Miller, Coors Can't Fight Over Light

Brewers Must Cooperate to Cannibalize A-B's Bud Rather Than Each Other

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The pairing of Miller Lite and Coors Light could create a duo dynamic enough to take down Bud Light. But it could just as well break down into a sibling rivalry that damages one brand, if not both.

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The announcement last week of a U.S. joint venture between Miller Brewing Co. and Coors Brewing Co. creates a spending powerhouse of $330 million that is likely to create a major challenge to No. 1 brewer Anheuser-Busch and its $417 million budget. But it also creates a marketing conundrum for the newly merged MillerCoors entity: how best to deploy its two fiercely competitive premium light lagers against A-B's Bud Light.

Pretty darn distinct
While MillerCoors CEO Leo Kiely described the current positioning of Miller Lite ("more taste, less carbs") and Coors Light ("Rocky Mountain refreshment") as "pretty darn distinct," in reality, decades of copycat advertising has trained many consumers to view all premium light beers essentially as commodities, with Miller Lite and Coors Light jockeying to be the leading also-ran.

The two brands posted growth at A-B's expense this year. In 2006, however, Coors Light grew at Miller Lite's expense. Now they need to figure out how to maintain momentum while cooperating.

"From the 20,000-foot level, now you have two brands to attack Bud Light with, which is great," said one veteran Coors executive. "On the ground, it's a little more confusing as to how to do it."

MillerCoors basically has two choices: It can exploit the regional strongholds of each brand by disproportionately focusing on it in its established geographic stronghold (Miller generally does better in the Midwest, while Coors excels in the West and Northeast). Or it can try to tag-team Bud Light.

Distributors -- many of whom already carry both brands -- say they expect and hope MillerCoors will try the latter approach, because pulling back a brand in its weaker markets would cost it growth opportunities going forward, and any lost volume from a pullback could be partially claimed by A-B.

Tag-team approach
Instead, distributors said a tag-team approach could work especially well in terms of store displays and pricing. While the two brewers traditionally lobbied distributors to emphasize their light beer at the expense of the others, now they can cooperate with joint displays, which could help the weaker brand in a given market ride the stronger brand's coattails.

And then there's pricing. In a report issued the day after the merger news became public, UBS beer-industry analyst Kaumil Gajrawala predicted that the combination likely would move Coors' pricing ahead of Bud Light's, and keep Miller's below it, effectively trapping Bud Light in the middle, where it wouldn't appeal to a consumer seeking the cheapest premium beer or the most expensive -- a trend playing out in many consumer categories.

"MillerCoors stands to benefit from either share or margin as consumers migrate to either low end or high end," Mr. Gajrawala wrote.

That all sounds good, except there's no precedent for a combination of two mega beer brands in the same portfolio succeeding, said beer historian Maureen Ogle, author of "Ambitious Brew," a history of the U.S. beer business. According to Ms. Ogle, past combinations of megabrands, such as the 1958 marriage of Pabst and Blatz and the 1982 combination of Stroh's and Schlitz, ultimately left both big brands worse off.
1. Includes U.S. portfolio of InBev (excluding Labatt), which entered into a joint venture with A-B in early 2007.
2. Combined totals for Miller Brewing Co. and Coors Brewing Co., which are entering into a joint venture next year, pending regulatory approval.
Source: TNS Media Intelligence"
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