Friday, March 19, 2010

Norman Adami: Case Study on Management Leadership

From a speech by Norman Adami, CEO of South African Breweries, subsidiary of SABMiller:

POLITICALLY and socially, 1994 was a watershed year. It was also the year in which South African companies were finally able to test their mettle against global giants, both within SA and worldwide.

South African consumers’ exposure to choice is now a permanent part of life and local companies have over time radically altered their business models and, in most cases, have gotten better and better.

South African Breweries (SAB) learnt how to compete globally from the start. This gave us the ability to grow internationally and become a good case study for South African companies expanding globally. It also provided the capacity and expertise to compete at home against formidable competitors in the form of two of the biggest and most capable powerhouses in the global beer industry — Heineken and Diageo. These are not fledgling entrepreneurs chasing a dream. These companies are among the most professionally run global fast-moving consumer goods companies in the world, which take a very serious view of SA as a key market in their international portfolios.

Our approach to competition has had to be no less radical.

There are five questions we have answered in positioning ourselves to compete successfully. The first concerns our mind-set. Our challenge in SA is from a company selling a brand that we used to manage and promote and which, over the decades, we ironically turned into one of the best-established brands in the country. We view the challenge as motivation to become the kind of company required to thrive in 21st-century SA. That means being market-facing and brand-led.

The second question is “What is winning?” Winning could be defined as having the largest and dominant market share. Often, this means that one competitor cuts prices in the hope of eradicating a smaller competitor. At the other extreme, margins become the only focus at the expense of volume. This means higher prices for consumers and job cuts. These options are both clearly unattractive, unsustainable and value-destroying. Both are based on the flawed assumption that this is all a zero-sum game , and that your gains will be your competitor’s losses.

We see winning as understanding that the South African marketplace offers plenty of profitable growth opportunities for all the players. Beer consumption in SA is moderate and, given a growing economy, we see tremendous growth potential. Importantly, competition itself should be a strong driver of sector growth. Our success will be measured on our ability to consistently generate profitable growth, no matter what the competitor is doing.

The third question is about who decides who wins and who loses. SA’s new beer wars will not be won or lost based on one competitor’s ability to trounce the other. Victory will be based on who can create superior demand, deliver the best economic value and service with retailers and make the most meaningful contributions to society.

Mainstream beer still accounts for 82% of all beer purchased in SA. But, for many years now, the premium segment has grown at a faster pace. This is probably what motivated our competitor to establish its own venture.

Over the years, we have responded to the growth in premium by introducing strong international brands of our parent and creating new ones . This took a lot of energy — and a lot of investment. The unintended consequence was that our mainstream brands were not getting the support they needed at a time they needed them most. We let them get boring. We’ve corrected that , with massive investments behind our power brands . On a strategic level, we are now also focusing on marketing brands, not segments, because consumers buy brands, not segments.

We’ve also adopted a far more targeted approach to building our premium brands, employing a fairly straightforward process we call “create-build-expand”.

Heineken is clearly the 800-pound gorilla in the super-premium segment and it doesn’t make sense for any of our smaller premium brands to try to out-gorilla the gorilla. We see ourselves in the challenger role in premium . And we love the idea that in markets around the world, no segment evolves faster or fragments more quickly than premium. While the premium segment may be where all the glamour is, mainstream brands still account for more than 75% of the profits retailers generate through the sale of beer. And that’s where we are really strong.

In servicing customers, whether we are talking to the tavern owner, the most sophisticated supermarket chain or the hippest club of the moment, we are focused on stepping up our ability to be a superior partner.

Our fourth question is around principles. Despite the global firepower that comes with the combined R500bn-plus market capitalisation of the two parents, Diageo and Heineken, our competitors appear to be positioning themselves quite effectively as the “little guy”. And using the competition authorities as leverage is a pretty well-known tactic.

We have pursued pricing strategies that have cut the real price of our beers in half over the past 35 years and have actually put our scale and productivity to work on the consumer’s behalf. The price of beer in SA is well below the worldwide average. Few companies can claim the degree of multiplier effect we have; our beer business generates more than R50bn a year in value, accounting for 3,3% of SA’s gross domestic product.

But as competition intensifies we will have to be vigilant and ensure competitive zeal doesn’t lead to inappropriate behaviour.

First, we will deal only in truth, and we will stick to facts. There is no room for innuendo, speculation or whisper campaigns. If we think one of our beers provides superior value, we will say so, without any exaggeration. If we believe our competitor is trying to confuse the truth, we will not be shy to speak up.

Second, we will focus on issues consumers care about, and will not scare-monger on issues that are bad for the beer industry. Some of the advertisements run by our competitor damage the whole category.

The last question is about how much fun we can have. Fun-spirited competition rejuvenates the category. Mean-spirited competition only drags it down, because nobody wants to buy a mean-spirited beer.

Competition for SAB provides an opportunity for us to become a model competitor. We have to be progressive — not only in terms of societal leadership, but in being the people who drive progress.

We must also be principled. That means adhering to the law, but also competing with a clear understanding of what is in the best long-term interest of our brands and our relationships.

Third, we must be capable of outperforming our competitor in every dimension of our business, of marketing our brands in ways that make our brands the preferred favourites of consumers, of delivering superior value and service to retailers and of demonstrating superior societal leadership.

The last requirement is for us to be passionate. We’re not going to be sheepish about being big. Big is good when it can be made to work in the best interests of consumers, retailers and society.

Beer people, by their very nature, are passionate people and SAB people are particularly so. We love to win, and we hate to lose. Most of all, we view SA as sacred ground. We’re enjoying the competition. It’s good for consumers and it’s very good for us.