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FOREIGN MULTINATIONALS IN THE UK

REPORTON THE UK SUBSIDARIES OF

ORGANISATION & MANAGEMENT DEPT.

ISRAEL M. GICHAARASTUDENT NO: 18008857

NOVEMBER 2009

WORD COUNT: 1,612 WORDS

Overview

SABMiller is the world’s largest brewers, brewing and distilling a repertoire of premium beer and lager brands across six continents. Founded in 1895 as South African Brewers, it maintained a significant proportion of the Southern Africa market until the 1990’s when they made their first major acquisition in Europe, through acquiring a controlling stake in the Dreher Breweries in Hungary. Since then, their spread has been prolific across Europe and indeed the world. SABMiller was officially created through the merging of South African Breweries and the Miller Brewing Company in 2002. Since this merger, SABMiller has become a dominant force in the global alcohol market, as is signified by the fact that they produce six of the world’s top 50 beer brands (source: Wikipedia). Additionally, they are one of the largest bottlers of Coca-Cola products in the UK and the world (source: SABMiller). All this has contributed to SABMiller grossing $21.41 billion in the fiscal year of 2008, up from $18.26 billion the year before.

SABMiller operates in the UK through its subsidiary, Miller Brands UK. Although it doesn’t have any production in the UK, it exclusively markets, sells and distributes SABMiller imported brands in the UK and Eire. This business model is replicated across Europe where SABMiller doesn’t have brewing or distilling facilities (source: WARC). Through these business activities, it has managed to procure a 3.8% in the premium beer market (source: SABMiller). Among the premium brands that Miller Brands UK promote are Peroni Nastro Azzuro (Italy: 5.1%), Pilsner Urquell (Czech Republic: 4.4%), Miller Genuine Draft (USA: 4.7%), Lech (Poland: 5.2%) and Tyskie Pale Lager (Poland: 5.6%). It also bottles a wide range of Coca-Cola’s products i.e. Appletiser, Fanta, Coca-Cola, Grapetiser, Sprite & Tropical.

Why the UK?

The UK has a developing premium lager market, kick started by a shift in tastes and trends over the last 10 years. The lagging British brewing scene has been dominated by foreign products that provide greater provenance, taste, variety and quality (source: MORNING ADVERTISER), which plays

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into the strengths of Miller Brands product portfolio. Classy, light lagers have replaced traditional ales, bitters and stouts as the drinks of choice of young men between the ages of 18 – 30 in social scenes. Additionally, world beers have been the driving force behind the growth off-trade, rising by 17% over the last year. This is in appendage to still being the largest segment in the on-trade beer and lager market.

These shifting trends have helped firms such as Miller Brands to ride the economic storm that has affected most premium brand companies. According to MINTEL research, generation Y consumers (under 30’s & young professionals) refused to give up on premium brands as their parents did in the last recession of the 80’s. Their support of their everyday luxuries, such as premium beers, quality foods, toiletries etc. has been offset by refraining from purchasing ostentatious items e.g. cars, holidays etc.

This backing of premium products has assisted Miller Brands emphasize the uniqueness of their goods that suit that suit appreciative pallets that garn for products based on where and how they are produced, as opposed to their price or ABV, leading to a ‘cask vs. keg’ war. This has led to a new phenomenon of ‘WORTHMORE’ products that consumers will pay more for in order to treat themselves.

Miller Brands UK is based in Woking, in the southern county of Surrey (see appendix). Surrey is a very affluent part of the country, with the highest GDP per county in the country and the highest population of millionaires. Additionally, it is also home to the headquarters of a cluster of business giants, ranging from electronic supremos Samsung to car manufacturers Toyota. The county is renowned for its major services based economy, as is shown in the appendix.

As well as its affluence and large suitable labour pool, the town of Woking and its environs are blessed by a plethora of transportation links to London and the rest of the country. Three major motorways, namely the M3, M25 and the M23, pass through the country. Moreover, the A3 trunk road connects Surrey to both the South coast including the ports of Southampton, Portsmouth & Brighton, as well as London. The rail links to the county are equally impressive with London’s Waterloo, Victoria and London Bridge’s railway stations being a minimum of half an hour away. The countries two largest airports are also easily accessible, with Gatwick lying a mere 30 minutes away on the Surrey/Sussex border, and located an accessible 1 hour’s drive away.

The county is services by the South East England Development Agency (SEEDA) which also aids economic progress in Berkshire, Buckinghamshire, East & West Sussex, Hampshire, Kent, Oxfordshire and the Isle of Wight. As a regional development agency, they have facilitated the implementation of super fast internet connectivity for local residents and businesses. Their headquarters is in Guildford, Surrey, a short drive from Woking; with sub-quarters in Brunel, Kent and Brussels, Belgium.

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ENTRY STRATEGY

SABMiller’s entry strategy into the UK covers three main forms, namely importing, distribution and foreign production of intermediate services. Miller Brands UK is exclusively responsible for overseeing the importation of brands from the SABMiller catalogue, and distributing them as per their positioning within the market (see appendix). Additionally, they co-ordinate their bottling operations with Coca-Cola Enterprises, for whom they bottle a significant amount of products annually.

Through importing products, they are able to introduce a wide variety of brands from their various breweries around Europe and the world. This arrangement has also allowed them to take advantage of existing business agreements that exist with newly acquired brands, such as Peroni Azzuro (which has been imported into the UK since 1965 [source: SABMiller]).

Their distribution tactics have been crucial to the success of the firm. Through maintaining sole distribution rights in the UK, Miller Brand has managed to ensure that their products remain in the premium segment of the market (see appendix). Such meticulous manoeuvring has led to Peroni Azzuro becoming the UK’s number one bottled beer in restaurants (source: PR Newswire).

As aforementioned, Miller Brands UK also bottles on behalf of Coca-Cola, with bottling facilities located in Wakefield, Sidcup, Milton Keynes, East Kilbride and Colwall. This arrangement is part of SABMiller’s global strategy, with similar arrangements existing in Eastern Europe, Asia, Africa and Austrasia.

Through using utilising this business strategy, SABMiller has managed to benefit from a variety of factors. For one, they have managed to obtain quick access a large, established market and infrastructure. This has meant that they can focus their efforts on promotion and marketing their goods. Moreover, this has allowed them to save on the set up costs that would be required if the firm decided to set up its own manufacturing centre in the UK. Lastly, since the expansion of the European Union, the company has been able to take advantage of EU trade incentives in order to transport and position their products in various European markets, including the UK.

LOCAL & NATIONAL CONTRIBUTIONS

Miller Brands has contributed significantly to the Woking region over the past few years. By being part of the Surrey business cluster, it has generated 93 more services industry jobs in the area by, with 67% of the staff earning over £35,000 p/a (source: Best Companies Guide), the firm has contributed towards improving the local environment and quality of life for local residents. Miller

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Brands supports the local Woking Hospice, which provides care and advice for people ailing from terminal diseases (source: SABMiller). Moreover, they sponsor staff days where their staff volunteer at the Surrey Care Trust and help clear local canals and sites of public beauty (source: SABMiller). Moreover, their presence in the area as part of the Surrey service & innovation business cluster (including McLaren Mercedes’ R&D centre in Woking) should only serve to better improve the area more. This is based on the argument of A. Johnstone (2009) where he states that knowledge based economies develop faster than their production based counterparts.

They have also contributed to the UK’s welfare, particularly through reducing emissions by reducing the weight of their bottles by 8%, saving 1000 tonnes of glass annually, and reducing emissions by 650 tonnes (source: SABMiller). They are also working with engineering consultants, Danfoss, to work on further improving their energy efficiency.

On the reverse hand, their presence in the UK has had drawbacks. Their advertisement campaigns have been accused of over-romanticising alcohol consumption, and therefore contributing to the pandemic of underage drinkers in the UK; as well as functional alcoholics.

Furthermore, they have been faced by opposition from traditional brewers who claim that fancy foreign imports, such as those on Miller Brands books, have crowded them out of the market. This has led to groups such as CAMRA campaigning for government legislation to be implemented in order to protect the interests of national and local brewers (source: CAMRA).

THE FUTURE

The future appears to be bright for Miller Brands UK. At the foremost of their oncoming business opportunities are the benefits that they are reaping from the influx of Eastern European migrants to the UK. Miller Brands distribution of their Polish beers, Lech and Tyskie, has risen drastically since 2004. Tyskie, Poland’s number one beer, experienced a 400% rise in sales between the summer of 2004 and that of 2006. This is expected to rise with as immigration increases, however, they already have a pretty vast market to target with an estimated 497,000 Polish immigrant living in the Great Britain already (source: Wikipedia).

Additionally, the UK already has a strong premium lager market which has weathered the economic storm better than other premium products. Based on this fact, it would seem things can only get better for Miller Brands UK.

On the short side, as shown in the appendix, by carrying out a Porter’s competitive forces analysis of the firm, they face threats from within the alcoholic market. Cheaper options are more suited to younger drinkers, particularly of university age, and people on budgets. This could affect Miller Brands attempts to obtain a larger market share of the UK market. Similarly, the threat posed by campaigners for British ales and ciders could mean legislative controls limiting the firms expansion strategy in the UK.

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Bibliography

WORLD BEERS OUTPERFORMING LOCAL PRODUCE - http://www.morningadvertiser.co.uk/news.ma/article/85038?PagingData=Po_0~Ps_10~Psd_Asc

ROLE OF MILLER BRANDS WITHIN SABMILLER - http://www.warc.com.lcproxy.shu.ac.uk/ArticleCenter/Default.asp?CType=A&AID=WORDSEARCH81809&Tab=A

PERONI #1 BEER IN RESTAURANTS –

http://www.prnewswire.co.uk/cgi/news/release?id=156115

PREMIUM BEERS LESS AFFECTED BY RECESSION - http://www.sabmiller.com/index.asp?pageid=149&newsid=943

STAFF INFO AT MILLER BRANDS UK - http://www.bestcompaniesguide.co.uk/company_profile.aspx?CompanySurveyID=40703

FOREIGN POPULATION OF UK –

http://en.wikipedia.org/wiki/Foreign-born_population_of_the_United_Kingdom#cite_note-4

ENVIRONMENTALLY FRIENDLY BOTTLES - http://www.millerbrands.co.uk/social/environment/packaging/Pages/home.aspx

WOKING HOSPICE - http://www.millerbrands.co.uk/social/communities/hospice/Pages/home.aspx

WORKING WITH DANFOSS - http://www.millerbrands.co.uk/social/environment/carbon/Pages/carbon.aspx

SABMILLER COMPANY PROFILE – http://en.wikipedia.org/wiki/SABMiller

CAMRA –

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http://www.camra.org.uk/

APPENDIXPOSITION OF MILLER BRANDS UK PRODUCTS WITHIN THE UK DRINKS MARKET

COMPETITIVE ADVANTAGE

LOWER COSTS DIFFERENTIATION

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BRO

AD T

ARG

ETN

ARRO

W T

ARG

ET

COMPETITIVE FORCES

UK BEER MARKET

FIGURE 17: UK value sales of beer, at current and constant prices, 2002-12

£m Index % annual change £m at 2007 prices Index €m Index

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Threat of New Entrants:in a market where history adds to the

prestige of the product, the firms shouldn’t expect much competition from new entrants, unless they are

introducing new foreign brands with their own history

Buyer Power:As the product is suited to

individual tastes, the consumer doesn’t have

too much power to influence their

competitive advantage.

Supplier Power:Miller Brands suppliers

have the power to influence their

competitive edge based on crop prices and production costs.

Threat of Substitute Products:Miller Brands is always vulnerable to

replacement by other alcoholic alternatives, such as spirits, alcopops

and cider.

Rivalry:The rivalry within the market is

intense. With a 3.8% share of the market, Miller Brands should now look to consolidate and expand in order to

avoid complacency

2002 17,557 96 na 20,255 111 25,633 96

2003 18,338 101 +4.4 20,520 113 26,773 101

2004 18,928 104 +3.2 20,623 113 27,635 104

2005 18,936 104 - 20,031 110 27,647 104

2006 18,968 104 +0.2 19,537 107 27,693 104

2007 (est) 18,238 100 -3.8 18,238 100 26,627 100

2008 (fore) 18,262 100 +0.1 17,765 97 26,663 100

2009 (fore) 18,241 100 -0.1 17,244 95 26,632 100

2010 (fore) 18,154 100 -0.5 16,744 92 26,505 100

2011 (fore) 17,982 99 -0.9 16,212 89 26,254 99

2012 (fore) 17,725 97 -1.4 15,605 86 25,878 97

UK PREMIUM BER MARKET (SEGMENTATION)

The trend towards the premium across the drinks sector has boosted sales of stronger,premium lager – Stella Artois remains the best-selling brand in the UK. Premium lager now takes some 24% of draught and 55% of packaged lager volumes – around 60% of the lagersector as a whole – having recorded 7% growth in the off-trade in the year to April 2007.

FIGURE 17: Purchase category of selected alcohol types, July 2007

Red wine

White wine

Rosé wine

Cider

Lager

Bitter

Spirits

Rum Whisky

% % % % % % % % %

Premium/ High

10 8 4 10 22 11 16 8 18

Average 42 48 31 23 40 26 32 17 17

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Cheap 9 15 9 6 7 4 10 5 4

Don't buy 40 30 56 61 32 59 42 71 61

ECONOMY OF SURREY

This is a chart of trend of regional gross value added of Surrey at current basic prices published

(pp. 240–253) by Office for National Statistics with figures in millions of British Pounds Sterling.[11]

Year Regional Gross Value Added[12] Agriculture[13] Industry[14] Services[15]

1995 12,177 116 2,414 9,647

2000 19,811 103 3,288 16,420

2003 22,790 99 3,394 19,297

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UK HIGHWAY NETWORK

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UK RAIL NETWORK

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UK AIR MAPS

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