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1. Stop selling to the least profitable supermarkets: Per the above analysis, the least profitable
supermarket will be Makro; refusing to sell to Makro is unlikely to be feasible as Makro is not
only our biggest supermarket customer, but it is forecast to generate 5% (US$1.08/ US$22.1

billion) of sales revenues, and just under US$7 million of customer profit. It is unlikely that
SABMiller could afford to loose a customer of this size, and if it did, there could be negative

publicity around the industry. Furthermore, although Makro generates the lowest margin at
5%, it is still contributing US$7 million towards covering fixed costs. If SABMiller stopped
selling to Makro, it would either have to downsize its operations, or else reallocate these fixed

costs over a smaller revenue base. Neither of these options suggests that refusing to sell to
Makro is a viable strategy.
2. Reduce the number of cost generating activities: This would be a suitable and feasible

strategy, particularly if it involved introducing a more effective inventory management and
ordering system (Enterprise Resource Planning -ERP and/or Just-In-Time –JIT) so that Makro
was able to reduce the number of purchase orders placed. However, this strategy may not be

acceptable because Makro may not want SABMiller telling it how to run its business. In fact,
Makro may attribute its continued business with SABMiller to good Customer Relationship

Management, which they may attribute to the sheer number of sales visits and rush deliveries,
so, if they were asked to reduce these, it may dampen the B2B Customer Relationship and
open opportunities for more retail shelf space to be given to competitors’ products.

3. Venture into retailing direct to consumers: Calculations in Appendix 5 show that if we adopt
this strategy, our gross margin is much higher, at 30%, compared to selling directly to

supermarkets, given our much lower cost of sales after adjusting for the mark-up we will
typically charge the supermarkets; and it also delivers the best profitability margin of 30.38%,
almost double what we get with selling to Shoprite (this in the main is because we will have

no need for the frequent sales visits and generating of orders, since retail customers will
typically buy for cash). It makes a strong financial/business case therefore, to venture into
direct retailing to consumers, but there are some very strong strategic arguments against such

a move:
3.1 This would be a forward vertical integration strategy and it comes with all the challenges
of running a complex value chain, increased co-ordination costs, and it will entail a major

strategic change trying to develop the core competences to retail e.g. high street malls,
strategic locations, refrigeration, etc.

3.2 The major supermarkets combine sales of our products with other grocery items under the
same roof (one-stop shopping model). If we move into retailing, will we have to then go
into other grocery items, to attract consumers?

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