South African Breweries

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South African Breweries
Location	Johannesburg, South Africa
Owner(s)	SABMiller
Year opened	1895
Active beers
Castle Lager	Lager
Castle Lite	Light lager
Castle Milk Stout	Stout
Carling Black Label	Lager
Hansa Pilsener	Pilsner
Hansa Marzen Gold	Marzen
Sterling Light Lager	Light Lager
Peroni Nastro Azzurro	Lager
Miller Genuine Draft	Draft
Pilsner Urquell	Pilsner

South African Breweries was founded in 1895 by Jacob Letterstedt specifically to serve a new 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 (JSE). It has been a dominant player on the exchange ever since. In 2002, the company merged with Miller Brewing Company, forming the world's second largest brewery; the combined company is now known as SABMiller.

In 1955, the government introduced a heavy tax on beer products causing many consumers to switch to spirits. However, the subsequent shock to the South African beer industry proved to be a blessing in disguise for SAB. A year after the introduction of the policy, the company purchased its two main competitors, both of whom were struggling under the depressed demand for beer. After the acquisitions the new and larger SAB was able to rationalize operations, thereby reducing costs and increasing profitability. By 1998, SAB commanded a 98 per cent share of the South African beer market and was considered one of the lowest cost producers of beer in the world.

The company’s earliest international venture was in 1910 when it founded Rhodesian Breweries in Southern Rhodesia, now Zimbabwe. This subsidiary spearheaded SAB’s initial international expansion efforts, having established new breweries in Northern Rhodesia, now Zambia and Bulawayo, Southern Rhodesia, in the early 1950s. Further international expansion came in the 1970’s and 1980’s with the establishment of breweries in Botswana, Angola, and the buying of Compañía Cervezera de Canarias of the Canary Islands. Nevertheless, prior to 1990, SAB remained primarily focused on domestic opportunities.

From 1990 to 1998, group turnover had increased by a compound rate of 17 per cent per year, and earnings had grown by 18 per cent per year. With brewing operations in 19 countries and a total annual capacity of nearly 43 million hectoliters, SAB was the fourth largest brewing group in the world. It was also the third largest conglomerate in South Africa, behind De Beers and Anglo American.

As its name implies, the company was based in South Africa and focused chiefly on African and East European markets. In 1999, it moved its headquarters to London in an effort to enter the international market. Its biggest brands at the time included Pilsner Urquell, Castle Lager, Lech and Ursus, which are all still being produced. In 2002 it acquired Miller Brewing and created SABMiller from the merger.

As the South African subsidiary, SAB Ltd is still the largest contributor to SABMiller’s global earnings.

In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries Limited, which became the Soft Drink division of the South African Breweries Limited, and the largest beverage company in South Africa was created.

Contents 1 Early History 2 Human Resources Policy and Practice 3 Beer Interests 4 International Division 5 Complementary Beverages 6 Diversified Interests 6.1 Plate Glass 6.2 Entertainment and Hospitality 6.3 Other Manufacturing and Retail 7 References

[edit] Early History

Prior to incorporation in the year 1895, the predecessor of SAB had operations in Cape Town to serve the steady expansion of a settler community from the mid-1600s. The demand for beer prompted the first Dutch governor, Jan van Riebeeck, to establish a brewery at the Fort (later replaced by the Castle in central Cape Town) as early as 1658 - beating the first wine production by six months. In the same year, Pieter Visagie brewed the first beer from the waters of the Liesbeeck River. Over the next 200 years, brewing made its mark in the Cape and beyond. Noted brewers of the time included Cloete at the Newlands Brewery; Ohlsson at the Anneberg Brewery; Letterstedt at Mariendahl Brewery - also in Newlands: Hiddingh at Cannon Brewery; Martienssen at the Salt River Brewery, and a second Cloete in Kloof Street.

One of the key figures in the story of Newlands, and in the annals of South African beer manufacturing history, was Norwegian Anders Ohlsson, who sailed for Africa, aged 23, in 1864. Initially, he imported Swedish goods and timbers, and developed an extensive trade network and a solid business empire. Then he turned to brewing, basing himself at Newlands, where he produced Lion Lager. Castle Breweries, Ohlssons and Union Breweries merged with South African Breweries in 1956.

[edit] Human Resources Policy and Practice

SABMiller has 67,000 employees worldwide and SAB Ltd has about 8,800 in South Africa. One of its five company values is that its people are its enduring advantage and, therefore, the company aims to be a global and local employer of choice. SABMiller's employees are supported with world-class training and development. Being a learning and self-refreshing organisation is one of the highest priorities for the business.

In pursuit of this learning culture, SABMiller has developed a Global Action Learning Programme, designed to hone the strategic and leadership skills of its senior managers.

The SABMiller ‘Ways’, a set of tools, common terminologies and processes developed centrally but applied locally, are intended to deliver a consistent approach to manage and integrate core disciplines. They provide a platform for the exchange of knowledge which will result in rapid and ongoing improvement of performance.

Each company, including SAB Ltd, has employment policies which are appropriate to its business and markets and which attract, retain and motivate quality employees. SAB Ltd has consistently been rated as one of the top companies to work for in South Africa and last year, MBA students nationwide voted it the company they would most like to work for.

The SAB Group was the first major corporation in South Africa to publish a “code of non-discriminatory employment,” in which the group promoted a policy that "…encourages and implements the inclusion and advancement of black and female persons in managerial capacities throughout every aspect of the Group’s activities and encourages black business within all the Group’s commercial associations."

Consequently, there was a widely held belief that the country’s “best black managers” had received their training at SAB. With the fall of Apartheid, other “white” companies were scrambling to recruit black managers in order to appear favorable to the ANC government. However, outside of SAB, with its own internal training programs, there was a dearth of qualified blacks to fill these positions, and SAB’s black managers became highly sought-after by other companies.

[edit] Beer Interests

Within South Africa, SAB distributes through its extensive network, augmented by a fleet of independent truck drivers (called owner-drivers) comprising mainly former employees, many of whom had received help from the group to start their own businesses. SAB has invested about R3-billion in this owner-driver project since inception.

Although several international brewers, such as the UK’s Whitbread, had tried to enter the South African market, all had thus far failed to gain significant market share. From time to time, new startups also tried to challenge SAB’s monopoly, but these had either gone out of business, or been acquired by SAB. A case in point was National Sorghum Breweries (NSB), “a black business consortium” founded in 1990, and the first new player in the beer industry in more than 10 years. “SAB’s supremacy is under threat,” observers said, and some thought that within a few years NSB could achieve 10 per cent market share. Instead, the company ran into financial difficulties and failed to gain any significant share of the market.

This does not mean that SAB’s position could never be threatened. “The one thing we dare not ever believe is that 98 per cent of the market is always going to be ours,” commented the group’s vice chairman. In fact, Anheuser-Busch was known to be considering the possibility of establishing operations in South Africa. One analyst noted:

Of the world’s top ten beer markets, South Africa is one of the two in which the giant American brewer has no representation. The group would be prepared to pay a lot of money to gain a foothold here.

[edit] International Division

By 1993 the South African political situation was irreversible. SAB was invited to extend production into Tanzania, Zambia, Mozambique and Angola and one of its first foreign investments was in the Canaries. Further expansion was into Hungary (1993), Romania, Poland (1995-96), Slovakia (1997), and Russia (1998).

The group’s expansion into Asia started with its 1994 negotiation of joint control of the second-largest brewery in mainland China with China Resources, a privatisation arm of the government of the People's Republic of China. Further investments included those in the Harbin Brewery Group and the Fuyang City Snowland Brewery. In 2000 SAB entered the Indian market where it has subsequently increased its commitment.

Involvement in Central and South America started in 2001 with the acquisition of Honduran and salvadorean breweries. This was followed four years later by the purchase of a major holding in Grupo Empresarial Bavaria, South America’s second largest brewer.

One of its largest transactions was with the Miller Brewing Company in the US in 2002, whereupon the listed company changed its name to SABMiller plc.

[edit] Complementary Beverages

In 1925, SAB expanded into other beverages after purchasing a large share in Schweppes (soft drinks). In 1960, the group purchased a controlling interest in Stellenbosch Farmer’s Winery, which, along with Distillers Corporation, contributed R98 million to group earnings in 1997.

In 1982, the group purchased Coca-Cola’s bottling facility, Appletiser, and in 1997, SAB purchased another Coca-Cola bottler, Suncrush, thereby doubling market share to approximately 60 per cent of South African soft drinks. PepsiCo, SAB’s only competitor, withdrew from the market in 1997 resulting in the liquidation of Pepsi franchisees.

In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries Limited, which became the Soft Drink division of the South African Breweries Limited, and the largest beverage company in South Africa was created.

[edit] Diversified Interests

[edit] Plate Glass

In 1917, the group began to venture into unrelated businesses when it agreed to take over a failed glass manufacturer in support of South Africa’s European war effort. However, it was not until 1992, when SAB acquired the Plate Glass Group, that the company became an important player in international glass manufacturing.

The Plate Glass Group traced its roots to a British immigrant and entrepreneur who, in 1897, established a plate glass manufacturing operation in Cape Town, South Africa. Eventually the company became a leading producer of safety and bullet-proof glass for automobiles. In 1987 the company launched a new subsidiary in the United States in partnership with SAB and Anglo American. When Glass medic, a US-based windshield repair and replacement company, was acquired in 1990, the South African parent company merged the subsidiaries under the name Belron International. Belron became a base from which to launch further acquisitions. When SAB purchased the company in 1992, it was renamed Shatterprufe Limited.

Belron had by 1998 become the world’s leading producer of automotive replacement glass, with some 1,865 retail outlets in North America, Europe, Australia, and Brazil. Growth had come mainly through acquisitions. In 1997, Belron acquired several leading brands, including Standard Autoglass in Canada, thereby becoming “the largest player in the North American Markets.” Worldwide market share was on the order of 18 per cent, and SAB envisioned further expansion in the coming years:

[Belron] can confidently anticipate significant growth in market share over time. Other growth opportunities include the Asian market.

In Europe, Belron was opening an average of 12 new outlets per month. While sales had increased by five per cent in 1997, earnings had declined eight per cent to R255 million as a result of the borrowing costs associated with new acquisitions and expansion.

SAB no longer holds an interest in this asset.

[edit] Entertainment and Hospitality

Although SAB had established the first pub in South Africa in 1896, it did not begin to invest heavily in service industries until 1949 when an aggressive expansion thrust saw some £4.5 million invested in hotels and pubs, as well as additional brewing facilities.

In 1969, these interests were merged with a hotel chain owned by Sol Kerzner, a Russian immigrant, to form a separate subsidiary known as Southern Sun Hotels. Kerzner remained with Southern Sun as its managing director. In 1983 Kerzner left SAB, but remained a significant shareholder in the company.

Southern Sun eventually grew to become the leading hotel chain in South Africa, with franchises awarded by Holiday Inn and Inter-continental Hotels. By 1998, this subsidiary owned 74 hotels with 12,200 rooms, or about 22 per cent of industry capacity. Southern Sun also maintained a minority interest in an eco-tourism company.

Development of new hotels depended on securing licenses from the government, “as the state still owned large tracts of land in both urban and rural areas.” Moreover, suitable locations for hotel and resort development were very limited, and local government officials often did not have the training and expertise needed to make informed decisions about the granting of such licenses. Resulting delays had cost the industry millions of dollars.

Nevertheless, several international hotel chains decided to enter South Africa after the lifting of economic sanctions. By 1998, numerous hotels were under construction by Hyatt, Sheraton, Howard Johnson's, Days Inn, Hilton, Best Western, Concorde (France), Le Meridian (France), and Relais de Chateau (France), among others. Most new hotel development was in the executive and luxury segments of the market. In less than four years, industry-wide capacity had more than doubled, and as a result, the hotel industry began to experience significant over-supply. Combined with a weak currency, this translated into some of the lowest room rates in the world.

Although escalating levels of violent crime had been a serious constraint for South African tourism, Southern Sun had been able to maintain an average occupancy above 70 per cent. In 1997, hotel earnings increased by 16 per cent over the previous year to contribute R182 million to group earnings.

The government introduced the National Gambling Act in 1996, which allowed for up to 40 casino licenses to be issued to “financially competent operators.” In 1997, SAB entered into a joint-venture with Tsogo Sun Gaming and Entertainment to establish up to eight casino resorts to be completed as early as 2000. Monte Casino would be the first of these developments to be completed at an expected construction cost of $250 million.

The most notable leisure industry transaction by SAB was Tsogo Investments in early 2003. The transaction, which had an implied value of approximately R1.9-billion, meant that empowerment group Tsogo Investments acquired control of the largest hotel group in southern Africa, Southern Sun Hotels, as well as Tsogo Sun, a leading casino operator in South Africa.

[edit] Other Manufacturing and Retail

Further diversification came in 1967 with the establishment of a new subsidiary known as Food Corporation (coffee, tea, and food products). An even larger diversification push was undertaken in the 1970s and 1980s, when the SAB group of companies purchased or established numerous unrelated operations including grocers (OK Bazaars), furniture factories and stores (Associated Furniture Company), shoe factories and stores (Shoecorp), and clothing stores (Scotts Stores and Edgars Fashion Group). In 1996, more than 20 per cent of SAB’s workforce was employed in these companies.

Changes in consumer preference towards less expensive goods had a negative effect on the premium retail market in the mid-1990s. SAB off-loaded the OK Bazaar grocery chain in 1997 for one Rand, after losing nearly R20 million per month. And at the beginning of 1998, the Clothing and Footwear, as well as the furniture divisions were also sold. SAB remained a minority shareholder in Edgars Fashion Group, but contribution from this division was also in rapid decline.

SAB no longer holds any manufacturing or retail assets.

[edit] References

• "Bass Ginsber and South African Breweries," Business China, September 1, 1997.
• "Blackmailer's bluff called," Financial Mail, August 8, 1998.
• "Cagey SAB finally sees the writing on the wall on unbundling," Business Times, March 29, 1998.
• "Is the Worst Over for South Africa?" African Business, December 1998.
• "Lion of Africa, Brewer to the People," The Economist, September 9, 1995.
• "No Small Beer From This SA Giant," Accountancy, November 1997
• SAB Annual Report, 1998.
• "SAB flat as Johnnic brew confusion," Finance Week', November 20, 1998.
• "Shoprite Buys Ailing OK Bazaars For R1," The Cape Argus, November 4, 1997.
• "South Africa - Consular Information Sheet", US State Department, October 15, 1998.
• "South African Breweries," SG Equity Research, February 25, 1999.
• "South Africa’s Hotel Industry," Cornell Hotel and Restaurant Administration Quarterly, February 1999.
• "We’ll Double in a Decade," Money, July 1994.