SABs Strategic Position at 2007 - Essay Example

College: SAB’s strategic position as at 2007 South African Breweries (SAB) was re d SABMiller in 2002 after acquiring American brewer Miller. By the year 2007 it had become the second largest brewer by volume in the world. SAB Miller has also gone on to establish itself in many other countries around the becoming a multinational company. In the 2006 annual report SABMiller outlined four strategic priorities upon which its success depended upon. These strategic priorities were to develop a strong relevant brand portfolio in the relevant market, constantly raising the performance of the local businesses, leveraging its global scale and creating a balanced and attractive global spread of businesses (Hal, 2002). The company reviewed it’s its operations in the 2006 when SABMiller had just completed a three-year turnaround plan, establishing a platform for future growth. From that report it can be noted that in North America the company had made progress as it had continued to grow while giving better prices to the customers than its competitors in that market. SABMiller had heavily invested in that market which enabled it succeeds in price cutting without passing on the costs. It had a three year investment strategy which has enabled to remain strong despite tough conditions. From the foregoing, it can be deduced that SABMiller’s strategy in the North American market is heavy investment which in turn enables it lower prices hence driving out competitors (Hal, 2002). In relation to Europe SAB’s strategy was to increase its share and to expand its capacity. This was to be achieved through introduction of new brands and new packaging methods. This strategy has enabled it to increase its share, volume and expand its capacity in various European markets. SAB’s strategy in most of the countries has been to acquire an initial local stronghold firm to enable it advance into other markets which it had not penetrated before. It has achieved this by acquiring other brewing businesses in most cases to focus on brand portfolio which gives it a better market position, increases sales and to enjoy economies of scale in production and distribution. It seems that SABMiller has shifted its focus to developing countries having already established a substantial presence in the developed countries. It realised that its ability to succeed in developing countries has proved to be of advantage. This was noted in the company’s report of 2006. This strategy has to an increase in consumption of soft drinks by consumers in South Africa which in turn has led to increased sales ( Donald , 2008). To meet the demands of changing consumption patterns, SAB has introduced new sales and distribution systems and enhanced the flexibility of its production facilities. It has licensed more agents has brought more outlets into the mainstream. This means they can now operate more professionally and it can deliver to them direct - which in turn raises the performance of the business. The stakeholders expect that SAB’s businesses in Africa will continue to grow being helped by broader distribution and a clearer segmentation of SAB’s brands. The stakeholders also see plenty of opportunity to keep improving efficiency in these relatively underdeveloped countries and see the outlook for Africa as a whole to be encouraging. Possible strategic options open to SAB First of all, SAB can penetrate the market with its current products. This can be through heavy advertising or using any other strategy enable existing and potential customers get knowledge of its existing products. With this option, SAB needs to come up with a strategy to enable it increase sales to its current customers by convincing them without change of its original products. SAB can also gain competitors customers by improving the quality of its beer compared to that of its competitors. Since it is cheaper to retain current customers than acquire new ones, hence in this option SAB needs to improve its relationship with its current customers. Secondly, another strategic option for SAB will be to develop new products to cater for the same market. SAB can come up with new beer products to cater for its South African and other African markets which it has been selling its products, North American market and European market. This would mean coming up with significant new brands of beer and not just minor changes to the existing brands. This strategy would enable SAB to utilise its production capacity and counter competition which we have seen it facing. It would also enable it to maintain its reputation as a product innovator and to protect its market share. Using this strategy would enable SAB to move into markets and get customers that are not being catered for (Donald, 2008). The third strategy available to SAB will be market development. With this option SAB will be required to move beyond its current customer base to attracting new customers for its existing brands of beer. This would involve exploring of new international markets markets which it has not penetrated for example penetrating into the countries like south America and some Asian countries it has not established its market. This will entail exploring new segments of markets for its beer products, looking into new uses for its product or entering new geographical areas to enable it entice new customers. Fourthly, it’s the diversification strategy that is available to SAB. This would involve moving out of its currents products of beer and markets into new ones. This diversification could either be into related or unrelated areas. Advantages and disadvantages of each option Market penetration This strategy would enable SAB to increase sales without moving out of its original beer products or market. It is also important to SAB as it would enable it retain its existing customers which is easier than acquiring new ones. However, it might be difficult for SAB to convince its existing customers to use more of the product. One of the ways of getting customers to use more of the product is improving of quality of the product which might not be easy. It might also be difficult to gain competitors customers (Birgham & Daves, 2009). Product development This would enable SAB to counter entry of competitors into the market. It would also enable it to maintain its reputation as a product innovator and to protect its market share. Using this strategy would also enable SAB to move into markets and get customers that are not being catered for. However, it requires significant new product development and not just minor improvements to its existing beer products. Achieving this is costly. Market development It would enable SAB to penetrate new international markets hence increasing its market base. If customers will be able to discover the new uses of its products this would increase sales volumes. Furthermore, penetration of new markets might not be as costly as introducing new products. However, exploration and penetration of new segments of the market especially where competitors are established would be difficult. For example SAB’s entry into European market in the short run was costly (McQuade, 2004). Diversification Diversified business seems to grow faster especially in relation to unrelated businesses. It would also enable SAB to explore new products and new market areas. However, this would involve a lot of risk taking as SAB would be moving into unknown products or markets. From the above above evaluation product development strategy would fit SAB more as it would enable it to protect its existing market from competitors, maintain its reputation and increase its market share at less cost compared to other options (Birgham & Daves , 2009). References Birgham E F and Daves P R, 2009: Intermediate Financial Management, ( 10th ed), Cengage Learning, OH  Donald D, 2008, Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press. pp. 740 Hal Lux, 'Miller time (Mergers and Acquisitions). (South African Breweries acquires Miller Brewing Co.)', “Institutional Investor International Edition, vol. 28, no. 1 (2002)”. Hobday,N 'Tapped out', The Daily Deal, 8 September (2003). N. Chaloner and D. Brotzen, 'How SABMiller protects its biggest asset - its reputation', “Strategic Communication Management, vol. 6, no. 6 (2002), Oct./Nov., pp. 12-15.” McQuade A SABMiller Case Study “The Economist, The Battle of Big Beer, 13 May, 2004” Read More