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only account for 9% (US$1,920/US$22,130) of all sales so it remains intriguing how each one will
exert so much influence as to threaten the profitability of SABMiller.

Detailed Customer Profitability calculations have been done in Appendix 5, to show the impact of all

the discount and cost data relating to servicing each customer as well as the resulting profitability of
each major supermarket. Our margin analysis reveals that although the cost of sales is the same (80%
of gross revenue) for all the supermarkets, Makro generates a net margin on sales (7.2%) which is

only approximately half of what Shoprite and Pick n’ Pay generate separately. In part, this reflects the
higher discounts offered to Makro, which Makro may have been able to negotiate as a result of the
volume of business they give SABMiller. However, the lower margins earned from Makro also reflect
the higher operating costs which are incurred in dealing with Makro.

The number of sales visits made to Makro is significantly greater than those made to Shoprite and
Pick n’ Pay, and works out at 41 per week. It may be that Makro has a number of different sites which

need visiting separately, but even so, this number of visits seems very high. It is possible that
SABMiller thinks it must have a lot of contact with Makro because of the volume of sales it generates;
but the profitability analysis does not justify this level of attention.

Shoprite and Pick n’ Pay raise less frequent, and much larger, purchase orders than Makro. The
relationship between the number of purchase orders and the number of deliveries for Pick n’ Pay is
unusual with one purchase order generating 12 deliveries. This may suggest that purchase orders are

raised centrally, but deliveries are made to regional depots rather than to a central repository.
However, the high number of deliveries made to Pick n’ Pay as result, damages the margins earned
from it. Nonetheless, Makro’s purchase ordering is still the least efficient of the three, and the fact that
Makro raises one purchase order for every delivery suggests that it does not plan its orders. Instead

it orders on an ad hoc basis when it runs out of stocks!

The number of rush deliveries ordered by Makro would again suggest that it has a very inefficient

ordering system, or else that it is very poor at predicting customer demand. Either way, the higher
number of rush deliveries Makro requires is very costly for SABMiller. Makro’s margin is reduced still
further because their level of returned goods is higher than those of the other two supermarkets. This

may again be due to the disproportionately higher number of batches being delivered to Makro.
Despite Makro generating the largest sales revenue for SABMiller, the net margin earned from its
business is very low, and SABMiller should seek to address this.

Four strategies to respond

We will have to make a choice between 4 strategies: 1) stop selling to least profitable supermarkets;
2) persuade them to reduce the number of cost-generating activities; 4) venture into direct retailing;
and (4) introduce new technologies to reduce the cost of cost-generating activities.

Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2018'
www.charterquest.co.za | Email: thecfo@charterquest.co.za