South African Breweries


The South African Breweries Limited
Subsidiary
Industry Consumer goods
Founded 1895 (Johannesburg)
Headquarters Johannesburg, South Africa
Area served
 Southern Africa
Key people
 Norman Adami[1]
(Chairman and Managing Director)
Products Beer, soft drinks
Number of employees
 Approximately 9,400[2]
Parent SABMiller
Website SA Breweries

South African Breweries (officially The South African Breweries Limited, informally SAB) is a brewing and bottling company headquartered in Johannesburg, South Africa and a wholly owned subsidiary of SABMiller. It is the dominant brewing company in South Africa, with a market share of around 89 per cent.[3]

The company was founded in 1895 as Castle Breweries to serve 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 and the year after (1898) it listed on the London Stock Exchange.[4] In 1950, SAB relocated its headquarters and control from London to South Africa.[4] From the early 1990s onwards, the company increasingly expanded internationally, 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, forming SABMiller plc.

SAB operates seven breweries in South Africa with an annual capacity of 3.1 billion litres.[2] Its principal beer brands are Carling Black Label, Castle Lager, Castle Lite, Castle Milk Stout and Hansa Pilsener.[2] Its soft drinks division, Amalgamated Beverage Industries, is the largest producer and distributor of Coca-Cola brands in Southern Africa.[2] SAB also owns a hop production company (The South African Breweries Hop Farms), a barley farming company (The South African Breweries Barley Farms), a barley malting company (The South African Breweries Maltings) and holds a 60 per cent stake in the metal crown manufacturer, Coleus Packaging.[2]

History

Brewing in South Africa

Main article: Castle Brewery

Prior to incorporation in the year 1895, Castle Brewery had operations in Cape Town to serve the steady expansion of a settler community from the mid-17th century. 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 Swede 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.

In 1955, the South African 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 later, the company purchased its two main competitors, Ohlsson’s and Chandlers Union Breweries, 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 approximately 98 per cent share of the South African beer market and was considered one of the lowest cost producers of beer in the world.

Within South Africa, SAB distributes beer 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 billions of rands 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. In 2004, a new company was established in South Africa known as brandhouse through a joint venture of Diageo, Heineken and Namibian Breweries. brandhouse started marketing, selling and distributing some of the world’s top premium brands such as Heineken and Windhoek and in March 2007, the 40-year agreement between SABMiller plc and Heineken N.V. which allowed SAB Ltd to brew and distribute Amstel Lager in South Africa, was terminated, sparking a new era of competition for the industry. At the same time, Heineken announced its intention to build its own brewery in South Africa. SAB Ltd launched a new premium brand, Hansa Marzen Gold shortly thereafter and continued its expansion into premium brands with the launch of Dutch heritage beer, Grolsch, following SABMiller’s acquisition of Koninklijke Grolsch N.V. in early 2008. Dreher Premium Lager was launched in South Africa the same year, and the company has made a number of innovations in the spirit cooler and apple-ale categories in recent years.

Soft drinks

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.

1997, SAB subsidiary, Amalgamated Beverage Industries, 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. Pepsi, however, re-entered the South African market in 2006.

In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries Limited (ABI), which became the soft drink division of SAB Ltd, and the largest beverage company in South Africa was created.

Plate glass

In 1917, the group began to venture into unrelated businesses when it agreed to take over a failed glass manufacturer, Union Glass, to counter the acute shortage of bottles during World War I. In 1954, Union Glass merged with Consolidated Glassworks and this business was sold off in 1960 to Anglovaal Industries. The company became an important player in international glass manufacturing when it acquired the Plate Glass Group in 1992.

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 Plate Glass 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.

Recognising the need to enhance long-term shareholder value, in 1997 SAB returned to its core beverage business, locally and internationally, selling off or closing non-core operations over the next few years. Amongst these was the Plate Glass business.

Entertainment and hospitality

Although SAB (then called Castle Breweries) 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 for several years thereafter. 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 black empowerment transaction facilitated 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 Southern Sun Hotels, then the largest hotel group in southern Africa as well as Tsogo Sun, a leading casino operator in South Africa.

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 preferences 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. Later SAB also sold its minority stake in Edgars Fashion Group.

SAB no longer holds any manufacturing or retail assets.

International expansion

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 1970s and 1980s 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.

In 1994, SAB was invited to revitalise the beer industry in Tanzania – a joint venture with that country's government in Tanzania Breweries Limited – and to re-enter the beer markets of Zambia, Mozambique and, later, Angola. This followed one of its first foreign investments into the Canary Islands. Expansion continued into Africa in the 1990s and on other continents into Hungary (1993), China (1995), Romania, Poland (1995–96), Slovakia (1997), and Russia (1998), the Czech Republic (1999), India (2000) and Central America in 2001.

The group’s expansion into Asia started with its 1995 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 plc entered the Indian market where it has subsequently increased its commitment.

By 2001, turnover from SAB plc's international operations accounted for 42% of group turnover. The same year, a pan-African strategic alliance with the Castel group offered the opportunity to invest in promising new African markets and the benefits of scale economies.

Involvement in Central and South America started in 2001 with the acquisition of Honduran and Salvadoran 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.

By the end of March 2009, SABMiller produced global lager volumes of 210 million hectolitres, with total group revenues of US$25,302m.

Controversy

In 2004 the South African Competition Commission began an investigation into anti-competitive behavior by South African Breweries (SAB) after receiving complaints from liquor distributors. It is alleged that SAB colluded with third party distributors to carve up the South African beer market and curb the ability of distributors to stock its rivals products. It is also alleged that SAB gave/gives preferential discounts to preselected distributes and used them to fix prices.[5][6]

If found guilty SAB could potentially be fined 10% of its annual turnover.[5]

SAB argues that its distribution practices are economically efficient, highly competitive and, therefore, contributes to consumer welfare. As such, so SAB argues, it is entitled to continue delivering and selling its brands in the most profitable way it can.[5] The hearings started on 11 August and are expected to continue until 27 February 2011.[6]

References

  1. ↑ "Management". The South African Breweries Ltd. Retrieved 5 December 2011.
  2. ↑ 2.0 2.1 2.2 2.3 2.4 "Corporate Brochure". The South African Breweries Ltd. Retrieved 5 December 2011.
  3. ↑ "SABMiller says Heineken calls time on Amstel licence". Reuters. 13 March 2007. Retrieved 5 December 2011.
  4. ↑ 4.0 4.1 http://www.sabmiller.com/index.asp?pageid=48 SABMiller Heritage
  5. ↑ 5.0 5.1 5.2 "No chance for independent distributors against SAB". Mail & Guardian Newspaper. Retrieved 12 August 2010.
  6. ↑ 6.0 6.1 "SAB antitrust hearing cut short". Business Day. Retrieved 11 August 2010, AllAfrica.com. Check date values in: |accessdate= (help)

Further reading

External links