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 Outline • PEST • Porter’s Five Forces Model Strategic problems & issues • Competitive Analysis in HK Market Ø External Environment • Competitive Analysis in PRC Market 1 Introduction Ø 2 Analysis Ø Internal Environment Ø SWOT Analysis Ø Mission Statement, Strategic Vision and Objectives Ø Business Strategy Ø Functional Strategy Ø Execution of the Strategy Ø Strategic Action Plan Ø Budget Ø How to deal with unexpected events 3 4 Strategy Implementation 5 Contingency plan 6 Conclusion • Financial Analysis
Presentation Outline 1 5 Contingency plan 6 Conclusion SWOT Analysis Mission Statement, Strategic Vision and Objectives Ø Business Strategy Functional Strategy Execution of the Strategy Ø Strategic Action Plan Ø Implementation Internal Environment Ø 4 Ø Ø Strategy External Environment Ø 3 Strategic problems & issues Ø Analysis Ø Ø 2 Introduction Budget Ø How to deal with unexpected events
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
Strategic Issues 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
Presentation Outline 1 5 Contingency plan 6 Conclusion SWOT Analysis Mission Statement, Strategic Vision and Objectives Ø Business Strategy Functional Strategy Execution of the Strategy Ø Strategic Action Plan Ø Implementation Internal Environment Ø 4 Ø Ø Strategy External Environment Ø 3 Strategic problems & issues Ø Analysis Ø Ø 2 Introduction Budget Ø How to deal with unexpected events
PEST - Political Hong Kong market: Increasing cost Tariff 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 - Economic 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 - Social Hong Kong market: Consumer spending was soft Inactive social gathering High purchasing power of young generation Increase in health conscious Both Hong Kong and China markets: Soccer matches
PEST - Technological Both Hong Kong and China markets: The popularity of refrigeration in the late 1980’s More people use the Internet
Porter’s Five Forces Substitute Products (of firms in other industries) Suppliers of Key Inputs Rivalry Among Competing Sellers Potential New Entrants Buyers
Rivalry Among Competing Sellers Hong Kong market: Mature market Very Strong Intensive competition SMBHK was losing its market shares Many low-priced foreign beers Price war in retail chains in 1999 among distributors intensified competition Both Hong Kong and China markets: Low switching cost China market: 800 national, multi-international, large and small brewers Very keen competitions
Rivalry Among Competing Sellers n If the consumers find our products not valuable, they will simply…. .
Threat of Substitutes Both Hong Kong and China markets: 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: Neutral 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 Both Hong Kong and China markets: high Technological barrier
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 Both Hong Kong and China markets: 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
Strategic Group Map of the Brewery Industry GEOGRAPHIC COVERAGE Global Carlsberg, Heineken, Guinness, Budweiser, Asahi Royal Dutch Regional Pabst, San Miguel, Kingway, Tsingtao, Tiger Blue Ice Local Low Medium OVERALL COST TO CUSTOMERS High
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% Ownership Neptunia Corporation Limited (64%) Production Local Manufactory Import from Holland Local Manufactory (ceased on 31/4/99) No. of Employee --- 69. 5 250 Profitability (99) 60. 1 M 45 M Loss 69. 5 M Heineken Swire Pacific International BV Limited (49%) (100%)
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 Price Lowest among the three Similar to Heineken Similar to Carlsberg 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 Local advertising, more sponsorship activities, local celebrity as endorsement Global advertising Sales location Advertisement
Competitive Analysis – China Tsing Tao Brewery Limited Year of establishment Yan Jing Brewery Limited San Miguel Brewery Hong Kong 1903 1980 1948 1 2 Not in Top 10 Brand Image Premium Originated Tsing Tao Beijing Shunde Price Similar as SMBHK Higher than the other 2 Similar as Tsing Tao Market Position
Product Life Cycle Sales Growth slow down Sales 0 Time Maturing Product Stage
During the maturing stage n Consumers feel bored to the products…
Product Life Cycle Sales boost up again Sales 1 Sales Growth slow down Sales 0 New product sales Time Maturing Product Stage
Financial Situation 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
Profitability Ratio n evaluate a company’s ability to making profits e. g. return on total assets (%) SMBHK Tsing tao Guang dong 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!
Liquidity Ratio n indicates a company’s ability to meet current obligations and sustain its operations by using current assets e. g. Quick Ratio SMBHK Tsing tao Guang dong 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.
Leverage Ratio n measure company equity vs liability e. g. Total debt over equity (%) SMBHK Tsing tao Guang dong 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
Activity Ratio n measure management’s ability to use its company’s assets efficiently e. g. Inventory turnover SMBHK Tsing tao Guang dong 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
Growth Ratio • Annual % growth in earning SMBHK Tsingtao Guangdong Dec, 2000 45. 9 % ($87. 66 mn) 58. 6 (60. 26) (-80. 6) (10. 24) Dec, 1999 252. 5 (60. 1) 3. 7 (38) (37. 6) (52. 71) Dec, 1998 210. 5 (17. 05) 38. 1 (36. 65) (12. 3) (84. 49) Sustainable growth in earning Positive Sign !
Stock Price Stable Stock Price
Conclusion on Financial Analysis • Extremely stable in Financial situation Superb Confident • Low risk of financial disaster
SWOT • S trengths • W eaknesses • O pportunities • T hreats S O W T
SWOT - Strength In Hong Kong market: Production and distribution efficiency ISO 9002 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 internet The forthcoming 2002 World Cup More football match’s live transmission by Cable TV In China market International Sports Events Economic development Popular use of refrigerators Internet restriction in PRC is lessen In Overseas markets Economic recovery
SWOT - Threats In the Hong Kong market Government regulations Brand loyalty of young generation is strong Economic downturn Health conscious Many economy competitors and substitutes In the PRC market Open door policy Poor distribution, transportation routes In the Overseas markets Saturated and mature markets Strong brand loyalty
SWOT Matrix So Strategy: ST Strategy: n. Bid n. Launch for sponsorship of World Cup 2002 and Women World Cup 2003 n. Use strong financial backup to invest in orange beer of orange beer targeted the young generation and increase the healthy element of SM beer n. Low product cost of Shunde beer used to confront the low-priced foreign beers in HK n. Production in PRC can avoid the high tax and strict regulation on “Hong Kong Made” beer WO Strategy: WT Strategy: n. Search n. Do n. The for joint venture in Xi An mature brand image sustain the customer base from the mid-aged people with high brand loyalty not invest in other overseas markets in short-term
Remember the boy feeling bored?
Presentation Outline 1 5 Contingency plan 6 Conclusion SWOT Analysis Mission Statement, Strategic Vision and Objectives Ø Business Strategy Functional Strategy Execution of the Strategy Ø Strategic Action Plan Ø Implementation Internal Environment Ø 4 Ø Ø Strategy External Environment Ø 3 Strategic problems & issues Ø Analysis Ø Ø 2 Introduction Budget Ø How to deal with unexpected events
Mission Statement SMBHK offers adults with pleasant moments and sensation feeling during social gatherings and individual enjoyments by its cool, fresh, tasty, variety of choices and value for money beer.
Strategic Vision SMBHK strikes to become one of the top brewers in Asia by sharing pleasant moments and sensation feelings with people in the region.
Strategic Objectives 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
Financial Objectives To obtain earnings around HKD$ 100 million within 3 years To increase EPS to 0. 35 within 3 years
Generic Competitive Strategy Overall Low-cost Leadership Strategy Broad Differentiation Strategy Best-Cost Provider Strategy Focused Low-cost Strategy Focused Differentiation Strategy
Generic Competitive 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
Generic Competitive Strategy 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
Functional (Production Strategies) 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 Xian An Outsource the production of “San Miguel Boy” accessories
Functional (Marketing 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) Place Use 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
Functional (Marketing Strategies) The venders can benefit us ……
Functional (Marketing Strategies) 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
Functional (HRM Strategies) Recruit IT specialists in developing IT system Recruit personnel with fruitful experience for China branches Implement performance appraisal Strengthen the professional sales team
Functional (Financial Strategies) Self-financing $20 M to support the new orange beer product line including R & D, working capital change, and promotion cost Increase ownership of the Shunde Joint venture by purchasing 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
Presentation Outline 1 5 Contingency plan 6 Conclusion SWOT Analysis Mission Statement, Strategic Vision and Objectives Ø Business Strategy Functional Strategy Execution of the Strategy Ø Strategic Action Plan Ø Implementation Internal Environment Ø 4 Ø Ø Strategy External Environment Ø 3 Strategic problems & issues Ø Analysis Ø Ø 2 Introduction Budget Ø How to deal with unexpected events
Execution of the Strategy Organization The strategy-critical activities are production and marketing and sales activities Building organization’s capabilities on these two areas
Execution of the 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
Execution of the Strategy Rewards and incentives Progressive commission system for salespeople Stock options for senior management Annual bonus for all employees Outstanding salespeople will be include in the selection of sales management positions
Execution of the Strategy IT system Develop the IT system by in-house human resources Enhance the security of confidential information
Strategic Action Plan Strategies Launch 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 2001 2002 2003
Budget 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 n Budgets n 1. Initial investment: q q n - -New product line -New promotion campaigns -Explore China MKT -IT System 2. Cash Flow : -New product line’s revenue -Promotion Campaigns -Explore China MKT -IT System -Integrations of facilities -Mass purchase of raw materials -Maintenance Cost of new product line Net Profit per year $20, 000 $10, 000 $ 5, 000 $ 3, 000 $ 2, 000 $ 6, 500, 000 $ 1, 000 $ 500, 000 $ 100, 000 $ (300, 000) $ 8, 000
Budget Expected -net profit decrease 5% per yr NPV=6. 46 M NPV is positive
Budget Recession -net profit decrease 10% per yr -net income is 80% of expected NPV = - 0. 47 M NPV is slightly negative !
Budget Blooming -net profit decrease 2% per yr -net income is 120% of expected NPV=27. 79 M NPV is positive
Presentation Outline 1 5 Contingency plan 6 Conclusion SWOT Analysis Mission Statement, Strategic Vision and Objectives Ø Business Strategy Functional Strategy Execution of the Strategy Ø Strategic Action Plan Ø Implementation Internal Environment Ø 4 Ø Ø Strategy External Environment Ø 3 Strategic problems & issues Ø Analysis Ø Ø 2 Introduction Budget Ø How to deal with unexpected events
Contingency Plan Climate disaster: poor harvest or even short-term lack of supply Solution: Hold certain amount of inventory as backup China new ever changing policy, foreign investment Solution: Keep tracking on the changing The inefficient collaboration with joint venture in Xi An Solution: Seeking for several potential local brewers as backup & flexible joint venture contract with Xi An brewery
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