae

Prof.: Manfred Bräuchle

Analysis of ABInbev and merger with SAB Miller

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Executive summary

ABInBev is expanding there company by having one of the biggest mergers in history. In October 2016 they announced the confirmation of 104 B. USD to acquire SABMiller. Based on this merger, we made a full strategic analysis of the fusion. ABInBev is the world leader of brewing companies since a couple of year, thanks to previous successful mergers and perfect financial and economic views on the market. Now they know they have been successful and they want to keep that market position, by merging with SABMiller, which will give them more business opportunities and the opportunity to exploit at maximum economies of scale and even gain a better competitive advantage on the global market.

ABInBev already has a large portfolio of more than 200 brands, thanks to the merger they will have almost 300 different brands. This portfolio makes the company stronger than ever and gives them the chance to compete on the African and Asian markets. Being the biggest player in the market requires the most talented and skilled employees. These employees help the company with the best marketing techniques who plays on the mind of global costumers. The goal of this in-depth report was to think about the strategic choices a big company has to confront with. It was very interesting to take a look from a different angle and it definitely changed our mind on high-level supervision. The merger also has had some big issues because the regulatory approval in Europe and other continents faced some legal problems. The regulatory government of certain countries where not ok with the merger because the merger would create a to big of a monopoly in the beer industry. ABInbev and the regulatory authorities came to an agreement. The condition was that ABInbev should sell several brands of SABMiller (ex.: peroni.

Universidad Finis Terrae

Prof.: Manfred Bräuchle

Analysis of ABInbev and merger with SAB Miller

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Preface – Acknowledgements

In the first semester of the academic year 2017-2018, Prof. Mr. Manfred Braüchle gave us the task to write a paper about a certain topic of the strategy course. We taught, by making a strategic analysis of ABinbev and include the merger by a major multinational company we would be able to implement and apply, in the best way possible, various theoretical topics we saw during the strategy course in an applied analysis about this merger.

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Introduction

Anheuser-Busch InBev SA/NV (AB InBev) is a multinational Belgian beverage and brewing company headquartered in Leuven, Belgium. It is the world's largest brewer and has a 25 percent global market share.AB InBev was made through successive mergers of three international brewing groups: Interbrew from Belgium, AmBev from Brazil, and Anheuser-Busch from the United States. They have a portfolio of more than 200 brands where sixteen brands individually generate more than one billion US dollar annually in revenue. This portfolio includes the following global brands such as Budweiser, Corona and Stella Artois, international brands Beck's, Hoegaarden and Leffe and local brands such as Bud Light, Skol, Brahma, Quilmes, Victoria, Modelo Especial, Michelob Ultra, Harbin, Sedrin, Klinskoye, Sibirskaya Korona, Chernigivske and Jupiler. The company has over 155.000 employees in 25 countries. The total revenue for all 200 AB InBev brands in 2015 was over 43.6 billion USD. Because of the incorporation of anheuserBusch in 2008 (based in Saint-Louis, Misouri), the company started reporting its financial results in US dollars. AB InBev has a primary listing on Euronext Brussels and is a constituent of the Euro stoxx 50 index. It has secondary listings on the New York and Johannesburg Stock Exchanges.

Universidad Finis Terrae

Prof.: Manfred Bräuchle

Analysis of ABInbev and merger with SAB Miller

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Below you can see a historic timeline with all major decisions that have been taking since the origin of the company.

SABMiller is a multinational brewing and beverage company headquartered in London, England. It is the world's second-largest brewer measured by revenues (after the BelgianBrazilian-American-Anheuser-Busch InBev) and is also a major bottler of Coca- Cola. Its brands include Fosters, Grolsch, Miller, Peroni and Pilsner Urquell. It has operations in 80 countries world-wide and in 2009 they sold around 21 billion liters of beverages. SABMiller's origins date back to the foundation of South African Breweries in 1895 where they served a growing market of miners and prospectors in and around Johannesburg. Two years later, it became the first industrial company to list on the Johannesburg stock exchange. From the early 1990s onwards, the company started to expand progressively, making several acquisitions in both emerging and developed markets. In 1999, it formed a new UK-based holding company, SAB plc, and moved its primary listing to London. In May 2002, SAB plc acquired Miller Brewing, which is well- known as SABMiller plc. SABMiller has a primary listing on the London Stock Exchange and secondary listing on the Johannesburg Stock Exchange and is a constituent of the FTSE 100 Index. We are going to talk about the merger between AB InBev and SABmiller plc in this paper. We have analysed the internal and external effects of the merger with SABmiller but we will mainly talk about the part of AB InBev’s point of view. By discussing and deciding on how we would attack this paper we came to the conclusion the first make a complete external analysis followed by an internal analysis. After that we will discuss the strategic purpose and last but not least we will discuss the business & corporate strategy. Universidad Finis Terrae

Prof.: Manfred Bräuchle

Analysis of ABInbev and merger with SAB Miller

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External analysis

4.1

PESTEL

The focus for the PESTEL analysis lays on AB InBev. Now that the merger between AB InBev and SABMiller is completed, we can say that SABMiller will have a very similar PESTEL analysis.

4.1.1 Political AB InBev and any of its subsidiaries has a zero tolerance when it comes to fraude, bribery and corruption in particular. All employees are also expected to comply with the applicable laws and regulations and they have to maintain the highest ethical standards of business conducts at any time. AB InBev states all of this and many other important rules and regulations in its “Code of Business Conduct” which is designed to help the employees to comply with the “AntiCorruption Laws”.AB InBev has always been a company with high responsibilities, important values and a well-organized corporate governance in particular. Human Rights have been at the top of AB InBev’s agenda since a few years with child labor, forced labor and freedom of movement and association, discrimination, Global Human Rights Policy and so on as main focus areas. 4.1.2 Economical Export markets have a huge importance for AB InBev because most of the company’s sales are headed towards other countries. These export markets can have a lot of complications such as the currency exchange rate, laws and other regulations. There are also different product cycles for different countries. The stock value of AB InBev (ABI on the stock exchange) has been rather steady the past few Universidad Finis Terrae Prof.: Manfred Bräuchle

Analysis of ABInbev and merger with SAB Miller

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months, and it has been growing rather well the past few years.

4.1.3 Social Social responsibility is very important to AB InBev as we can read in the paragraph on the website: “Bringing People Together For a Better World”. AB InBev is constantly raising the bar for themselves and for the stakeholders, AB InBev keeps working together to reach and exceed its goals. AB InBev organizes a lot of social campaigns all over the world such as the “Responsible Drinking” campaign in the USA and in Belgium, which has a huge impact on road accidents and deaths in traffic.

4.1.4 Technological The technology used by AB InBev is up-to-date and they keep innovating and renovating because they have to. Innovations and renovations are needed to stay competitive but also to stay within the parameters of the rules and regulations set by the governments. Innovations and renovations such as a recently launched app, continuous logistic improvements, new vending machines, different product packaging materials, new technologies that produce more ecological, etc. are part of AB InBev’s success.

4.1.5 Environment AB InBev has recognized that companies play a very important and leading role in the world’s environmental issues and challenges such as climate change and water scarcity in poverty countries.There are a few ways to contribute to these environmental issues in a positive way and AB InBev participates in a lot of them. As AB InBev states on their website: “We also know that real progress can only be made through the collective action of companies, communities, NGOs, governments and other stakeholders. That is why we participate in such initiatives as United Nations (UN) Global Compact, the UN Environmental Programme, the UN CEO Water Mandate, of which we are a steering committee member, and the Beverage Industry Environmental Roundtable.”, we can conclude that AB InBev is working very hard to increase Universidad Finis Terrae

Prof.: Manfred Bräuchle

Analysis of ABInbev and merger with SAB Miller

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the efficiency and to reduce the negative impacts in the value chain of their products.

Below you can find an infographic showing the Global Environmental Goals that AB InBev wants to reach by 2017. The goals or targets are divided into different categories but they all have the same end result in common.

Univer

Bräuchle

Analysis of ABInbev and merger with SAB Miller

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4.1.6 Legal AB InBev mainly produces and sells alcoholic beverages, which means that the government almost always interferes in every continent and in every country where they have sales. The government interferes mostly because alcohol can only be drunk from a certain age, another interference by the government is the taxes on alcoholic beverages. With the AB InBev and SABMiller merger, Asian countries’ governments have set extra rules and regulations “against” the AB InBev and SABMiller merger and against AB InBev in particular because AB InBev is slowly monopolizing the worldwide beer market. These extra rules and regulations made it possible for Asian brewers to buy “parts”, sections or products of SABMiller from AB InBev. To conclude; The PESTEL analysis proves that ABInbev has a quite stable external environment. The key reason behind this might be because it operates in the (Food and) Beverages industry. This means consumers might reduce consumption partially but will not stop buying completely.

4.2

Porter’s 5 Forces Framework

Below you can find the results of the 5 Forces Framework of AB InBev. 4.2.1 Force 1: Threat of entry The threat of entry is medium. Beer is rather easy to start brewing but to be competitive is very difficult. The market is open but is controlled by a handful of brewers/companies that “rule” the market. The market is an oligopoly and this makes it difficult for new brewers (competitors) to be competitive on the world market but they can certainly be competitive on local markets. The big brewers have significant economies of scale, the ability to spend large amounts on branding, marketing, and promotions, as well as somewhat of a lock on both the limited shelf space of the retailer as well as the distributor/wholesale channel with regulations limiting the number of Universidad Finis Terrae Prof.: Manfred Bräuchle

Analysis of ABInbev and merger with SAB Miller

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distribution agreements on a regional basis. In addition, the process of brewing beer is very capital intensive with the manufacturing process and the branding involved. Lastly, as alluded to above, the industry is highly regulated and taxed on both a federal, state, and even local level. 4.2.2 Force 2: Threat of substitutes The threat of substitutes in the beer industry is very high. A lot of alcoholic beverages can replace a cold, refreshing beer. There is a price ceiling on beer, which will always make it reachable for everybody and this is why consumers will not immediately buy substitutes. 4.2.3 Force 3: The power of buyers For AB InBev, its beer is a B2B product. The beer industry handles a three-tier distribution system where the distributors are the gateway to the consumers.The power of the buyer is really high. 4.2.4 Force 4: The power of suppliers Competitive pressure from supplier bargaining power is...