San Miguel Brewery Hong Kong Limited. Helen FungKevin Chan Maggie LamRicky Chan Steven SungWilson Ho Winnie Ho

San Miguel Brewery Hong Kong Limited

San Miguel Brewery Hong Kong Limited

Helen Fung Kevin Chan

Maggie Lam Ricky Chan

Steven Sung Wilson Ho

Winnie Ho

Presentation Outline1 Introduction Strategic problems & issues

2 Analysis

External Environment

Internal Environment

SWOT Analysis

3 Strategy

Mission Statement, Strategic Vision and Objectives

Business Strategy

Functional Strategy

4 Implementation

Execution of the Strategy

Strategic Action Plan

Budget

5 Contingency plan How to deal with unexpected events

6 Conclusion

•PEST

•Porter’s Five Forces Model

•Competitive Analysis in HK Market

•Competitive Analysis in PRC Market

•Financial Analysis


2 Analysis



SWOT Analysis

3 Strategy


Business Strategy

Functional Strategy

4 Implementation



Budget


6 Conclusion

Strategic Problems

Lost more than half of its market share during mid-90’s

Low profit and high cost

Leadership status in South China was being challenged

Demand of beer in the PRC increased rapidly

SMBHK increase the investment in the PRC market

Influx of foreign beer into HK and the PRC (More than 130 brands in HK now)

Beer market in HK mature

Competitors launched low-priced beers in HK

Growth of “economy beer segment” became a threat to SMBHK’s position in HK

Strategic Issues


2 Analysis



SWOT Analysis

3 Strategy


Business Strategy

Functional Strategy

4 Implementation



Budget


6 Conclusion

Hong Kong market:

Increasing cost

Tariff for foreign beer decrease

The law of prohibited teenagers under 18 purchase beer

High Tariff on imported of aluminum

Government tax

Mainland China market:

Open door policy of China

PEST - Political

Hong Kong market:

Economic Downturn

Mainland China market:

IMF changed method of computing GNP

Propose of China’s entry of WTO

The rapid economic development

Both Hong Kong and China markets:

Globalization

PEST - Economic

Hong Kong market:

Consumer spending was soft

Inactive social gathering

High purchasing power of young generation

Increase in health conscious


Soccer matches

PEST - Social


The popularity of refrigeration in the late 1980’s

More people use the Internet

PEST - Technological

Porter’s Five Forces

RivalryAmong

CompetingSellers

Buyers

Substitute Products(of firms in other industries)

Suppliers of Key Inputs

PotentialNew

Entrants

Rivalry Among Competing Sellers

Hong Kong market:

Mature market

Intensive competition

SMBHK was losing its market shares

Many low-priced foreign beers

Price war in retail chains in 1999 among distributors intensified competition


Low switching cost

China market:

800 national, multi-international, large and small brewers

Very keen competitions

Very Strong

Rivalry Among Competing Sellers

If the consumers find our products not valuable, they will simply…..

Threat of Substitutes


Many substitutes available in the market

Substitutes are either of lower priced or having higher quality than beer

The substitutes are able to satisfy most of the attributes beer do

Very Strong

Barriers to Entry

Hong Kong market:

The existing brewers in Hong Kong are not able to

confront the influx of low-priced foreign imported

beers

Legal barrier is low

Barriers to entry are overall relatively low


high Technological barrier

Neutral

Power of Suppliers

Ingredients: mainly water and wheat

For water, government is the sole supplier, bargaining power is therefore very high

For wheat, climate affect the production very much. If there is a climate disaster, price will go up. High bargaining power of wheat supplier.

High

Power of Buyers


Relatively high bargaining power

Low switching cost

Substitutes are easily accessible

High brand loyalty towards beer

Neutral

Driving Forces in Brewery Industry

Globalization

The popularity of Internet

Introduction of sewage services charge

Changing societal concerns attitudes and

lifestyles

Key Success Factors in Brewery Industry

Keep manufacturing cost low

Strong wholesales distributors network

Successful advertising campaign

GE

OG

RA

PH

IC

CO

VE

RA

GE

Global

Regional

Local

OVERALL COST TO CUSTOMERS

Low Medium High

Royal Dutch

Pabst,

Kingway,

Tiger

San Miguel,

Tsingtao,

Blue Ice

Carlsberg, Heineken, Guinness, Budweiser,Asahi

Strategic Group Map of the Brewery Industry

Competitive Analysis – Hong Kong

San Miguel Brewery Hong

Kong

Heineken Hong Kong Limited

Carlsberg Brewery Hong

Kong

Originated Philippines Holland Denmark

Year of Establishment 1948 ---- 1978

Market Position Leader Second Third

Market Share 25% 5.3% 4.7%

OwnershipNeptunia

Corporation Limited (64%)

Heineken International BV

(100%)

Swire Pacific Limited (49%)

ProductionLocal

ManufactoryImport from

HollandLocal

Manufactory

(ceased on 31/4/99)

No. of Employee --- 69.5 250

Profitability (99) 60.1M 45M Loss 69.5M

Competitive Analysis – Hong Kong

San Miguel Brewery Hong

Kong

Carlsberg Brewery Hong

Kong

Heineken Hong Kong Limited

Products in HK 5 versions of beer 1 version of beer 7 versions of beer

PriceLowest among

the threeSimilar to Heineken

Similar to Carlsberg

Sales location More than half in supermarkets, Tai

Pai Dongs, Chinese Restaurant and grocery stores

Greater coverage on western bars and restaurants

Found in convenience stores, supermarkets and

western bars

Advertisement

Local advertising,

more sponsorship

activities, local

celebrity as

endorsement

Global advertising

Global advertising

Tsing Tao Brewery Limited

Yan Jing Brewery Limited

San Miguel Brewery Hong Kong

Year of establishment

1903 1980 1948

Market Position

1 2 Not in Top 10

Brand Image Premium Premium Premium

Originated Tsing Tao Beijing Shunde

Price Similar as SMBHK

Higher than the other 2

Similar as Tsing Tao

Competitive Analysis – China

Maturing Product Stage

Sales

Sales Growth slow down

Time

Product Life Cycle

Sales 0

During the maturing stage

Consumers feel bored to the products…

Maturing Product Stage

Sales

Sales Growth slow down

Sales boost up again

Time

Product Life Cycle

Sales 0

Sales 1

New product sales

1. Compare with Tsing Tao (Tsingtao beer)

and Guangdong (kingway beer) which are

also listed company in HK

2. Compare with the previous years of the

same firm

Financial Situation

evaluate a company’s ability to making profitse.g. return on total assets (%)

　 SMBHKTsingtao

Guangdong

MKT Average

Dec, 2000 2.92 % 0.92 0.64 1.49

Dec, 1999 2 0.77 2.86 1.88

Dec, 1998 0.58 0.96 4.38 1.97

Great improvement in return!

Profitability Ratio

indicates a company’s ability to meet current obligations and sustain its operations by using current assets

e.g. Quick Ratio

　 SMBHKTsingtao

Guangdong

MKT Average

Dec, 2000 2.81 0.44 0.87 1.37

Dec, 1999 2.03 0.52 0.77 1.11

Dec, 1998 1.83 0.99 0.75 1.19

The liquidity is too high, which mean many cash is not utilized.

Liquidity Ratio

measure company equity vs liability

e.g. Total debt over equity (%)

　 SMBHKTsingtao

Guangdong

MKT Average

Dec, 2000 20.96% 122.56 29.56 57.69

Dec, 1999 22.09 75.5 52.78 50.12

Dec, 1998 22.74 47.54 67.62 45.97

Maintain the least liability

Leverage Ratio

measure management’s ability to use its company’s assets efficiently

e.g. Inventory turnover

SMBHKTsingtao

Guangdong

MKT Average

Dec, 2000 15.37 4.71 7.75 9.28

Dec, 1999 12.01 5.41 6.94 8.12

Dec, 1998 14.32 4.44 5.48 8.08

High inventory turnover

Activity Ratio

• Annual % growth in earning

SMBHK Tsingtao Guangdong

Dec, 200045.9 %

($87.66mn)58.6

(60.26)(-80.6) (10.24)

Dec, 1999252.5 (60.1)

3.7 (38)

(37.6)(52.71)

Dec, 1998210.5 (17.05)

38.1 (36.65)

(12.3)(84.49)

Sustainable growth in earning

Positive Sign !

Growth Ratio

Stable Stock Price

Stock Price

Conclusion on Financial Analysis

•Extremely stable in Financial situation

•Low risk of financial disaster

Superb Confident

SWOT

S W

O T

• S trengths• W eaknesses• O pportunities• T hreats

SWOT - StrengthIn Hong Kong market:

Production and distribution efficiency

ISO9002 certification in 1998

Brand name of “Made in Hong Kong”

Listed company

Well-established distribution channels

For Middle-age class, Brand loyalty towards beer

In China market:Joint venture with local firm

In both Hong Kong and China markets:Marketing expertise

Wide product range

low raw material costs

SWOT - Weaknesses

In Hong Kong market:

For youngster, San Miguel is too old style

Large scale of layoff

In China market:

No sub-ordinate office in PRC

Lack of coverage in the Western and Eastern

China

SWOT - Opportunities

In Hong Kong market Increase popularity of internetThe forthcoming 2002 World CupMore football match’s live transmission by Cable TV

In China marketInternational Sports EventsEconomic developmentPopular use of refrigeratorsInternet restriction in PRC is lessen

In Overseas marketsEconomic recovery

SWOT - Threats

In the Hong Kong marketGovernment regulations

Brand loyalty of young generation is strong

Economic downturn

Health conscious

Many economy competitors and substitutes

In the PRC marketOpen door policy

Poor distribution, transportation routes

In the Overseas marketsSaturated and mature markets

Strong brand loyalty

So Strategy:

Bid for sponsorship of World Cup 2002

and Women World Cup 2003

Use strong financial backup to invest in

orange beer

ST Strategy:

Launch of orange beer targeted the

young generation and increase the healthy

element of SM beer

Low product cost of Shunde beer used to

confront the low-priced foreign beers in HK

Production in PRC can avoid the high tax

and strict regulation on “Hong Kong Made”

beer

WO Strategy:

Search for joint venture in Xi An

The mature brand image sustain the

customer base from the mid-aged people

with high brand loyalty

WT Strategy:

Do not invest in other overseas markets

in short-term

SWOT Matrix

Remember the boy feeling bored?


2 Analysis



SWOT Analysis

3 Strategy


Business Strategy

Functional Strategy

4 Implementation



Budget


6 Conclusion

SMBHK offers adults with pleasant momen

ts and sensation feeling during social gath

erings and individual enjoyments by its coo

l, fresh, tasty, variety of choices and value f

or money beer.

Mission Statement

SMBHK strikes to become one of

the top brewers in Asia by sharing

pleasant moments and sensation

feelings with people in the region.

Strategic Vision

Hong Kong :

recapture market share to 65% within a year

Western part of China:

extent to the area within 3 years

Southern region of China:

Reinforce the market share

Also, to establish a healthy image for San Miguel’s beer

Strategic Objectives

To obtain earnings around HKD$ 100 million within 3 years

To increase EPS to 0.35 within 3 years

Financial Objectives

Generic Competitive Strategy

Overall

Low-cost

Leadership

Strategy

Broad

Differentiation

Strategy

Focused

Low-cost

Strategy

Focused

Differentiation

Strategy

Best-Cost

Provider

Strategy

Hong Kong market

To keep the leadership in this mature market, we will…

Produce “Made in Hong Kong” beers

Introduce IT system

Make heavy advertising and sponsorship

Introduce a new version of beer – Orange Beer

Import an economy beer from Shunde

Keep price reasonable with attractive quality

build new capacity

Penetrate to “Tai Pai Dong” and grocery stores


China market

To compete in this emerging and fragmented market, we will build

strategic alliances with local small brewers in China

The advantages are:

Lessen the effects of trade restrictions

Gain more knowledge on local market

Give preliminary support to SMBHK

Direct the competitive energies towards mutual rivals


New product development--orange beer

Import beer from Shunde

Increase production in Yuen Long plant

Increase production in Shunde plant

Purchase of raw materials via SMC

Form join venture with small local brewer in Xia

n An

Outsource the production of “San Miguel Boy” a

ccessories

Functional (Production Strategies)

Product:

Design a new spokesman “San Miguel Boy”

Show both package date and expire date

Price:

Keep constant for San Miguel beer (mid-price)

Orange beer priced high in the premium segment

Low priced Shunde beer to captured the economy group

Functional (Marketing Strategies)

PlaceUse the well-established distribution network of SMBHK in

Hong Kong to promote the Shunde beer

Use the well-established distribution network of Shunde beer in

Shunde to promote the San Miguel beer

Redesign the bottles and cans of San Miguel beer

Develop free delivery service to party holders

Use venders and Smart ID card for selling


The venders can benefit us ……


Promotion

Sponsor the World Cup 2002

Sponsor the Women World Cup 2003

Sponsor the China Soccer (Series A) League

Sponsor some youth soccer training

Sponsor some music concerts

Design a character as the spokesman of our products

Organize “Beer Festival” in Hong Kong

Employ “Beer Boy” to sell beers in bars and restaurants


Recruit IT specialists in developing IT system

Recruit personnel with fruitful experience for China

branches

Implement performance appraisal

Strengthen the professional sales team

Functional (HRM Strategies)

Self-financing $20M to support the new orange beer pro

duct line including R & D, working capital change, and pr

omotion cost

Increase ownership of the Shunde Joint venture by purch

asing more shares

Cut cost in all departments and layoff excess staffs

Roll over debt (refinancing) and maintain stable financial situation e.g. debt equity ratio

Functional (Financial Strategies)


2 Analysis



SWOT Analysis

3 Strategy


Business Strategy

Functional Strategy

4 Implementation



Budget


6 Conclusion

Organization

The strategy-critical activities are production and

marketing and sales activities

Building organization’s capabilities on these two areas


Strategy-supportive policies and procedures

Strict control on the production time on every parts in the

production process

Offer clear instructions to the newly employed salespeople on

how to do the selling activities in the PRC market

Clear guideline of conduct of ethics on the PRC operation such

as selling activities to oppose the corruption business practice

in the PRC


Rewards and incentives

Progressive commission system for salespeo

ple

Stock options for senior management

Annual bonus for all employees

Outstanding salespeople will be include in the

selection of sales management positions


IT system

Develop the IT system by in-house human resourc

es

Enhance the security of confidential information



Strategies 2001 2002 2003Launch of orange beer

Joint venture with local brewer in Xi An

Strengthen distribution network in PRC

Develop IT system

Bid for sponsorship of 2002 World Cup

Bid for sponsorship of 2003 Women World Cup

Launch “San Miguel Boy” character

Increase ownership in the Shunde joint venture

Evaluate the efficiency of Joint Venture in Xi An

Launch of online ordering & delivery service

Use of Smart ID card vending machines

Increase ownership in the Xi An Brewery Company

Import of Shunde beer

Evaluate the efficiency of orange beer

Assumptions

All campaigns is paid a lump-sum in the first year and is last for 5 yrs

No inflation consideration

Required rate of return: 20% (risk-depend)

Acquisition of Shunde factory with $100 million and will not count as investment in the following calculation.

-

Budget

Budgets 1. Initial investment: $20,000,000

-New product line $10,000,000 -New promotion campaigns $ 5,000,000 -Explore China MKT $ 3,000,000 -IT System $ 2,000,000

2. Cash Flow : -New product line’s revenue $ 6,500,000

- -Promotion Campaigns $ 1,000,000- -Explore China MKT $ 500,000- -IT System $ 100,000- -Integrations of facilities $ 100,000- -Mass purchase of raw materials $ 100,000- -Maintenance Cost of new product line $ (300,000)

Net Profit per year $ 8,000,000

Budget

Expected-net profit decrease 5% per yr

NPV=6.46M

NPV is positive

54321 %)201(

52.6

%)201(

86.6

%)201(

22.7

%)201(

6.7

%)201(

820

MMMMMMNPV

Budget

Recession-net profit decrease 10% per yr

-net income is 80% of expected

NPV = - 0.47M

NPV is slightly negative !

54321 %)201(

20.4

%)201(

67.4

%)201(

184.5

%)201(

76.5

%)201(

4.620

MMMMMMNPV

Budget

Blooming-net profit decrease 2% per yr

-net income is 120% of expected

NPV=27.79M

NPV is positive

54321 %)201(

85.8

%)201(

04.9

%)201(

22.9

%)201(

41.9

%)201(

6.920

MMMMMMNPV

Budget


2 Analysis



SWOT Analysis

3 Strategy


Business Strategy

Functional Strategy

4 Implementation



Budget


6 Conclusion

Climate disaster: poor harvest or even short-term lack of supplySolution: Hold certain amount of inventory as backup

China new ever changing policy, for foreign investmentSolution: Keep tracking on the changing

The inefficient collaboration with joint venture in Xi AnSolution: Seeking for several potential local brewers as backup & flexible joint venture contract with Xi An brewery

Contingency Plan

Question and Answer

Documents

San Miguel Brewery Hong Kong Limited. Helen FungKevin Chan Maggie LamRicky Chan Steven SungWilson Ho Winnie Ho