BELGIAN OWNER GIVES LABATT NEW SHOT AGAINST MOLSON: BREWING RIVALS IN 'DOGFIGHT' TO DOMINATE HOME MARKET

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[Toronto, Ontario] When they aren't eyeing more international business, Canada's two top beermakers-Molson Breweries and Labatt Breweries-are battling for market share on their home turf. The competition has become as heated as a barroom brawl as the Toronto-based rivals claim equal shares of the country's $3-billion-a-year beer market, which hasn't seen a battle for supremacy since the late 1980s, when Molson Breweries merged with Carling O'Keefe to crown itself Canada's No. 1 beermaker.

"No question about it-it's a dogfight," said Don Nose, Molson's VP-marketing for Western Canada. "You'll probably get the fiercest fighting you're ever going to see. We're not going to lay down and let the gap [further] close."

Molson's stake of the largely flat Canadian beer market has dropped steadily to 47% from more than 52% seven years ago, when Labatt claimed 42% of the market. The stumbling has been repeated in the U.S., where imported beers have cut into Molson sales, down by 8% last year and 3.5% in the first half of fiscal 1997.

Labatt Breweries of Canada, in contrast, has been invigorated after its purchase 18 months ago by privately held Interbrew SA of Belgium. Focusing on successful regional brands, like Labatt Genuine Draft-introduced in the early 1990s as Canada's first bottled draft beer-has been part of the rejuvenation, and ads tailored to the culture of each province have offered an additional boost. The Labatt brand's agency is Ammirati & Puris/Lintas, Toronto.

Mistakes wouldn't be expected of Molson in Canada, its biggest market and home since its founding in 1786. But the behemoth brewer concedes that it lost touch with Canadian drinkers, failing to respond quickly as their tastes swung to lagers from ales-Molson's longtime strength, particularly in the province of Quebec.

But now Molson is trying to regain its footing. Molson's Mr. Nose said he is putting "everything under the microscope." Translation: The company is "definitely looking at how we spend our marketing mix." Some examples:

Refocusing attention on Canada through a restructuring last year into three regional units-Ontario and Atlantic Canada combined, Western Canada and Quebec-to better tap local trends.

Launching brands such as Jack Hammer and repositioning Molson Export and Black Label to compete against Labatt Genuine Draft among younger age groups.

"Significantly" adding to the $120 million advertising budget after years of no increases.

Shifting promotions to local events from big-dollar national efforts, like sponsoring motor sport events and professional hockey or last year's estimated $3 million promotion which sent several hundred winners to a blind date at a rock concert that featured the Sex Pistols.

Creating well-crafted, distinctive ads.

For example, Jack Hammer TV creative from ad agency BBDO Vancouver differs from the typical "happy-happy" spots by depicting a group of sweaty concert-goers packed in a sardine can, said creative director Tony Lee. "Let's talk about aroma," reads the copy, which goes on to describe the beer's double-hopped recipe. "What makes our beer smell a whole lot better than a night in a stinking hot pit? Hops."

Despite Molson's efforts, analyst Irene Nattel of RBC Dominion Securities in Montreal wasn't impressed by the company's first quarter results for fiscal 1997. Molson's volume slid slightly more than the 4% industry dipblamed on poor weather last summer, she noted, and Molson's year was "off to a bit of whimper." But she added that "the various programs...should start to pay off as the [fiscal] year evolves."

Meanwhile, Labatt keeps showering attention on the Canadian market-which accounts for 74% of its sales-and weaning drinkers off of Molson. The success comes even as the brewer spends fewer dollars on marketing than its rival does. (Privately held Labatt won't disclose its ad budget.)

"A lot of our strength comes from the recognition of unique market demands," acknowledged marketing director David Kincaid at Labatt, founded in 1847 and now part of the fourth-largest brewing group in the world. "Within the [Canadian] beer industry the consumer is a very different animal as you move from market to market."

For instance, in Nova Scotia, Labatt strikes a chord with its history by marketing a family of beers under the Keith's label. The brand leads the regional market with a commanding 40% share and relies on creative from Corporate Communications Ltd. in Halifax. "Keith's is rooted in tradition and craft-brewing," Mr. Kincaid said. "It's rich in heritage dating back to 1847."

On Canada's west coast, ads for Labatt's Kokanee brand play up British Columbia's outdoorsy lifestyle and rugged scenery. Television creative from Bryant, Fulton & Shee in Vancouver dubs Kokanee as the province's own beer-something as distinctive as the snowboarding, mountain biking and cold-water surfing popular in British Columbia. Result: Kokanee is a top seller with a share of about 17% in British Columbia, Canada's third-largest market.

"It's eyeball-to-eyeball," Mr. Kincaid said of the Labatt vs. Molson showdown. "We're very proud of that."

Outside their home base, both brewers remain small players internationally with only cautious plans for expansion through joint ventures. Labatt derives only 2% of revenue from outside North America, and parent Interbrew is striving to reach fighting weight by shedding noncore assets such as Labatt Retail, a string of 600 pubs in the U.K., and pulling the production of Labatt beers into Interbrew's own breweries around Europe. The Italian Labatt breweries, for example, have been sold to Dutch rival Heineken.

Interbrew, however, has no plans yet to create any pan-European advertising for Labatt. "Each country is targeted separately, as before" the acquisition, a spokeswoman said.

Meanwhile Molson, which includes the sales of part-owners Foster's Brewing Group Ltd. and Miller Brewing Co. in its figures, gets only 1% of sales from outside the continent (20% is in the U.S.). But waiting to tip the scales is Molson Companies Ltd., parent company of Molson Breweries, which has pledged a renewed attention to beer after selling its chemical business last year. The windfall from that sale, about $440 million, could be put into an international venture. Potential regions for serious expansion: Latin America and China, where Molson sees fast-growing markets through joint ventures with local partners.

Some Canadian analysts, however, aren't sold on Molson's team strategy. The analysts say the company doesn't enjoy a good record working with partners and appears to have mishandled a lucrative deal with Golden, Colo.-based Coors Brewing Co., which licensed Molson to brew Coors brands in Canada. An arbitration panel ruled late last year that Molson breached the agreement with Coors by allowing Miller-a Coors competitor based in Milwaukee, Wis.-to buy a 20% share in the Canadian brewer. That ruling stripped Molson of its license to brew Coors and No. 1 light beer in Canada Coors Light, with the light version accounting for more than 5% of the Canadian beer market. The fallout could be that Labatt or Coors itself will market the U.S. beers in Canada.

For its part, Labatt has been warming up to the Caribbean, trying to tap sales in the Dominican Republic through a partnership with Cerveceria Vegana. The new unit recently launched a beer called Soberana, which means sovereign, to compete against Presidente, which is brewed by a Miller Brewing partnership and enjoys a 98% market share with about a decade of leadership.

To introduce Soberana as a fresh alternative, Dominican ad agency Nandy Rivas SA created TV ads with a Latin rhythm jingle and a dance by a native choreographer. Bringing a Canadian-style beer to the country "wasn't right for the marketplace," said Labatt's Mr. Kincaid. "The [partnership] approach we've taken

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