A-B Primes Marketing Pump, Looks to Take Advantage of Turmoil in '08

Brewer Eyes Miller-Coors Merger as Opportunity to Grow Its Core Brands

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CHICAGO (AdAge.com) -- The new year is likely to be a volatile one for many players in the beer industry. Miller and Coors are planning to merge their U.S. operations, the leading imports are scrambling to regain lost momentum, prices will rise and commodity costs will soar. And with its own turmoil hopefully behind it, Anheuser-Busch is looking to take advantage of the situation by ramping up spending on its core brands.
Garden & Gun

TAPPING THE WELL: Beer spending in the first nine months of 2007.

The No. 1 U.S. brewer -- which holds an approximately 49% share of the market -- stumbled last year as it absorbed dozens of new import and craft brands into its wholesaler network.

There were supply-chain woes and marketing stumbles, but now the brewer says it has got the new model -- led by new VP-Marketing Dave Peacock -- sorted out just in time to exploit similar havoc for its competitor if and when the MillerCoors joint venture takes effect this summer.

Ready for a fight
If it passes antitrust muster, the joint venture will boast a 28% market share and will liberate A-B's two largest competitors from having to grapple for the attention of the almost 60% of distributors they share. The combination would fight A-B with a stable of mega brands (Coors Light, Miller Lite), crafts (Blue Moon, Leinenkugel's) and imports (Peroni, Foster's).

But such a move might also be subject to short-term technological woes as IT systems are merged. There may also be supply-chain hiccups as brewery operations are altered and corporate distractions as the prospect of cost-saving layoffs lingers over employees -- or so A-B hopes.

"There will be significant transition confusion from this change, and it's up to us to capitalize on this disruption now," A-B CEO August Busch IV wrote in a memo to employees and wholesalers after the deal was announced last fall.

And A-B is behaving as if it intends to do just that, having announced plans to ramp up spending on its four core brand lines -- Bud Light, Budweiser, Michelob and Michelob Ultra -- in an attempt to take back marketshare. (Miller, also, has announced plans to boost spending in early 2007.)

"For A-B, the beauty is that all the growing pains are behind them, and [after the joint venture occurs] the opposite may be true at Miller and Coors," said UBS analyst Kaumil Gajrawala.

The seismic changes in the beer business won't stop there, however.

Up in the air
"I've been in this business for 20 years and I've never seen this much uncertainty heading into a new year," said Beer Business Daily's Harry Schumacher. "The industry is in flux."

The two major imports -- Corona and Heineken -- each saw sales soften last year as they instituted price hikes. Now that their new prices are set -- and commodity pressures will be driving up domestic prices -- they're expected to reclaim their once-meteoric trajectories. "That's usually what happens," noted Mr. Schumacher.

Heineken USA, for its part, will try to pull that off with a new CEO (Don Blaustein replaced Andy Thomas in September) and a new lead ad agency, Wieden & Kennedy, which is best remembered in beer circles for the gruff "High Life Man" it created for Miller during the late 1990s. Other major brands entering their first full year with new ad agencies include Miller Lite ( BBH), Miller High Life ( Saatchi & Saatchi), and Michelob (Euro RCSG).
Anheuser-Busch CEO August Busch IV
Anheuser-Busch CEO August Busch IV Credit: Bill Greenblatt

Driving the flux, of course, is a premium-ization trend that has been driving drinkers away from mainstream domestic beers toward wine, spirits and pricier craft beers. The latter category has been beer's fastest-growing, but it is likely to be the hardest hit by the coming commodity crunch because, unlike the big brewers, the crafts typically lack the scale to lock in long-term deals for hops, glassware and other key supplies. The result is expected to be steep price hikes for many craft brands.

"The big brewers will be getting hit but not crushed," said Mr. Gajrawala. "It'll be tougher on the [crafts]."

Ads for skyrocketing Blue Moon

Blue Moon, the Coors-owned craft beer with the explosive, ad-free growth, has quietly started advertising.

The Belgian-style wheat beer last year began placing print ads in local newsweeklies and national magazines such as Food & Wine and Men's Fitness, as well as billboards in key markets. The ads, from Integer show the brand's signature tall glassware and orange garnish, with the tagline "Artfully Crafted."
Blue Moon's sales were up 51% in 2007.
Blue Moon's sales were up 51% in 2007.

A Coors spokeswoman said the campaign was intended to emphasize the orange garnish, and would likely be focused on new markets going forward. No TV or radio ads are planned. One person familiar with the matter estimated the media spending at a mid-six-digit level.

Coors has been reluctant to support the brand with media because it didn't want to advertise its corporate-backing to the brew snobs who are a key craft-beer constituency, and it didn't want to interfere with the sense of consumer discovery that's fueled the brand's growth.

But that strategy has apparently worked too well. The brand grew 91% during 2006, according to Beer Marketer's Insights, and supermarket sales were up another 51% through early November 2007, according to Information Resources Inc.

All that growth -- which is likely to put the brand in the 700,000-barrels shipped neighborhood, the same ballpark as craft beer's giants Sam Adams Boston Lager and Sierra Nevada Pale Ale -- likely can't be sustained without at least some media support.
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