team06 anheuser busch present ver.09.06

8/4/2019 TEAM06 Anheuser Busch PRESENT Ver.09.06

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n euser- uscSabmiller

Bidding War In Chinas BeerIndustry

Case Study by: Team 06Carlos Alayon, Cristian Leiros, Jennifer Defazio, Kristina Barrios,

Adonis Sardinas


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Overview Beer Measurement 101

Some Background Growth of Chinese Beer Industry Current Chinese beer market Return of Foreigners and Industry Consolidation

Part I - Introduction to Case

SABMiller and China Resources Brewery SABMiller PLC China Resources Brewery (CRB) Acquiring Qianjiang Building a National Brand

Anheuser-Busch in China Alliance with Tsingtao Brewery

The Bidding War Harbin Brewery The Bidding Game

Prof Newburry Part II - Analysis of Case

Case Question


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Beer Measurement 101

22 U.S. floz

650.6 ml

2 Liter2,000

ml

X 3,500 Bottles

Or x70 kegs3.5 kiloliters

924.60 US

X 3 Bottles

.5 hectoliterseach

KegX 77 Bottlesest.50 liters
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Growth of Chinese BeerIndustry

& First Foray of the Multinational Enterprises late 1970s, Beer supply had

become scarce No Beer!


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Growth of Chinese BeerIndustry

& First Foray of the Multinational Enterprises So Central & Local governments adopted a series

of preferential policies to encourage beerproduction

1980s, Beer industry grew at an average annualrate of more than 30%.

1988, number of brewers in China reached 813 aggregate annual output of 65.6 million hectolitres

Chinas global ranking moved

from the 26th place in 1979 to 3rd


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Current Chinese beer market-GDP

From 1995 to 2005, the Chinese economyGDP surged from US$54.5 billion in 1993 toUS$1,410 billion in 2003.9

0

2

4

6

8

10

12

GDP (in US$)

Axis Title

Gross domestic product (GDP) refers to the market value of all final goods and services produced in a country


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Current Chinese beer market-GDPper capita

GDP per capita More than doubled from US$460 in 1993 to US$1,091 in

2003,

0

2

4

6

8

10

12

GDP per capita (in US$)

GDP per capita : An approximation of the value of goods produced per person in the

B


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Current Chinese beer market-Bank Savingsper capita

Ban

ks

avin

gs

p 0

2

4

6

8

10

12

Personal Savings per capita (US$)

Axis Title

B


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Current Chinese beer market-Beer consumption

Bee

rc

onsu

mpt

i

W


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Current Chinese beer market-Beer consumption

Wor

ld

sla

rge

s

Total ConsumptionVolume

Total Sales


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Return of Foreigners andIndustry Consolidation

Early 2000s, there was a new round offoreign investment

Multinational breweries took a different

approach chose to ally or acquire a domestic brewery

instead of setting up a new company Aware now that:

they could not beat domestic brewers vast salesnetworks and low production costs, they were buyinginto some of the largest local players


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Part I - Introduction to

Case


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SABMiller and ChinaResources Brewery (CRB)

W


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SABMiller PLCabout

Wor

ld

sse

con

d


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SABMillerabout

B


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SABMiller PLC

Boa

ste

dof

a

p

S


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(CRB)

acquisition # 1

SAB

Mil

ler

ent

e


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Acquiring Qianjiangacquisition # 2

March 2004 Joint venture Qianjiang & CRB

CRB 70% equity interest

Qianjiang held the remaining 30%. Zhejiang Qianpi Group, - largest brewery in

Zhejiang Province

CRBs annual production capacity

increased by about 480,000 kiloliters toapproximately 4.56 million kiloliters withbreweries in

north eastern, south western, central and

eastern regions of Mainland China.


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Building a National Brandconcerned with the lack of a national brand

CRB, concerned withthe lack of a nationalbrand that could be

marketed across China focused on the

development of onemaster brand

To ensure that SABMillerwas well positioned toexploit the exploding

Chinese market in the


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Building a National Brandbig plans for snowflake

CRBs brand; Snow (AKASnowflake).

SABMiller Through CRB increased its stake in 3

breweries that jointly owned theSnow beer brand

China Resources (Shenyang)Snowflake Brewery,

Shenyang Snowflake Beer Company

Shengyang Beer Company gaining total control of the

important brand

One brand to

ruleThem all

S


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Building a National Brandbig plans for snowflake

Snowbeerh

adb

e

R


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Building a National Brandthe key for snowflake

Rap

id

inve

stm

e


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Ari Mervis, Managing Director,SABMiller Asia


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Anheuser-Busch in China


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Anheuser-Busch in Chinawhat you know about this?

Based in St. Louis, Missouri, USA worlds biggest brewer Budweiser brand, the worlds best-

selling beer locally brewed in 10 countries Sold in more than 80 others worldwide

F


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Anheuser-Busch in ChinaWuhan International Brewing Company

February26

th1

9

Alli ith T i t


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Alliance with TsingtaoBrewery

points in time.

July 30th 2002, alliance with Tsingtao Brewery (largest brewer in China)

October 21st 2002 Both signed an agreement that increased Anheuser-

Buschs stake in the company from 9.9% to 27% by 2010

2003 boosted its market share to above 13% from just 2% in

1996 by acquiring more than 40 breweries across thecountry

2004 Tsingtao held a market share of 12.8% and its flagship

brand, Tsingtao

Alliance ith Tsingtao


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the agreement Anheuser-Busch brought in its

Capital Technology Corporate governance

Help Tsingtao maintain its existing market share

expand into new markets around theworld.

Alliance with Tsingtao


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in return help to inform and educate Anheuser-Busch about the growing Chineseeconomy and beer industry

Help Anheuser-Busch sell its brands



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The Golden Star Beer agreement Signed an agreement with GoldenStar Beer Group

Acquire 30% for $50 Million late 2003 Located in the Henan province in

western China Production of 10 million hectoliters a

year ranked among the top beer groups in

China



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in return Golden Star Would invest US$400 million to setup a beer production base in Sichuan

Increase production from 2.5 million

hectolitres to 3.2 million hectolitres (+.7HL)

expected its annual production volumeto reach 4 million hectolitres by late

2005



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the outcome premium segment

Middle & Lowed markets


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MAP


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The Bidding War

I


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ProtagonistIn

thisca

se,

r


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Harbin Breweryabout

ran

ked4th

i

n


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Harbin Brewery 2003

Harbin Brewery reported a 4% yr-on-yrincrease in net profit US$14.66 million(HK$114 million)

sales volume rose 27% yr-on-yr to 110million hectolitres

0

2

4

6

8

10

12

Net Profit


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Harbin Brewery 2003

Mass products accounted for more than82% of sales

32% year-on-year increase

classic and premium productscontributed the remaining 18%

The Bidding Game


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The Bidding Game

e

ng ameS


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e ng ameJune 2003

SAB

Miller

pai

d

The Bidding Game


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The Bidding GameMarch 2004

Harbin Government-owned Kwok Nea announced that it would off-load its

stake of29.1% to Global Conduit

which is owned by a group of independentinvestors

making it an entirely independent playerin the market

held by three parties, namely,

Global Conduit, Gardwell (SABMiller)

and public shareholders

Owners

parentcompany of

HarbinBrewery

The Bidding Game


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The Bidding GameMay 2004

Anheuser-Busch issued a deal to buy29.1% of the firm from GlobalConduit Holdings for US$139

million or HK$3.70 (US$0.48) a share. This placed Harbin Brewery at the

brink of a war between Anheuser-

Busch and SABMiller

h iddia


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The Bidding GameSABMiller

also

owned49%

o

h iddi GS


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The Bidding GameMay 24th, 2004

SAB

Miller

res

p

Th Biddi GA


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The Bidding GameMay 31st 2004

nhe

user-Busch

p

Th Biddi GA


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The Bidding GameApril 1st 2004

nhe

user-Busch

o

Th Biddi G


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The Bidding GameHarbins managers

Made it clear that they preferred apartnership with Anheuser-Busch

asked its shareholders to reject SABMillers offer Expressing dissatisfaction with the alliance Also said that the 10-month co-operative

relationship with SAB had failed

We had hoped SABMiller would offer marketing andtechnology support,

but nothing has happened. The management team is doingeverything

possible to derail SABMillers attempts to control the

C


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Key ConceptsCom

parativ

eA

d

C


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Key Concepts Cont.Com

petitiv

eA

d

C


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Key Concepts Cont.om

petitiv

eS

t


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Prof

Newburry

PROF


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Part - Analysis of Case

Battle of the brewersS


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Battle of the brewersWhat's @ Stakeh

o

uldSAB

Mil

l


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Why did the first foray of a majority of


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Why did the first foray of a majority ofinternational breweries fail?

They wanted to setup new companies, VSteaming up with existing companies that hadalready establish logistics and a strong brand

Compare the first foray and second foray offoreign entrants, and predict the possibleoutcomes.

They chose to ally or acquire a domesticbrewery instead of setting up a new company,

allowing new companies to learn the marketfaster. Domestic firms provided the knowledgeacquired over the years while the foreign firmsprovided the technology and resources to

increase volume and sales.

What are the reasons for the success of


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What are the reasons for the success ofAnheuser-Busch and SABMiller in the

Chinese beer market?

Partnerships and acquisitions ofexisting brewerys

Taking advantage of the brands

already known in the market and theskills and knowledge of the companiesthey partner and or acquire

Strong marketing skills to bring intonew markets

Define the merits and demerits associated


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with variety of entry modes, and analyze thetypes of companies that use certain

strategies to better effect. Market Entry: does not require direct investment

can enter through exports from home market

Pros: allows company to maintain its corporate policies with

little concern

Cons: Unexpected demand may mean that the company is

leaving money on the table Examples

Rooms to go, Ashley Furniture, Ikea

Entry Modes


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Entry ModesCooperative Entry Strategies

Cooperative Entry Strategies range from technical training agreements through

licensing, franchisees, and joint ventures

Pros: Allows offshore production, product development and

information processing. It can run contractmanufacturing facilities

Cons

Partners may see few practical reasons not to seekadditional knowledge, and can abandon one partner foranother offering a better deal

Examples: McDonalds, Burger King, Disney

Entry Modes


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Entry Modesthrough Acquisition

Entry through Acquisition allows multinational to access the resources and

capabilities of local incumbent firms

Pros

allows firm to compete locally but would also allow themto either start exporting product or transform knowledgewithout having to coordinate with a possibly resistantpartner

Cons loss of organizational identity

Examples SABMillers, Anheuser-Busch

Entry ModesEn


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Entry Modesby Startup

ntryby

Startup

w

he

In the bidding game under discussion, what


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g gis the impetus for Anheuser-Busch to

propose such a high price; what are the

costs and benefits?

To take over the 50% of North easternChina

Costing $167 Million more than whatSABMIller had offer

What should SABMiller do while facing the


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What should SABMiller do while facing theaggressive and dominant behavior of its

competitor?Analyze how much the ROI will be and Either make a

counter offer or back off. They should speak with Harbinand explain why they havent given them everything theypromised during the first investment and convince themthey will hold up their agreementWhat are the gains and losses in this game?

Final outcomes are unknown but SABMiller would have to counter offer over $720

million

Together w/ CRB and Harbin SABMiller would beable to controll 60%-65% of the regionalmarket.

SABMiller would gain a pricing advantage andwould not have to compete with Harbin

SABMiller could focus on the other Chinese


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What happened?

Th


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What happened?he

two

breweri

e

An


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What happened?nhe

user

Buscho

Th


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SABMiller 2004-Presenthe

loss

ofthe

SA


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SABMiller 2009AB

Miller

s

j

o


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SABMiller 2011

There is an attempt to take overAustralias Fosters but there are somesetbacks:

SABMiller is offering $4.765 cash per share,which the Foster's directors intend tounanimously reject as undervaluing thecompany.

SABMiller claims that Foster's has "noreasonable basis" for several "forward-looking statements concerning thecompany's financial performance, and thateven if there was a reasonable basis, no

information has been provided to enable

Anheuser Buschs 2004-


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Anheuser Busch s 2004-Present

Goal was to boost stake in Tsingtao over7 years to 27 percent March 2008- They announce plans to

build a new Tangshan brewery to replace

their small downtown brewery. The local government wanted to move

industrial sites outside the city andredevelop the downtown area into a more

residential and commercial area. "Anheuser-Busch has a long-standing

commitment to support the communitieswhere it operates," Y.R. Cheng, president,

Anheuser-Busch China

In


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Anheuser Buschs Cont.nJuly

200

8,

I

An


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Anheuser Buschs Cont.nh

euserB

usc

h

Anheuser Buschs Cont


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Anheuser Busch s Cont.

However, Carlos Brito, chiefexecutive of InBev, will lead the newcompany. He is known for cost

cutting and Anheusers home state,Missouri, was in deep opposition tothis merger.

Britos cost-cutting changes


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Brito s cost cutting changes2009

1,400 U.S. employees (6%) and 415contractors were laid off

For senior management, elimination ofexecutive assistants and private

secretaries End contributions to its pension plan for

salaried employees in 2012 Announced that in January 2010, it will

stop providing life insurance for retirees Elimination of tuition reimbursement for all

but its highest rated employees

C C i C


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Cost-Cutting Cont.

Elimination of free beer program -Anheuser Busch Hospitality Houses and

Brewmasters Club formerly located at thetheme parks

On October 7, 2009 they announced thesale of its Busch Entertainment

Corporation theme park division to TheBlackstone Group. The sale was completeon December 1, 2009 and the division wasrenamed SeaWorld Parks & Entertainment

A h B h I BCo


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Anheuser-Busch InBevos

t-cutti

ng

h

Anheuser-Busch


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Anheuser BuschInBev

They are trying other things to generateprofits.

They want to raise the price of its cheapestbeers (Natural Light, Keystone) believing

the price difference between those brandsand its premium brands is too large. They are also starting to run new

campaigns with newly designed cans to

build brand name starting with CEO Britoshome Brazil. The first of the campaigns is of the brand

Brahma and its new beer can that can

transform into a cup once the lid is

B h CUs


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Brahma Copacosin

gs

Brazils


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