South African Breweries Ltd.
South African Breweries Ltd.
Incorporated: 15 May, 1895 in London
Sales: (Group) R5.747 billion (US$2.587)
Market Value: (Group) R4.118 billion (US$1.853 billion)
Stock Index: Johannesburg London
In many ways the history of South African Breweries is the history of the South African brewing industry; the largest breweries in South Africa were forced to merge in 1956 by government order. South African Breweries owes much of its success to a consistently strong demand for beer, or what the company refers to as “thirst.”
The discovery of gold on the Witwatersrand (a region encompassing Johannesburg) in 1875 brought large numbers of prospectors to South Africa. Small outposts for white settlers were transformed into busy cities with new industries. Several brewmasters, most with little experience, began to produce a variety of beers which immediately gained popularity with the settlers.
In 1889 a British sailor named Frederick Mead left his ship in Durban and took a job working in the canteen of a local army garrison at Fort Napier. While there, Mead, who was only 20, became acquainted with a businessman in Pietermaritzburg named George Raw. Neither of them knew anything about brewing, but they persuaded the local residents to help establish the Natal Brewery Syndicate. After purchasing a factory site, Frederick Mead returned to England to procure machinery and raise capital. In need of brewing expertise, Mead approached W.H. Hackblock, head of Morgan’s Brewery in Norwich. The two men became friends and Hackblock agreed to serve as chairman of Mead’s company, which was registered in 1890 as the Natal Brewery Syndicate (South East Africa) Limited. The company brewed its first beer in July 1891.
Mead remained interested in establishing a brewery in the rapidly growing Witwatersrand. In 1892 he purchased the Castle Brewery in Johannesburg from its proprietor Charles Glass. The expansion of this facility, however, was beyond the means of the Natal Brewery Syndicate, and Mead returned to England to attract new investors. In the final arrangement, Mead formed another larger company based in London called the South African United Breweries. This company took over the operations of both the Natal Brewery Syndicate and the Castle Brewery.
After construction of the new Castle Brewery, South African United Breweries made additional share offerings which were purchased by South Africa’s largest investment houses. Subsequent growth precipitated a restructuring of the company and reincorporation in London on May 15, 1895 as the South African Breweries Limited.
In 1896 South African Breweries purchased its first boarding houses. That same year, Frederick Mead moved to England for reasons of poor health, but continued to occupy a seat on the board of directors and frequently returned to South Africa. From London, Mead directed the purchase of machinery for brewing lager beer from the Pfaudler Vacuum Company in the United States. Patent restrictions and mechanical difficulties delayed production of Castle lager until 1898. The beer gained such widespread popularity that competing breweries rushed to introduce their own lagers.
South African Breweries, or SAB, was listed on the London Stock Exchange in 1895, and two years later became the first industrial company to be listed on the Johannesburg Stock Exchange. Through these listings SAB had greater access to additional investor capital.
On October 11, 1899 a war broke out between British colonial forces and Dutch and Huguenot settlers known as Boers. The war drove residents of Johannesburg out of the city and forced the Castle Brewery to close for almost a year. When British troops recovered the area, the brewery had sustained little or no damage. British authorities regarded the plant as an essential industry, and encouraged the company to resume production in August 1900. Disrupted supply lines caused shortages of yeast and other raw materials, but within a year production had returned to full capacity.
The Boer War ended in 1902, but was followed by a severe economic depression. The brewing industry was not as adversely affected as others, however, and SAB was able to continue its expansion across southern Africa. The company acquired the Durban Breweries and Distillers company, and established a new plant at Bloemfontein. SAB purchased Morgan’s Brewery in Port Elizabeth in 1906, and five years later acquired another brewery in Salisbury, Rhodesia (now Harare, Zimbabwe). At its northernmost point, SAB established a brewery at Ndola, Northern Rhodesia (now Zambia).
W.H. Hackblock died in 1907 and was succeeded as chairman by Sydney Chambers. In 1912 Chambers led the company into an innovative arrangement with its competitor, Ohlsson’s Brewery, to cultivate hops jointly at a site near the city of George, midway between Port Elizabeth and Cape Town. A joint subsidiary called Union Hop Growers spent many years developing new hybrids, which delayed the first commercial use of South African-grown hops until 1920.
After Frederick Mead died in August 1915, John Stroyan, who succeeded Sydney Chambers a few months earlier, became the most important figure in SAB management. Stroyan faced a serious challenge the following year when hostilities during World War I interrupted the supply of bottles to South Africa. SAB decided to establish its own bottle-making plants in 1917. Actual production, however, did not begin until 1919, the year the war ended.
Another economic depression beset South Africa after the war, but steady growth in the demand for beer reduced many of the detrimental effects of the depression. SAB was financially strong enough in 1921 to purchase the Grand Hotel in Cape Town, an important addition to the company’s lodging business. SAB gained an interest in the mineral water business in 1925, when it purchased a substantial interest in the Schweppes Company.
The Great Depression of the early 1930’s had little effect on the South African brewing industry; SAB continued to expand its operations and improve its facilities. The company’s biggest problems were shortages of labor and capital.
The Spanish Civil War and rising political tensions in Europe during the mid and late 1930’s caused a distruption in the supply of cork to South Africa. Faced with a severe shortage of cork seals for its beer, SAB developed a method of recycling old cork until a new supplier of cork could be found.
Castle Beer accompanied South African soldiers to the East African and Mediterranean theatres of World War II, but apart from its involvement in Europe, South Africa was relatively unaffected by World War II. When hostilities ended in 1945, SAB turned its attention to further modernization and expansion. Arthur Griffith-Boscawen, who had succeeded John Stroyan as chairman in 1940, died in 1946, and was replaced by John Stroyan’s son, Captain John R.A. Stroyan. Under the leadership of the younger Stroyan, SAB concentrated on the establishment of a South African barley industry as an extension of the joint agricultural project it operated with Ohlsson’s.
South African Breweries entered a new stage of its development in 1950. That year, in the midst of a large corporate modernization program, SAB decided to move its head office from London to Johannesburg. In 1951 the company acquired the Hotel Victoria in Johannesburg, and a second brewery in Salisbury. Captain Stroyan retired the following year and returned to England. His successor, a talented barrister named J.K. Cockburn Millar, died after only four months in office, and was replaced by a solicitor, S.J. Constance.
After producing nothing but beer for more than 60 years, SAB began to introduce a range of liquor products. The incentive to diversify was provided by increased taxes on beer. Consumption of beer in South Africa fell for the first time on record and showed every indication of further decline.
Officials of the three largest brewing companies in South Africa, SAB, Ohlsson’s Cape Breweries, and United Breweries, met on several occasions in London and Johannesburg to discuss the viability of competition under deteriorating market conditions. In 1956 these officials decided that the three companies should merge their operations into one large brewing concern. SAB acquired all the shares of Ohlsson’s and United Breweries, thus retaining the South African Breweries name, and B.C. Smither of Ohlsson’s and M.W.J. Bull of United Breweries joined the SAB board of directors.
Although the new company controlled 90% of the market for beer in South Africa, antiquated production facilities narrowed profit margins. In response, company activities were centralized in the Transvaal and the Western Province, areas where the three companies had previously competed. In addition, the old Castle Brewery in Johannesburg was closed in 1958. After succeeding Constance as chairman in 1959, M.W.J. Bull initiated a further diversification into wines and spirits. In 1960 SAB acquired the Stellenbosch Farmers Winery and later added Monis Wineries. Bull retired at the end of 1964 and was replaced by Dr. Frans J.C. Cronje, an economist and lawyer with substantial experience in government.
The company encountered a severe financial crisis in 1966 when Whitbread and Heineken entered the South African beer market. The most damaging market developments, however, came from government quarters; successive increases in excise duties made beer the most heavily taxed beverage per serving. Consumers began to abandon beer for wine and sorghum beer. SAB was able to reduce the effect of this crisis by increased sales of products from the Stellenbosch winery.
South African Breweries chief executive Ted Sceales was instrumental in the creation of a new subsidiary called Barsab, jointly held by SAB and Thomas Barlow & Sons Ltd. (later Barlow Rand), the rapidly expanding mining services group. Barsab permitted SAB and Barlow to invest in each other and pool their managerial and administrative resources. It also provided SAB with the resources needed to adapt to rapidly changing market conditions. Sceales died following an auto accident in 1967, but the success of Barsab continued under the new chief executive, Dick Goss.
South African Breweries first attempted to move its legal domicile from Britain to South Africa in 1950, but was prevented from doing so by complex tax obligations to the British government. Consequently, SAB, which still derived about one-third of its income from investments in Rhodesia and Zambia, was bound to observe the British trade embargo against Rhodesia in 1967.
Parliamentary motions to permit the reincorporation of SAB in South Africa were initiated in 1968. These motions, however, did not gain approval until March 17, 1970. On May 26, 1970, after 75 years as an English company, SAB became a de jure South African company.
During the late 1960’s SAB began brewing a number of new beers, including Guinness, Amstel, and Rogue. The company also acquired the Old Dutch and Stag brands, as well as Whitbread in South Africa. While sales of wine and spirits continued to rise, SAB sold a number of its liquor-oriented hotels, and reorganized those that remained under a new subsidiary called the Southern Sun Hotel Corporation. Southern Sun, which operated 50 hotels in South Africa, was formed by the merger in 1969 of the existing SAB hotel interests with those of the Sol Kerzner family.
The South African government barred SAB from further investment in the liquor industry and limited its ability to invest overseas. The company then made several attempts to diversify its operations. In 1972 SAB and Barlow rand decided to alter their collaboration and dissolve Barsab. As a result, two former Barsab holdings, the Shoe Corporation, and Afcol, South Africa’s largest furniture manufacturer, came under SAB control. The following year, SAB acquired OK Bazaars, a large discount department store chain. Certain other investments were disposed of, however, including ventures in banking and food products.
Several brewing interests attempted to challenge SAB’s dominant position in the South African market. Various German interests set up breweries in Botswana and Swaziland in a failed attempt to gain a foothold in South Africa. Louis Luyt, a South African entrepreneur, also failed, and sold his breweries to the Rembrandt group in 1973. The Luyt breweries, which formed the core of Rembrandt’s alcoholic beverage group, were later incorporated as the Intecontinental Breweries. Determined to succeed, Rembrandt’s chairman, Dr. Anton Rupert, committed his company to a scheme of competition based on control of liquor retail outlets. In 1978 Rembrandt acquired a 49% share of Gilbey’s, the third largest liquor group in South Africa. The addition of Gilbey’s 100 retail outlets gave Rembrandt access to a total of 450 stores. South African Breweries responded by acquiring Union Wine, an independent liquor retailer with 24 hotels and over 50 retail outlets.
Once again, market conditions were not conducive to competition. Therefore, the government proposed a rationalization program in which SAB would take over Rembrandt’s brewing interests and turn over its wine and spirits operations to an independent subsidiary called Cape Wine and Distillers. The program, executed in November of 1979, also called for Rembrandt to turn over its Oude Meester wine and spirits operations to Cape Wines, in which SAB, Rembrandt, and the KWV wine growers cooperative each owned a 30% interest. The remaining 10% interest was sold to private investors.
By the early 1980’s the South African government’s system of racial separation (apartheid) and deteriorating social conditions for Blacks had become international issues, and highly sensitive ones for the predominately apolitical English-speaking business establishment. Many business leaders openly called for change, but the government still prevented companies such as SAB from transferring capital out of South Africa through foreign investments. Often these companies had little choice but to reinvest their surplus capital in South African ventures, which in turn has given them a more crucial interest in the resolution of social and human rights problems within South Africa.
Many foreign-owned companies, which face fewer restrictions on divestment, have sold their South African subsidiaries and closed their offices in South Africa. This trend has made acquisitions by South African companies easier. SAB took over control of the ABI soft drink concern from Coca-Cola, and later added several clothing retailers, including Scotts Stores and the Edgars chain. A government order in 1979 for SAB to sell its Solly Kramer retail liquor stores was completed in 1986, five years before its deadline.
South African Breweries remains a public company, but is actually controlled by its majority shareholder, the Anglo American Corporation, a large South African mining and finance group. SAB continues to derive most of its operating income from the production of beer at its ten breweries. Under the company’s new chairman, Murray B. Hofmeyer (who succeeded Dr. Cronje in 1987), SAB will remain strongly interested in the resolution of social tensions caused by apartheid in order to maintain a stable and profitable business environment.
Alrode Brewing Company (Pty.), Ltd.; Amalgamated Beverage Industries (Pty.), Ltd. (55%); Appletiser Pure Fruit Juices (Pty.), Ltd.; Bier en Mout Beleggings (Edms.), Bpk.; Ohlsson’s Brewery Transkei (Pty.), Ltd. (70%); Ohlsson’s Cape Breweries, Ltd.; Southern Associated Maltsters (Pty.), Ltd. (55%); United Breweries (Pty.), Ltd. (70%); Amalgamated Retail, Ltd. (“Amrel”) (69%); Edgars Stores, Ltd. (61%, indirect); OK Bazaars (1929), Ltd. (70%); Associated Furniture Companies, Ltd. (“Afcol”) (65%); SA Footwear, Ltd.; Southern Sun Hotel Holdings, Ltd. (68%); Sabfin (Pty.), Ltd.; Sabre Finance, Ltd.; Shoecorp Properties, Ltd.