Acquisition of Peroni and distribution proposal

South African Breweries (SABMiller), established in 1895, is one of the largest brewers in the world. It has over 200 brands of beer and operates in over 55 countries. Originally, the Company’s business operations were limited almost entirely in southern Africa where it established itself as a dominant position in the market. However, by 1990 SAB began investing in European markets.1 With growing recognition, SAB joined the London Stock Exchange in 1999 where it was able to raise money for acquisitions. Their first major acquisition was that of the Miller Brewing Company in North America in 2002. They bought Miller from the Altria Group for $3.4 Billion and changed their name from SAB to SABMiller.2 In 2003, SABMiller decided to further their expansion by acquiring the Italian brewer Birra Peroni. SABMiller bought 60% of the Italian brewer, which cost $280 million. At the time of the transaction, Graham Mackey, SABMiller’s CEO, explained to the press that they decided to buy Peroni because, “Italy is the only Western European country besides Spain where beer consumption is increasing” 3. He said SABMiller expected sales of Peroni, which had 25.2% of the Italian beer market, to increase. However, many analysts believed the price paid for Peroni was too high, which was 12.6 times Peroni’s operating cash flow. The deal also put SABMiller into another competitive market with their rival, Anheuser-Busch. This deal was the company’s first significant investment in Western Europe and allowed them to gain a necessary foundation in those markets. SABMiller’s spokesman Nick Chaloner explained “Birra Peroni will give SABMiller a large foothold in a growing market and provide a way to export SABMiller brands such as Pilsner Urquell and Miller Genuine Draft to Italy” 3. This not only allows SABMiller to introduce themselves into these markets but also allows them to expand Birra Peroni’s influence to other parts of the world. In the final parts of Mackey’s press conference in 2003, he reaffirmed this notion by saying, “The acquisition creates cross-selling opportunities for ourselves and our new partners" 4. SABMiller has continued to grow and invest in all reaches of the globe and specifically acquired Bavaria S.A, South America’s second largest brewer, and the North American brewer Molson Coors 1. While SABMiller is becoming one of the premiere beer distributors and brewers, I am specifically proposing a way in which it can expand their Peroni markets to Panama. While SABMiller is a major competitor in Central America, the brand Peroni is not. I believe that introducing Peroni into one of these markets would be significantly beneficial to SABMiller. While researching potential markets, I came up with three possible areas: Ecuador, Honduras, and Panama. Each of which have positives and negatives. First, Ecuador has the largest population (13.6 million) of the three countries and has the Second largest beer consumption rating per capita (30.4 liters). It also has the second highest GDP per capita, $3,080, which would leave one to believe that this could be a suitable market for a new beer to strive 5. However, Ecuador has a very low score in Ease of Doing Business Index. This is an index created by the World Bank that ranks the markets based on how easy it is to enter. The higher rankings indicate better, usually less complicated, regulations for businesses and stronger protections on property rights 6. The fact that Ecuador does not rank high on this list could be a cause for concern. Also, SABMiller has only just begun operations in 2005 in Ecuador, which could make it more difficult to distribute Peroni. The Second Central American country I analyzed was Honduras. This has the second biggest population of the three (7.4 million) 5 and SABMiller has been operating here since 2001. This can be both a positive and a negative in regards to bringing Peroni into this country. On the one hand, SABMiller is a settled manufacturer in Honduras and could easily introduce Peroni. On the other, SABMiller already holds 98.6% of the beer market and introducing Peroni would more than likely cause more competition within SABMiller’s products instead of gaining market shares from other companies. Honduras also has a low score for Ease of Doing Business, 6 the lowest beer consumption per capita (15.5 liters) and lowest GDP ($1600) among the three options 5. The last country I looked as was Panama. Panama seems to be the best fit for a number of reasons. First, they have the highest GDP of the three candidates of $5,510 per capita 5. This allows for the assumption that the population has more money to spend on unnecessary items such as beer. They also have the highest beer consumption per capita with 52.95 liters and the best Ease of Doing Business ranking 6. While SABMiller only started operations in Panama in 2005, the company holds 83.3% of market shares. This is a significant statistic in the fact that SABMiller is already the main beer distributor in this region, but still has plenty of room to grow. This is where the introduction of Peroni could be very beneficial to the company. It also has an open economy with no market access problems, which makes it much easier for Peroni to come into the market. Because Panama has a small population, employing workers may be hard but SABMiller already is established in this area and shouldn’t need to increase employees by too much to introduce Peroni. Panama also has a fairly good credit system, which is key for expanding a company. Now that we have established which market we are going to choose, we must now come up with a specific marketing mix of product, price, distribution, and promotion. As for the product, the beer itself will not be changed. It will be still be brewed in Italy but the labels will need to be changed in order to fit the requirements of Panama. First, the label must be changed from Italian to Spanish and include address of manufacturer, expiration date, list of ingredients, lot number, and product form. The proposed price will be a bit more expensive then it is in Italy due to the compensation of a 9% tariff fee. I propose that SABMiller ships Peroni in packs of 24s to distributors, which it does in Italy. Bottles and 6 packs can be sold to customers for around $.80 a bottle that would allow it to be both competitive and profitable in Panama. Customers can then buy a bottle of Peroni from anywhere between $1.00 to $4.00. Since we have established that Peroni should continue to brew the beer in Italy, the distribution factor is key. Refrigerated ships and trucks will be needed for the journey from Italy to Panama. This could be fairly expensive but SABMiller already employs hundreds of these already. Once in Panama, the beer can be distributed throughout the city to hotels, bars, restaurants, clubs, and liquor stores and if things seem to be going well SABMiller could potentially set up a Peroni brewery either in Panama or in a place close by. Lastly, SABMiller should implement a pull strategy when it comes to promotion. This is where production and distribution decisions are based on long-term forecasts instead of demand driven. SABMiller should also consider setting up Launch parties throughout Panama in order to get their product known. And with almost all beer companies, SABMiller should promote Peroni though various means of advertising including but not limited to sporting event, billboards, and TV. The last section of my proposal is the timeline. In order to be effective, SABMiller must establish Peroni in Panama in a timely fashion. I believe that they first should set up facilities to import Peroni from Italy immediately within the first 6 months. They also should establish distribution channels during this time. Once this is in place, SABMiller can create marketing tools to appeal to the market and begin to have launch parties within the first year. Once they have done this, SABMiller should focus on maintaining the brand name of Peroni as a premium beer only from year 1 and year 2. They also should try to penetrate into the market more and increase distribution channels and warehouse space. Lastly, after two to three years, SABMiller should reassess the business plan to improve the performance of the company, with the focus of increasing revenue. Overall, I believe that Panama could be an extremely beneficial market for Peroni but like all emerging products there is a certain risk associated. Marketing expenses will be high at first and there isn’t a huge target market in Panama. However, the beer market is continuing to grow in this region and the market appreciates foreign goods and quality products, both of which Peroni fits into.

Works Cited Page:
1. SABMiller Information. Web. 3 May 2010.

2. "SAB Completes Its Purchase of Miller - South African Breweries PLC Buys Miller Brewing Co - Brief Article." BNet.com. Business Journals Inc., 15 July 2002. Web. 3 May 2010.

3. "SAB Buys Majority of Italy's Peroni." BNet 26 May 2003. Bnet.com. Business Journals Inc. Web. 2 May 2010. .

4. "Peroni Joins SABMiller Fold." Allbusiness.com 4 June 2003. Beverage Aisle. Web.

5. "CIA The World Factbook." Central Intelligence Agency. Web. 3 May 2010.

6. "Ease of Doing Business Rankings." DoingBusiness.org. International Finance Corporation. Web. 3 May 2010.