Group 2 Consulting Anton Fahme Kirill Kareem Sharon

Traces origins to 1366 brewery in Brussels Bought out by master brewer in 1717 Expansion in 1954 brought Leffe and Dommelsch in 1968 1987 Merger with another Belgian brewery to form Interbrew

Momentum in local market propelled Interbrew for international acquisitions Hungary, Croatia, Romania, Bulgaria and Canada in early 1990’s Late 1990’s Ukraine, Dominican republic, China, Montenegro, Russia and Korea

• Momentum in local market propelled Interbrew for international acquisitions

• Hungary, Croatia, Romania, Bulgaria and Canada in early 1990’s

• Late 1990’s Ukraine, Dominican republic, China, Montenegro, Russia and Korea

80 Countries Top 10 markets account for 86% of sales 61% of Volume production came from Americas

35%

33%

27%

5% 0%

World’s beer market in 1998 Americas Europe Asia Pacific Africa Middle East

Interbrew’s vision is to be within top 3 beer producers in each of the key markets Deliver high quality beers.

Domestic markets are experiencing contraction and declining sales Health consciousness trend Marketing functions of Interbrew are not attuned for global beer brand Uncertainty with developing markets in China and Russia

• 4th Company globally • Lessen dependence on Belgian and

Canadian markets • Strengthen controlled brand’s

positions • Local for local, decentralized

administration

Traditional and sophisticated beer Flexibility of decentralization Fierce customer loyalty Intended strategy Global brand unified campaign Emergent strategy Global brand through adaptable regional initial branding

External environment

How do politics affect us Alcohol tax, consumption restrictions Opening of Eastern European markets in early 2000’s Potential trade sanctions and tariffs

Economic trends

Eastern European and Asian financial crisis of early 2000’s Rise of emerging economies

External environment

Social factors Emergence of wine culture, especially in Australia and NZ Trend towards healthy life style: lite line of products Trend towards specialty products, microbrew

Innovations

Emergence of internet

External considerations

Opportunities that the environment presents

Opening of Asian and eastern European markets Reduction of trade barriers Converging markets

Threats faced by the firms in the industry

Growth of substitutes Declining sales in mature markets Strong competition

Where do we excel?

Company’s performance is partially attributed to its:

Strategic operations- cross fertilization Strategic sourcing Motivated employees Successful capacity utilization Diverse product line from premium to light beers

Are there other pressures? Suppliers power – medium

Interbrew works with a limited number of high quality suppliers, increased power Offer raw materials that could be easily substituted, reduces power

Buyers power- moderate to high

Costs nothing to switch A lot of close substitutes

Threat of substitutes – medium

Wine, cocktails, pilsner, lager

Threat of new entrants – high ratio of fixed vs. variable costs Rivalry- intense, Anheuser-Busch, Heineken, Carlsberg, little differentiation, high exit cost

Overall industry attractiveness

Fragmented, top four players account for 22% of global volume

Attractive in growth markets as well as mature markets

83 lpc in N. America, 79 in W.E., 29 in E.E. Growth of speciality and light beer segments

Value Chain Analysis Primary

Inbound Logistics Partnerships with suppliers

Outbound Logistics Economies of scale in distribution

Handled differently according to region, little standardization

Value Chain Analysis Primary

Operations, Interbrew strong point Shifting production to more efficient facilities Cross fertilization of best practices Capacity utilization

Marketing and Sales Product quality and positioning Specialty Belgian cafes

Value Chain Analysis Secondary

General Administration Benefits from economies of scale

Human Resource management Employee suggestions Motivated owner-operators

Procurement Great relationships with limited suppliers across the board

Firms Resources & Sustainable advantage

Tangible Resources Wide range of locations Lean operations from efficient sites

Key strengths come from intangible resources and organizational capabilities

Intangible Resources Wide Portfolio

Very different from its competitors Key acquisitions Presence in both developing and emerging markets Best practices from different sites can be applied across the board

Decentralized approach Allows flexibility despite portfolio size Handles different tastes Can shift and adjust product mix

Access to a vast supply network

Organizational Capabilities

Makes strategic acquisitions Ability to leverage knowledge Focus on growth markets with long term volume growth potential Cost savings gained by purchasing and then rationalizing operations

Industry life cycle by region

Industry by product category

• holder

Intellectual Capital

Human Capital Spread globally Cultural, local and economy knowledge and expertise

Structural Capital Breweries around the world Brand equity

Relational Capital Connected to customers around the world Beer Cafe

Corporate Strategy

BRANDS MARKETS

OPERATIONS

INTERBREW TRIANGLE

Strategy Objective

Underlying Objectives Consolidate the company position in mature markets Improve margins through higher volumes of premium and specialty brands

Rationalize Worlds major markets would each end with just 2 or 3 major players

Fundamental Objective Increase shareholder value

Operational Strategy Cross fertilization

Sharing of best practices between sites

Employee propositions Improvement linked to employee motivation not technical performance

Capacity Utilization Close overproducing facilities and open under-producing

Strategic Sourcing Selecting small number of suppliers

Brand Strategy

Acquisition of existing brewers, in growth mature markets Identify brands, typically specialty products and them a regional basis across a group of markets

Market Strategy Increase global volume of beer production and reduce their dependence on Belgium and Canada Establish and manage strong market platforms Decentralization corporate structure Mature markets – greater efficiencies in production, distribution and marketing Growth markets – build significant positions & concentrate on long-term volume growth potential

Economies of scope

Core Competencies MERGERS AND ACQUISITIONS Sharing Activities Decentralized Management Structure

Market Power 4TH Largest beer company in the world Houses beers from 80 countries

Vertical Integration Strategic sourcing

Portfolio Management on Regional Level

Portfolio Management on Regional Level

Brewery : Manchester, England

Founded: 1853

Portfolio Management on Regional Level

Portfolio Management on Regional Level

Brewery : Namur, Belgium

Founded: 1152

Portfolio Management on Regional Level

Portfolio Management on Regional Level

Brewery : Prague, Czech Republic

Founded: 1869

Portfolio Management on Regional Level

Portfolio Management on Regional Level

Brewery : Hoegaarden, Belgium

Founded: 1445

BCG MATRIX STAR QUESTION MARK

CASH COW

DOGS

Relative Market Share

Rel

ativ

e G

row

th R

ate

Asia South America Central & Eastern Europe

Motivation for Global Expansion

Increase size of potential markets Reduce costs of R&D and operation Extend life of a product Optimize physical location for every activities in firm’s value chain

Risks: Political & Economic Currency Fluctuation Management Issues

Motivations for Global Expansion

Motivations for Global Expansion

Entry Modes of Global Expansion

Means to Achieve Diversification Global Approach

Mergers & Acquisition -Speed -Valuable resources -Consolidation and Scale -Leverage

Potential Limitations: Expensive Manager’s ego and creditability Cultural issues

Joint Venture Enter new markets Reduce costs in the value chain Develop and diffuse new technologies

Potential Limitations: Partner issues Control issues

Factors Affecting a Nation's Competitiveness

Is the nation’s business governing favorable and what are the nature of domestic rivalry?

Is there Demand for beer?

Presence/Absence of Suppliers & related industry such as wineries, and Distilleries that are globally competitive?

Does the nation have favorable Factors of Production that supports the beer industry?

Alternatives

• Continue with Stella Artois – Inadequate marketing experience – Old fashioned image – Alcohol level inconsistence in different

markets • Shift emphasis on Labatt

– Little exposure outside North America – 25% Decline in sales after Labatt Ice

peaked

Alternatives

• No global brand, differentiation of local beers – Leverage core competencies and

structure – Consistent with acquisition strategy – Cross cultural sharing and regional brand

development – Embrace Belgian Beer cafes franchise

Alternatives

• Promote “Interbrew” as a global brand – Similar to no global brand, could be used

as a tool to achieve it

• Emphasize and develop light beer as a category

Now we open the floor for questions

Today

• Interbrew no longer exists after 2 major mergers with AmBev and later with Anheuser Busch forming the biggest beer company in the world Anheuser-Busch InBev