The last Miller Brewing Company distributor convention, which concluded yesterday in New Orleans, was surprisingly upbeat given the cloud hanging over the event; and by that I mean a real rain cloud (it poured down in buckets during the first evening’s reception) and a metaphorical cloud in the form of the MillerCoors J-V. Given the Justice Department’s aversion to pending mergers jumping the gun before they give their official blessing, little was actually said of the J-V itself. In fact, the theme of the convention was “The Future is Now”, a veiled allusion to the notion of not waiting for the J-V to take place to push the brands.
SIDEBAR ON J-V. BBD hears from several sources that the brewers are hoping they’ll get approval as early as May, and this deal could be in the bag by July or August. That’s ahead of the “by the end of the year” boilerplate we’ve been getting.
So how did this J-V thing get going? “Pete Coors and I started to talk one day,” said SABMiller chief Graham Mackay, (Mackay took to the stage in his trademark brightly colored tie, matching cravat, and dry wit. Remarking on the torrential rain, he said “in South Africa rain is a blessing, and I’m taking it in that spirit.”).
“I know you have many questions” about the J-V, said Graham, but “regrettably the circumstances warrant that we cannot answer them today to the extent that I would have liked.” Graham described how Coors and Miller’s geographic share strengths complemented each other (Coors in the West and Northeast, Miller in then Midwest and South Texas). “This will be the premier American brewer of the twenty-first century,” said Graham. “Coors is a great company and the right partner” for Miller. “We recognize that the margin pressure on you is increasing” and that the J-V “will help drive down costs”, increase sales execution, etc.
Miller president Tom Long reiterated that it’s “business as usual.” He added that “we’re determined to go into the JV rolling. We have real portfolio momentum, and we insist on accelerating that momentum in the coming days, weeks and months.”
ON CONSOLIDATION. When tough discussions need to happen with distributors, every brewer has their “go to” guy to do it. With A-B, it’s Dave Peacock. With Coors, it’s Leo. With HUSA, it’s Blaustein (even before he was president). With Crown, it’s Hackett. And with Miller, it’s Tom Cardella, because he doesn’t pull punches and he’s not afraid to ask for the sale, no matter how painful the message may be.
Perhaps one of the larger and painful issues distributors are thinking about is the effect the J-V will have on consolidation. And it IS sensitive, because we’re dealing with people’s livelihoods and futures here. Tom couldn’t get too specific, but he tipped his hand by saying that there have been other brewer consolidations before, and we know what happens after that, so you can draw your own conclusions. In other words, footprint issues will have to be addressed. It’s MillerCoors against the world, or against A-B, which for all intent and purposes, is the world.
“I know there are more buyers than sellers in this room,” said Tom. “And that creates some tension.” But, he said that if anybody is remotely thinking of selling, he said to “please bring us into your plans early, even if you didn’t sign the Third Amendment.” He also reminded that we’ll have an administration change in the federal government, and capital gains taxes could change. And he threw a little weight around too, repeating twice that “we are your largest supplier” and that “we will have even more” influence in the future.
Tom warns that “we do not believe in consolidation for consolidation’s sake.” He said it’s not the goal just to have fewer bigger distributors. And he warned against simply doing deals to cut backroom expenses and achieve scale efficiencies. He asked for some of those synergy savings to be reinvested in the business. “This is not about finding the cheapest route to market,” he said. Tom said it’s not good for the three-tier system, and especially the blue-silver system, to become a “bunch of box droppers”. When Kroger asks you for Saturday delivery, “keep an open mind,” says Tom.
ON GLOBAL BEER. On the global beer business, Graham Mackay lamented that there are several challenges. “We compete head to head with increasingly sophisticated global brewers, regrettably.” He reported that by some accounts, SABMiller is the largest brewer in the world by volume, though he stressed that wasn’t their goal. He admitted that he was actually surprised to read in the newspaper.
He also remarked that commodity inflation is “not a one-off spike” but something we’re going to have to live with. It has effectively squeezed SABMiller’s gross margins, thought they’ve so far been able to compensate for it by cutting expenses. But this is a new reality that all brewers are having to deal with, and increases in beer pricing isn’t coming anywhere near the increases in raw materials. It’s a long-term problem.
Of the top global brewers, “no one player has broken free of the pack.” Graham says that SABMiller’s strategy is to “own the growth” by focusing on a “full portfolio of brands in every market” as opposed to a brewer like Heineken that has one big brand. “We must decide where to play and how to win, as you can see in this rather unimaginative graph behind me.” He added that “I can’t see any outcome where innovation won’t play a part.”
MILLER LITE. Perhaps the biggest news on Miller Lite, even though we already knew about it, is the rollout of the package redesign, which is the first in five years. Miller vp marketing Randy Ransom told me that it was over a year in the making, since they have to “get it right” by choosing designs, testing it, etc. And it goes from everything from package to POS to decals, so it’s a pretty intensive and expensive proposition. We predict that now that both Coors Light and Miller Lite have tweaked their packaging, A-B won’t be far behind.
Miller Lite has some new ads to show as well. The distributors’ favorite were executions which show drinkers opening beer bottles to have flowers pop out, water shoot them in the face, confetti, etc. Cut to a Miller Lite drinker opening a real beer. The money shot: Miller Lite is no joke. Clearly it’s a jab at Bud Light’s humorous ads. The only beef: sure, we get it, but will the average drinker? Other ads focus on the World Beer Cup and showcasing the new packaging.
MILLER CHILL, as we all know now know perhaps more intimately than we would wish to, reached its 500,000 barrel goal in nine months, a goal which was punctuated by Sharon Mclenahan’s slide of me in nothing but a green Speedo (never let it be told that I don’t honor my bets. But also please remind me not to make such bets again, for the sake of the children).
Miller is going to try to get back that Miller Chill summer mojo with new packaging, including a 12oz slim can 12 pack and new advertising. Chill was the largest new product introduction last year, and was in fact larger than the next ten new brands combined.
MGD: Big plans for MGD this year, include launching new print and outdoor which highlight MGD’s “draft beer in a bottle” attribute. It’s still a 40 million case brand. Miller will test two marketing concepts: one being targeting the beer to the “genuine article”, or guys that do the right thing. The other is a throwback to the old marketing of MGD, “out of the old, and into the cold” (which Coors Light has absconded with, so don’t know how that will work).
MGD Light 64, the ultra-low calorie beer that was tested, successfully apparently, in Madison and then in other Midwest markets last year, will get expanded distribution into Miller’s Western Region. It’s only had a 10% cannibalization of Miller Lite and created a halo effect for MGD, they say. If this works out west (where MGD is strong), look for national distribution next year. Personally, I think this idea has legs, particularly for women and middle-aged men. In other words, Mich Ultra’s demographic. Haven’t tasted it yet though.
HIGH LIFE was up last year, which is quite a swing from the year ago. Credit the ads with Windell the hilariously delivery guy touting common sense. This year they are again using Windell in the same capacity, along with a loyalty program.
So all in, an interesting convention. I’ll have a few more notes on it tomorrow. My crack lieutenant Megan Haverkorn will be attending Coors’ meeting in Denver next week, while I bask in the glory of 50 share in Chicago.
WSJ GOES DOWN ON CORONA
The Wall Street Journal is running a story today highlighting Corona’s troubles of late. “Corona Extra became America’s best-selling imported beer by pitching itself as a vacation in a bottle. But dark clouds are moving in on the beach party,” writes the WSJ’s David Kesmodel.
The story hinges on the theory that Corona is becoming your “big brother’s beer.” Softer sales and competition from other brands like Dos Equis and Pacifico are cutting into Corona growth. The lone contrarian in the story was Nick Lake of Nielsen. “In a Nielsen survey of 21-to-30-year-old beer drinkers released last fall, he says, the brand ranked No. 1 among imports both when participants were asked to name any beer brands that came to mind and when they named their favorite beers. ‘These are the beer drinkers of the future, and they are giving Corona high marks,’ he says.”
Time will tell. We’ve been predicting that Corona will return to growth, but single digit growth, later this year. We’ll see.”The greatest of faults, I should say, is to be conscious of none.”
-Thomas Carlyle
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Today’s Sell Day: 3
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Sell days this month last year: 21
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