Grolsch: Growing Globally

Transcription

PANKAJ GHEMAWAT
JORDAN MITCHELL
SM – 1529 – E
O – 308 - 029
Grolsch: Growing Globally
In November 2007, SAB Miller, the world´s second largest brewer,1 announced the friendly takeover
of the world’s 51st largest, Royal Grolsch N.V. of the Netherlands, for €816m in cash - 84% more than
Grolsch’s value over the previous month. Nick Fell, SABMiller’s Marketing Director, explained the logic
of the deal:
“[Grolsch is] a fantastic brand. It’s North European, it’s a fantastic product, it’s got
unimpeachable brewing credentials and authenticity and credibility. And it’s a damn good
product. So for anybody interested in developing their premium beer business, this is an
absolute peach of a brand to get hold of… we see huge potential for it in our global footprint,
particularly in markets like Latin America and Africa where we’ve got a strong route to market
but where the premium beer business is still in its infancy.”2
Grolsch had hitherto focused on developed markets, particularly the UK, US, Canada, Australia,
New Zealand and France, in pursuit of its goal of becoming one of the world’s top 10 global beer
brands. Groslch was already the world’s 21st largest global brand, measured by international (nondomestic) volume (see Exhibit 1). International volume had grown to account for slightly over onehalf of total volume and, going forward, seemed to offer much more potential. Drinkers often rated
Grolsch higher than larger brands, including Heineken, the top global brand as well as the leader in
Grolsch’s home market (see Exhibit 2). And Grolsch had started up a state-of-the art brewery in 2004
that could be expanded at little incremental cost.
The acquisition closed and in February 2008, Grolsch became an independent subsidiary of
SABMiller. Rob Snel, head of Grolsch International since 1999 and an employee since 1984, was
named Grolsch’s new CEO shortly thereafter. He had to decide what changes, if any, to recommend
to its global strategy.
1 This compares the relative positions of SABMiller with the two other major breweries, InBev and Anheuser-Busch as of the
end of 2006. SABMiller’s fiscal year ends in March.
2 “Q&A with Nick Fell, Marketing Director, SABMiller,” SABMiller, www.sabmiller.com. Accessed Nov. 30, 2007.
________________________________________________________________________________________________________________
This case was prepared by Professor Pankaj Ghemawat and Jordan Mitchell, Research Assistant, as the basis for class discussion rather than
to illustrate either effective or ineffective handling of an administrative situation. August 2008.
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Last edited: 10/10/08
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SM-1529-E Grolsch: Growing Globally
Company Evolution
Grolsch traced its history back to a brewery, in the Dutch town of Groenlo near the German
border3 that was purchased by Willem Neerfeldt in 1615. By the late 1800s, the brewery had come
under the control of Theo J. De Groen. In 1897, he introduced Grolsch’s iconic - and trademarked ceramic swingtop bottle, which was advertised as easy to open and allowing storage of beer for later
consumption. Marketing of the Grolsch brand began in 1918. In 1922, this operation merged with a
brewery in nearby Enschede (see Exhibit 3 for a map of the Netherlands), but Grolsch was retained
as the principal brand. By the 1960s, Grolsch had grown from a “regional” brand to become the
country’s second most popular, behind Heineken.
After the death of the head of the De Groen family in 1982, the next generation of family members
agreed to an initial public offering (IPO) on the Amsterdam Stock Exchange in 1984.4 Subsequently, a
non-family member was brought in to manage the company for the first time since the De Groens
had assumed ownership. By the end of the 1980s, there were no De Groens on the company’s
executive committee, but the family continued to own one-third of Grolsch’s shares and was
represented on its supervisory committee.
Due to its stature in the Netherlands, the Dutch government honored the company with the
coveted “Royal” title in 1995, and the company was renamed Royal Grolsch N.V. In 1997, Grolsch
celebrated the 100th anniversary of its swingtop bottle; a company representative said, “After 100
years, the swingtop is a great differentiator and still makes the Grolsch brand famous today.” In 1998,
the company decided to build a modern brewery which, after disruptions and delays (see below
under “Operations”), started up in 2004.
Grolsch had been incorporated as a two-tier company under Dutch law and had two major, fullyowned subsidiaries: Grolsche Bierbrouwerij Nederland, which handled sales and marketing of Grolsch
in the Netherlands and also housed most production, logistics and facilities support except operations
with foreign partners; and, Grolsch International, which was responsible for the worldwide sales and
marketing of Grolsch (and other brands) outside the Netherlands and the UK and Ireland. The UK and
Ireland were handled by a 51:49 sales and marketing joint venture with Coors called Grolsch (UK) Ltd.,
which brewed Grolsch under license locally.
Exhibit 4 summarizes Grolsch’s recent financial and operating history. In 2007, Grolsch’s total
volumes (including beers sold under exclusive distribution rights) increased by 3.1% to 3.3 million
hectolitres (hl),5 with volumes derived specifically from Grolsch brands decreasing by 3.4% to 2.8
million hl. Revenues grew by 4.8% from €317.6m to €332.9m and net profits edged forward from
€19.2m to €20m during the same period.
Prior to the takeover by SABMiller, Grolsch had emphasized growing faster than its key markets
while achieving a return on investment that exceeded its average cost of capital (estimated to be 7.5%
by one investment bank6), steadily increasing earnings and dividends per share, and maintaining a
healthy balance sheet. It paid attention to non-financial stakeholders as well, especially employees
3 Groenlo means Green Forest in Dutch. The town was also known as Grol and Grolle.
4 Dominic Walsh, “Swing was the thing when popped tops reached Top of The Pops,” Times Online, Nov. 20, 2007,
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2903549.ece
5 1 hl = 100 litres. An average bottle holds 333 millilitres (0.333 litres). Cases vary from 8 to 12 litres by volume.
6 “Grolsch: How much to pay for U.S. fantasy?” Fortis Investment Bank, Feb. 23, 2007, p. 4.
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and its local community. Indicators of employee welfare ranged from an average payroll cost of
€60,000 per employee (payroll accounted for 15% of revenues) to the complimentary case of Grolsch
beer traditionally delivered every week to employees’ homes. About 850 of the 875 employees were
based in the Netherlands, as were all members of the executive and supervisory committees. The
company had particularly strong ties to the eastern part of the Netherlands, especially Enschede
(population 155,000), home to its headquarters and the new brewery. It did, however, seek managers
and sales people with multiple language skills and international experience and education.
To achieve its objectives, Grolsch had articulated the following vision and mission:
Vision: The brewing industry has failed to keep pace with the changes in consumers’
preferences for drinks. This has created a mainstream category that is under pressure from
other drinks. Grolsch believes in the strength of beer in the drinks market.
Mission: Grolsch is going to break through the mainstream and restore beer’s premium status.
In its presentations to investors, Grolsch emphasized that it targeted a premium, differentiated
position in the markets in which it competed. It also highlighted adaptation around its core products
as its key strategy for achieving international growth (see Exhibit 5).
Products
Exhibit 6 shows the company’s product range, which was organized into two main brand
families: Grolsch and Amsterdam (the company also distributed small amounts of imported Belgian
beer such as Grimbergen). The Grolsch brand was the centerpiece of the company’s strategy. Its
flagship product, Grolsch Premium Lager, represented 90% of the company’s domestic volume,
although nine variations were also marketed in the Netherlands. The Grolsch brand was the focus, as
well, of the company’s UK joint venture and the brand accounted for two-thirds of all exports, with
Grolsch Premium Lager being the only product sold in many markets.
Grolsch Premium Lager was classed as a pale lager7 and the company emphasized that its malty,
relatively bitter taste made it distinctively refreshing. Groslch was brewed to one recipe, which was
in strict conformance with German purity laws, and was aged for a minimum of six weeks, compared
to two to four weeks for many of its competitors. One beer enthusiast described the aroma as a
“peppery hop with a spritzy citric edge to it,” and its taste as “an obviously well-attenuated beer
whose balance is toward the dry and bitter [that is] quite refreshing.”8 Beer guru, Michael Jackson
agreed: “it has a fresher, more herbal, hop character than most international lagers, and a cleaner malt
background,” but provocatively asked, “is that enough?” His conclusion? “Not today. The differences
between popular lagers are refinements.”9 Grolsch management strongly disagreed.
7 A lager is a type of beer that is brewed by using a bottom-fermenting yeast in comparison to ales, which are brewed with a
top-fermenting yeast. While the tastes of both lagers and ales vary greatly depending on the ingredients and process, lagers are
generally lighter and crisper whereas ales tend to be darker and stronger. Lagers dominate the overall market for beer.
8 Blog, http://www.epinions.com/content_129738444420. Accessed April 2, 2008.
9 M. Jackson, “Behind the mystery of Grolsch,” originally published in The Observer, July 1, 2001,
http://www.beerhunter.com/documents/19133-001561.html, July 9, 2001. Accessed April 1, 2008.
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In addition to its core Grolsch products, the company devoted considerable attention to
packaging. The green swingtop bottle played a particularly key role in entering foreign markets. As
Tom Wilms, Consumer and Market Insight Manager, put it:
“We use the swingtop as a door opener especially in a market that is very crowded in the
premium segment…Once the volume starts picking up, we introduce the crown cork (i.e.,
regular bottle cap). In nearly all of our key markets, most of the volume is in crown cork
bottles.”
In 2007, a new, standardized green crown cork bottle, with a stylish look, an embossed Grolsch
logo on flattened sides and an accompanying crate, was introduced with much fanfare worldwide,
after a two-year development process. In early 2008, the company was also in the process of
introducing a new green swingtop bottle globally. This marked a particularly significant change in
the Netherlands, where the swingtop bottle had been brown for 111 years. Bottles for the Dutch
market were mostly returnable whereas bottles sold elsewhere were non-returnable. Bottles shipped
out of the country were offered in more varied sizes and had country-specific labels. Aside from
bottles, cans accounted for 30% of total volume and were more standardized, although there were
two different designs (one for the domestic market and another for international markets). Kegs were
significant as well, particularly at home in the Netherlands.
Grolsch’s other product range centered on Amsterdam, positioned as a non-premium brand and
sold mostly in tall 500-millilitre cans at supermarkets and smaller independent shops. Amsterdam
beers were available in five varieties and were considered to have a smooth but strong taste: the
strongest, the Maximator, had 11.9% alcohol content by volume (compared to 5% for Grolsch
Premium Lager). Four markets – France, Russia, Australia and Africa – accounted for 95% of
Amsterdam’s volume.
Despite the company’s clear focus on the premium Grolsch brand, the brand’s total volume had
actually declined from 3.2 million hl in 2003 to 2.8 million hl in 2007, as exports more or less
stagnated while the Dutch and UK markets shrank. Total volume (including Amsterdam and other
smaller local brands under license) changed from 3.4 million hl to 3.3 million hl over the same period,
with the growth of the Amsterdam brand making up for some of the decline in the Grolsch brand.
Markets
Although Grolsch dated back to the beginning of the 17th century, it began to look beyond the
Dutch market only in the middle of the 20th century. Exports commenced after World War II and in
1946, amounted to 3,000hl or 10% of total production.
(Indonesia, the largest foreign market,
absorbed 1,000hl.) However, exports were curtailed in the 1950s by buoyant domestic demand.
Interest in internationalization revived in the 1970s with domestic stagnation and shrinkage, and the
example of Heineken, Grolsch’s larger Dutch rival, making impressive headway (see Exhibit 7 for
comparative timelines). In the second half of the 1970s, Grolsch set up its own import organizations
in the United States and the United Kingdom. Distribution deals in Canada, Australia and New
Zealand followed in the mid-1980s.
The 1990s saw investments, for the first time, in foreign production, starting in developed
markets. In 1990, Grolsch acquired Wickuler, a regional German brewer, in a move that doubled its
capacity. And in 1992, after having grown Grolsch into the UK’s third largest premium lager brand, it
bought Ruddles, a small UK brewer, as much for its distribution network as for its ale brands. But
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both moves were quickly unwound. It sold Wickuler in 1994 to one of Germany’s largest brewers,
Brau and Brunnen, and signed an agreement to distribute Grolsch in Germany with the latter. That
same year, it formed a joint venture partnership with Bass, under which the latter took over
production and distribution for the UK. Ruddles was divested in 1997.
The opening up of Eastern Europe in particular prompted a shift in focus in the second half of the
1990s, towards emerging markets: Grolsch invested in Poland and Russia and set up representative
offices in Brazil and China. In Poland, Grolsch acquired an indirect stake in a brewery in 1995 but
sold it in 1998 because of poor profitability and an inability to build up its stake to a majority level.
One Grolsch executive added, “The Polish brand Zywiec was bought by Heineken and there was no
need for two Dutch players in the Polish market.” A distribution agreement with the purchaser was
later annulled. In Russia, Grolsch paid in 10% of the capital for a small new brewery in 1999, but sold
its stake to the majority owners in 2000. They, in turn, sold it to Turkish brewer Efes in 2004, whom
Grolsch still licensed to brew and distribute the Amsterdam brand in Russia.
The Asian financial crisis, had significant ripple effects in Eastern Europe, including a massive
devaluation of the ruble in Russia, and pushed Grolsch back to focusing on developed markets. It
entered France in 1999 by setting up its own distributorship - the only country with such an
arrangement - which focused on selling the Amsterdam brand. Grolsch stepped up efforts on the
Iberian Peninsula with an investment in Portuguese distributor Cereuro and a distribution agreement
with Spain’s La Cruz del Campo. The Cereuro investment was halved in 200510 and in Spain,
Heineken bought out La Cruz del Campo.
In addition to the markets mentioned above, Grolsch sold beer in many other countries, making a
total of about 70 export markets. As of 2007, international volume accounted for 51.5% of the
company total. Grolsch did not systematically disaggregate sales or profits by market, but it did
supply partial information that could be supplemented with analysts’ inferences.
Key Markets
According to Grolsch, Western Europe accounted for 88% of its revenues and 94% of its
contribution margins, i.e., Western European markets’ average contribution margin was twice as high
as others’ (23% vs. 11%).11 If fixed production costs (13% of revenues) were allocated in proportion to
revenues, Western Europe accounted for 103% of operating profit (EBIT). But in order to build
international volume, beer exports from the Netherlands were actually transferred to Grolsch
International at variable production cost.
Grolsch’s home market of the Netherlands accounted for close to one-half its total volume, an
estimated 65% of revenues, and a much greater share of EBIT. That said, market shrinkage and
discounting had put Dutch brewers under significant long-term profit pressure. Grolsch, with 13% of
volume, was part of a second tier of competitors that included Bavaria (17%) and Interbrew (14%),
behind market leader Heineken (46%), which controlled the country’s two largest brands, Heineken
and Amstel. Grolsch was the third largest brand, and was particularly strong in the eastern
Netherlands.
10 “Portugal Sumolis Boosts Stake in Cereuro to 90.05 Pct,” Portuguese News Digest, April 15, 2005.
11 Grolsch Annual Report 2007, Dec. 31, 2007, p. 52.
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Grolsch’s second largest market was the United Kingdom, where it owned 51% of Grolsch (UK)
Ltd., a joint venture that brewed Grolsch under license, in partnership with MolsonCoors (which
came in after Bass was taken over and broken up). The UK accounted for 25% of Grolsch’s total
volume and 1.5% of the UK market. Grolsch was ranked fifth in the premium lager market behind the
top three brands: Stella Artois, Kronenbourg and Budweiser.12 In 2007, Grolsch’s 51% stake in it
generated about 12% of its operating profit, down from 18% the previous year because of market
shrinkage and supermarket pricing pressures.
Grolsch’s third largest market was the United States, to which - like virtually all other markets - it
exported beer from the Netherlands. Analysts estimated that Grolsch’s US volume had stagnated at
about 140,000hl - 4% of the company’s total and 0.5% of US import volume (overall, imported beer
represented close to 15% of total US consumption). Grolsch was ranked 11th in the imported premium
beer market (the top three brands were Corona, Heineken and Beck’s).13 An agreement in 2006 with
market leader Anheuser-Busch to distribute Grolsch in the US had been hailed as key to become a top
10 imported brand by quadrupling volume. But the acquisition by SABMiller, which owned
Anheuser-Busch’s biggest US competitor, Miller, ended that arrangement.
France was Grolsch’s fourth-largest market with volumes estimated to be around 100,000hl,
almost all of which was made up by the Amsterdam brand. The Amsterdam brand was ranked
second in strong beers behind Bavaria.14 Canada was the next in line (and the fourth-largest for the
Grolsch brand), with volumes estimated to be about one-half those in the US. Grolsch had given its
Canadian distributor, Sleeman, a license to brew Grolsch Premium Lager nationally. Grolsch was
ranked fifth in imported premium beers (the top three were Heineken, Corona and Miller Genuine
Draft).15 The remaining markets - including the two other markets classified as “key,” Australia and
New Zealand - individually represented less than 1% of Grolsch’s total volume. In Australia, Grolsch
occupied fifth place in the international premium segment behind the top three: Corona, Heineken
and Stella Artois.16
The MABA Framework
Over time, Grolsch had developed a MABA (Market Attractiveness, Business Assessment)
framework to assess international opportunities. The Market Attractiveness (“MA”) analysis
included: total volume and volume growth in hectolitres of the international premium lager segment;
the price premium between the international premium lager segment and the top volume lager
brands; and, the geographic and cultural distance between the market and Grolsch’s home base in the
Netherlands.
The distance measure had four components: differences in languages; non-membership vs.
membership of the European Union (of which the Netherlands was a founding member); the landed
cost of transport; and differences in GDP per capita. The Business Assessment (“BA”) involved the
total volume and volume growth of Grolsch premium lager, variable commercial contribution
12 Grolsch Company Book, “Brewing for the Future,” 2006, p. 35.
13 Ibidem.
14 Ibidem.
15 Ibidem.
16 Ibidem.
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(contribution margin minus the direct expenses associated with serving a market), and Grolsch’s
share of the premium lager segment. Exhibit 8 provides more detail.
Each year, the company worked through these calculations to assign aggregate scores to each
market being considered. Markets with high scores were classified as “key,” those with somewhat
lower scores as “seeding,” and those with low scores as “trading”. Exhibit 9 shows the output of the
2006 MABA analysis. A Grolsch executive commented that: “The MABA is a tool that informs us in
our decisions. At the end of the day, the senior management decides on whether a market is key,
seeding or trading each year during the annual strategic planning sessions.” Key/seeding markets
were served by one of two main groups within the sales organization, Brand Builders, and trading
markets by the other, Direct Export. The Grolsch policy for trading markets was to generate profits
each year. The profitability was measured by ensuring that exports to trading markets covered at
least variable costs and the direct expenses associated with management such as transportation, sales
people, marketing and customer service.
Operations
Grolsch followed German purity laws and emphasized the finest natural ingredients, the absence
of additives such as stabilizers, the combination of two types of hops - an innovation dating back to
the 1600s that was celebrated in the company’s logo - and a long maturation process. Some attention
to procurement scale had recently been overlaid on the traditional emphasis on high-quality
ingredients: in 2002, Grolsch formed a purchasing alliance with German brewer, Warsteiner.17 And
internal training programs reinforced the legacy of craft-like, high quality brewing by emphasizing
the theme of “Craftsmanship is Mastery.”
In 1998, Grolsch began to plan for a large new brewery to consolidate its two relatively old
facilities: the Groenlo brewery, which produced for export, and the Enschede brewery, which
produced for the Dutch market. The two towns waited anxiously as Grolsch chose between them and
finally opted for a location outside Enschede. During the planning phase, an explosion destroyed
parts of the old Enschede brewery, forcing a major scramble to keep operations going. In 2001, after
delays, Grolsch received governmental approval to build. When the new brewery opened in April
2004, it had cost €277m,18 and had a capacity of 3.2 million hl that could be increased to as much as 6
million hl. (In the short run, expansion to 3.7 million hl was planned at an additional cost of €10m).
Grolsch estimated that it would save €1m in operating costs annually by optimizing production, but
no significant headcount reductions were anticipated. Pride in the new brewery - described as the
most modern in the world - focused on its state-of-the-art, environmentally friendly technology.
Grolsch’s new brewery was located on a major highway and was about 200 kilometers from the
main Dutch shipping port, Rotterdam. Beer was transported by truck to markets within the European
Union, at costs estimated to range from about €1.47 per hectolitre to Germany to €6.68 per hectolitre
to Spain.19 Transportation to all other markets was by ship, in 20-foot, 40-foot or 45-foot20 containers
at costs estimated to be €10-15 per hectolitre (see Exhibit 10 for more detailed estimates).
17 “Grolsch, Warsteiner boost alliance with Italy deal,” Reuters News, Jan. 28, 2003.
18 Grolsch Brewery, Proleit Website, http://www.proleit.com/en/Industries/BreweryGrolsch_Neubau.php. Accessed Sept.
13, 2007.
19 Estimated by case writer.
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Marketing
Grolsch’s other marketing policies, pricing, promotion and placement were meant to reinforce its
positioning as a premium product.
Pricing
Grolsch was priced similarly to Heineken and was considered a standard lager brand within the
Netherlands. Overseas, Grolsch positioned the brand at premium prices. In three of its six largest
non-domestic markets - the US, Canada and Australia - Grolsch was priced at a discount to other
leading European imports. Thus, in the US, the average off-premise21 retail price of Grolsch Premium
Lager was about $3.18 (€2.53) per litre in 2006, compared to Heineken at $3.48 (€2.77) and Budweiser
at $2.13 (€1.70). And prices in Canada approached standard rather than premium levels, with C$4.50
(€3.16) for Grolsch vs. C$6.24 (€4.38) for Heineken and C$4.44 (€3.11) for Budweiser. In the UK
pricing was comparable to the leading premium lagers: Grolsch averaged £1.90 (€2.79) per litre
versus £1.93 (€2.84) for Stella Artois, £2.11 (€3.10) for Budweiser and less than £1.50 (€2.20) for
standard lagers. In France and Russia - the markets where the Amsterdam brand was the key driver
of volume gains - Grolsch Premium Lager was priced substantially higher than other premium
lagers.
Promotion
Like most brewers, Grolsch undertook a wide array of promotional activities. For example, the
launch of the new green bottle in 2007 was supported by advertising in print media, the Internet (to
make special offers and build the customer base through music programs and fan clubs), outdoor and
on-premise displays, sponsorships (e.g., of football clubs), events (e.g., music concerts) and television
advertising. TV advertising, which had begun in the 1960s, nonetheless garnered the bulk of
promotional expenditures. In the Netherlands, Grolsch spent 4% to 6% of sales on advertising. Recent
spots featured 30-somethings in cosmopolitan settings with tag lines like “One day you won’t drink
beer anymore, you’ll drink Grolsch.” In the UK, where Grolsch enjoyed access to an extensive network
of on-premise locations through its relationship with MolsonCoors (the country’s second-largest brewer
and the owner of the largest brand, Carling), advertising reinforced the “Green Light District”
campaign in which customers were served Grolsch beer in locations saturated with Grolsch imagery.
UK TV advertising also played up Grolsch’s Dutch origins, often by poking fun at them, e.g., with a
Dutch spokesperson speaking English with an exaggerated Dutch accent.
Dutch roots were also accentuated in TV advertising in other markets since Grolsch believed that its main
locational advantage was the image of beer from Northern Europe and, especially, the Netherlands, which
became a major exporter (to England) back in the 14th century and now exported more of its production about 50% - than any other major producer. This country-of-origin advantage had been validated by
Heineken, which imported its beer into the United States instead of producing it locally and, as the second
largest import, behind Corona, sold more than 5 million hl of it there a year, at the highest prices in the
market. But Dutch origins had to be pitched differently in countries less familiar with the Dutch: as one
20 20-foot containers were a shipping standard and were 8 feet high x 8.5 feet wide and 20 feet long. 40-and 45-foot containers
had the same height and width as 20-foot containers with the only difference being length.
21 Off-premise was also called off-trade and referred to supermarkets, specialty stores and other shops. On-premise (or on-
trade) signified restaurants, bars, hotels and catering.
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executive put it, “Few people in the US have specific knowledge about the Netherlands.” In addition,
while UK and US advertising ostensibly shared the English language, the content of the ads had to be
varied greatly to reflect other large cultural differences between the two markets (see Exhibit 11).
In the US, the allure of the Grolsch swingtop bottle featured prominently in a new commercial, “Got
that Swing” aired during the professional (US) football playoffs and throughout the year in New York’s
Times Square. This differed markedly from Grolsch’s edgier UK commercials. The broader approach, in
both the US and Canada, was to use targeted advertising and promotional campaigns to reach
trendsetters in select regions of the country. Promotional efforts in other, smaller markets, were much
more modest.
Placement/Distribution
Grolsch emphasized that it selected the best route to the consumer by market, in cooperation with
importers, distributors, brewers and retailers. Placement or distribution arrangements in the Netherlands
had had the most time to mature. In off-premise channels, Grolsch resisted aggressive price promotions
(by supermarkets, particularly) and emphasized its premium products, packaging and ancillaries such as
the PerfectDraft®22 dispenser system.23 Grolsch relied on on-premise channels more than its rivals and
owned six beverage wholesalers that handled half its sales, guaranteed financing of premises and
equipment by bar-owners and owned properties operated as bars and restaurants.24
Distribution in the United Kingdom had also been in place for some time - since 1994, despite the
change in the joint venture partner from Bass to MolsonCoors (Grolsch was MolsonCoors’s second largest
lager brand in the UK after Carling). But elsewhere, there had been more turnover. In the US, Canada,
Australia and New Zealand, Grolsch was on its third or fourth set of distributorships since the mid-1990s
(see Exhibit 12 for details). Except for France, where Grolsch owned its own local distribution and Russia,
where Efes was licensed to brew Amsterdam beer, most other countries had seen similar changes.
Industry Dynamics
In 2005, global beer volumes were 1.5 billion hl (155.2 billion litres) and total retail value –
including, in many countries, a very sizeable tax component – amounted to €354 billion.25 Globally,
volumes had grown at 2.7% per year while global value had increased by 4.7% per year between 2000
and 2005.26 Beer markets in developed regions such as North America, Western Europe and Japan
had recently been flat or had suffered slight decreases in volume between 2000 and 2005. Global
volume growth was driven by developing regions such as Eastern Europe and Asia Pacific, in both of
which volume had grown by more than 5% per year. Exhibit 13 shows information on past and
projected volumes in the 20 largest country markets. Overall, lagers accounted for nearly 95% of
market volume and 90% of value, and ales, stouts and no/low-alcohol beer for the remainder.
22 The PerfectDraft® system was an appliance developed by Philips and was an appliance designed to replicate draft beer
served at bars and restaurants. Several major beer brands marketed 6-litre kegs suitable for the appliance.
23 Grolsch Annual Report 2006, Dec. 31, 2006, p. 12.
24 Ibidem.
25 “The World Market for Alcoholic Drinks,” Euromonitor, p. 5.
26 Ibidem.
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Partly because of the low price-elasticity of demand for beer (estimated at -0.3 for the Netherlands,
for instance), brewers responded to volume pressures by trying to build up the premium part of their
portfolios, often by launching premium line extensions to recognized brands.27 Worldwide, premium
lager represented 16% of volume and 28% of lager value in 2005, up from 15% and 23% respectively
in 2000. Standard lagers accounted for 53% of volume and 58% of value – both figures down a few
percentage points from 2000 – and economy lagers for the rest. Exhibit 14 tracks the premium lager
segment by region over time.
Total imports - mostly of premium beers - represented 5% of global volume and 10.6% of global
sales in 2005 (up from 4.3% and 8% respectively in 2000).28 Exhibit 15 disaggregates imported versus
domestic sales by region. In addition, foreign brands were sometimes brewed under license for a local
market. For example, Budweiser was brewed by Guinness for sales in Ireland. Heineken granted
licenses to breweries in which it had stakes and also forged license-to-brew agreements with small
breweries such as a deal with the Danish Brewing Group to brew Heineken for Denmark.29 Typical
royalty/licensing fees depended on the beer’s price point, volume and promotional support;
royalty/licensing fees ranged from €1 per hectolitre to €6 per hectolitre.
Nevertheless, in markets such as the US (by far the world’s largest importer), nearly all successful
foreign brands were shipped from the brewery of origin because of the perceived importance that US
consumers placed on “getting a real import.” Some of the successes had been truly spectacular, as in
Corona’s ascent, past Heineken, to the ranks of the largest import and the second largest premium
brand in the US market. But brand shares were generally stable in most developed markets,
especially in Europe, in spite of significant advertising competition that swallowed up 4 to 8% of
revenues for most major brewers. And at a global level, the combined market share of the top ten
brands stood at 18% in 2005, versus 19% in 1995.30 Most of the top ten brands generated the majority
of their volume from a single market such as Budweiser and Miller from the US (although SABMiller
did brew Miller outside the US as well) or Skol from Brazil. Some brands, however, did have a large
and broad presence outside their home markets (see Exhibit 1).
Where concentration had taken place was at the company level. Because of acquisitions and, to a
lesser extent, joint ventures and organic growth, the five largest brewers had come to account for 38%
of global volumes, up from 24% in 1996.31 As of 2006, the largest brewers were: Inbev, SABMiller,
Anheuser-Busch, Heineken and Carlsberg (for comparisons, see Exhibit 16).
•
InBev resulted from an €8 billion merger between Belgium’s Interbrew and Brazil’s AmBev in
2004, and had a broad presence, with particular strengths in Europe and Latin America and
significant weakness only in North America.32
27 “The World Market for Alcoholic Drinks,” Euromonitor International, Dec. 2006, p. 12.
28 Ibidem., Dec. 2006, pp. 76-77.
29 Drinks Marketing Director, Heineken, Euromonitor 2005, p. 2.
30 Internal Grolsch Company Presentation, “Consolidation in the Global Beer Industry,” Management Team Meeting, Feb. 26,
2007, slide 18.
31 SABMiller Annual Report 2007, Online Edition, http://www.annual2007.sabmiller.com/2_gfootprint/gbeermarket.html.
Accessed Aug. 23, 2007; and, The Brewing Industry, PaineWebber Analyst Report, Feb. 25, 1998, pp. 31-32.
32 Gilles Castonguay and Nicholas Winning, “Interbrew buy of AmBev wins shareholder approval,” Reuters News, Aug. 27,
2004.
10
•
SABMiller had been formed when SAB (South African Breweries) acquired Miller from Phillip
Morris in 2002 for €6 billion. It was strong in Africa and Eastern Europe; because of Miller, the
share of its sales accounted for by North America was even larger, but the share of profits much
smaller (see Appendix A for additional information).
•
Anheuser-Busch’s footprint was the mirror image of InBev’s: very focused on North America
(in addition to its leadership in the US, it owned 50% of Mexico’s Modelo, the producer of
Corona).
•
Heineken, despite its reputation as the global brand, derived nearly 70% of its revenue from
Western and Eastern Europe. This figure would increase as it absorbed the market-leading
UK operations of Scottish and Newcastle (S&N, previously the thirteenth largest brewer by
volume), which it, along with Carlsberg, had taken over and broken up in the first half of
2008.
•
Carlsberg was much smaller and even more dependent on Europe, especially Western
Europe, but would end up with a more balanced European presence after absorbing S&N’s
half of their erstwhile Eastern European joint venture, Baltic Beverages Holding.
Rumors of additional deals were rife in the brewing industry. The one most talked about in early
2008 was a possible merger between In-Bev and Anheuser-Busch. The two had already moved to take
advantage of their complementary geographic positions by announcing that Anheuser Busch would
import InBev’s leading brands – Stella Artois, Beck’s, Bass Ale – to the US (casting a pall over
Grolsch’s tie-up with Anheuser-Busch for the same purpose). Some analysts were predicting that the
probability of a merger was high due to “growth in emerging economies, cost savings and
complementary geographies.”33
Despite feverish consolidation activity, evidence on its profitability was mixed. An academic
study of short-run stock market reactions to the announcement of 21 major mergers and acquisitions
in brewing between 2000 and 2005 found that 11 elicited negative reactions.34 It also concluded that
cumulated reactions of this sort were negative across transactions by Interbrew and Heineken, and
positive for SABMiller. But SABMiller’s positive record was due to just one deal: the purchase of
Bavaria, the market leader in Colombia, for much less than expected. And the stock market’s negative
reaction to the Interbrew-AmBev mega-merger, for example, seemed not to anticipate the efficiency
increases that the new management team from AmBev subsequently squeezed out of the old
Interbrew operations.
Looking at the positions that resulted from such moves suggested some additional conclusions.
According to the same academic study, the relationship between the geographic spread of 48 large
listed brewers and measures of their accounting profitability was negative and statistically
significant, and there was no simple relationship between overall company size and profitability.35
Instead, the brewers who earned the highest margins per hl seemed to combine high levels of
revenue per hl with strong scale within key national markets (see Exhibit 17). There was also evidence
33 Jonathan Ratner, “Brewers to merge, analyst says,” Financial Post, National Post, July 24, 2007, p. FP6.
34 Oliver Johannes Ebneth, “Internationalisierung Und Unternehmenserfolg Börsennotierter Braukonzerne,” Göttingen, May
2006, p. 141.
35 Ibidem.
11
of a strong correlation between market concentration and profitability at the national level (see
Exhibit 18).36
Outside of the major brewers, there were thousands upon thousands of commercial breweries
worldwide. Smaller brewers typically competed on the strength of their local reputation, history and
advertising voice. But even some of the smaller operations were, often with the help of major brewers
as well as resources generated by strong domestic positions, beginning to globalize. For example,
Baltic Beverages Holdings, the object of the tussle between S&N and Carlsberg, had begun an
aggressive pan-European export and distribution drive with its Russian Baltika brand. As Baltika’s
president put it: “The international interest in Russia and Russian business is great, and in my
opinion it would only be natural for foreigners interested in Russia to try some Russian beer. And
once they’ve tried it, the product's quality will eventually win out - just as was the case with Corona
beer, which was originally a Mexican brand.”37
Exhibit 1
Top 25 Beer Brands: Total Volume and International Volumes
Top 25 World's Brands
TOTAL VOLUMES
Brand
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Bud (Light)
Budweiser
Skol
Corona
SNOW
Heineken
Brahma Chopp
Coors Light
Miller Lite
Super Dry
Tsingtao
Beijing Beer
Busch (range)
Carling Black label (Africa)
Carlsberg
Amstel
Baltika(range)
Schincariol/Nova Schin
Antarctica
Zhujiang
Polar (range)
Guinness
Stella Artois
Foster’s
Chang
Brewer
Anheuser-Busch
Anheuser-Busch
InBev
Modelo
SABMiller
Heineken
InBev
MCBC
SABMiller
Asahi
Tsingtao
Beijing Yanjing
Anheuser-Busch
SABMiller
Carlsberg
Heineken
BBH
Schincariol
InBev
Zhujiang
Polar
Guinness
InBev
Foster’s/S&N
Beer Thai
Volume
Millions of
HL (2006E)
50.4
47.0
34.2
32.7
26.0
25.8
24.2
22.7
21.2
17.5
15.6
15.3
15.2
12.8
12.2
12.2
12.0
11.8
10.8
10.7
10.4
10.1
9.9
9.8
9.1
Top 25 World's Brands
NON-DOMESTIC (INTERNATIONAL) VOLUMES ONLY
Brand
Brewer
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Heineken
Corona
Carlsberg
Budweiser
Amstel
Stella Artois
Guinness
Foster’s
Brahma
Tuborg
Beck's
Pale Pilsen
Kronenbourg
Coors Light
Bavaria
Tiger
Miller Genuine Draft
Labatt
Holsten
Tecate
Grolsch
Baltica
Obolon
Kozel
Modelo Especial
Heineken
Modelo
Carlsberg
Anheuser-Busch
Heineken
InBev
Guinness
Foster’s/S&N
InBev
Carlsberg
InBev
San Miguel Phillipines
S&N
MolsonCoors
SABMiller
Asia Pacific Breweries
SABMiller
InBev
Carlsberg
FEMSA
Grolsch
BBH
Obolon
SABMiller
Modelo
Volume
Millions of
HL (2006E)
20.1
11.9
10.8
9.9
9.6
9.0
8.6
8.6
6.6
4.9
3.6
3.0
2.5
2.3
1.9
1.9
1.7
1.7
1.5
1.4
1.4
1.4
1.3
1.3
1.2
Note: The information in "Total Volumes" excludes local brands in China.
Source: Company documents
36 Ibidem, p. 42.
37 Galina Stolyarova, “New Ambitions for Russian Beer,” Business Week, July 3, 2007,
http://www.businessweek.com/globalbiz/content/jul2007/gb2007073_616975.htm?chan=search. Accessed Aug. 23, 2007.
12
Exhibit 2
Quality Ratings and Market Share
Volumes and Average Quality Rating of Leading Beer Brands
4.50
Grolsch
4.00
Heineken
Quality Rating (1-5)
3.50
3.00
2.50
2.00
1.50
1.00
0.50
-
Heineken
Corona
Carlsberg
Budweiser
Amstel Light
Stella Artois
Guinness
Foster's
Tuborg
Beck's
San Miguel
Coors Light
Miller
Labatt
Tecate
Grolsch
5.0
10.0
15.0
Volumes (millions of hl)
Volumes (millions hl)
20.1
11.9
10.8
9.9
9.6
9.0
8.6
8.6
4.9
3.6
3.0
2.3
1.7
1.7
1.4
1.4
20.0
Avg. Quality Rating
3.17
3.37
3.46
2.72
3.33
3.66
3.93
2.94
3.56
3.38
3.73
2.69
3.04
3.22
3.50
3.82
25.0
13
Explanation: This chart places leading beer brands (based on non-domestic volume) by volume in
millions of hl (shown on the x-axis) and quality rating (shown on the y-axis). Average quality ratings
are subjective in nature and were gathered by users of the website (rateitall.com) rating the taste of
each beer. The scale was: Terrible (1), Bad (2), Ok (3), Good (4), and Great (5).
Source:
Compiled by case writers based on volume information presented in Exhibit 1 and
quality rating averages by searching on rateitall.com. Accessed May 28, 2008.
14
Exhibit 3
Map of the Netherlands
0
0
25
50 km
25
50 mi
Delfzijl
Leeuwarden
Den
Helder
North
Sea
IJmuiden
Haarlem
The Hague
Assen
Zwolle
AMSTERDAM
Utrecht
Rotterdam
BELGIUM
Enschede
Amhem
Europoort
Nijmegen
Dordrecht
Tilburg
Terneuzen
Groningen
GERMANY
Eindhoven
Maastricht
Source: Map from CIA World Factbook.
15
Exhibit 4
Grolsch Financial History
Volumes (millions of hl)
Worldwide sales of the Grolsch brand
Worldwide sales of all owned brands
and beer sold under license
% of total volume sold outside the Netherlands
2000
2001
2002
2003
2004
2005
2006
2007
2.8
2.9
2.9
3.1
3.1
3.3
3.2
3.4
3.2
3.4
3.0
3.3
2.9
3.2
2.8
3.3
not avail
not avail
45.9%
50.4%
50.0%
48.5%
50.0%
51.5%
255.4
56.6
36.9
27.0
272.6
58.7
38.6
28.6
296.5
61.4
42.9
30.1
301.4
61.0
42.4
30.4
314.8
58.3
32.1
20.6
312.3
54.9
25.2
18.0
317.6
56.2
25.7
19.2
332.9
58.8
28.6
20.0
0.0
77.4
27.1
13.8
48.1
91.2
257.5
0.0
86.1
50.9
15.1
36.7
93.9
282.6
0.7
134.7
54.3
16.2
41.6
51.0
298.5
0.5
261.1
41.8
14.6
39.5
11.8
369.2
1.5
316.1
46.7
17.7
46.5
12.8
441.3
5.1
312.9
46.5
16.7
56.9
14.4
452.4
3.6
299.0
40.8
16.5
57.1
49.8
466.9
2.2
307.8
45.8
19.8
80.6
14.5
470.7
158.6
16.6
1.1
0.0
16.8
63.5
257.5
187.2
13.6
0.0
0.0
24.7
56.3
282.6
204.9
12.3
1.5
0.0
24.4
54.9
298.5
230.1
11.4
53.4
3.6
12.6
57.7
369.2
239.9
18.1
101.9
4.0
17.4
60.1
441.3
244.8
19.8
104.3
9.9
16.8
56.8
452.4
255.8
24.1
76.7
34.0
19.6
56.7
466.9
258.5
23.0
111.5
4.1
20.7
52.9
470.7
Performance Per Share (in EUR/share except for number of shares)
Net profit per share
1.60
1.69
Dividends*
0.68
0.72
Share price - year end closing
23.80
22.01
Share price - high
25.20
24.20
Share price - low
18.20
15.50
Weighted average number of ordinary shares** 16,921,507 16,921,507
1.78
0.76
20.66
24.30
19.49
16,921,507
1.80
0.77
22.56
23.48
16.85
16,921,507
1.22
0.59
23.15
25.00
20.90
16,921,507
1.06
0.63
21.85
26.10
21.28
16,921,507
1.13
1.00
31.40
33.59
21.15
16,921,507
1.18
47.88
48.00
24.20
16,921,507
882
873
895
880
868
875
P&L Statement (EUR millions)
Net Sales
EBITDA
EBIT
Net profit
Balance Sheet (EUR millions)
Assets
Net intangible fixed assets
Net tangible fixed assets
Financials fixed assets (FFA)
Inventories
Receivables
Cash, cash equivalents & securities
Total Assets
Equity and Liabilities
Shareholders' equity
Provisions
Long-term interest bearing debt
Short-term interest bearing debt
Trade creditors
Other non-interest bearing liabilities
Shareholders' Equity and Liabilities
Other Data
Number of Employees
862
902
*Note: In 2006, a plus dividend of 0.33 was paid on top of the basic dividend of 0.67. In 2007, no dividend was paid due to the
sale of the company.
**The number of shares entitled to dividends at year end were 16,921,507 shares for the entire period (these refer to the number
of shares held by third parties).
Source: Grolsch Analyst Report, Fortis, February 23, 2007, p. 9 with additions by case writer based on Grolsch Annual Report
2007, pp. 35-37. Volumes (2000-2003) taken from Annual Report 2003, p. 5 and volumes (2004-2007) taken from
Annual Report 2007, p. 7.
16
Exhibit 5
Presentation to Investors showing Strategic Adaptation
Adapted focus
and growth target
core markets
Expansive on-trade
policy
Adapted market
Investments:Increases in
Marketing budgets, costs of
Development and investment
in core market
Adapted organizational
structure: Business teams,
innovation department, R&D
brewery
Adapted production
and internal logistics:
Flexible labor
Adapted
vision/mission
Adapted market
position
Adapted brand strategy
- Advertising campaign
Top-line:
Focus on growth
in full-grown beer
markets
Bottom-line:
Focus on cost
structure and
efficiency
Decreases in
overhead expenses
Adapted product
Proposition
-New design
-New concepts
Enhancing the efficiency
of the new facilities: Efficiency in
brewing process and efficiency
in filling lines
Decrease in cost price:
Procurement, economic
alliances
Source: Grolsch IR Presentation, July 2006, Combined slides 24 and 26.
17
Exhibit 6
Range of Grolsch Products
Grolsch Premium Lager
Swingtop Bottle
New Bottle
Cans
Other Products
Amber
Ale
Premium
Weizen
Source: Company Documents.
18
Premium
Blonde
Amsterdam Range
Exhibit 7
Historical International Expansion Timeline: Grolsch vs. Heineken
HEINEKEN
GROLSCH
1976-Grolsch
1946-Grolsch begins
importers set up
is introduced
exporting to Egypt,
in the US.
Curaçao, Surinam,
1977-Importers
Gold Coast, India,
set up in the UK
1615
Willem Neerfeldt
1876-Builds
Starts brewing
a new brewery
1922-Two breweries
1895-The De Groen
merge
Push into Eastern
Europe & Latin America
2007-SABMiller
Early 1990s
Acquisition of
Sri Lanka, China,
Acquisitions
2004-New
Malta and Indonesia
in Germany
Factory
family takes over
In Grolle
Grolsch
& UK
Early 1980s-
1592-The first
1864-Gerard
1889-Heineken
1914-
incamation of the
Heineken buys the
presented at
Reach
1927-First
1935-Acquires
1954-New green
1970s-
Haystack in Amsterdam
Haystack brewery
World Fair in Paris
volumes of
International
breweries in
label and logo
Buys
300,000hl
acquisition in Egypt, Dutch East
with the “smiling
breweries
Belgium
e’s”
in Europe,
is established
Mid-1990s:
1897-The Swingtop
1917-First
exports to
Indies & Belgian
Congo
Opens new
1939-Heineken 1948-Freddy
Heineken returns
goes public
brewery in
from 2 years
Holland
1968-Heineken
1932-Establishes
in the US as a
merges with Amstel:
Malayan Breweries
manager at the
50% of the Dutch
with other investors:
company
market and 70%
the US
1933-Re-enters the
US after prohibition
of exports
Consistent
2000s-Buys
colour is used.
breweries in Latin America,
Amstel Light
Russia, Egypt & Lebanon,
introduced to
2004-JV with Asia Pacific
US
Breweries for China
Early 1990sPush into
Eastern
Europe.
Mid 1990s:
Buys European
brands
Source: By case writer based on images and data from Grolsch and Heineken’s websites.
19
Exhibit 8
MABA Framework
Market Attractiveness (“MA”) Criteria
MARKET ATTRACTIVENESS (MA)
Measures
Volume of International
Volume Growth of
Price Differentiation
Premium Lager
International Premium
Between International
Segement in
Lager Segment in
Premium Lager
Hectolitres
Hectolitres (last three
Segment and Top
years)
Distance
Lager Brand
Rated 1 to 5
RANGE:
RANGE:
RANGE:
See the four distance
from
0 hl
0 hl
0%
specific measures
to
over 10 million hl
over 1,000 hl
over 40%
below
DISTANCE SPECIFIC MEASURES
DISTANCE
MEASURES
Language
EU Relation
Transport in EUROS
GDP per capita
Rated 1 to 5
RANGE:
RANGE:
RANGE:
RANGE:
from languages based
on other scripts
from non-western
country
from over 1,500 euros
from
from less than
$10,000
to English, German or
Dutch
to EU country
to less than 500 euros
to over $25,000
to
Note: Each measure is rated from 1 to 5. The ranges are shown under each heading.
Source: Drawn by case writer. Based on company documents.
Business Assessment (“BA”) Criteria
BUSINESS ASSESSMENT (BA)
Volume of Grolsch
Premium Lager in
Measures
Hectolitres
Rated 1 to 5
Measured in hl
Volume Growth of
Grolsch Premium
Variable Commercial
Contribution in euros
Premium Lager
Segment Share of
Lager in Hectolitres
(last five years)
per Hectolitre
Grolsch Premium
Lager
Measured in hl
Measured in euros
Measured in hl
Source: Drawn by case writer. Based on company documents.
Exhibit 9
MABA Input and Scores
2000
Key
Seeding
Key
Key
Key
Key
Trading
Seeding
Key
UK
France
USA
Canada
Australia
New Zealand
Sweden
Russia
Poland
2006
Key
Key
Key
Key
Key
Key
Seeding
Seeding
Trading
MABA Graph 2006
High
USA
Market Attractiveness
Canada
China
Russia
UK
Spain
Medium
Poland
Australia
Sweden
France
New Zealand
Low
Strong
Average
Business Assessment
Source: Company Documents.
Weak
Exhibit 10
Shipping Cost Estimates from Grolsch’s Enschede Plant
Estimates of Transport cost/hl by Country (in Euros)
18.00
16.52
16.00
14.00
13.39
12.06
12.00
10.54
10.00
8.43
8.00
6.68
6.10
6.00
5.93
5.47
4.21
4.00
1.94
2.00
1.60
1.47
0.63
Be
lg
iu
m
G
er
m
R
an
ot
y
te
rd
am
,N
L
Fr
an
ce
Po
la
nd
U
K
R
us
si
a
Sw
ed
en
Sp
ai
n
C
hi
na
C
an
ad
a
U
S
N
ew
Ze
al
an
d
Au
st
ra
lia
-
Source: Estimated by case writer based on different shipping formats.
Exhibit 11
Cultural Differences in Advertising: UK and US (in percentage)
TV Commercials for Beer: the US vs. the UK
Value
Individualism
Modernity
Achievement
Tradition
Eccentricity
US
70.8
45.8
70.8
4.2
4.2
UK
15.8
0.0
10.5
44.7
81.6
Rhetoric
Direct Speech
Emotional/Sexual Appeal
Humorous Appeal
Special Occasion?
US
UK
91.7
2.6
78.9
8.1
21.1
91.9
85.7
16.2
(24 TV ads) (38 TV ads)
Source: Zahna Caillat and Barbara Mueller, "The Influence of Culture on American and British Advertising: An Exploratory
Comparison of Beer Advertising," Journal of Advertising Research, Vol. 36, 1996.
Exhibit 12
Grolsch’s Distribution in Selected Markets
Country
Distribution Agreements
United States
1976-1995
1996-2001
2001-2006
2006-present
Imported under its own company, Grolsch Importers Inc. in Atlanta, Georgia
Sales, distribution and marketing by Canada's Seagram Company
Sales, distribution and marketing by United States Beverage (USB)
Sales, distribution and marketing by Anheuser-Busch
United Kingdom
1977-1979
1979-1994
1994-2001
2001-present
Distribution by small independent UK-based distributor
Imported through its own company, Grolsch (UK) Ltd.
Joint venture with Bass Brewers to brew, distribute and market Grolsch
Joint venture partner changed to Coors
Canada
1984-1997
1997-2002
2002-present
Distribution by Cordevin (later named Rymax)
Distribution by Rollick Beverage Company
License to brew, distribution and marketing by Sleeman
Germany
1991
Purchase of two regional breweries under a single structure (Rheinisch-Bergische
Brauerei)
Sale of one of the breweries (Wickueler) to Brau and Brunnen
Distribution by Brau and Brunnen
1994
1994-present
Poland
1995
1996
1998
1998-2003
2003-present
Acquisition of indirect stake in Elbrewery (EB) and Hevelius Brewery
Purchase of 25% of Australian equity firm Brewpole (which owned 51% of EB and
Hevelius Brewery. The other 49% was owned by the Polish government)
Sale of its 25% stake of Brewpole
Distribution by Brewpole
Distribution by Carey Agri
Russia
1999
2000
2006-present
Investment of €115,000 in the building of a new brewery in Ufa, Bashkortostan
Sale of stake in the brewery
Alliance with Efes to brew and distribute the Amsterdam brand
Portugal
2000-present
2001
2005
Distribution by Sumolis' unit Cereuro
Purchase of a 20% stake in Cereuro
Sale of stake in Cereuro
Australia/NZ
1985-1991
1991-1998
1998-2006
2006-2007
2007-present
Distribution by S. Smith and Son
Distribution by Cascade Brewery Co Ltd.
Distribution by Tucker Seabrook
Distribution by New Zealand's Independent Liquor
Distribution by Premium Beverages
France
1999-present
Distribution under its own company, Bières d'Europe with a focus on the Amsterdam
brand
Source: Created by case writers.
Exhibit 13
Top 20 Countries Consumption
TOP 20 COUNTRIES CONSUMPTION 2000-2011F
000s hectolitres
2000
2001
2002
2003
2004
2005
2006F
2008F
2011F
CHINA
USA
GERMANY
BRAZIL
RUSSIA
JAPAN
UK
MEXICO
SPAIN
POLAND
SOUTH AFRICA
VENEZUELA
CANADA
UKRAINE
FRANCE
THAILAND
ITALY
COLOMBIA
AUSTRALIA
SOUTH KOREA
223,116
235,047
103,309
81,836
55,174
71,764
58,550
50,297
29,153
25,072
23,481
18,100
20,709
10,392
21,467
10,664
16,258
15,498
17,400
16,499
227,145
236,654
101,042
83,880
62,987
71,547
58,250
50,939
31,083
25,204
23,015
19,910
21,213
12,247
20,807
11,720
16,672
14,288
17,300
17,787
241,420
239,676
100,564
84,850
70,713
69,780
58,750
51,183
30,870
27,121
23,349
17,550
21,335
14,043
20,629
12,682
16,330
15,313
17,150
18,274
255,626
237,484
97,183
82,876
76,252
65,817
59,120
53,311
33,450
28,318
24,050
15,334
21,491
15,701
21,168
15,788
17,440
15,217
17,000
17,722
286,348
234,969
95,639
85,494
84,790
66,344
58,999
54,684
34,621
28,865
24,940
21,234
22,094
17,490
20,224
16,191
17,194
15,553
16,900
17,629
309,255
232,582
94,994
90,623
90,225
63,708
57,674
57,133
35,590
30,363
25,600
22,565
22,178
21,503
20,354
17,290
17,262
17,006
16,850
16,663
330,039
230,721
94,200
94,248
95,650
63,106
58,060
59,373
36,480
31,650
26,638
23,852
22,535
24,133
20,252
18,417
17,318
17,762
16,800
16,533
368,326
225,901
93,094
100,474
105,257
60,562
57,505
63,540
38,065
33,800
28,000
25,748
23,020
27,888
20,009
20,950
17,492
19,569
16,550
16,483
426,382
220,522
91,232
108,724
115,908
56,063
56,500
68,626
40,792
36,000
30,500
28,575
23,739
32,591
19,711
24,675
17,755
21,352
16,250
16,475
1,103,786
1,123,689
1,151,581
1,170,347
1,220,203
1,259,418
1,297,767
1,362,233
1,452,373
TOTAL TOP 20
Source: Canadean, Oct. 2006.
Exhibit 13 (continued)
TOTAL CONSUMPTION
Ranked by data from 2005
000s hectolitres
2000
2005
litres
PER CAPITA
Ranked by data from 2005
2000
2005
WEST EUROPE (Top 10)
GERMANY
UK
SPAIN
FRANCE
ITALY
NETHERLANDS
BELGIUM
AUSTRIA
PORTUGAL
IRELAND
Others
TOTAL
103,309
58,550
29,153
21,467
16,258
13,227
10,064
8,964
6,477
5,675
25,736
298,880
94,994
57,674
35,590
20,354
17,262
12,747
9,475
9,087
6,662
5,470
24,899
294,214
EAST EUROPE (Top 5)
RUSSIA
POLAND
UKRAINE
CZECH REPUBLIC
ROMANIA
Others
TOTAL
55,174
25,072
10,392
16,517
11,470
42,338
160,963
90,225
30,363
21,503
16,205
14,575
45,746
218,617
CENTRAL & SOUTH AMERICA (Top 5)
BRAZIL
81,836
MEXICO
50,297
VENEZUELA
18,100
COLOMBIA
15,498
ARGENTINA
12,281
Others
32,811
TOTAL
210,823
90,623
57,133
22,565
17,006
14,195
39,730
241,252
NORTH AMERICA
USA
CANADA
TOTAL
235,047
20,709
255,756
232,582
22,178
254,760
NORTH AMERICA
USA
CANADA
TOTAL
83
67
82
78
69
78
ASIA (Top 5)
CHINA
JAPAN
THAILAND
SOUTH KOREA
PHILIPPINES
Others
TOTAL
223,116
71,764
10,664
16,499
11,309
28,277
361,629
309,255
63,708
17,290
16,663
13,976
41,545
462,437
ASIA (Top 5)
FRENCH POLYNESIA
GUAM
NEW CALEDONIA
JAPAN
AMERICAN SAMOA
CHINA
TOTAL
78
68
72
57
53
18
10
69
59
58
50
46
24
13
AUSTRALASIA
AUSTRALIA
NEW ZEALAND
TOTAL
17,400
3,056
20,456
16,850
3,159
20,009
AUSTRALASIA
AUSTRALIA
NEW ZEALAND
TOTAL
91
80
89
83
78
82
MIDDLE EAST/NORTH AFRICA (Top 5)
EGYPT
1,007
ALGERIA
491
TUNISIA
1,070
MOROCCO
811
ISRAEL
1,100
Others
1,005
TOTAL
5,484
1,989
1,416
1,001
942
926
1,208
7,482
MIDDLE EAST/NORTH AFRICA (Top 5)
BAHRAIN
ISRAEL
TUNISIA
UNITED ARAB EMIRATES
LEBANON
TOTAL
28
17
11
10
3
2
28
13
10
8
5
2
94
67
53
29
33
84
64
55
29
29
9
10
REST OF AFRICA (Top 5)
SOUTH AFRICA
NIGERIA
CAMEROON
KENYA
ANGOLA
Others
TOTAL
23,481
5,500
3,606
2,463
1,663
20,129
56,842
25,600
10,180
4,240
3,430
3,321
22,137
68,908
WEST EUROPE (Top 10)
IRELAND
GERMANY
AUSTRIA
UK
BELGIUM
FINLAND
DENMARK
SPAIN
NETHERLANDS
PORTUGAL
TOTAL
149
126
111
98
98
79
102
71
83
63
77
133
115
111
96
91
87
87
81
78
63
74
EAST EUROPE (Top 5)
CZECH REPUBLIC
ESTONIA
LITHUANIA
SLOVENIA
CROATIA
TOTAL
161
63
63
88
86
40
159
93
91
82
81
55
CENTRAL & SOUTH AMERICA (Top 5)
ARUBA
98
BRITISH VIRGIN ISLES
110
CAYMAN ISLANDS
118
NETHERLANDS ANTILLES
77
VENEZUELA
74
TOTAL
41
113
91
89
86
85
43
REST OF AFRICA (Top 5)
SEYCHELLES
GABON
SOUTH AFRICA
BOTSWANA
MAURITIUS
Others
TOTAL
Source: Compiled from Global Beer Trends, Canadean, Oct. 2006.
25
Exhibit 14
Lager by Type: Premium, Standard and Economy
Global Sales of Lager by Price Segement: % Total Volume Breakdown 2000-2005
Billion litres
Lager by price platform
- Premium Lager
- Standard Lager
- Economy Lager
Total
% total volume
- Premium Lager
- Standard Lager
- Economy Lager
Total
US billions
- Premium Lager
- Standard Lager
- Economy Lager
Total
% value
- Premium Lager
- Standard Lager
- Economy Lager
Total
2000
2001
2002
2003
2004
2005
19.3
71.9
35.7
126.9
20.1
72.4
38
130.5
21.1
72.1
40.4
133.6
22.1
72.4
42.1
136.7
23.2
74.3
44.1
141.5
23.9
75.6
46
145.5
2000
2001
2002
2003
2004
2005
15.2
56.7
28.1
100.0
15.4
55.5
29.1
100.0
15.8
54.0
30.2
100.0
16.2
53.0
30.8
100.0
16.4
52.5
31.1
100.0
16.4
52.0
31.6
100.0
2000
2001
2002
2003
2004
2005
72.1
205.3
40.5
317.9
73.7
193.2
42.5
309.4
80.2
189.2
44.8
314.3
93.7
203.8
48.3
345.8
105.3
219.1
52.0
376.4
112.1
229.2
54.1
395.4
2000
2001
2002
2003
2004
2005
22.7
64.6
12.8
100.0
23.8
62.5
13.7
100.0
25.5
60.2
14.2
100.0
27.1
58.9
14.0
100.0
28.0
58.2
13.8
100.0
28.4
58.0
13.7
100.0
Source: The World Market for Alcoholic Drinks, Euromonitor International, Dec. 2006, pp. 68-69.
26
Exhibit 15
Sales of Imported vs. Domestic Lager
SALES OF LAGER BY IMPORT VS DOMESTIC SPLIT BY REGION VOLUMES (in billion litres)
Western Europe
Imported
Domestic
2000
24.9
1.8
23.1
2001
24.9
1.8
23
2002
24.9
1.8
23
2003
25
2
23
2004
24.9
2.1
22.8
2005
24.8
2.1
22.7
Eastern Europe
Imported
Domestic
14.5
0.5
14
15.4
0.5
14.9
16.3
0.5
15.8
17.3
0.6
16.7
18.3
0.7
17.7
19.1
0.7
18.4
North America
Imported
Domestic
24.7
2.3
22.4
24.7
2.5
22.1
24.8
2.7
22.1
24.8
2.8
22
25.1
2.9
22.1
24.9
3.1
21.8
Latin America
Imported
Domestic
21
0.1
20.9
21.6
0.1
21.4
21.5
0.1
21.4
21.4
0.1
21.3
22.7
0.2
22.5
24
0.2
23.8
Asia Pacific
Imported
Domestic
34.8
0.4
34.4
36.9
0.4
36.5
38.8
0.5
38.3
40.7
0.5
40.1
42.9
0.6
42.3
44.8
0.6
44.2
Australasia
Imported
Domestic
1.7
0
1.6
1.7
0.1
1.6
1.6
0.1
1.6
1.6
0.1
1.5
1.7
0.1
1.6
1.7
0.1
1.6
Africa and Middle East
Imported
Domestic
5.3
0.3
5
5.4
0.3
5.1
5.7
0.4
5.3
5.9
0.4
5.5
6
0.4
5.6
6.3
0.5
5.8
126.9
5.4
121.4
130.6
5.7
124.6
133.6
6.1
127.5
136.7
6.5
130.1
141.6
7
134.6
145.6
7.3
138.3
TOTAL
Imported
Domestic
VALUES (in US billion dollars)
Western Europe
Imported
Domestic
2000
83.7
8.4
75.3
2001
82
8.6
73.5
2002
87.6
9.3
78.3
2003
103.9
12
91.9
2004
115.3
14.9
100.5
2005
119.9
15.4
104.5
Eastern Europe
Imported
Domestic
17
1.6
15.4
18.6
1.7
16.9
20.6
1.9
18.7
23.6
2.2
21.4
26.4
2.5
23.9
29.4
2.7
26.7
North America
Imported
Domestic
69.1
10.2
58.9
70.7
11.4
59.3
73
12.6
60.4
75.3
13.6
61.7
79.2
14.6
64.6
81.5
15.8
65.7
Latin America
Imported
Domestic
34
0.5
33.5
33.7
0.5
33.2
30.6
0.4
30.1
32.1
0.5
31.6
35.1
0.5
34.5
41.3
0.7
40.7
Asia Pacific
Imported
Domestic
95.2
3.3
91.9
86.8
3.3
83.5
84.5
3.7
80.8
88.2
3.9
84.3
94.1
4.2
89.9
95.1
4.4
90.8
Australasia
Imported
Domestic
7
0.3
6.7
6.3
0.3
6
6.7
0.4
6.4
8.2
0.5
7.7
9.7
0.6
9.1
10.6
0.7
9.8
11.9
1.1
10.8
11.3
1.3
10
11.3
1.4
9.9
14.5
1.7
12.8
16.7
1.9
14.7
17.5
2.1
15.4
317.9
25.4
292.5
309.4
27.1
282.4
314.3
29.7
284.6
345.8
34.4
311.4
376.5
39.2
337.2
395.3
41.8
353.6
Africa and Middle East
Imported
Domestic
TOTAL
Imported
Domestic
Note: Totals were calculated by case writer and may not exactly tie to other figures mentioned in the report due to rounding.
Source: The World Market for Alcoholic Drinks, Euromonitor International, Dec. 2006, pp. 76-77.
27
Exhibit 16
Major Brewers
Company
Headquarters
Global Market Share 2006 (Volume)
Total Volume (hl million) - 2007
5-Year Volume Growth
Revenues 2007 (Euro million)
Revenues/hl in Euros
5-Year Revenue Growth
EBITDA 2007 (Euro million)
EBITDA/hl in Euros
5-Year EBITDA Growth
InBev
SABMiller*
Belgium
12.7%
UK
8.9%
Heineken
Carlsberg**
Modelo
Molson Coors
Netherlands
6.3%
Denmark
5.2%
Mexico
2.9%
US/Canada
2.7%
271.0
20.2%
216.0
13.3%
189.6
3.0%
119.8
7.1%
115.2
7.2%
51.6
4.2%
49.3
5.1%
14,430
53.25
15.6%
5,324
19.65
28.9%
13,608
63.00
17.9%
2,946
13.64
22.1%
12,194
64.30
3.4%
3,647
19.23
11.2%
12,564
104.87
6.3%
2,292
19.13
4.2%
6,007
52.14
5.3%
1,092
9.48
7.4%
4,879
94.64
9.0%
1,564
30.35
9.8%
4,524
91.68
9.1%
721
14.62
12.6%
0.9
82.6
14.4
0.0
2.0
0.0
0.0
0.0
2.4
7.4
3.9
0.7
35.9
33.6
1.6
14.6
0.1
0.3
7.6
0.0
31.1
59.6
0.3
1.0
68.9
28.0
0.6
0.7
1.9
0.0
0.0
0.0
2.2
73.8
0.2
0.0
23.8
0.0
0.0
0.0
Geographic Distribution of Volume Sales (2006), in percentages
Central & South America
42.0
21.8
North America
4.5
29.4
Asia
18.7
2.4
Australasia
0.2
0.0
West Europe
15.1
4.2
East Europe
19.5
21.1
Middle East & North Africa
0
0.0
Rest of Africa
0
21.1
Major Brands
(Percentage in parentheses refers to
how much the brand makes up of the
company's overall volume)
AnheuserBusch
US
8.8%
Skol (15%),
Brahma
Chopp (10%),
Antarctica
Pilsen (6%),
Stella Artois
(4%), Quilmes
Cristal (3%),
Others - over
200 brands
(62%).
MillerLight
(15%), Carling
Black Label
(8%), Castle
(5%), Miller
Genuine Draft
(4%), Others
(68%)
BudLight
(33%),
Budweiser
(27%), Harbin
(9%), Natural
(7%), Busch
Light (5%),
Others (19%)
Heineken
(11%), Amstel
(4%), Star
(2%),
Cruzcampo
(3%), Others
(80%)
Carlsberg only
(excluding
BBH):
Carlsberg
(25%), Tuborg
(15%), Super
Bock (6%),
Holsten (6%),
Others (46%)
Corona Extra
(60%), Modelo
Especial
(14%), Victoria
(7%), Pacifico
(6%), Others
(13%)
Coors Light
(49%), Carling
(20%),
Keystone Light
(8%), Coors
(3%), Others
(20%)
All exchange rates were assumed as the 365-day interbank average from Oanda.com
Where EBITDA was not reported in annual reports, depreciation and amoritzation was added back to EBIT/Operating profit.
*SABMiller's fiscal year end is in March 31.
**Carlsberg includes Baltic Beverage Holding (BBH), which was a 50-50 joint venture with Scottish & Newcastle throughout the
period.
Source: Compiled by case writer with information from Canadean and company annual reports.
28
Exhibit 17
Brewers: EBITDA per hectolitres in Euros (2004)
Strong scale combined with
extreme rev/hl
50,00
45,00
43,40
40,00
37,30
35,60
Strong scale combined
with extreme rev/hl
Benefiting from scale or
high rev/hl
35,00
30,00
25,30 25,20
25,00
23,70
Lack of scale, low
rev/hl or both
21,50
17,90 17,50 17,00
20,00
15,70 15,30
15,00
12,90 12,80 12,50
12,10 11,50
9,60
10,00
8,20
7,20
2,80
5,00
Source:
Tsingtao
Efes
MolsonCoors
Carlsberg
SABMiller
S&N
CCU
AmBev
Femsa
InBev
Sapporo
Bavaria
San Miguel
Heineken
Foster's
Lion Nathan
Anheuser Busch
Modelo
Diageo
Kirin
Asahi
0,00
Oliver Johannes Ebneth, “Internationalisierung Und Unternehmenserfolg Börsennotierter Braukonzerne,” Göttingen,
May 2006, p. 126.
29
Exhibit 18
Profitability and Concentration in Different Countries
R2
30 %
South
Africa
25 %
Brazil
EBITA Margin
20 %
Canada
Russia
Australia
Czech Republic
15 %
Ireland
Poland
Netherlands
UK
Germany
10 %
France
Mexico
Belgium
Italy
5%
South
Korea
Japan
China
0%
0
2000
4000
6000
8000
10000
HHI
Explanation: The Herfindahl index (HHI) is widely used to measure the degree of industry
concentration and is calculated by summing the squares of the market shares of all firms in an
industry. The Herfindahl index is higher if a few key players have high market shares than if market
shares are spread more evenly across a larger number of firms. Thus, three companies splitting 100%
of a market evenly implies a Herfindahl index of 3,333, whereas ten companies splitting 100% of a
market evenly implies an index of 1,000. The maximum value of the Herfindahl index - in the case of
monopoly - is 10,000.
Source: Oliver Johannes Ebneth, “Internationalisierung Und Unternehmenserfolg Börsennotierter Braukonzerne,” Göttingen,
May 2006, p. 42.
30
Appendix A
Information on SABMiller
1. Strategic Priorities
Strategic
Strategic Priority
Priority
Creating a balanced and
attractive global spread
of businesses
Explanation
Explanation
Our geographical spread of operations enables
us to capture growth in beer volumes in the
developing markets, and value growth as
consumers around the world trade upwards
from economy to mainstream and from
mainstream to premium brands.
brands
Targets
Targets
10%
organic volume
growth
Developing strong,
relevant brand portfolios
in the local market
Our aim is to develop an attractive brand portfolio
that meets consumers’ needs in each of our
markets. In many markets, because the growth
is fastest at the top end, we’ve been focusing
therefore on our international premium brands,
such as Peroni Nastro Azzurro and regional
brands such as Kozel in Europe.
47%
international
growth of
Peroni
Nastro Azzurro
15%
growth
in premium
volume
in Europe
Constantly raising
the performance of
local businesses
Good operational performance has always been
a SABMiller strength. While operational standards
are already high we are continually pushing them
higher as evidenced by growing EBITA and
higher margins.
12%
EBITA growth
(organic
constant currency)
20 basis points
increase
ingroup
EBITA margin
Leveraging our
global scale
We are leveraging our global scale to grow the
business. Our business platform enables us, for
example, to distribute our international premium
brands and build our regional brands. In addition
we are using our scale to transfer skills, methods
and technologies around the group, improving
our operational performance and efficiency.
18%
revenue
CAGR for
the last
three years
17%
improvement in
overall equipment
effectiveness
at Miller over
the last 4 years
11%
group revenue
growth
(organic
constant currency)
Source: SABMiller plc Annual Report 2007, March 31, 2007, p. 8.
2. Geographic Split of SABMiller’s Business (in percentages)
Latin America
Europe
North America
Africa and Asia
South Africa
Corporate
Group
Revenues
2007
Revenues
2006
EBITA
2007
EBITA
2006
23.5
21.9
26.2
7.8
20.6
0.0
100.0
14.1
21.3
32.1
7.9
24.7
0.0
100.0
25.5
20.4
10.4
13.0
33.5
-2.8
100.0
14.8
19.3
15.4
14.3
39.0
-2.9
100.0
Source: SABMiller plc Annual Report 2007, March 31, 2007, pp. 75-76.
31
Appendix A (continued)
3. SABMiller’s Notable Brands
Pilsner Urquell (Country of Origin: Czech Republic)
Pilsner Urquell litreally means "Pilsner from the original source". It is famous throughout the world for its
unique flavor and superior quality. It owes its exceptional qualities to the original production process, finest
ingredients and the experience of Czech brewers passed on from generation to generation for over 160 years.
Peroni Nastro Azzurro (Country of Origin: Italy)
Peroni Nastro Azzurro is an intensely crisp and refreshing lager, with an unmistakable touch of Italian style,
brewed in Italy to the original recipe, since 1963. This premium beer is 5.1% alcohol by volume and expertly
brewed using the finest variety of spring planted barley and the highest quality maize, malts and hops. Its
unique taste is refreshing and dry, with a clear-cut, clean character and clarity, achieved through the exclusive
brewing process. This ensures that the beer has both a fresh and natural quality.
Miller Genuine Draft (Country of Origin: South Africa)
Miller Genuine Draft is the authentic international cold filtered bottled draft beer. Its cold filtering brewing
process removes impurities in the beer and enhances its drinkability.
Miller Lite (Country of Origin: US)
Introduced in America in 1975, Miller Lite created the beer industry's low-calorie segment. Miller Lite is
specially brewed from the finest malted barley, select cereal grains and choicest hops for superior taste in a lessfilling beer. It contains 96 calories per 12 oz. serving. Miller Lite won gold medals in the American-Style Light
Lager category at the 1996, 1998, 2002 World Beer Cup competitions.
Castle Lager (Country of Origin: South Africa)
It is a standard-strength lager with a special taste, somewhat dry, somewhat bitter, never sweet taste.
Snow Beer (Country of Origin: China)
The brand is positioned for the premium sector of the market and will be packaged in green non-returnable
bottles. The beer itself is bright, almost transparent in nature, with a tight, pure white foam that clings to the
glass right to the last drop. The aromatic characteristics of the brand are imparted using only pure imported Satz
hops from the Czech Republic. This full-bodied beer is balanced by a high carbonation level and gentle
bitterness.”
32
Source: Taken directly from SABMiller’s Website,
http://www.sabmiller.com/sabmiller.com/en_gb/Our+brands/Brand+information/International+brands/. Accessed December 2, 2007.
33

Grolsch: Growing Globally

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