South African Breweries
Encyclopedia
The South African Breweries (SAB), then called Castle Breweries, was founded in 1895 specifically to serve a new market of miners and prospectors in and around Johannesburg
. Two years later, it became the first industrial company to list on the Johannesburg Stock Exchange (JSE). Over the last two decades, the business has expanded internationally, making several acquisitions in both emerging and developed markets. Today, SAB Ltd in South Africa is a wholly owned subsidiary of London and JSE-listed SABMiller plc. SABMiller is one of the world’s largest brewers by volumes, with over 200 brands and operating across six continents.
From 1990 to 1998, group turnover had increased by a compound rate of 17 per cent per year, and earnings had grown by 18 per cent per year. With brewing operations in 19 countries and a total annual capacity of nearly 43 million hectoliters, SAB was then the fourth largest brewing group in the world. It was also the third largest conglomerate in South Africa, behind De Beers and Anglo American.
As its name implies, the company was based in South Africa and focused chiefly on African and East European markets. In 1999, it moved its primary listing to London in an effort to enter the international market. Its biggest brands at the time included Pilsner Urquell
, Castle Lager
, Lech and Ursus
, which are all still being produced.
On 30 May 2002 SAB plc acquired Miller Brewing
and created SABMiller plc from the merger. Miller Brewing was acquired from Philip Morris for $3.6 billion worth of stock and $2 billion in debt; with Philip Morris retaining a 36% share at that time, with voting rights of 24.99%.
Today, as the South African subsidiary, SAB Ltd. is still a major contributor to SABMiller’s global earnings.
In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries Limited (ABI), which became the soft drink division of SAB Ltd, and the largest beverage company in South Africa was created.
had operations in Cape Town to serve the steady expansion of a settler community from the mid-17th century. The demand for beer prompted the first Dutch governor, Jan van Riebeeck, to establish a brewery at the Fort (later replaced by the Castle in central Cape Town) as early as 1658 - beating the first wine production by six months. In the same year, Pieter Visagie brewed the first beer from the waters of the Liesbeeck River. Over the next 200 years, brewing made its mark in the Cape and beyond. Noted brewers of the time included Cloete at the Newlands Brewery; Ohlsson at the Anneberg Brewery; Letterstedt at Mariendahl Brewery - also in Newlands: Hiddingh at Cannon Brewery; Martienssen at the Salt River Brewery, and a second Cloete in Kloof Street.
One of the key figures in the story of Newlands, and in the annals of South African beer manufacturing history, was Swede Anders Ohlsson, who sailed for Africa, aged 23, in 1864. Initially, he imported Swedish goods and timbers, and developed an extensive trade network and a solid business empire. Then he turned to brewing, basing himself at Newlands, where he produced Lion Lager.
In 1955, the South African government introduced a heavy tax
on beer
products causing many consumers to switch to spirits. However, the subsequent shock to the South African beer industry proved to be a blessing in disguise for SAB. A year later, the company purchased its two main competitors, Ohlsson’s and Chandlers Union Breweries, both of whom were struggling under the depressed demand for beer. After the acquisitions the new and larger SAB was able to rationalize operations, thereby reducing costs and increasing profitability. By 1998, SAB commanded approximately 98 per cent share of the South African beer market and was considered one of the lowest cost producers of beer in the world.
Within South Africa, SAB distributes beer through its extensive network, augmented by a fleet of independent truck drivers (called owner-drivers) comprising mainly former employees, many of whom had received help from the group to start their own businesses. SAB has invested billions of rands in this owner-driver project since inception.
Although several international brewers, such as the UK’s Whitbread, had tried to enter the South African market, all had thus far failed to gain significant market share. From time to time, new startups also tried to challenge SAB’s monopoly, but these had either gone out of business, or been acquired by SAB. A case in point was National Sorghum Breweries (NSB), “a black business consortium” founded in 1990, and the first new player in the beer industry in more than 10 years. “SAB’s supremacy is under threat,” observers said, and some thought that within a few years NSB could achieve 10 per cent market share. Instead, the company ran into financial difficulties and failed to gain any significant share of the market.
This does not mean that SAB’s position could never be threatened. In 2004, a new company was established in South Africa known as brandhouse through a joint venture of Diageo, Heineken and Namibian Breweries. brandhouse started marketing, selling and distributing some of the world’s top premium brands such as Heineken and Windhoek and in March 2007, the 40 year agreement between SABMiller plc and Heineken N.V. which allowed SAB Ltd to brew and distribute Amstel Lager in South Africa, was terminated, sparking a new era of competition for the industry. At the same time, Heineken announced its intention to build its own brewery in South Africa.
SAB Ltd launched a new premium brand, Hansa Marzen Gold shortly thereafter and continued its expansion into premium brands with the launch of Dutch heritage beer, Grolsch, following SABMiller’s acquisition of Koninklijke Grolsch N.V. in early 2008. Dreher Premium Lager was launched in South Africa the same year, and the company has made a number of innovations in the spirit cooler and apple-ale categories in recent years.
1997, SAB subsidiary, Amalgamated Beverage Industries, purchased another Coca-Cola
bottler, Suncrush, thereby doubling market share to approximately 60 per cent of South African soft drinks. PepsiCo
, SAB’s only competitor, withdrew from the market in 1997 resulting in the liquidation of Pepsi franchisees. Pepsi, however, re-entered the South African market in 2006.
In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries Limited (ABI), which became the soft drink division of SAB Ltd, and the largest beverage company in South Africa was created.
The Plate Glass Group traced its roots to a British immigrant and entrepreneur who, in 1897, established a plate glass manufacturing operation in Cape Town
, South Africa. Eventually the company became a leading producer of safety and bullet-proof glass for automobiles. In 1987 the company launched a new subsidiary in the United States in partnership with SAB and Anglo American. When Glass medic, a US-based windshield repair and replacement company, was acquired in 1990, the South African parent company merged the subsidiaries under the name Belron International. Belron became a base from which to launch further acquisitions. When SAB purchased Plate Glass in 1992, it was renamed Shatterprufe Limited.
Belron had by 1998 become the world’s leading producer of automotive replacement glass, with some 1,865 retail outlets in North America, Europe, Australia, and Brazil
. Growth had come mainly through acquisitions. In 1997, Belron acquired several leading brands, including Standard Autoglass in Canada, thereby becoming “the largest player in the North American Markets.” Worldwide market share was on the order of 18 per cent, and SAB envisioned further expansion in the coming years:
[Belron] can confidently anticipate significant growth in market share over time. Other growth opportunities include the Asian market.
In Europe, Belron was opening an average of 12 new outlets per month. While sales had increased by five per cent in 1997, earnings had declined eight per cent to R255 million as a result of the borrowing costs associated with new acquisitions and expansion.
Recognising the need to enhance long-term shareholder value, in 1997 SAB returned to its core beverage business, locally and internationally, selling off or closing non-core operations over the next few years. Amongst these was the Plate Glass business.
In 1969, these interests were merged with a hotel chain owned by Sol Kerzner, a Russian immigrant, to form a separate subsidiary known as Southern Sun Hotels. Kerzner remained with Southern Sun as its managing director for several years thereafter. In 1983 Kerzner left SAB, but remained a significant shareholder in the company.
Southern Sun eventually grew to become the leading hotel chain in South Africa, with franchises awarded by Holiday Inn
and Inter-continental Hotels. By 1998, this subsidiary owned 74 hotels with 12,200 rooms, or about 22 per cent of industry capacity. Southern Sun also maintained a minority interest in an eco-tourism company.
Development of new hotels depended on securing licenses from the government, “as the state still owned large tracts of land in both urban and rural areas.” Moreover, suitable locations for hotel and resort development were very limited, and local government officials often did not have the training and expertise needed to make informed decisions about the granting of such licenses. Resulting delays had cost the industry millions of dollars.
Nevertheless, several international hotel chains decided to enter South Africa after the lifting of economic sanctions. By 1998, numerous hotels were under construction by Hyatt
, Sheraton
, Howard Johnson's
, Days Inn
, Hilton
, Best Western
, Concorde (France), Le Meridian (France), and Relais de Chateau (France), among others. Most new hotel development was in the executive and luxury segments of the market. In less than four years, industry-wide capacity had more than doubled, and as a result, the hotel industry began to experience significant over-supply. Combined with a weak currency, this translated into some of the lowest room rates in the world.
Although escalating levels of violent crime had been a serious constraint for South African tourism, Southern Sun had been able to maintain an average occupancy above 70 per cent. In 1997, hotel earnings increased by 16 per cent over the previous year to contribute R182 million to group earnings.
The government introduced the National Gambling
Act in 1996, which allowed for up to 40 casino licenses to be issued to “financially competent operators.” In 1997, SAB entered into a joint-venture with Tsogo Sun Gaming and Entertainment to establish up to eight casino resorts to be completed as early as 2000. Monte Casino would be the first of these developments to be completed at an expected construction cost of $250 million.
The most notable black empowerment transaction facilitated by SAB was Tsogo Investments in early 2003. The transaction, which had an implied value of approximately R1.9-billion, meant that empowerment group Tsogo Investments acquired control of Southern Sun Hotels, then the largest hotel group in southern Africa as well as Tsogo Sun, a leading casino operator in South Africa.
Changes in consumer preferences towards less expensive goods had a negative effect on the premium retail market in the mid-1990s. SAB off-loaded the OK Bazaar grocery chain in 1997 for one rand, after losing nearly R20 million per month. And at the beginning of 1998, the Clothing and Footwear, as well as the furniture divisions were also sold. Later SAB also sold its minority stake in Edgars Fashion Group.
SAB no longer holds any manufacturing or retail assets.
. This subsidiary spearheaded SAB’s initial international expansion efforts, having established new breweries in Northern Rhodesia, now Zambia
and Bulawayo
, Southern Rhodesia, in the early 1950s. Further international expansion came in the 1970s and 1980s with the establishment of breweries in Botswana, Angola, and the buying of Compañía Cervezera de Canarias of the Canary Islands
. Nevertheless, prior to 1990, SAB remained primarily focused on domestic opportunities.
In 1994, SAB was invited to revitalise the beer industry in Tanzania – a joint venture with that country's government – and to re-enter the beer markets of Zambia, Mozambique and, later, Angola. This followed one of its first foreign investments into the Canary Islands. Expansion continued into Africa in the 1990s and on other continents into Hungary (1993), China (1995), Romania, Poland (1995–96), Slovakia (1997), and Russia (1998), the Czech Republic (1999), India (2000) and Central America in 2001.
The group’s expansion into Asia started with its 1995 negotiation of joint control of the second-largest brewery in mainland China with China Resources, a privatisation arm of the government of the People's Republic of China. Further investments included those in the Harbin Brewery Group and the Fuyang City Snowland Brewery. In 2000 SAB plc entered the Indian market where it has subsequently increased its commitment.
By 2001, turnover from SAB plc's international operations accounted for 42% of group turnover. The same year, a pan-African strategic alliance with the Castel group offered the opportunity to invest in promising new African markets and the benefits of scale economies.
Involvement in Central and South America started in 2001 with the acquisition of Honduran and Salvadoran breweries. This was followed four years later by the purchase of a major holding in Grupo Empresarial Bavaria, South America’s second largest brewer.
One of its largest transactions was with the Miller Brewing Company in the US in 2002, whereupon the listed company changed its name to SABMiller plc.
By the end of March 2009, SABMiller produced global lager volumes of 210 million hectolitres, with total group revenues of US$25,302m.
with third party distributors to carve up the South African beer market and curb
the ability of distributors to stock its rivals products. It is also alleged that SAB gave/gives preferential discounts to preselected distributes and used them to fix prices
.
If found guilty SAB could potentially be fined 10% of its annual turnover.
SAB argues that its distribution practices are economically efficient, highly competitive and, therefore, contributes to consumer welfare. As such, so SAB argues, it is entitled to continue delivering and selling its brands in the most profitable way it can. The hearings started on the 11th of August and are expected to continue until the 27th February 2011.
Johannesburg
Johannesburg also known as Jozi, Jo'burg or Egoli, is the largest city in South Africa, by population. Johannesburg is the provincial capital of Gauteng, the wealthiest province in South Africa, having the largest economy of any metropolitan region in Sub-Saharan Africa...
. Two years later, it became the first industrial company to list on the Johannesburg Stock Exchange (JSE). Over the last two decades, the business has expanded internationally, making several acquisitions in both emerging and developed markets. Today, SAB Ltd in South Africa is a wholly owned subsidiary of London and JSE-listed SABMiller plc. SABMiller is one of the world’s largest brewers by volumes, with over 200 brands and operating across six continents.
From 1990 to 1998, group turnover had increased by a compound rate of 17 per cent per year, and earnings had grown by 18 per cent per year. With brewing operations in 19 countries and a total annual capacity of nearly 43 million hectoliters, SAB was then the fourth largest brewing group in the world. It was also the third largest conglomerate in South Africa, behind De Beers and Anglo American.
As its name implies, the company was based in South Africa and focused chiefly on African and East European markets. In 1999, it moved its primary listing to London in an effort to enter the international market. Its biggest brands at the time included Pilsner Urquell
Pilsner Urquell
Plzeňský Prazdroj , known better by its German name Pilsner Urquell , is a bottom-fermented beer produced since 1842 in Pilsen, part of today's Czech Republic. Pilsner Urquell was the first pilsner beer in the world...
, Castle Lager
Castle Brewery
Castle Brewery is one of the oldest commercial breweries in South Africa. As company-endorsed legend would have it, the company was founded by Charles Glass in Johannesburg in 1894. UCT history professor Anne Kelk Mager has argued that the official SAB story overemphasized the role of Charles and...
, Lech and Ursus
Ursus (beer)
Ursus Breweries, a subsidiary of SABMiller plc, is one of the top brewers in Romania. The company is based in Bucharest and owns 4 breweries in Cluj-Napoca, Timişoara, Buzau and Braşov, employing over 1,700 people...
, which are all still being produced.
On 30 May 2002 SAB plc acquired Miller Brewing
Miller Brewing
The Miller Brewing Company is an American beer brewing company owned by the United Kingdom-based SABMiller. Its regional headquarters are located in Milwaukee, Wisconsin and the company has brewing facilities in Albany, Georgia; Chippewa Falls, Wisconsin; Eden, North Carolina; Fort Worth, Texas;...
and created SABMiller plc from the merger. Miller Brewing was acquired from Philip Morris for $3.6 billion worth of stock and $2 billion in debt; with Philip Morris retaining a 36% share at that time, with voting rights of 24.99%.
Today, as the South African subsidiary, SAB Ltd. is still a major contributor to SABMiller’s global earnings.
In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries Limited (ABI), which became the soft drink division of SAB Ltd, and the largest beverage company in South Africa was created.
Brewing in South Africa
Prior to incorporation in the year 1895, Castle BreweryCastle Brewery
Castle Brewery is one of the oldest commercial breweries in South Africa. As company-endorsed legend would have it, the company was founded by Charles Glass in Johannesburg in 1894. UCT history professor Anne Kelk Mager has argued that the official SAB story overemphasized the role of Charles and...
had operations in Cape Town to serve the steady expansion of a settler community from the mid-17th century. The demand for beer prompted the first Dutch governor, Jan van Riebeeck, to establish a brewery at the Fort (later replaced by the Castle in central Cape Town) as early as 1658 - beating the first wine production by six months. In the same year, Pieter Visagie brewed the first beer from the waters of the Liesbeeck River. Over the next 200 years, brewing made its mark in the Cape and beyond. Noted brewers of the time included Cloete at the Newlands Brewery; Ohlsson at the Anneberg Brewery; Letterstedt at Mariendahl Brewery - also in Newlands: Hiddingh at Cannon Brewery; Martienssen at the Salt River Brewery, and a second Cloete in Kloof Street.
One of the key figures in the story of Newlands, and in the annals of South African beer manufacturing history, was Swede Anders Ohlsson, who sailed for Africa, aged 23, in 1864. Initially, he imported Swedish goods and timbers, and developed an extensive trade network and a solid business empire. Then he turned to brewing, basing himself at Newlands, where he produced Lion Lager.
In 1955, the South African government introduced a heavy tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
on beer
Beer
Beer is the world's most widely consumed andprobably oldest alcoholic beverage; it is the third most popular drink overall, after water and tea. It is produced by the brewing and fermentation of sugars, mainly derived from malted cereal grains, most commonly malted barley and malted wheat...
products causing many consumers to switch to spirits. However, the subsequent shock to the South African beer industry proved to be a blessing in disguise for SAB. A year later, the company purchased its two main competitors, Ohlsson’s and Chandlers Union Breweries, both of whom were struggling under the depressed demand for beer. After the acquisitions the new and larger SAB was able to rationalize operations, thereby reducing costs and increasing profitability. By 1998, SAB commanded approximately 98 per cent share of the South African beer market and was considered one of the lowest cost producers of beer in the world.
Within South Africa, SAB distributes beer through its extensive network, augmented by a fleet of independent truck drivers (called owner-drivers) comprising mainly former employees, many of whom had received help from the group to start their own businesses. SAB has invested billions of rands in this owner-driver project since inception.
Although several international brewers, such as the UK’s Whitbread, had tried to enter the South African market, all had thus far failed to gain significant market share. From time to time, new startups also tried to challenge SAB’s monopoly, but these had either gone out of business, or been acquired by SAB. A case in point was National Sorghum Breweries (NSB), “a black business consortium” founded in 1990, and the first new player in the beer industry in more than 10 years. “SAB’s supremacy is under threat,” observers said, and some thought that within a few years NSB could achieve 10 per cent market share. Instead, the company ran into financial difficulties and failed to gain any significant share of the market.
This does not mean that SAB’s position could never be threatened. In 2004, a new company was established in South Africa known as brandhouse through a joint venture of Diageo, Heineken and Namibian Breweries. brandhouse started marketing, selling and distributing some of the world’s top premium brands such as Heineken and Windhoek and in March 2007, the 40 year agreement between SABMiller plc and Heineken N.V. which allowed SAB Ltd to brew and distribute Amstel Lager in South Africa, was terminated, sparking a new era of competition for the industry. At the same time, Heineken announced its intention to build its own brewery in South Africa.
SAB Ltd launched a new premium brand, Hansa Marzen Gold shortly thereafter and continued its expansion into premium brands with the launch of Dutch heritage beer, Grolsch, following SABMiller’s acquisition of Koninklijke Grolsch N.V. in early 2008. Dreher Premium Lager was launched in South Africa the same year, and the company has made a number of innovations in the spirit cooler and apple-ale categories in recent years.
Soft drinks
In 1925, SAB expanded into other beverages after purchasing a large share in Schweppes (soft drinks). In 1960, the group purchased a controlling interest in Stellenbosch Farmer’s Winery, which, along with Distillers Corporation, contributed R98 million to group earnings in 1997.1997, SAB subsidiary, Amalgamated Beverage Industries, purchased another Coca-Cola
Coca-Cola
Coca-Cola is a carbonated soft drink sold in stores, restaurants, and vending machines in more than 200 countries. It is produced by The Coca-Cola Company of Atlanta, Georgia, and is often referred to simply as Coke...
bottler, Suncrush, thereby doubling market share to approximately 60 per cent of South African soft drinks. PepsiCo
PepsiCo
PepsiCo Inc. is an American multinational corporation headquartered in Purchase, New York, United States, with interests in the manufacturing, marketing and distribution of grain-based snack foods, beverages, and other products. PepsiCo was formed in 1965 with the merger of the Pepsi-Cola Company...
, SAB’s only competitor, withdrew from the market in 1997 resulting in the liquidation of Pepsi franchisees. Pepsi, however, re-entered the South African market in 2006.
In December 2004, SAB Ltd acquired 100% of Amalgamated Beverage Industries Limited (ABI), which became the soft drink division of SAB Ltd, and the largest beverage company in South Africa was created.
Plate glass
In 1917, the group began to venture into unrelated businesses when it agreed to take over a failed glass manufacturer, Union Glass, to counter the acute shortage of bottles during World War I. In 1954, Union Glass merged with Consolidated Glassworks and this business was sold off in 1960 to Anglovaal Industries. The company became an important player in international glass manufacturing when it acquired the Plate Glass Group in 1992.The Plate Glass Group traced its roots to a British immigrant and entrepreneur who, in 1897, established a plate glass manufacturing operation in Cape Town
Cape Town
Cape Town is the second-most populous city in South Africa, and the provincial capital and primate city of the Western Cape. As the seat of the National Parliament, it is also the legislative capital of the country. It forms part of the City of Cape Town metropolitan municipality...
, South Africa. Eventually the company became a leading producer of safety and bullet-proof glass for automobiles. In 1987 the company launched a new subsidiary in the United States in partnership with SAB and Anglo American. When Glass medic, a US-based windshield repair and replacement company, was acquired in 1990, the South African parent company merged the subsidiaries under the name Belron International. Belron became a base from which to launch further acquisitions. When SAB purchased Plate Glass in 1992, it was renamed Shatterprufe Limited.
Belron had by 1998 become the world’s leading producer of automotive replacement glass, with some 1,865 retail outlets in North America, Europe, Australia, and Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
. Growth had come mainly through acquisitions. In 1997, Belron acquired several leading brands, including Standard Autoglass in Canada, thereby becoming “the largest player in the North American Markets.” Worldwide market share was on the order of 18 per cent, and SAB envisioned further expansion in the coming years:
[Belron] can confidently anticipate significant growth in market share over time. Other growth opportunities include the Asian market.
In Europe, Belron was opening an average of 12 new outlets per month. While sales had increased by five per cent in 1997, earnings had declined eight per cent to R255 million as a result of the borrowing costs associated with new acquisitions and expansion.
Recognising the need to enhance long-term shareholder value, in 1997 SAB returned to its core beverage business, locally and internationally, selling off or closing non-core operations over the next few years. Amongst these was the Plate Glass business.
Entertainment and hospitality
Although SAB (then called Castle Breweries) had established the first pub in South Africa in 1896, it did not begin to invest heavily in service industries until 1949 when an aggressive expansion thrust saw some £4.5 million invested in hotels and pubs, as well as additional brewing facilities.In 1969, these interests were merged with a hotel chain owned by Sol Kerzner, a Russian immigrant, to form a separate subsidiary known as Southern Sun Hotels. Kerzner remained with Southern Sun as its managing director for several years thereafter. In 1983 Kerzner left SAB, but remained a significant shareholder in the company.
Southern Sun eventually grew to become the leading hotel chain in South Africa, with franchises awarded by Holiday Inn
Holiday Inn
Holiday Inn is a brand of hotels, formally a economy motel chain, forming part of the British InterContinental Hotels Group . It is one of the world's largest hotel chains with 238,440 bedrooms and 1,301 hotels globally. There are currently 5 hotels in the pipeline...
and Inter-continental Hotels. By 1998, this subsidiary owned 74 hotels with 12,200 rooms, or about 22 per cent of industry capacity. Southern Sun also maintained a minority interest in an eco-tourism company.
Development of new hotels depended on securing licenses from the government, “as the state still owned large tracts of land in both urban and rural areas.” Moreover, suitable locations for hotel and resort development were very limited, and local government officials often did not have the training and expertise needed to make informed decisions about the granting of such licenses. Resulting delays had cost the industry millions of dollars.
Nevertheless, several international hotel chains decided to enter South Africa after the lifting of economic sanctions. By 1998, numerous hotels were under construction by Hyatt
Hyatt
Hyatt Hotels Corporation , is an international operator of hotels.Hyatt Center is the headquarters for Hyatt corporation...
, Sheraton
Sheraton Hotels and Resorts
Sheraton Hotels and Resorts is Starwood Hotels & Resorts Worldwide's largest and second oldest brand . Starwood's headquarters are in White Plains, New York.-Sheraton history:...
, Howard Johnson's
Howard Johnson's
Howard Johnson's is a chain of hotels and restaurants, located primarily throughout the United States and Canada. Throughout the 1960s and 1970s, Howard Johnson's was the largest restaurant chain in the United States, with over 1,000 restaurants...
, Days Inn
Days Inn
Days Inn is a motel chain headquartered in the United States. Founded in 1970, it is now a part of the Wyndham Hotel Group, based in Parsippany, New Jersey, which was formerly a part of Cendant...
, Hilton
Hilton Hotels
Hilton Hotels & Resorts is an international chain of full-service hotels and resorts founded by Conrad Hilton and now owned by Hilton Worldwide. Hilton hotels are either owned by, managed by, or franchised to independent operators by Hilton Worldwide. Hilton Hotels became the first coast-to-coast...
, Best Western
Best Western
Best Western International, Inc. is the third largest hotel chain, with over 4,195 hotels in nearly 80 countries. The chain, with its corporate headquarters in Phoenix, Arizona, operates more than 2,000 hotels in North America alone. Best Western has a marketing program involving placement of free...
, Concorde (France), Le Meridian (France), and Relais de Chateau (France), among others. Most new hotel development was in the executive and luxury segments of the market. In less than four years, industry-wide capacity had more than doubled, and as a result, the hotel industry began to experience significant over-supply. Combined with a weak currency, this translated into some of the lowest room rates in the world.
Although escalating levels of violent crime had been a serious constraint for South African tourism, Southern Sun had been able to maintain an average occupancy above 70 per cent. In 1997, hotel earnings increased by 16 per cent over the previous year to contribute R182 million to group earnings.
The government introduced the National Gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...
Act in 1996, which allowed for up to 40 casino licenses to be issued to “financially competent operators.” In 1997, SAB entered into a joint-venture with Tsogo Sun Gaming and Entertainment to establish up to eight casino resorts to be completed as early as 2000. Monte Casino would be the first of these developments to be completed at an expected construction cost of $250 million.
The most notable black empowerment transaction facilitated by SAB was Tsogo Investments in early 2003. The transaction, which had an implied value of approximately R1.9-billion, meant that empowerment group Tsogo Investments acquired control of Southern Sun Hotels, then the largest hotel group in southern Africa as well as Tsogo Sun, a leading casino operator in South Africa.
Other manufacturing and retail
Further diversification came in 1967 with the establishment of a new subsidiary known as Food Corporation (coffee, tea, and food products). An even larger diversification push was undertaken in the 1970s and 1980s, when the SAB group of companies purchased or established numerous unrelated operations including grocers (OK Bazaars), furniture factories and stores (Associated Furniture Company), shoe factories and stores (Shoecorp), and clothing stores (Scotts Stores and Edgars Fashion Group). In 1996, more than 20 per cent of SAB’s workforce was employed in these companies.Changes in consumer preferences towards less expensive goods had a negative effect on the premium retail market in the mid-1990s. SAB off-loaded the OK Bazaar grocery chain in 1997 for one rand, after losing nearly R20 million per month. And at the beginning of 1998, the Clothing and Footwear, as well as the furniture divisions were also sold. Later SAB also sold its minority stake in Edgars Fashion Group.
SAB no longer holds any manufacturing or retail assets.
International expansion
The company’s earliest international venture was in 1910 when it founded Rhodesian Breweries in Southern Rhodesia, now ZimbabweZimbabwe
Zimbabwe is a landlocked country located in the southern part of the African continent, between the Zambezi and Limpopo rivers. It is bordered by South Africa to the south, Botswana to the southwest, Zambia and a tip of Namibia to the northwest and Mozambique to the east. Zimbabwe has three...
. This subsidiary spearheaded SAB’s initial international expansion efforts, having established new breweries in Northern Rhodesia, now Zambia
Zambia
Zambia , officially the Republic of Zambia, is a landlocked country in Southern Africa. The neighbouring countries are the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana and Namibia to the south, and Angola to the west....
and Bulawayo
Bulawayo
Bulawayo is the second largest city in Zimbabwe after the capital Harare, with an estimated population in 2010 of 2,000,000. It is located in Matabeleland, 439 km southwest of Harare, and is now treated as a separate provincial area from Matabeleland...
, Southern Rhodesia, in the early 1950s. Further international expansion came in the 1970s and 1980s with the establishment of breweries in Botswana, Angola, and the buying of Compañía Cervezera de Canarias of the Canary Islands
Canary Islands
The Canary Islands , also known as the Canaries , is a Spanish archipelago located just off the northwest coast of mainland Africa, 100 km west of the border between Morocco and the Western Sahara. The Canaries are a Spanish autonomous community and an outermost region of the European Union...
. Nevertheless, prior to 1990, SAB remained primarily focused on domestic opportunities.
In 1994, SAB was invited to revitalise the beer industry in Tanzania – a joint venture with that country's government – and to re-enter the beer markets of Zambia, Mozambique and, later, Angola. This followed one of its first foreign investments into the Canary Islands. Expansion continued into Africa in the 1990s and on other continents into Hungary (1993), China (1995), Romania, Poland (1995–96), Slovakia (1997), and Russia (1998), the Czech Republic (1999), India (2000) and Central America in 2001.
The group’s expansion into Asia started with its 1995 negotiation of joint control of the second-largest brewery in mainland China with China Resources, a privatisation arm of the government of the People's Republic of China. Further investments included those in the Harbin Brewery Group and the Fuyang City Snowland Brewery. In 2000 SAB plc entered the Indian market where it has subsequently increased its commitment.
By 2001, turnover from SAB plc's international operations accounted for 42% of group turnover. The same year, a pan-African strategic alliance with the Castel group offered the opportunity to invest in promising new African markets and the benefits of scale economies.
Involvement in Central and South America started in 2001 with the acquisition of Honduran and Salvadoran breweries. This was followed four years later by the purchase of a major holding in Grupo Empresarial Bavaria, South America’s second largest brewer.
One of its largest transactions was with the Miller Brewing Company in the US in 2002, whereupon the listed company changed its name to SABMiller plc.
By the end of March 2009, SABMiller produced global lager volumes of 210 million hectolitres, with total group revenues of US$25,302m.
Controversy
In 2004 the South African Competition Commission began an investigation into anti-competitive behavior by South African Breweries (SAB) after receiving complaints from liquor distributors. It is alleged that SAB colludedCollusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
with third party distributors to carve up the South African beer market and curb
Barriers to entry
In theories of competition in economics, barriers to entry are obstacles that make it difficult to enter a given market. The term can refer to hindrances a firm faces in trying to enter a market or industry - such as government regulation, or a large, established firm taking advantage of economies...
the ability of distributors to stock its rivals products. It is also alleged that SAB gave/gives preferential discounts to preselected distributes and used them to fix prices
Price fixing
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand...
.
If found guilty SAB could potentially be fined 10% of its annual turnover.
SAB argues that its distribution practices are economically efficient, highly competitive and, therefore, contributes to consumer welfare. As such, so SAB argues, it is entitled to continue delivering and selling its brands in the most profitable way it can. The hearings started on the 11th of August and are expected to continue until the 27th February 2011.