Inside MillerCoors' Craft Brewery, Tenth and Blake

Beer Titan Plays by Different Marketing Rules With Small Division

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MILWAUKEE (AdAge.com) -- As MillerCoors ramps up its new craft and import division, it won't be running a torrent of TV ads or putting up a flashy new website. Rather, the brewer is doing something a little more basic -- sending its workers back to beer school.

From the highest-paid executive to the lowest-earning brew house laborer, every employee in the company's 40-person Tenth and Blake division will take classes on beer history, styles, flavors and etiquette, including one course on food pairings called "Beer & Cheese."

The back-to-basics training is just one example of how the beer giant is using the division to focus on the small but fast-growing craft segment where complex ingredients and storytelling mean more to consumers than a celebrity spokesman or catchy tagline.

"In the craft and import business it is a lot more about education being the new promotion," Tenth and Blake President-CEO Tom Cardella said in an interview discussing the division's strategy. "There's a lot of desire for knowledge and learning and training in regards to how beer is made, how beer is looked at in regard to the sensory experience as it pairs with food."

Launched in August, the division is a move by the brewer to capture some of the momentum in the craft segment, a space more associated with mom-and-pop brewers than behemoths such as MillerCoors. So far, most of the work has been behind the scenes as the division assembles a sales staff in major markets to push a more than 20-beer portfolio of crafts and imports that includes Blue Moon, Leinenkugel's, Pilsner Urquell and Peroni Nastro Azzurro. (Foster's and Molson are not included because they are marketed more like mainstream brands.)

The investment "is a recognition that they have to get more serious and take things to the next level in the high-end beer market," said Benj Steinman, president of Beer Marketer's Insights, a leading beer trade publication. "The challenge is for a big company to think small."

The tone is being set by Mr. Cardella, who reports directly to MillerCoors CEO Leo Kiely. Despite his more than 30 years of experience in the beer industry -- including helping launch Stella Artois in the U.S. in the 1990s -- Mr. Cardella plans to take the classes alongside other workers. And in an effort to get to know beer even better, he has started home brewing for the first time.

Smaller craft brewers aren't quite sure what to think. "In some ways you can take it as a form of flattery. In other ways you can take it as a form of competition," said Bryan Simpson, a spokesman for New Belgium Brewing in Colorado, maker of Fat Tire and other successful crafts. If MillerCoors "gets mainstream drinkers turned on to new styles of beer, then that's a benefit to craft brewers," he said.

Tenth and Blake is named for the Leinenkugel's brewery on 10th Street in Milwaukee and the Blue Moon Brewing Co. at Sandlot on Blake Street, which is located in Denver's Coors Field. The division's beers account for roughly 10% of MillerCoors' domestic net income, Mr. Cardella said. The brewer reported $334 million in net income in third quarter. But many of the brews are growing faster than the company's bigger brands, whose sales have declined as out-of-work blue-collar beer drinkers spend less money.

Crafts, which tend to appeal to more affluent drinkers, haven't had that problem. Shipments of Blue Moon, for instance, grew by 7% last year to 1.15 million barrels, compared with Miller Light, which dropped by 6.6% albeit on a much larger base, to 16.5 million barrels, according to Beer Marketer's Insights.

Craft beers accounted for $6.98 billion of the $101 billion total U.S. beer market in 2009, according to the Brewers Association. But crafts are gaining, with sales volume jumping 9% in the first half of the year, compared with a 2.7% decline for the overall market, according to the association.

Tenth and Blake's goal is to grow its sales even faster by increasing distribution and promoting particular beers. "There's a lot of our brands that are relatively small today that will just blossom with more focus and nurturing," said Mr. Cardella, speaking over a small glass of Leinenkugel's Big Eddy Russian Imperial Stout at the 10th Street brewery.

By the end of first quarter of next year, Tenth and Blake plans to grow to up to 100 employees, including 40 "distributor beer merchants" who will work with distributors to pick and promote the best specialty beers for a particular market. Native Italian "ambassadors" will be deployed to push Peroni. And in an effort called "brewers unleashed," brew masters will create varieties that will first be sampled by employees and then rolled out on a limited basis to MillerCoors' home markets in Chicago, Milwaukee and Denver as a "very, very low cost test market," Mr. Cardella said.

The division is "looking for ways to further our credentials as a craft brewer though innovation," he said.

Measured media spending on the division's brands grew to $5.6 million in the first six months of the year from nearly $1 million last year, according to Kantar Media. Most of the spending was on Blue Moon, which launched its first national TV ad late last year, a spot called "artfully crafted" by Omnicom Group's Integer. The division starting last summer ran TV spots for Leinenkugel's in select Midwestern markets that featured fifth-generation brewing brothers Jake and John Leinenkugel. The ads are by Milwaukee-based indie shop Jacobson/Rost, which Tenth and Blake also recently named as the agency for Peroni and Pilsner Urquell -- which moved from Publicis Groupe's Arc Worldwide -- and Grolsch, whose last agency was Interpublic Group of Cos.' Momentum Worldwide, St. Louis. (MillerCoors acquired Grolsch from Anheuser-Busch in 2008.)

Still, Tenth and Blake's media budget is likely to remain "modest if not minor," Mr. Cardella said.

"These are brands that do rely a lot on personal discovery. What we're trying to do is help the awareness along," he said. But "you don't want to saturate because you run the risk of losing the specialness that you want to create."

Some small brewers don't consider Blue Moon or Leinenkugel's a true craft because it fails to meet the definition set by the Brewers Association, a craft trade group. Although the beers meet the size threshold of less than 2 million barrels a year, they are disqualified because they are controlled by MillerCoors, which is not a craft brewer by the association's definition. New Belgium Brewing's Mr. Simpson called the beers "mainstream-produced craft knockoffs."

Yet walk into the 10th Street brewery -- tucked into a downtown Milwaukee neighborhood -- and it very much has the feel of a small brewer. Master brewer Greg Walter oversees just nine employees who still stack kegs and cases by hand. Mr. Walter is routinely experimenting with new varieties, including aging beer in 12-year-old bourbon barrels.

He's giddy about the new effort, which he said will bring attention to his Leinenkugel beers. Up to this point his brews had been an afterthought as MillerCoors salespeople push bigger beers, he said. It's "great for us to have somebody focus on our beer brands and our styles," he said.

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