SABMiller ‘looking hard' at costs

Group CEO Graham Mackay said the brewer — whose South African unit last week announced a R6bn black economic empowerment deal — was “looking hard” at its costs with a view to making further incremental cuts to meet local circumstances.

SABMiller is the world's second-largest brewer by volume.

Mackay said in the group's annual report that as part of four key strategic growth drivers, the brewer was investing in developing strong and relevant brand portfolios within each market.

In Africa, it was increasingly using locally grown crops such as sorghum and cassava to produce affordable brands, he said in the report, whose release has coincided with a stable credit rating issued by Moody's.

Locally, analyst Mark Ansley, of Cadiz African Harvest Asset Management, said despite the key risk of competition from such companies as Heineken, SABMiller was still expected to become more competitive in terms of managing returnable bottles and bringing down the cost of producing its brands.

Moody's analyst Yasmina Serghini said in a note that among the group's key strengths were its vast distribution network and its diversified portfolio of beer brands and beverages, which helped it maintain its competitive advantage.

Mackay said the global downturn meant it was no longer business as usual. However, SABMiller's strategic focus based on its key growth planks would ensure that it would meet its revenue and growth targets in all the markets it operates, including SA.

He said other initiatives to grow the business were increasing the operational performance of each business unit and gaining maximum value from its global scale through skills transfer.

While the group had in the past not been forced to launch large scale, one-off, cost-cutting programmes, SABMiller was now responding to the economic challenges by keeping a much closer eye on costs. It would therefore not hesitate to slash costs where it made business sense, Mackay said.

“We are re-examining all capital expenditure and applying stringent criteria that reflect the risks and opportunities in each country. We have also restructured a number of our businesses, particularly in Latin America and Europe,” he said.

“In Africa, we are increasing the use of locally grown crops such as sorghum and cassava to produce affordable brands along the lines of the highly successful Eagle. In so doing, we are both capturing the trend from home-brewed beers to more aspirational commercial brands and providing economic opportunities for local farmers.

“In the quest for affordability, we are also introducing smaller bottle sizes, as with the Aguila brand in Colombia, and making draught beers more available in countries such as Mozambique and Botswana,” Mackay said.

Cadiz analyst Ansley said that despite competition and the economic slowdown, the brewer's local unit would be able to restore any erosion of its competitive margin by other players in the beer market.

Source: Business Day

Published courtesy of