Case Study Reinventing San Miguel Corporation

Reinventing San Miguel Corporation Introduction San Miguel is South East Asia’s largest food and beverage company. Traditionally diversified among three main products, which are food, beverage and packaging. It’s flagship product San Miguel beer Pale Pilsen maintained the lead in its industry and owns seven of the top the selling beer brands in the Philippines. Meaning with its large market share the volume of its sales has started to pose a slow growth and started to depend on the Philippines population growth for more volume. Facing these and other new economic realities San Miguel Corporation started to re-think and change it’s business model as the first decade of the millennium drew to a close. San Miguel decided to pursue and shift into non-allied businesses in the Philippines following important trends for it’s and the Philippines future growth such as energy, mining, infrastructure and other utilities, forgoing its international expansion plans. San Miguel Corporation before its diversification into non-allied businesses in the Philippines pursued growth through international expansions. In has invested in a number of countries such as China, Indonesia, Australia, Vietnam, Thailand and other countries although it dropped its Australian assets in 2008 in pursuit of its new change in direction. Its strategy had allowed san Miguel to maintain its space among the top ten beer companies in the Asia Pacific region but remain a relative minor player on a global scale and soon dropping it’s market share in the Asia-Pacific region in the late 2000’s. When San Miguel started to reinvent the company and focus on a new direction it sold off its Australian Assets which were National Foods in 2007 to it’s strategic partner Kirin Holding and J. Boag & Son in 2008 at a higher price than when it was purchased and 42.2% stake in its joint venture with NutriAsia group. It also started to reorganize its food business, concentrating and placing a deeper focus on the brands it fully owned and finally turning its beer division into a separate subsidiary called San Miguel Brewery becoming a separate entity in the Philippine stock exchange. This was done in order to raise capital and isolate the beer business from the potentially negative impact of the company’s new direction. After San Miguel has diversified into a number of business such as energy, oil, telecommunications and even proposed on a project which involved the construction of a dam, hydropower plant and water treatment and storage facilities. In 2008 in acquired 27% of Meralco but later had to unload its stock due to PLDT’s continued pursuit for the said company. It also acquired 50.1% of Petron and upon its take over implemented a number of changes, transferring key personnel to Petron. Lastly it pursued a joint venture with Qtel and in 2009 acquired 32.7 percent stake in Liberty Holdings, Inc. Aside from its successful acquisition it also had numerous failed attempts in acquiring other business concerning energy. During the late 2000’s San Miguel has already began gaining most of its profits from its new businesses. Having the Philippines larges and most dominant oil company and becoming the largest electric power producer in the Philippines despite its few set backs the previous years failed attempts in acquiring contracts. But this does not mean that the company has left its traditional businesses to rot. Improving sales both nationally and internationally in its beer operations and gaining revenue growth in both its food and packaging operations. San Miguel how ever was not successful in all its new divestitures. Its telecommunication business was still a small player in its industry and a few of its

infrastructures are still at its infancies. Recently San Miguel had acquired Exxon Mobil Malaysia and 49% of Philippine airlines and plans of investing heavily in both businesses. Analysis San Miguel’s is the leading beer company as we can see from the facts. Seven out ten of the most bought or top ten beers in the Philippines is owned by San Miguel and by a very large margin although its sales percent volume dropped steadily from 89.7% in 2004 to 87.6% 2007. It is likely due to its divestiture in foreign and different markets and the increase in preference for other foreign beers in the Philippines. Although the article did mention that there was an increase by 10% in operating income it did not mention an increase in percent volume when compared to other companies in the industry. Still the company is the leading beer franchise in the Philippines, which does mean that volume sales were to hit a plateau because it is close to impossible to completely monopolize the industry that is why investing internationally to bring its products to other countries as well as diversifying into new markets was a good strategic plan for the company to pursue further growth. The company has already been investing in its international expansion since 1913 when it began exporting beer to Hong Kong, Shaghai and Guam so the company has been in the international seen for some time and this change of focus from its international expansion to diversifying into different industries in the Philippines was a big step. San Miguel did a number of things before they made their various acquisitions. Although they are indeed a big company with a large amount of funds they needed more resources in order to acquire and safe guard its tradition business before diversifying into non-allied businesses. San Miguel sold its Australian Assets where in it gained a huge amount of funds, gaining a larger amount from than the amount they purchases them for. Such as National Foods which was acquired in 2005 for US$1.6 billion and sold in 2007 for US$2.6 billion and J. Boag & Son which was acquired in 2000 for US$92 million and sold in 2008 for US$300 million and creating the subsidiary San Miguel Brewery turning it into a separate entity, safeguarding it if their new course of action was not successful and raising funds in the process since it sold stocks to its strategic partner Kirin Holdings. The Australian arm of the company for beer before being sold brought in a large amount of funds about 81,821 million in 2007 before being sold causing a huge difference in the 2007 and 2008 total gross revenue from 241,970 million in 2007 to 168,222 million in 2008. Showing that this was a highly profitable market. This is probably the reason why the company could sell J. Boag & Son for a larger sum. This was a big move for the company but much needed in order to gain shares in their target companies. San Miguel acquired a number of companies and planned to divest in more companies in the near future, most of them profitable such as its acquisition of Petron and its penetration in the energy industry and becoming the largest electric power producer in the Philippines. But some of them such as its continuous pursuit to penetrate and acquire a large share of the telecommunication industry did not push through. During its transition years it has made very good strategic decision in its acquisitions. It was a good move for the company to have stuck with their own bid price when it started bidding for the privatizing of power supply contracts only paying for what they think it was worth since they did in the end gained these contracts and became the largest energy producer in the Philippines. San Miguel gains more than 50% of its revenue from these new acquisitions. It does not mean though that the company forgot their traditional businesses since the growth in income is still substantial although some of its investments in foreign companies did not perform so well such as Southern China, Thailand and Vietnam that could have brought the company an even bigger profit.

More recently in acquisition a downstream business Exxon Mobile Malaysia that would reduce their raw material costs and expand their business into Malaysia. This would greatly increase their profit from an already profitable enterprise Petron. Since they own the supplier of their own raw materials it would not only reduce the costs but would not any more require the negotiation between buyer and supplier, lessen any communication barriers and lessen any complication when it comes to raw suppliers. Also San Miguel acquired 49% Philippine Airlines and given full management control. There are many issues concerning Philippine airlines and thus turning it profitable again is not an easy task and would require a huge fund which San Miguel seems to be capable of as they are capable and planning to build their own airport. Having your own airlines on your own airport would greatly help the service capability of their airline as they can reduce the amount of delays for a flight. Recommendations My recommendations are for San Miguel to drop it’s telecommunications arm as of the moment since it already has a number of different businesses in its portfolio of which are profitable and could still be grown in the industry such as Petron, Philippine Airlines and their energy business. Even if these companies are the biggest or the most profitable in their own respective industry they are still capable of growth and would need the funds and focus of the company. Make their position stronger in each of its profitable businesses by following trends and maybe purchase companies that are associated with their current businesses to improve their services. The company should not build more infrastructures until they finish the ones they have started and should continue to plan or build infrastructure that are associated or can help their current businesses such as their airport or the dam to be able to position themselves better in the market. Develop its flaship products in other countries where in it has little growth such Southern China, Thailand and Vietnam and to not forget San Miguel Beer here in the Philippines as it might loose in volume percentage sales if left. As its percent share from 2004 – 2007 was steadily declining from 89.7% to 87.6%.

Sources: Richard Ivey School of Business. Reinventing the San Miguel Corporation (A). The University of Western Ontario, 2009 Richard Ivey School of Business. Reinventing the San Miguel Corporation (B). The University of Western Ontario, 2012