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10/11/2012

SABMiller´s Graham Mackay on Global Consolidation, MC Deal, Distribs, Three Tier, Etc

SABMiller chairman/ceo Graham Mackay is clearly one of key players in global consolidation of beer biz. As ceo, he led co thru astounding run of value-creating deals that catapulted SABMiller from $6 bil market cap on London exchange in 1999 to almost $70 bil now and #2 player in global beer. Next yr, Graham will move up to non-executive chairman role. INSIGHTS recently had chance for wide-ranging chat with Graham in NYC.

Key reason for global consolidation: "Essentially the fall of communism," said Graham, and state-owned assets sold off in Africa, China etc. Companies that were "staggeringly badly managed" were "available for a very cheap price," partly because they were "unappetizing to look at.... We acquired a lot of very cheap assets and were able to turn them around.... Against the odds it succeeded," added Graham. These assets' "upside potential was so great." Gradually SAB and others "developed capability. We became much better at buying remote businesses and fixing them." SAB arrived in London with plan to go global and gradually got bigger, more capable.

Value Creation; Recent Deals; "Once Ever" Oppy McKinsey white paper in 1999 had forecast that there could be $10 bil in incremental EBITDA available in global consolidation over next decade or so, but it actually turned out to be "much more," said Graham. He expressed gratitude for simply being there during this "once ever" opportunity to consolidate this big global industry. As for recent run of big deals, "some of those were pretty much inevitable," according to Graham, including Heineken-APB and ABI-Modelo. Heineken "had to do whatever it took" to get APB. And Graham "couldn't see ABI ever exiting Modelo. They had this very valuable position. Why would they ever give that up?" That said, "it was probably faster than I thought it would be."

Miller Gave SAB Global "Platform"; MillerCoors "Great Deal" But "Structural Problem" In early 2000s, SAB felt it needed "some counterbalance" to its "reliance" on emerging markets. Graham put out feelers to both Miller and Coors. SAB probably overpaid for Miller, Graham acknowledged, noting "that was really putting ourselves on the line, betting we had the skills. The real issue was could Miller be turned? Could we turn it? Never mind the price we paid for it." But the deal had other positives, i.e. it was "a platform that changed people's perception of us. We became seen as effectively a global brewer." But "we had to make a success of it, at least a reasonable success."

SAB was thinking of step 2 from day one, Graham acknowledged: MillerCoors. "In terms of value adding deals, hard to imagine a better one.... No extra money out," he said. "Bottom line is we've more than doubled the profit. So it was a great deal." That said, MillerCoors also has some enduring issues, such as what Graham labeled "essentially a structural problem." MC "brands skew not enough in the growth segments." While MC "extremely competitive and probably taking a little share in premium light," industry growth is "all above premium" and MC "underindexes." So MC "reorienting that portfolio into the growth categories" which "requires innovation." This yr, MC "no doubt behind the ball" on innovation as ABI "got in ahead" in some segments and MC "needed to catch up."

Distrib Network, 3-Tier and More Only about 60% of avg MillerCoors distrib's volume is MillerCoors, noted Graham (editor's note: it's less of gross profit). What that means is that in "growth spaces" MC distribs "have fairly complete portfolios in these areas that we need to get better. We have to compete with those other brands for our wholesalers' attention." While "there is nothing new in that" it's a "substantial issue that we think about constantly. We have to earn the support."

About the US 3-tier system, Graham said: "Here it is and here it will stay." While it's got "pros and cons," added Graham, "for the most part it works very well. It's got a lot of advantages," such as that it's "highly entrepreneurial" and has strong "local connections.... Where it works well, it works spectacularly well." But one feature of it is that "brand owners can't" simply "change things to suit themselves when they want to or need to set up parallel systems or do dramatic things to get their brands to market, when they feel that their brands are not getting a fair shake." That part is "cumbersome." US system is "unique. Nowhere in the world comes close.... Certainly nowhere in the world is beer distribution anything like it."

Publishing Info

  • Year: 2012
  • Volume: 43
  • Issue #: 19
Read 3496 times Last modified on 08/04/2015