24 Oct 2013 SABMiller will adapt to changing drinking times

Discussing SAB Miller’s H1 2014 results with analysts last week – total beverage volumes up 2%, financial performance in line with expectations, challenges in Europe – Clark was asked by Adam Spielman, director and analyst at Citigroup, what he wanted to change at the group?

Clark succeeded former CEO Graham Mackay in April, and is now shaping the world’s second-biggest brewer – brands include Grolsch, Peroni, Miller, Pilsner Urquell – in line with his own leadership vision.

Clark told Spielman that SAB would increasingly focus on the “romance and differentiation of core lager” but begin over time to shift core lager demand to drive a more diverse range of occasions and needs – moving beyond a “traditional core target audience of young males”.

“So making it much more relevant, for example, in mixed gender occasions. That’s not a change in strategy; it’s a recognition of how the world evolves and how consumers are evolving with it that will differ, I think, in future, for us as an organisation,” he said.

With innovation increasingly central to SAB’s commercial strategy than in the past, Clark said this “step out of core lager” would aim to access a greater range of needs and occasions, with beer flavours and styles that differ from core lager.

But he caveated this by emphasising a need for balance, given SAB Miller’s “fundamental heartland” in mainstream lager, “which is in reality where all the value lies”.

“Core lager on a global basis is 28% of retail sales value in packaged beverages. It is the largest single profit pool and one that will continue to grow, albeit not at the pace, potentially, of other packaged beverages,” Clark said.

“But it will continue to grow…quite strongly in the emerging markets where we have 75% of our footprint,” he added.

Core lager remains SAB’s No.1 priority, Clark said, given that adjacent alcoholic drinks categories (beverages such as cider as well as other beer styles) represent only 6% of global retail sales value.

“That’s a reasonable profit pool but it’s still dwarfed by lager – so over time, we will expand. It will be much more of a focus now in markets like Australia, like the US and Europe where search is on for premium growth,” Clark explained.

Good African performance

Clark said the group achieved a strong performance across its African business “and made good progress on building on our positions in Latin America, South Africa and the Asia-Pacific region”.

There was some recovery from the grim trading conditions that knocked performance in Europe and North America. However, Clark warned that the “consumer environments in both Europe and North America” were expected to remain under pressure. The impact of the weak consumer conditions in the first quarter were aggravated by the particular bad weather conditions in the northern hemisphere.

Clark noted, “despite current prevailing uncertainties about developing market economies, we remain confident in the long-term growth prospects for the group”. SABMiller has a higher exposure to developing economies than any other global beer producer, with about 75 percent of its sales derived from those economies.

In a trading update issued October 17, SABMiller said in South Africa, volumes increased by 3 percent despite subdued consumer spending and the absence of an Easter period. Lager volumes grew strongly as a result of more aggressive market activity and enhanced retail execution. The 3 percent increase for the six months indicates a strong performance in the three months to September, as SABMiller had reported unchanged lager volumes in the first three months.

“Castle Lite and Castle Lager continued to perform well along with Carling Black label, returning to growth although their volume gains were partially offset by a decline in Hansa Pilsner volumes.

“Soft drinks volumes grew by 1 percent in a challenging trading environment,” said the statement.

Africa was again the star performer with lager volumes up 9 percent. Tanzania, Mozambique, Zambia and Nigeria were particularly strong.

Sources: www.beveragedaily.com; Reuters, SABMiller