Talking beer with SABMiller
Posting 2008/09 group revenues of over €17bn, the London-based brewery, which originally hailed from South Africa, stands like a tower in the global beer industry.
SABMiller has been one of the largest buyers on the European market and now runs domestic brewing operations in eight European countries.
Given Germany's long heritage in the 'amber nectar', it is strange that the company has never entered the country to date. An anomaly or simply a lack of opportunity? We wanted to know why.
"I'm a purist when it comes to beer"
We do, especially because of the association with beer and its heritage. The German beer market is still very fragmented with very few national brands that have achieved scale. So, although it is a large market, the opportunities are quite limited.
The biggest problem for us is that the value pool and profit levels of the organizations are quite small especially in a country where the off-premise retailer and especially the discounter have considerable power.
So you see more attractive opportunities elsewhere?
Of course, things change all the time, and it’s something which is monitored all the time, and who knows what the future will bring for us. It is possible that we will have a brewing operation in Germany one day, but nothing is planned.
In the past few years a number of major international competitors have entered Germany. Frightened of missing the boat?
No, we are not because we would have acted differently otherwise.
How much international marketing potential do German brands have?
There are many German brands with enormous potential and opportunity for the global beer market. It’s actually somewhat surprising that the German beer brands have not been more successful on the international market.
Why do you think that is?
One of the reasons is, perhaps, that they themselves are not global operations. In reality one of the things which allows you to take your brands global is having a global footprint, i.e., brewing and sales operations etc. in the first place.
So, if you look at the German brewers, they would typically rely on third-party distributors in adjoining territories etc. They are present in many of the global markets, but it’s not at scale, and that’s the issue.
So it’s a structural problem?
The reality is that there are very few family-owned operations in our industry that have managed, or even perhaps have had the desire to go truly global with their brand.
How big do you plan to become in Germany?
Obviously, we have no illusions that we will challenge the big German brewers. Our focus will be on the expanding premium end market in urban centres and on-premise. If we could achieve one million hectolitres in Germany, we’d be very pleased.
If you can get a brand to work in Germany, it gives you excellent international marketing credentials because Germany is an archetypal beer country.
Where do you see the major growth opportunities in Eastern Europe?
The Czech Republic is a large market, but has virtually reached maturity. So the biggest growth markets are Poland, Rumania, the Ukraine and, most exciting of all, Russia which could soon be a 100 million hectolitre market. I would not like to end my life with us having just 5 per cent of this market.
Why are you focussing your export business on Germany, Turkey, Scandinavia and Spain rather than starting domestic brewing operations in these countries? Isn’t it expensive to transport beer over long distances?
You have to be careful with export operations. People in our organization often get very excited very quickly about the export opportunity, but when you look at the opportunity, it is often much smaller than what it appears. You have to be very selective in the brand that you try to export, and you have to have a very clear idea of the consumer you are targeting.
What products are best suited for international export?
You typically want to go for premium international brands because you can sell them at a premium, which helps us to offset the transport, marketing costs etc.
How do you decide on which countries you will market your international brands to?
You have to pick the markets where you think you can build a volume base and achieve scale. So we are pushing Pilsner Urquell to get a level of scale in order to make enough profit for us to offset the transport and marketing costs.
So you’re not up to profitability yet?
That’s true; we’re building it to a position where we believe that it will be a substantial brand in the German market. We are investing ahead of the curve on that brand at the moment, and aim to be profitable soon.
Imports generally sell for more money than domestic beers and thus generate higher profits. In many less developed markets in Eastern Europe and Russia, international brands are growing by up to 30 per cent faster than local brands. Why not concentrate on just your international brands?
That would be a big problem because international brands in our portfolio today account for about 10 per cent of our volume. So the volume would be too small. The majority of today’s beer consumption is local brands, and that’s what we need to focus on.
SABMiller markets Miller Genuine Draft across Europe as an upmarket global beer. You also aim to tap into Europeans’ love affair with American brands. Hasn’t the post-Iran backlash against the U.S. in parts of Europe made selling the American dream a risky strategy?
No, we haven’t been selling the American dream, and there is no reference to America in our advertising. Miller Genuine Draft’s marketing platform is about urban lifestyle and fun and refreshment.
You market to the international beer premium segment in Russia, but how about the many poor consumers there?
Beer is an affordable aspiration very often. If I am someone of low income and I want to badge, indulge and treat myself, there are very few products where I can do that. Expensive watches and motorcars etc. are expensive. Premium brands are more expensive than a mainstream brand, but it is within reach of most people.
So it is not just wealthy consumers, the person in the street is drinking that product because it is an affordable aspiration with which they can feel special.
One of the global trends is the growing competition between big international brewers. Despite InBev’s move on Anheuser-Busch, the beer industry remains relatively fragmented. How likely is further consolidation among global brewers?
It’s impossible to predict this, one can only paint scenarios.
Would you care to paint us a scenario?
No, that might trigger something which could come against us. Of course, consolidation is likely especially as markets reach maturity, and there will certainly be lots of M&A activity on a regional level.
Do you intend to pursue your buying spree in Europe, and, if so, in what segments and countries are they most likely to be in?
It’s a constant assessment of what’s happening in Europe. In terms of likelihood, it is more to remain focussed on Eastern Europe. The reason for that is simply because almost all Western European markets are already consolidated and/or in the hands of our competitors.
There are really only niche opportunities in mature markets so they are therefore less interesting. The big brewers are nearly always present in Eastern Europe, but there are certainly still local brewers to be bought there.
Whereas in Western Europe, if you take number one or two, then you are at 90 per cent or something. There are only niche or craft brewers really left there.
Would you consider joint-ventures?
I would call that extremely unlikely. The key issue is to have outright control.
How does SABMiller regard increasing retail consolidation and internationalisation, will you offer them European buying terms & conditions for your international brands?
It depends on how the beer market shapes out in the future. But the reality today is that the majority of volume in almost every market is local brands so there is not much cross-border movement on the mass beer market. The brands which are moving across borders are the premium international brands at the top end of the market.
Why do you maintain differential pricing?
There are very different economic conditions in each one of our markets and very different VAT and excise regimes. However, the fundamental reason is different consumer spending power.
Have multi-national retailers like Carrefour or Metro Group knocked on your door and asked for pan-European terms and conditions?
Not yet. In our category the pressure is not there. Obviously that may come over time, and we will have to think about how we are going to react to that.
You work with retailers to market to your consumers effectively at the point of sale. What does it require to win at the POS?
By carrying through what we tell consumers about the brand above-the-line through to the point of sale, so that consumers have the same experience when they are at the POS as when they experience our brand imagery.
Does it worry you that, regardless of what your marketing and advertising promises, when consumers arrive at most supermarkets all they are presented with are crates of beer?
Of course, it’s much easier on-premise, but it’s also possible to continue our brand imagery off-premise. Obviously one of the key indicators is price. The price category will put you in a corner of the supermarket.
Then one can work on the form of packaging, for example, shelf-ready packaging providing easy access for consumers, as well as implement set displays, where possible.
Have you ever considered private label?
You can’t make money with private label — it’s a myth, and we don’t want to do it.
Where do you see the real growth areas in beer?
The mainstream beer category in Eastern Europe still has in the majority of markets good growth ahead of it, and that’s going to drive our volume and profit forward certainly for the next five years.
As the markets mature, it will begin to fragment into local premium, international premium and the lower mainstream economy.
Why have you never diversified into alco pops?
I don’t think that the reality of what alco pop producers are trying to do is the same as what some people might claim. But for us there is enough value and enough growth without it.
Also, how long will the fad last? It’s a very competitive environment and you can lose a lot of money.
How about mix-flavoured drinks?
As a purist I don’t like them, but fortunately personal opinions don’t count. They are already big in Poland where nearly 25 per cent of all beers are drunk with syrups. I think they have a future on both developed and developing markets.
Will you reduce the alcohol content of your beers should increasingly health-conscious consumers demand it?
Demand has not taken off in Europe, but should it be required, yes. However, this would come in the form of new products or new variants. You can’t just halve the alcohol content of an existing brand.