South African Breweries

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South African Breweries

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See also: Miller Brewing, SABMiller, Castle Brewery,


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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 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 Zimbabwe. This subsidiary spearheaded SAB�s initial international expansion efforts, having established new breweries in Zambia and Bulawayo 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 the buying of Compa��a 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 and Ursus, which are all still being produced. In 2002 it acquired Miller Brewing and created SABMiller from the merger.

Human Resources Policy and Practice

In 1998, the SAB Group employed 81,000 people worldwide. Despite the group�s rapid expansion, greater than half of that number had served more than five years. In 1997, approximately 56,000 employees underwent management, technical, or basic skills training at a cost of R161 million. Through scholarships and donations to universities and business schools, the group also contributed significantly to non-corporate educational projects in South Africa.

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.

Beer Interests

CEO Graham Mackay defined SAB�s mission as follows:

"SAB�s core business and competence is in providing �cold beverage refreshment� � primarily beer production, marketing and distribution in emerging, transitioning, and developing economies and the Republic of South Africa remains the center of SAB�s geographic focus."

Within South Africa, SAB distributed beer and other beverage products through group-owned liquor retail outlets and hotels. In addition, the beer division indirectly distributed products to the country�s 150,000 shebeens (illegal taverns) and provided them with thousands of free refrigerators. SAB�s distribution network was also augmented by a fleet of independent truck drivers comprised mainly of former employees, many of whom had received help from the group to start their own businesses.

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.

As if in recognition of the futility of competing against SAB, some potential competitors chose a different route of entry. Heineken and Guinness, two well established international brands, were licensed to the beer division, and SAB thereby became the sole distributor of these products in South Africa.

This did 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.

Nevertheless, executives at SAB were confident in their ability to compete against any new entrants from the United States.

International Division

An important conjuncture in the company�s history came in 1983 when SAB made its first major foray outside of the African continent and purchased Rolling Rock Brewing Group in the United States.

While the Rolling Rock experience gave SAB the needed confidence to look beyond Africa, anti-South African sentiment in the US ultimately led SAB to divest itself of this highly successful brand. Nevertheless, the sale generated sufficient foreign currency to secure additional international investments, which, with South Africa�s exchange controls, would have otherwise been impossible.

In 1990, the Soviet Union collapsed, thereby opening the door to free enterprise in Eastern Europe. State enterprises were being privatized at seemingly attractive prices. Breweries were no exception, and seeing an opportunity, SAB began to invest heavily in breweries in Hungary (1993), Romania, Poland (1996), Slovakia (1997), and Russia (1998).

In 1994, the company also purchased the second largest brewery in China through a joint-venture with a local state-owned enterprise. From this beachhead, SAB subsequently purchased four additional brewing operations throughout the People�s Republic (SAB International operations are described in exhibit 2).

SAB�s international strategy was to focus on well-established brands in underdeveloped countries, and to concentrate on �cheaper brews in an effort to woo mass market drinkers.� These were also markets where state intervention in the private sector had been significant, and often local governments continued as major shareholders.

In China, the benefit of this approach became clear when the Chinese government denied a license to a competitor that did not have a government �partner,� in order to protect �local brands from foreign competition.�

Nevertheless, approximately half of SAB�s international operations were located within the SADC, where distribution agreements and knowledge of African markets gave the group specific competitive advantages.

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.

Distribution of soft drinks was similar to beer. SAB gave free refrigerators to small restaurants and shebeens, but used a separate trucking fleet.

Diversified Interests

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.

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.

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.


  • "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.

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Image:Wikipedia-small.png Wikipedia article about South African Breweries (search). This article uses material from that article.

South African Breweries

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