A-B waters down price to parry Miller

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The king of beers is going cut-rate.

As it continues to feel pressure from archrival SABMiller, category leader Anheuser-Busch Cos. is extending its marketing battle to a new front: price.

A-B, which controls more than half of the U.S. beer market, is lowering prices in an undisclosed number of markets to get closer to or match No. 2 brewer Miller. The brewer of Budweiser and Bud Light is making the moves in the wake of a strong showing by Miller Lite since late last year.

While it's a long way from the fierce beer price wars of the late 1990s, A-B's action illustrates the heated level of competition between the No. 1 and No. 2 brewers heading into the make-or-break summer season.

"It's significant," said Harry Schumacher, editor-publisher of industry newsletter Beer Business Daily.

It's also more evidence to some that improving Lite sales have put A-B on the defensive. Until late last year "A-B was feeding on Miller," said Tom Pirko, president of consultancy Bevmark. Now "they have to take Miller seriously."

According to industry observers, the Bud brand portfolio had been priced at a premium to Miller in a number of markets for years without any impact on sales. But with Lite surging and Bud Light slowing, A-B is taking action.

"We have initiated the tactical actions in a number of markets to enhance Bud family growth, and to reduce Bud family price gaps to competition," A-B VP-Chief Financial Officer W. Randolph Baker said in a call with analysts last week.

bigger packages

For instance, a competing distributor in Ohio-a state where A-B leads-said the St. Louis brewer has introduced 18- and 20-can packages in some markets to counter Miller and Coors, which already had offered such packages.

A-B said it hasn't priced below the competition and that overall promotional expense fell in the first quarter. Earnings increased 13% during the quarter ended March 31 partly because of earlier price increases.

Bud Light posted a 2.5% increase in shipments, including exports, in 2003, compared to a 7.4% pickup in 2002, according to figures from industry newsletter Beer Marketer's Insights. That was the brand's worst showing since 1995. Lite, meanwhile, posted a 0.6% increase in shipments, its first gain since 1999.

In the big picture, Bud Light remains way ahead of Lite. It moved 38.1 million barrels in 2003 compared to 15.7 million for Lite.

But Miller Lite has been rising since last fall thanks to its positioning as a low-carb beer. SABMiller last year broke ads taking a direct shot at Bud Light, noting that Lite had about half the carbohydrates of Bud Light, the country's biggest brew. Ironically, A-B got the low-carb beer craze rolling with the launch of Michelob Ultra.

SABMiller hasn't let up. It's running TV spots from independent Wieden & Kennedy, Portland, Ore., calling on consumers to elect Miller the president of beers-a play on Budweiser's "King of Beers" slogan. The spots show a man debating a Clydesdale, one of Bud's icons.

A-B shot back with ads for Bud Light saying that all light beers are low on carbs and people should choose on taste. A-B is hoping the pricing actions, as well as its ad effort, will strengthen Bud Light, which also has been cannibalized by Michelob Ultra. And the company says trends improved late during the most recent quarter.

But it's still up in the air as to who will win out this summer, industry observers said. "Strategies are in place to address these issues, but their effectiveness ... remains to be seen," Morgan Stanley analyst William Pecoriello wrote in a report last week.

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