SABMiller’s R&D

SABMiller owns over 200 brands and it is the world’s second largest brewer behind AB-inbev with a 10% of total volume sales  in 2013(Euromonitor, 2014). Although based in London the company has a 120 year history with roots in South Africa where it begun brewing beer in 1895 (Sabmiller.com).  Today, SABMiller expresses an internationalisation approach towards growth with presence around the world in places like China, Kenya, Australia, Colombia, the United States of America etcetera. This presence is made possible mainly through mergers where SABMiller combines with companies such as Coca-Cola  to create a legal new entities  and acquisitions where SABMiller aims to transfer control and management from one firm (target) to SAB Miller. A good example of this is SABMiller’s acquisition of Bira Peroni of Italy in 2003 where it bought a majority stake in the family owned firm (Bowers,2003).  SABMiller’s  mergers and acquisitions are driven by strategic, market  seeking motives and efficiency seeking motives. For example, Peroni’s acquisition was both market seeking and efficiency seeking as SABMiller was able to tap into Italy’s beer market and Italy’s prime location provided key routes to markets such as Britain, Hungary, Romania and Czech Republic. In addition, Peroni’s acquisition also demonstrated SAB Millers integration of ownership advantages (property rights, intangible assets etc.),  location advantages (well developed infrastructure etc.) and Internationalisation advantages (cross border selling, obtaining scarce resource etc.). All of  which are important to the discussion of research and development at SABMiller as this narrative will shortly demonstrate.

 

Research and development is defined as the “creative work undertaken on a systematic basis to increase the stock of knowledge, including knowledge of man, culture man society and use this stock of knowledge to devise new applications” (OECD 2002). When this definition is applied to SABMiller, two things become apparent. First, SAB Miller deals with alcohol which is classed as a mature product whose sales are limited by the fact that customers do not need higher quantities (Lumpkin and Katz, 2009, Pg.49). This is true; looking at SABMiller’s portfolio in the development markets, volume growth in developed markets is -1% for all beer, 1% for premium beer and 2% for near beer all of which indicate low growth (SABMiller annual report, 2014). With mature products, it is not so possible to reinvent the wheel. As a result, competition for customers is fierce where  improving an offer by product development which could offer SABMiller a competitive advantage not based on price. Second, R&D in the beverage industry is the lowest of any industry standing at 0.7% in terms of intensity largely because it requires low use of technology compared to high technology industries such as aircraft equipment, optical instruments, etcetera whose R&D intensity stands at 5% (Filippaios, 2015).

Although there is a lack of solid data showing an overall percentage spend on alcohol modification on  an industrial level, alcohol has been tested for other uses and modified to varying degrees. Chemically ethanol (alcohol) is a one member of a series of related substances (alcohols), other commonly known members of which include “wood” alcohol (methanol), isopropyl alcohol (iso-porpanol), butyl alcohol (butanol) and amyl alcohol (petanol) (Moore et al. Pg.87-188). These alcohols are used for various things, for example, methanol is used as a fuel and  industrial feed,  ethanol is also used as a fuel and a solvent (Chemguide.co.uk).

Given the limited scope for research into new uses for alcohol, we discovered that SABMiller’s innovation is stratified in two sections. Research and development pivoting toward process innovation and the other; product innovation dedicated to service more segmented markets purposely creating new niches within niche markets.

With process innovation, SABMiller outsourced its R&D to the University of Nottingham  to deliver a “quantum leap” in beer innovation  spending only  three million on the whole programme (Guy, 2011). The research facility was set two goals of  leading sustainability by  reducing its water use per beer by 25% in 2015  and efficiency  production of beer contributing to consumer benefits such as enhanced shelf life (SABMiller.com). From a strategic point to view, we can see that SABMiller was technology seeking because the UK is part of the Organisation for Economic Co-operation and Development (OECD) of which South Africa is not a member. Compared to South Africa, the United Kingdom has superior infrastructure and a rich heritage in beverages so SABMiller exploited location advantages. Nonetheless, information flow may be hampered turning into a cost due to the outsourcing of activities as per Buckley and Casson’s internalisation theory.

On the other hand, product innovation is internalised because of SABMiller’s broad portfolio and the need for localisation. To refresh success, SABMiller’s products  reflect changing demographics, cultural, societal shifts and evolving consumer tastes. Therefore, SABMiller’s product innovation strategy is to “ update and refresh national icon brands to keep strength in core lager and developing products for more occasions and consumer types” (SABMiller annual repot 2014). For example, via Peroni SABMiller introduced Piccola which is a 250ml pre dinner occasional drink in 2014 catering to a particular niche market. Moreover, the brewer also begun product innovation to beers more relevant to women which is seen as a under-exploited market. Additionally, SABMiller uses monitoring units to research into their respective markets concerning a variety of topics.  For example, according to them, 38% of British people drink beer with a partner, 96% of Polish people are least likely or drink on their own, etcetera (SABMiller, 2008). Armed with this information SABMiller is able to produce products that are wanted by the market(people).

 

All in all, the two innovation strategies deployed by SABMiller, positively contribute towards the company  leveraging its competitive advantage.  Although outsourcing process innovation may lead to imperfect information flow it cost-effective to outsource process innovation because the University of Nottingham has an absolute advantage in research sciences. Furthermore, internalising product innovation also enhances SABMiller’s competitive advantage as its able to respond to customers better through obtaining information in real time which can be studied and used for new product innovation.

 

 


 

Bibliography

Bowers, Simon. (2003) ‘Sabmiller Swallows Peroni’. Guardian 2015. http://www.theguardian.com/business/2003/may/15/13 Web. 13 Apr. 2015.

Filippaios, Fragkiskos. (2015) ‘Technological Innovation And The Multinationals’ CB859 Managing the Multinational Enterprise  available at https://moodle.kent.ac.uk/2014/course/view.php?id=573  (Accessed: 20 April 2015)

Guy Montague Jones. (2011). SABMiller announces new brewing research centre on results day. Available: http://www.beveragedaily.com/Processing-Packaging/SABMiller-announces-new-brewing-research-centre-on-results-day . Last accessed 21 April 2015.

Lumpkin, G. T, and Jerome A Katz. Entrepreneurial Strategic Content. Bingley, UK: Emerald/JAI, 2009. Print.

Moore, Willis L. “CHARLES F. MARviN, professor of meteorology in the US Weather Bureau since 1891, chief.

OECD (2002), Frascati Manual 2002: Proposed Standard Practice for Surveys on Research and Experimental Development, The Measurement of Scientific and Technological Activities, OECD Publishing, Paris.

SABMiller plc Annual Report 2014. (2014). SABMiller plc Annual Report 2014. Available: http://www.sabmiller.com/docs/default-source/investor-documents/reports/2014/financial-reports/annual-report-2014.pdf?sfvrsn=8  Last accessed 20 April 2015.

SABMiller. (2008). Time for a Beer? Available: http://www.sabmiller.com/docs/default-source/investor-documents/reports/2008/other-reports/time-for-a-beer.pdf?sfvrsn=2 . Last accessed 21 April 2015.