By Richard Poplak, Diana Neille, Sumeya Gasa and Shaun Swingler. Illustrations by Moses Mkhondo

2 Origins

Like almost everything in modern-day South Africa, it all began in the mines.

SABMiller’s official story, honed by sepia-tinted apartheid-era advertising campaigns, credits master brewer Charles Glass with the creation of Castle Lager during the Johannesburg gold rush. In the mid-1880s, Glass founded the Castle Brewery, which in 1895 would become South African Breweries, and two years later the first industrialised company to list on the Johannesburg Stock Exchange. Head offices, however, were in London, and the company also listed on the London Stock Exchange—South African Breweries, it turned out, were South African in name only. The company, always a binge shopper, bought everything: rival breweries, bottling plants, soft drink companies, major retailers, while establishing the Southern Sun Hotel Corporation. By the 1960s, the minute percentage of the South African beer market that SAB didn’t own was likely not worth the effort.

But if apartheid proved lucrative—and it most certainly did—what came next was a veritable bonanza.

Photo A screenshot of the SAB Stories website, outlining the company’s heritage.

The marriage between SABMiller and ABI, which came as a surprise to not a single industry analyst, was consummated toward the end of 2004. Coca-Cola had entered the South African market in the 1930s, and by 1938 the Atlanta-based company had appointed the first bottler concessionaire in Johannesburg. South Africans adored Coca-Cola, and there were soon operations across the country. ABI itself was formed in 1976 as a partnership between Coca-Cola and Schweppes, with SAB initially owning nine percent of the new outfit. According to the company’s breathless historical account, “this would change dramatically. By the end of 2004, SAB acquired 100% and ABI became the company’s official soft drink division.” (Early next year, the Coca-Cola Company, SABMiller and Coca-Cola Sabco will merge to form Coca-Cola Beverages Africa, the largest soft-drink bottler on the continent.)

Both ABI and SAB were apartheid regime darlings, and the romance continued into the democratic dispensation. ABI was by no means the only beverage company acquired by SAB after 1990—the brewer went on a 15-year orgy of expansion that included, among other purchases, Pilsner Urquell in the Czech Republic, a majority stake of Lech in Poland, another majority of the Italian brewer Birra Peroni and, most notably, the American brewer Miller. In 1999, under then-chief executive Graham Mackay, the company de-listed on the JSE and once again started trading on the London Stock Exchange.

As far as business pundits at the time were concerned, SAB’s purchase of the remaining ABI stock was all but inevitable. But there were concerns from competition specialists, who insisted that the company would be too big and control too much of the market—concerns now echoed by critics of the looming SAB InBev merger. With regard to SAB/ABI, the pundits warned that mergers almost always harm consumers. (“Greater market power arising from mergers usually results in higher prices,” Forbes Magazine recently noted of the SAB/InBev deal.) Protestations were waved aside, South African regulators rubber-stamped the necessary paperwork, and ABI was folded into SAB.

Today, according to their own financial reports, SABMiller and ABI employ 9,390 South Africans and contribute R66.2 billion to the country’s “wider economy,” generating 355,000 jobs in farming, hospitality and other industries along the value chain. With 89 percent of the country’s beer market share alone, SABMiller paid R10.2 billion in taxes in 2009, amounting to 1.7 percent of the South African Revenue Service’s (SARS) haul for the year. The company claims to spend R60 million annually on responsible drinking campaigns and other social initiatives.

“Our size actually gives us a strong advantage,” former managing director and chairman Norman Adami once claimed in a year-end brochure. (Adami, along with current SABMiller representatives, refused to speak with Daily Maverick Chronicle for this investigation.) And who could disagree? Size has always been SABMiller’s primary strategic objective, one the company has worked hard to ensure would never be impeded by angsty government regulators. “SAB was very, very active at the time of the competition act being written and negotiated in 1998,” said a competition lawyer familiar with the company, who spoke on condition of anonymity. “They lobbied very, very hard, they made representations to parliament, they had lawyers who were lobbying the authorities. They were probably the single biggest lobbyists within the business grouping at that time.”

The pressure worked, and under successive African National Congress (ANC) governments the South African Competition Commission has proved enormously favourable to large corporations. (Former finance minister Trevor Manuel, who in the late ‘90s advocated for a tougher regulatory environment, eventually came around. He now sits as a non-executive member on the SABMiller board.) The upshot? SABMiller got to dictate how their empowerment initiatives were implemented, who got to participate in them, and how they unfolded over time.

Photo Rows of trucks wait to be loaded up with soft drinks for the day’s deliveries. Photo credit: Shaun Swingler.

Since 1987, the OD programme has been central to SABMiller’s “empower the people” mandate. The company currently engages the services of 287 “independent owner-driver businesses,” and a further 318 within ABI, and claims to have spent more than R3 billion on its 28-year-old OD project. It does not say how much the scheme has saved in terms of salaries, bonuses, benefits, retrenchment payouts, and sundry inconveniences associated with having employees. Nonetheless, OD has fed into other initiatives, most of which have changed in step with the evolution of BEE legislation. In 2010, the company introduced a broad-based black economic empowerment (B-BBEE) initiative called SAB Zenzele. The scheme involved 42,000 new shareholders, including SABMiller employees, black liquor traders and SAB Foundation beneficiaries, who as of 2014 had collectively been paid out R613 million in dividends.

Empowerment programmes notwithstanding, on the mean streets SABMiller is renowned for its ruthlessness. Liquor traders and taverners had for years complained that the company choked marginal gains into losses. And the company has always been ferocious in destroying businesses, black-owned or otherwise, that it considers to be a threat.

In a case brought before the Competition Tribunal of South Africa in 2013, 13 independent distribution companies, a number of them black-owned, complained that SABMiller was forcing them out of business. The application concerned a complaint by distributors that, while SABMiller’s ODs paid wholesale prices for beer, properly independent drivers were forced to purchase beer at retail prices. This meant that they were unable to make a profit on 90 percent of their inventory and were induced to hike up prices on rival products. “A case like this matters a lot,” the lawyer familiar with the matter told Daily Maverick Chronicle. “You’ve got a single, dominant firm, and complaints like this come from people who are often collateral damage to big corporate strategies.”

Most of the black-owned distribution businesses concerned—by any assessment ODs, regardless of their not being tied to SABMiller’s exclusive contracts—were crushed after the competition tribunal ruled in the beer giant’s favour. “There were guys weeping in front of the tribunal,” said the lawyer. “It was brutal.”

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The line between genuine empowerment and marketing is as long as it is thin and, while OD has certainly been a public relations success, it’s almost impossible to gauge its financial efficacy. By definition the scheme is not subject to labour regulation, and therefore neither SABMiller nor any of its subsidiaries are compelled to collect or publish any data. According to Gavin Kelly, technical and operations director of the Road Freight Association (RFA), there are approximately 14,000 drivers currently behind the wheel, but regulation shifts from province to province, which makes it difficult to assess how many may be ODs, and whether or not they’re making ends meet.

“To say how many have passed through our programme would be very difficult,” Eddie du Plessis, ABI’s logistics director, said during a recent meeting at the company’s Midrand headquarters in Johannesburg. “Historically the data hasn’t been captured that well.” In other words, ABI has no idea how many employees have resigned in order to become ODs, nor do they know how many have been successful in their endeavours. Du Plessis claims that “70 to 80” drivers of the current crop of 318 used to be employees. (DTI, who should be in possession of these figures, refused repeated requests for comment because, they said, the matter is sub judice.) The sector, for all the billions spent, remains a known unknown.

The R6.3 billion lawsuit against ABI suggests that the failure rate has been substantial. Yet ABI does not consider the legal proceedings to be representative of the programme at large. “From 1991 to date, if you were to look very hard, you would probably be able to find 150 drivers or more who have left, because the programme has been running for so long,” Tshidi Ramogase, ABI’s corporate affairs director, said. “We are also trying to understand where this 150 is coming from, but we know for a fact it’s not over an 18-month period.”

Despite the informational black holes, ABI has no intention of rolling back the programme. “I think it was very progressive in the early 90s to say, ‘Hey guys, let’s start contributing to growing the economy through empowering people and giving them an opportunity to build a capability they never had before,’” said Eddie du Plessis. “Before, an ABI person would never get those skill-sets to run a business, to manage people, and then later maybe rather do something bigger. It’s up to us, but it’s also up to the drivers. At the end of the day, it’s about them.”

That may or may not be the case, but as Du Plessis’s leadership profile proudly notes, his five-year tenure with the company has resulted in a comprehensive streamlining that has proved enormously beneficial to the bottom line. “[Changes to] ABI’s Logistics model in his first year with ABI… resulted in the closure of 13 plants within six months,” states the profile. “Over the period F10-F14, revenue in Central Region grew from R3.4b to R4.1b and operating profits rose from R723m to R1b.”

In pure number-crunching terms, and as far as ABI is concerned, there can be no question: the OD programme has contributed to a windfall.