San Miguel Corporation

views updated May 18 2018

San Miguel Corporation

40 San Miguel Avenue
Mandaluyong City
1550 Metropolitan Manila
Philippines
Telephone: (2) 632-3000
Fax: (2) 632-3099
Web site: http://www.sanmiguel.com

Public Company
Incorporated: 1913 as La Fabrica de Cerveza de San Miguel
Employees: 27,259
Sales: P 136.05 billion ($2.54 billion) (2002)
Stock Exchanges: Philippine
Ticker Symbol: SMC
NAIC: 312120 Breweries; 312140 Distilleries; 312111 Soft Drink Manufacturing; 312112 Bottled Water Manufacturing; 311421 Fruit and Vegetable Canning; 112111 Beef Cattle Ranching and Farming; 112210 Hog and Pig Farming; 112320 Broilers and Other Meat Type Chicken Production; 112340 Poultry Hatcheries; 311119 Other Animal Food Manufacturing; 311211 Flour Milling; 311223 Other Oilseed Processing; 311225 Fats and Oils Refining and Blending; 311512 Creamery Butter Manufacturing; 311513 Cheese Manufacturing; 311611 Animal (Except Poultry) Slaughtering; 311612 Meat Processed from Carcasses; 311615 Poultry Processing; 322211 Corrugated and Solid Fiber Box Manufacturing; 327213 Glass Container Manufacturing; 332115 Crown and Closure Manufacturing; 332431 Metal Can Manufacturing

Best known for its internationally distributed beer, San Miguel Corporation can only be described in superlatives. It is southeast Asia’s oldest and largest brewer. It also ranks as the Philippines’ largest and one of its most consistently profitable companies. San Miguel’s flagship beer utterly dominates the Filipino market, with a 90 percent market share. A 1988 brief in the Economist noted that Filipinos order “beer” at bars and restaurants, knowing that they will receive a San Miguel. But San Miguel did not make it to the top of the regional heap on good beer alone. It also makes agricultural feeds, processed and fresh meats, dairy products, coconut products, hard liquor, nonalcoholic beverages, and packaging products such as glass containers, corrugated cartons, aluminum cans, and metal crowns and caps. Through wholly or majority-owned subsidiaries, San Miguel holds dominating market shares in several food and beverage sectors in the Philippines: 90 percent of carbonated beverages, 58 percent of powdered juice, 56 percent of hard liquor, and more than 80 percent of margarine and butter. By the early 2000s, beer and other alcoholic beverages constituted only about one-third of San Miguel’s annual turnover. In fact, the conglomerate had, by 2001, grown over the course of its more than 110 years in business to generate 3.6 percent of its home country’s gross domestic product and 4.5 percent of government tax revenue.

San Miguel grew to its commanding position in the southeast Asian market in spite of political upheaval, infrastructure glitches, and high taxes. It achieved its status through aggressive competitive strategies and shrewd long-range planning over the decades. Having diversified into agribusiness, foods, and packaging in the mid-20th century, the conglomerate dominated its domestic markets by the early 1980s. At that time, San Miguel undertook an aggressive program of international expansion that came to fruition in the mid-to-late 1990s.

Early History

Don Enrique Ma Barretto de Ycaza established the brewery, southeast Asia’s first, in 1890 as La Fabrica de Cerveza de San Miguel. He named the company after the section of Manila in which he lived and worked. He was soon joined by Don Pedro Pablo Roxas, who brought with him a German brewmaster. San Miguel’s brew won its first major award at 1895’s Philippines Regional Exposition, and led its imported competitors by a five-to-one margin by the turn of the 20th century. The company was incorporated in 1913 following the death of Don Pedro Roxas.

By that time, San Miguel was exporting its namesake brew to Hong Kong, Shanghai, and Guam. Andrés Soriano y Roxas joined San Miguel in 1918, beginning a multigeneration (albeit interrupted) reign of Sorianos. In 1990, San Miguel’s Beer Bulletin noted that “Beer was the heart of San Miguel’s business, and the soul from which emanated all its other businesses.” Andrés Soriano initiated the company’s diversification, which proceeded rather logically via vertical integration. The experience cultivating barley naturally evolved into other agricultural businesses, for example. San Miguel gathered steam in the 1920s, when the company expanded into nonalcoholic beverages with the creation of the Royal Soft Drinks Plant in 1922. San Miguel entered the frozen foods market in 1925 with the creation of the Magnolia Ice Cream Plant. By the early 1990s, Magnolia held four-fifths of the frozen dessert market. Soriano created the first non-U.S. national Coca-Cola bottling and distribution franchise in 1927. The Philippine company owned 70 percent of the joint venture, which grew to become Coke’s sixth largest operation. By the early 1990s, San Miguel had captured over two-thirds of the domestic soft drink market.

Although World War II interrupted San Miguel’s brewing business, the company got back on the growth track in the postwar era, acquiring production facilities in Hong Kong in 1948. The company also resumed its program of vertical integration, even building its own power plant so that it would not be dependent on the Philippines’ notoriously poor infrastructure. San Miguel also built a liquid carbon dioxide plant, glass bottle manufacturing facilities, and a carton plant during the postwar period.

The company shortened its name to San Miguel Corporation in 1963, and Andrés Soriano, Jr., advanced to the company’s presidency upon his father’s 1964 death. He has been credited with instituting modern management theory, including decentralization along product lines. Soriano, Jr., continued to diversify the food business during the early 1980s, expanding into poultry production in 1982, building an ice cream plant in 1983, and adding shrimp processing and freezing in 1984.

Over the decades, San Miguel earned a formidable reputation as a fierce competitor. The company used all the tools at its disposal. When it could not beat a rival through traditional means, it acquired and intimidated upstarts into submission. The Filipino government’s complicity did not hurt, either. Long protected by high tariffs, San Miguel encountered its first major competitor in the beer market in the late 1970s. That was when Asia Brewery entered the segment. The rivalry between Asia Brewery and San Miguel came to a head in 1988, when Asia Brewery cannily introduced a bargain-priced “brand” called, simply, “Beer.” The imported product looked and tasted like its primary competitor, playing upon the fact that in the Philippines, the San Miguel brand was synonymous with “beer.” It was a creative counter to San Miguel’s notoriously aggressive and sometimes cutthroat competitive strategy, which had reportedly included “attempts to sabotage [Asia Brewery’s] sales network and smash its empty bottles.” Asia Brewery, whose owner was reputedly connected to Marcos sympathizers, even hired away San Miguel’s brewmaster.

Although San Miguel enjoyed virtual monopolies in its markets, that status did not shield it from the political machinations of the Philippines. The dictatorial reign of Ferdinand Marcos brought this element into sharp focus in the 1980s, when an intra-familial proxy fight at San Miguel turned political. The dispute was instigated in 1983 by Enrique Zobel, a wealthy cousin of the Sorianos who owned the Ayala banking and real estate group and sided with the Marcos government. Unable to execute a takeover on his own, Zobel sold his 19.5 percent stake to Eduardo Cojuangco, Jr. (known in some circles as “the coconut king”). Although Cojuangco was a cousin of Marcos opponent Corazon Aquino, he too sided with Marcos. Cojuangco’s Coconut Industry Investment Fund (a.k.a., United Coconut Planters Bank) accumulated an additional 31 percent of San Miguel, giving him effective control of the conglomerate and leaving the Soriano family with a mere 3 percent. Cojuangco scooped up the chairmanship in 1984, when Andrés Soriano, Jr., died of cancer. However, his reign over San Miguel lasted only two years. When Marcos lost the 1986 election to Aquino amidst the “people power” revolution, Cojuangco and many other Marcos backers fled the country. (In fact, Marcos and Cojuangco left in the same helicopter.)

Andrés Soriano III resumed San Miguel’s chairmanship and launched a campaign to reclaim the family legacy that year. But when the new chairman tried to buy back the abandoned shares, he was blocked by an unexpected agency; the Aquino administration’s Presidential Commission on Good Government (PCGG) assumed control (but not legal ownership) of the 51.4 percent stake and refused to relinquish it. The government asserted that the stake had been illegally obtained. In the 1970s Marcos had imposed a tax on the production of coconuts, a major Philippine cash crop, with the proceeds supposed to fund that industry’s development. It was alleged, however, that the money was funneled into the Cojuangco-controlled United Coconut Planters Bank, and that Cojuangco then used much of the funds to help him purchase his controlling stake in San Miguel. The controlling interest carried nine of San Miguel’s 15 directors seats with it. The PCGG continued to tend its San Miguel stake into the early 1990s, but it acceded de facto control of the conglomerate to Andrés Soriano III via a management contract with his A. Soriano Corp.

Company Perspectives

San Miguel Corporation’s commitment to bring quality products to each and every Filipino home has brought together well-loved brands that make everyday life a celebration. No other company in Philippine history has developed such a rich and diverse product portfolio covering the beverage, food and packaging industries as San Miguel.

Soriano III was characterized by Business Week’s Maria Shao as an “introverted, almost reclusive” leader. Schooled at the University of Pennsylvania’s prestigious Wharton School, Soriano III had dabbled in investment banking in New York City before returning to the Philippines. Soriano tried everything from legal machinations to joint-venture buyout schemes to wrest control of San Miguel from the PCGG, but to no avail.

At the same time, Soriano III continued the company’s program of expansion, acquiring majority control of La Tondeña Distillers, Inc., the leading producer of hard liquor in the Philippines, in 1987 and adding beef and pork production to the company’s food operations in 1988.

In 1990 San Miguel threw a five-month party to celebrate its centenary. President Corazon Aquino called San Miguel “the best showcase of a Filipino company, a shining example of creative management and commitment to its public.” The Economist contrastingly called San Miguel “a showcase for much that is wrong with business in the Philippines.” The latter assertion was substantiated that same year, when Cojuangco returned to the Philippines (the Journal of Commerce noted that he “sneaked back into the country [in 1990] despite a ban on his return”) to lay claim to his holdings. Notwithstanding the circumstances of his repatriation, a November 1992 article in Asian Business noted that “Cojuangco [was] expected to win eventually.” All the same, Soriano III continued to hold the chairmanship. (Cojuangco, meantime, unsuccessfully ran for the Philippine presidency in 1992.)

International Expansion: 1980s-90s

Soriano III led the company to a new era of dramatic growth based on internationalization. This move was motivated by a number of factors. First, San Miguel had developed its core Philippine and Hong Kong markets to maturity and was faced with relatively slow growth there. Soriano hoped to expand into other countries and thereby mitigate the effects of the Philippines’ unstable economy. Finally, the leader wanted to head off encroaching competition from the world’s biggest breweries, namely Anheuser-Busch and Miller of the United States, Kirin of Japan, and BSN of France. In an interview with Asian Business’ Michael Selwyn, San Miguel President Francisco C. Eizmendi, Jr., said that “what we are aiming to do is be a David among the Goliaths of international business, without losing our grip on the local market.”

Having determined that overseas growth was imperative, Soriano allocated $1 billion to a five-year strategic internationalization program that focused on shaping up domestic operations, then progressing to licensing and exporting, overseas production, and finally to distribution of non-beer products. San Miguel’s plant modernization plan involved sweeping improvements, from computerization to quality circles. These efforts laid the groundwork that would enable the company to compete with the world’s food and beverage multinationals. A subsequent decentralization created a holding company structure with the 18 non-beer operations positioned as subsidiaries. This corporate reorganization freed the spun-off businesses from the bureaucratic shackles of a large conglomerate. In the course of this multifaceted effort to attain optimum efficiency, San Miguel reduced its workforce by more than 16 percent, from a 1989 high of 39,138 to 32,832 by 1993. Asian Business noted that these programs helped increase profit per employee by 56 percent in 1991 alone.

Key Dates

1890:: Don Enrique Ma Barretto de Ycaza establishes a brewery in Manila called La Fabrica de Cerveza de San Miguel.
1913:: The brewery is incorporated.
1918:: Andrés Soriano y Roxas joins San Miguel, beginning the long-term, multigenerational involvement of the Soriano family.
1922:: Company expands into nonalcoholic beverages with the opening of the Royal Soft Drinks Plant.
1925:: Production of ice cream begins at the Magnolia Ice Cream Plant.
1927:: San Miguel becomes the first non-U.S. national Coca-Cola bottler and distributor.
1963:: Company shortens its name to San Miguel Corporation.
1983:: Soriano family proxy fight leads to the purchase of a 19.5 percent stake in San Miguel by Eduardo Cojuangco, Jr., a close associate of Philippine dictator Ferdinand Marcos.
1984:: Cojuangco assumes the chairmanship of San Miguel.
1986:: “People power” revolution forces Marcos to flee the country; Cojuangco is among those joining him in exile; the new Philippine government sequesters 51.4 percent of the company shares; Andrés Soriano III resumes the company chairmanship.
1987:: San Miguel purchases majority control of La Tonde¤a Distillers, Inc., the leading producer of hard liquor in the Philippines.
1997:: San Miguel exchanges its 70 percent stake in Coca-Cola Bottlers Philippines, Inc. for a 25 percent interest in the Australian firm Coca-Cola Amatil Limited (CCA).
1998:: Cojuangco returns to the chairmanship following the election of Joseph Estrada to the Philippine presidency.
2001:: Pure Foods Corporation, producer of processed meats and flour, is acquired; San Miguel joins forces with the Coca-Cola Company to reacquire Coca-Cola Bottlers Philippines, relinquishing its stake in CCA as part of the deal.
2002:: The company acquires Cosmos Bottling Corporation; Kirin Brewery Company, Limited acquires a 15 percent stake in San Miguel.
2003:: Litigation continues over the 47 percent of the company shares still sequestered by the government.

With its domestic “ducks in a row,” San Miguel turned to the next stage in its internationalization, beer licensing, and exporting initiative. Although the company had exported beer for most of its history, this effort was intensified dramatically in the late 1980s. San Miguel’s beer exports grew by 150 percent from 1985 to 1989 alone, and the brand was soon exported to 24 countries, including all of Asia’s key markets as well as the United States, Australia, and the Middle East. Once the core brand was established in a particular market, San Miguel would begin to create production facilities, sometimes on an independent basis and sometimes in concert with an indigenous joint-venture partner. By 1995, San Miguel had manufacturing plants in Hong Kong, China, Indonesia, Vietnam, Taiwan, and Guam.

Thus, in spite of the overarching quarrel regarding San Miguel’s ownership (not to mention other problems endemic to operating in the Philippines), the company’s sales quintupled from P 12.23 billion in 1986 to P 68.43 billion by 1994. Net income increased twice as fast, from P 1.11 billion to P 11.86 billion over the same period, although San Miguel’s overseas operations (as a whole) were not yet profitable.

In 1996 San Miguel purchased full control of its Hong Kong arm, San Miguel Brewery Hong Kong Limited. In April of the following year, San Miguel’s domestic soft-drink bottling unit, Coca-Cola Bottlers Philippines, Inc., was merged into the Australia-based Coca-Cola Amatil Limited (CCA). In effect, San Miguel exchanged its 70 percent interest in a Philippine-only operation for a 25 percent stake in CCA, which had operations in 17 countries—both in the Asia-Pacific region and in Eastern Europe. CCA soon demerged the latter operations into a U.K.-based firm called Coca-Cola Beverages plc (resulting in a reduction of San Miguel’s stake in CCA to 22 percent). Seeking to maintain its focus on the Asia-Pacific region, San Miguel sold its stake in the new U.K. entity in mid-1998.

From 1995 through 1997, San Miguel suffered from a downturn in its main domestic businesses, while overseas operations were still in the red. Profits plummeted. In response, a major restructuring of the company’s loss-making food businesses was undertaken. San Miguel’s ice cream and pasteurized milk business was merged with operations of Nestlé to form Nestlé Philippines, Inc., and late in 1998 San Miguel’s stake in this business was sold off. San Miguel also exited from the ready-to-eat meal sector and curtailed the operations of its shrimp farming business.

By late 1997 the company was also beginning to feel the effects of the exploding Asian economic crisis. In addition, the price of its stock was declining. At this point, a Hong Kong-based conglomerate, First Pacific, stepped into the picture, acquiring a 2 percent stake in San Miguel and entering into negotiations to pay as much as $1.3 billion for the two government-sequestered stakes that remained the subject of lengthy litigation. First Pacific abandoned its takeover bid early in 1998, however, when the negotiations—which required a resolution of the status of the disputed stakes—ran afoul of Philippine election-year politics.

A New Cojuangco Era: Late 1990s and Early 2000s

In April 1998 the anti-graft court handling the case of the disputed San Miguel stakes ruled that Cojuangco was entitled to vote 20 percent of the shares, although he was not given ownership of the shares. This enabled Cojuangco to install three new directors on the company board. Then in May, Joseph Estrada won the Philippine presidential election. Cojuangco had been the main financial backer of Estrada, a former movie actor who had been Cojuangco’s vice-presidential running mate during their unsuccessful 1992 campaign, and Cojuangco also became chairman of Estrada’s political party following Estrada’s electoral victory. By early July 1998, Soriano III had resigned from his position as chairman of San Miguel, and the board of directors, which included seven government-controlled (and hence Estrada-controlled) seats, voted to return Cojuangco to the chairmanship. This marked an amazing comeback for the once-disgraced Cojuangco, and also left many observers worried about a possible return to the crony capitalism of the Marcos era.

Cojuangco moved quickly to turn around the fortunes of the foundering company. Restructuring moves included a flattening of management layers to speed up decision-making and make the company more responsive to the marketplace. Overseas, the international headquarters were moved from high-priced Hong Kong to low-priced Manila as part of a larger cost-cutting initiative. The company also raised its domestic beer prices to make up for revenue lost from higher taxes on beverages and liquor. San Miguel increased its share of the domestic bottled water market by acquiring Metro Bottled Water Corporation, maker of Wilkins Distilled Water, in July 1999. Later in 1999 San Miguel announced that it would sell its minority stake in CCA through a stock offering, but these plans were soon abandoned when CCA’s stock price declined sharply. Income from operations for San Miguel rose slightly in 1998 before surging 63 percent in 1999.

Using a huge hoard of cash built through the recent asset sales, Cojuangco completed a series of acquisitions from 2000 to early 2002. During 2000, San Miguel purchased J. Boag & Son Limited, an Australian brewer, for about P 2.4 billion ($56 million), as well as Sugarland Multi-Food Corporation, a Philippine juice maker, for P 2.9 billion. The latter firm—renamed Sugarland Beverage Corporation—was jointly acquired by San Miguel and its majority-owned subsidiary, La Tondeña Distillers. Two major acquisitions of Philippine firms were then completed in 2001. Pure Foods Corporation was acquired for P 7.02 billion. Renamed San Miguel Pure Foods Company, Inc., the acquired company was a market leader in both processed meats and flour. The deal thereby expanded San Miguel’s processed meat portfolio and also marked its first foray into the flour industry. In July 2001 San Miguel joined forces with the Coca-Cola Company to reacquire Coca-Cola Bottlers Philippines, with San Miguel taking a 65 percent stake and Coca-Cola the remaining 35 percent. As part of the deal, San Miguel sold its shares in CCA back to that company. Later in 2001, San Miguel sold its bottled water and juice businesses, now amalgamated as Philippine Beverage Partners, Inc., to Coca-Cola Bottlers Philippines. Finally, in February 2002, San Miguel completed the acquisition of an 83 percent stake in Cosmos Bottling Corporation in a P 15 billion ($282 million) deal completed through Coca-Cola Bottlers Philippines. Cosmos specialized in low-priced soft drinks and held the number two position in the Philippine market. The combination of Coca-Cola Bottlers Philippines and Cosmos gave San Miguel control of more than 90 percent of the Philippine soft-drink industry.

During and following this period of acquisitiveness, the question of who owned San Miguel remained unresolved. Estrada became embroiled in a corruption scandal and was then forced from power in January 2001 in a popular uprising backed by the military. Replacing Estrada as president was Gloria Macapagal-Arroyo, who almost immediately began maneuvering to oust Cojuangco from the chairmanship of San Miguel as part of her campaign to rid the country of corruption. Arroyo sought to replace five directors appointed by Estrada, but a technicality prevented her from doing so prior to the May 2001 annual meeting. Cojuangco was thus able to retain his position as chairman. Then in December 2001 the Philippine Supreme Court ruled that Arroyo could in fact replace the five directors. Simultaneously, however, Cojuangco arranged a deal with the Japanese brewer Kirin Brewery Company, Limited whereby Kirin would invest P 27.88 billion ($544 million) for a 15 percent stake in San Miguel. Kirin finalized its investment in February 2002, gaining two board seats that Cojuangco could now count on to help him remain in power. By this time, Cojuangco had also gained popularity among investors for turning around the company and making it one of the most profitable in the country—despite a prolonged economic downswing; the government recognized this support by reaching a deal with Cojuangco in early 2002. Cojuangco could remain in control of the conglomerate until the anti-graft court determined the true ownership of the disputed shareholdings; in return the government would gain representation on important management committees and on the boards of 13 company subsidiaries.

San Miguel thus stood in the early 2000s as one of the most respected corporations in the Philippines, while at the same time facing an uncertain future because of the long-unresolved ownership dispute. In addition, there was a potential complication: Cojuangco was reportedly considering another run at the Philippine presidency for the May 2004 election.

Principal Subsidiaries

BEVERAGE BUSINESS: San Miguel Brewing International Ltd. (British Virgin Islands); San Miguel Brewery Hong Kong Limited; Guangzhou San Miguel Brewery Company Limited (China); San Miguel Bada Baoding Brewery Company Limited (China); San Miguel Shunde Brewery Company Limited (China); San Miguel Brewery Vietnam Limited; J. Boag & Son Limited (Australia); PT Delta Djakarta Tbk (Indonesia); La Tondena Distillers, Inc. (78.81%); Coca-Cola Bottlers Philippines, Inc. (65%); Philippine Beverage Partners, Inc. (65%); Cosmos Bottling Corporation (83.2%). FOOD BUSINESS: Magnolia, Inc.; Star Dari, Inc.; San Miguel Pure Foods Company, Inc. (99.75%); San Miguel Foods, Inc. (99.75%); Monterey Foods Corporation (98%). PACKAGING BUSINESS: San Miguel Packaging International Limited (British Virgin Islands); San Miguel Yamamura Haiphong Glass Co., Ltd. (Vietnam); Zhaoqing San Miguel Glass Company Limited (China); Premium Packaging International, Inc.; Rightpak International Corporation; San Miguel Yamamura Ball Corporation (99%); San Miguel Rengo Packaging Corporation (70%); Mindanao Corrugated Fibreboard, Inc. (60%); San Miguel Yamamura Asia Corporation (60%); SMC Yamamura Fuso Molds Corporation (60%). REAL ESTATE BUSINESS: San Miguel Properties, Inc. (99%). OTHERS: ArchEn Technologies, Inc.; Beverage Packaging Specialist, Inc.; Challenger Aero Air Corp.; SMC Logistics Asia; SMC Stock Transfer Service Corporation; SMITS, Inc.; SMC Shipping & Lighterage Corporation (70%); Anchor Insurance Brokerage Corporation (58%).

Principal Divisions

Beverage; Food; Packaging.

Principal Competitors

Asia Brewery Inc.; Asahi Breweries, Ltd.; Tsingtao Brewery Company Limited; Foster’s Group Limited.

San Miguel Corporation

views updated May 23 2018

San Miguel Corporation

40 San Miguel Avenue
Mandaluyong City
1501 Metropolitan Manila
Philippines
(63) 2 632 3000
Fax: (63) 2 632 3099

Public Company
Incorporated: 1913
Employees: 32,832
Sales: P68.4 billion (1994)
Stock Exchanges: Philippine
SICs: 2080 Beverages; 2010 Meat Products; 2020 Dairy Products; 3221 Glass Containers; 2671 Paper Coated & Laminated Packaging

Best known for its internationally distributed beer, San Miguel Corporation can only be described in superlatives. It is Southeast Asia’s oldest and largest brewer. With nearly 33,000 employees, the company also ranks among the Philippines’ largest, most consistently profitable, and most admired manufacturers. San Miguel’s flagship beer utterly dominates both the Filipino and Hong Kong markets, with 90 percent and 60 percent respective shares. A 1988 brief in The Economist noted that Filipinos order “beer” at bars and restaurants, knowing that they’ll receive a San Miguel. But San Miguel didn’t make it to the top of the regional heap on good beer alone. It also makes agricultural feeds, processed and fresh meats, ready-to-eat foods, packaging, and non-alcoholic beverages. By the early 1990s, beer constituted about half of San Miguel’s annual turnover. In fact, the conglomerate has grown over the course of its more than 105 years in business to generate four percent of its home country’s gross national product and six percent of tax revenues.

San Miguel grew to its commanding position in the Southeast Asian market in spite of political upheaval, infrastructure glitches, and high taxes. It achieved its status through aggressive competitive strategies and shrewd long-range planning over the decades. Having diversified into agribusiness, foods, and packaging in the mid-20th century, the conglomerate dominated its domestic markets by the early 1980s. At that time, San Miguel undertook an aggressive program of international expansion that came to fruition in the mid-to-late 1990s.

Early History

Don Enrique Ma Barretto de Ycaza established the brewery, Southeast Asia’s first, in 1890 as La Fabrica de Cerveza de San Miguel. He named the company after the section of Manila in which he lived and worked. He was soon joined by Don Pedro Pablo Roxas, who brought with him a German brewmaster. San Miguel’s brew won its first major award at 1895’s Philippines Regional Exposition, and led its imported competitors by a five-to-one margin by the turn of the 20th century. The company was incorporated in 1913 following the death of Don Pedro Roxas.

By that time, San Miguel was exporting its namesake brew to Hong Kong, Shanghai, and Guam. Andrés Soriano y Roxas joined San Miguel in 1918, beginning a multi-generation (albeit interrupted) reign of Sorianos. In 1990, San Miguel’s Beer Bulletin noted that “Beer was the heart of San Miguel’s business, and the soul from which emanated all its other businesses.” Andrés Soriano initiated the company’s diversification, which proceeded rather logically via vertical integration. The experience cultivating barley naturally evolved into other agricultural businesses, for example. San Miguel gathered steam in the 1920s, when the company expanded into nonalcoholic beverages with the creation of the Royal Soft Drinks Plant in 1922. San Miguel entered the frozen foods market in 1925 with the creation of the Magnolia Ice Cream Plant. By the early 1990s, Magnolia held four-fifths of the frozen dessert market. Soriano created the first national Coca-Cola bottling and distribution franchise in 1927. The Philippine company owned 70 percent of the joint venture, which grew to become Coke’s sixth-largest operation. By the early 1990s, San Miguel had captured over two-thirds of the domestic soft drink market.

The company shortened its name to San Miguel Corporation in the early 1960s, and Andrés Soriano, Jr. advanced to the company’s presidency upon his father’s 1964 death. He has been credited with instituting modern management theory, including decentralization along product lines. Soriano Jr. continued to diversify the food business during the early 1980s, expanding into poultry production in 1982, building an ice cream plant in 1983, adding shrimp processing and freezing in 1984, and adding beef and pork production in 1988.

Over the decades, San Miguel earned a formidable reputation as a fierce competitor. The company used all the tools at its disposal. When it could not beat a rival through traditional means, it acquired and intimidated upstarts into submission. The Filipino government’s complicity didn’t hurt, either. Long protected by high tariffs, San Miguel encountered its first major competitor in the beer market in the late 1970s. That’s when Asia Brewery entered the segment. The rivalry between Asia Brewery and San Miguel came to a head in 1988, when Asia Brewery cannily introduced a bargain-priced “brand” called, simply, “Beer.” The imported product looked and tasted like its primary competitor, playing upon the fact that in the Philippines, the San Miguel brand was synonymous with “beer.” It was a creative counter to San Miguel’s notoriously aggressive and sometimes cutthroat competitive strategy, which had reportedly included “attempts to sabotage [Asia Brewery’s] sales network and smash its empty bottles.” Asia Brewery, whose owner was reputedly connected to Marcos sympathizers, even hired away San Miguel’s brewmaster.

Although San Miguel enjoyed virtual monopolies in its markets, that status did not shield it from the political machinations of the Philippines. The reign of Ferdinand Marcos brought this element into sharp focus in the 1980s, when an intra-familial proxy fight at San Miguel turned political. The dispute was instigated in 1983 by Enrique Zobel, a wealthy cousin of the Sorianos who owned the Ayala banking and real estate group and sided with the Marcos government. Unable to execute a takeover on his own, Zobel sold his 19.5 percent stake to Eduardo Cojuanco, Jr. (known in some circles as “the coconut king”). Although Cojuanco was a cousin of Marcos opponent Corazón Aquino, he too sided with Marcos. Cojuanco’s Coconut Industry Investment Fund (a.k.a. United Coconut Planters Bank) accumulated an additional 31 percent of San Miguel, giving him effective control of the conglomerate and leaving the Soriano family with a mere three percent. Cojuanco scooped up the chairmanship in 1984, when Andrés Soriano Jr. died of cancer. But his reign over San Miguel lasted only two years. When Marcos lost the 1986 election to Aquino, Cojuanco and many other Marcos backers fled the country.

In 1990, San Miguel threw a five-month party to celebrate its centenary. President Corazon Aquino called San Miguel “the best showcase of a Filipino company, a shining example of creative management and commitment to its public.” The Economist contrastingly called San Miguel “a showcase for much that is wrong with business in the Philippines.” The latter assertion was substantiated that same year, when Cojuanco returned to the Philippines (the Journal of Commerce noted that he “sneaked back into the country [in 1990] despite a ban on his return”) to lay claim to his holdings. Notwithstanding the circumstances of his repatriation, a November 1992 article in Asian Business noted that “Cojuanco [was] expected to win eventually.” All the same, Soriano III continued to hold the chairmanship through 1995.

International Expansion in the 1980s and 1990s

Soriano III led the company to a new era of dramatic growth based on internationalization. This move was motivated by a number of factors. First, San Miguel had developed its core Philippine and Hong Kong markets to maturity and was faced with relatively slow growth there. Soriano hoped to expand into other countries and thereby mitigate the effects of the Philippines’ unstable economy. Finally, the leader wanted to head off encroaching competition from the world’s biggest breweries, namely Anheuser-Busch and Miller of the United States, Kirin of Japan, and BSN of France. In an interview with Asian Business’ Michael Selwyn, San Miguel President Francisco C. Eizmendi Jr. said that “what we are aiming to do is be a David among the Goliaths of international business, without losing our grip on the local market.”

Having determined that overseas growth was imperative, Soriano allocated US$1 billion to a five-year strategic internationalization program that focused on shaping up domestic operations, then progressing to licensing and exporting, overseas production, and finally to distribution of non-beer products. San Miguel’s plant modernization plan involved sweeping improvements, from computerization to quality circles. These efforts laid the groundwork that would enable the company to compete with the world’s food and beverage multinationals. A subsequent decentralization created a holding company structure with the 18 non-beer operations positioned as subsidiaries. This corporate reorganization freed the spun-off businesses from the bureaucratic shackles of a large conglomerate. In the course of this multifaceted effort to attain optimum efficiency, San Miguel reduced its work force by more than 16 percent, from a 1989 high of 39,138 to 32,832 by 1993. Asian Business noted that these programs helped increase profit per employee by 56 percent in 1991 alone.

Thus, in spite of the overarching quarrel regarding San Miguel’s ownership (not to mention other problems endemic to operating in the Philippines), the company’s sales quintupled from P12.23 billion in 1986 to P68.43 billion by 1994. The conglomerate’s heavy investment in the internationalization program paid off handsomely; net income increased twice as fast, from Pl.l 1 billion to PI 1.86 billion over the same period. Under the continuing direction of its 44-year-old leader in 1996, San Miguel was well-positioned to take advantage of the dramatic growth forecast for the Asia-Pacific region in the 1990s and beyond.

Principal Subsidiaries

San Miguel International Limited; San Miguel Foods, Inc.; SMC Stock Transfer Service Corporation; Premium Packaging International, Inc.; Packaging Products Corporation; Rightpak International Corporation; Pacific Warehouse Company; SMC Juice, Inc.; Tagbita Silica Industries Corporation; San Miguel Properties Philippines, Inc. (99%); Philippine Breweries Corporation (99%); Monterey Farms Corporation (93%); Coca-Cola Bottlers Philippines, Inc. (70%); La Tondeña Distillers, Inc. (70%); Philippine Dairy Products Corporation (70%); San Miguel Campofrio Corporation (60%); San Miguel Yamamura Asia Corporation (60%); Rizalag Land Company, Inc.; Mindanao Corrugated Fibreboard Inc. (60%); SMC Yamamura Fuso Molds Corporation (60%); San Miguel Yamamura Ball Corporation (60%); Anchor Insurance Brokerage Corporation (58%).