The possibility of SABMiller, the second-largest brewer in the world, being bought out by Anheuser-Busch (AB) InBev, its only bigger competitor, “is something we cannot control, it is a matter for the shareholders”, SABMiller chief executive Alan Clark said on Friday.
He added that this was the same response that previous chief executive Graham Mackay always gave when asked about a transaction that had been the subject of speculation for several years. “As Graham used to say, ‘our role is to maximise the value of the company and to ensure that value is in the share price’.”
Talk of a possible deal was resuscitated last week following the release of a report by London analysts at Société Générale, which said there was a 50 percent probability of AB InBev acquiring SABMiller. Société Générale did not commit to a timeframe for the deal, which it estimated would have a $110 billion (R1.1 trillion) price tag – equivalent to an offer price of £38.43 (R606.72) a share.
Clark’s response to the request for comment on the speculation was one of many indications that the new chief executive was not going to be taking SABMiller on a dramatically different course to his predecessor.
To an extent, such as regulations restricting comment on market speculation in this instance, there is a limit to the changes that could be implemented.
And as Clark points out: “I was on the SABMiller executive committee for 12 years before I was appointed chief operating officer in July 2012, so it’s not as though I have not been involved in formulating the group’s strategy up to now.”
Clark was talking to Business Report a few days after completing presentations to analysts and shareholders in the UK and US. It was the first set of presentations he has done as chief executive of the group. “They went well, more than anything we wanted to reassure investors and analysts that our core story was on track and there will be no dramatic changes.”
The “core story” is of a global beer group with a dominant footprint in emerging markets that is continuing to grow.
Analysts point out that although Clark is new to the top slot, he has been with the group for 23 years and is well known to them and shareholders. “The guys in the market have known Alan for a very long time, the presentations were probably more in the line of PR exercises and an opportunity to reassure everyone that it is business as usual,” remarked one locally based analyst.
However, he added that Clark would be leading SABMiller in a different environment to the one that prevailed during Mackay’s era.
“The period since SAB’s London listing in 1999 has been characterised by consolidation in the global beer industry, acquisitions have been SAB’s defining strategy and what has propelled it to the number two position, but there is considerably less scope for significant acquisitions in the future.”
Indeed, while stressing that there would be no dramatic changes, Clark pointed out that some change would be necessary because of the ever-changing trading environment. He talked of the scope for a “revival” of beer, particularly in the more developed markets in which SABMiller operates, lending credence to the view that Clark would look to organic growth to drive the group in the coming years.
“Traditionally beer has been marketed to young males in groups, but social behaviour has changed and mixed gender drinking is more the norm, women tend to be the gatekeeper to drinking behaviour now,” said Clark, whose academic training is in clinical psychology. “Over time there has been a shift in the way beer is perceived and in the way women think of beer; we’re not saying beer is not relevant for young males, we’re saying we need to broaden the market.”
Any “shifting” of brands would be done “over the very long term”, said Clark, who dismissed the view that “beer is beer” and frequently talked about the opportunities for “refreshing and romancing” beer and getting consumers to fall back in love with the product.
“We have to make sure we’re tracking the way consumers are evolving over time, make sure we’re staying modern, relevant and fresh.”
Clark said it was critical for SABMiller to be able to anticipate changing consumer habits and to develop brands and flavours so that it could sell premium products into those changing markets.
While there is much about beer consumption that is local, Clark believes there is much to be learnt from one market to the next. He described what sounded like the life cycle of beer consumption starting with a core lager brand, including sorghum beer in Africa, then moving to heritage or iconic brands and finally to premium brands.
Consumption in every market tends to follow this pattern over extended periods of time. “As economies grow and consumers become more affluent they tend to fragment behind brands and trade up to premium products,” Clark said.
Increasing urbanisation and modernisation of the retail sector are major influences on consumption patterns.
In Europe and the US, where the beer markets are mature, there are limited prospects for growth in volume, which means the focus has to be on innovation and selling more premium products.
During his presentation to analysts in London, Clark sounded particularly pessimistic about prospects for the European market. He told Business Report a few days later: “I’m not disenchanted with Europe, I’m realistic… the environment is tough, we don’t see any signs of improvement.”
He said people in Europe were going out less and drinking less when they went out. “It is partly economic and partly lifestyle and it means we have to be more innovative with the marketing of our brands.”
SABMiller has had significant success on this score in Romania and Poland, but generally sales in Europe require discounts. Although also weak, the size of the US economy and its comparative affluence meant “we can still get pricing there”, Clark said.
Another challenging area for SABMiller is India, which is a small part of its Asia-Pacific operations. Australia accounts for the bulk of the earnings and is showing encouraging signs as the Foster’s acquisition is bedded down and its brands reinvigorated. There is no indication of China slowing down and management there is focused on enhancing profitability from the steady volume growth. India remains problematic, but Clark said the group was committed to India because of its population size. “We believe it will deliver growth in 15 years or so.”
Clark added that SABMiller was making money in India, as it was in every market in which it operated, with the exception of Argentina and Vietnam.
Fifteen years is not that long for a company that is over 100 years old. And, as Clark pointed out, the group is where it is today because of Mackay’s vision back in the early 1990s.
Most significantly, SABMiller can afford some areas of weakness given the strong performance from Latin America and Africa, including South African Breweries.