Leinenkugel Rolls Out Russian Imperial Stout

Second in “Big Eddy” line.

The Jacob Leinenkugel Brewing Company is rolling out a Russian Imperial Stout as it continues to learn more about big beers.

Big Eddy Russian Imperial Stout, the second in the Big Eddy series, hits select markets in Michigan and Wisconsin within the week. In Wisconsin it will be available on draft at select accounts and in 4-pack bottles in the off-premise. It will be available only in the off-premise in Michigan.

The “Big Eddy” moniker is derived from the name of the spring that feeds the Leinie brewery in Chippewa Falls, Wis. Beginning in late February, Leinenkugel’s tested its first big ale, Big Eddy Imperial IPA.

Brendan Noonan, brand manager for Leinenkugel’s, said the 140-year-old brewer (which is owned by Miller Brewing Company) says while the “big beer” area (think brews such as double IPAs, Russian imperial stouts and barley wines) is relatively small, it’s an area of growing interest among craft beer enthusiasts.

“Some people are looking for something a little more special,” he says. “We do feel this is a growing part of the market.”

Dick Leinenkugel, vice president of marketing for Leinenkugel’s, said Big Eddy fits in with the brewer’s tradition of experimentation and of offering consumers a varied array of beers. Indeed, Leinenkugel has said, “What defines craft is having a variety of interesting styles of beer.”

“We’ve always enjoyed a spirit of innovation at Leinenkugel’s, whether it be combining apples and cinnamon in beer to come up with Leinenkugel’s Apple Spice, or being the first to launch a shandy into the United States,” he says. “We stay in touch with our markets and our consumers and noted the increasingly popularity of “big beers” especially with the aficionado drinker.”

Wisconsin markets slated for Big Eddy Russian Imperial Stout include Madison and Milwaukee. In Michigan the targeted markets are Detroit and Grand Rapids.

Big Eddy Imperial IPA ranked in the 99th percentile of double IPAs on ratebeer.com. To the see reviews, go here.

Big Packs Boosting Bud Light, Coors Light

30- and 36-packs gaining share in supers.

Anheuser-Busch and Coors Brewing Company have been placing increased focus on large packages to help drive their flagship light brands in supermarkets, according to beer sales statistics from Nielsen.

According to Nielsen, 30- and 36-pack cans have recorded a 1.8 share point increase in total Bud Light volume over the year-earlier period.

Meanwhile, Coors appears to have placed more promotional focus on 36-pack cans, as evidenced by increased feature, display and discount support.

This is part of a long-running trend. The 30/36 pack cans account for 19.6 percent of Coors Light’s volume in supermarkets today; in November 2004 they accounted for 15.7 percent. For Bud Light, big packs represent 15.9 percent of volume now, compared to 12.5 percent in November 2004.

The shift has been less dramatic with Miller Lite: 9.8 percent now versus 8.6 percent in November 2004.

Big boxes can help drive volume. But they also generally have lower average case prices, so their growth can “pull down” brand-level prices.

Miller, Coors Gain Share in C-stores

A-B decline continues.

Miller Brewing Company and Coors Brewing Company gained volume and dollar share in convenience stores during the four weeks ended October 6, according to beer sales statistics from Nielsen.

Miller gained 0.3 points of case share in supermarkets, thanks to Miller Chill, which carved out a 0.3 point share, and Miller High Life, which added 0.3 points.

Miller’s dollar share also increased by 0.4 points, driven primarily by Miller Chill and Miller High Life.

Coors saw its case share increase by a half point as Coors Light added 0.4 points and the Keystone franchise picked up 0.1 points. Blue Moon was flat.

Coors’ dollar share increased by 0.5 points.

Anheuser-Busch, meanwhile, continued to lose share in the channel.

A-B’s case share slipped by a half-point. Budweiser lost a full point of share. The Bud franchise lost 0.7 points, as a gain by Bud Light (up 0.2 points) wasn’t enough to offset declines by Bud and Bud Select. This marks the 20th time in the past 21 months in which the Bud family has suffered a year-over-year volume share decline.

Meanwhile, A-B lost 0.8 points of dollar share. The Bud franchise saw dollar share slip by 0.9 points as even Bud Light ceded ground, losing a tenth of a point.

A silver lining for A-B: Comps get easier as the year comes to an end.

Mojito on Tap?

A-B poised to introduce Bacardi Silver Mojito on draft.

Anheuser-Busch appears ready to introduce a draft version of its new Bacardi Silver Mojito flavored malt beverage.

The brewer on October 10 received an approval certificate from the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau for barrel labels of the FMB.

A-B introduced the mojito FMB earlier this year and followed up with a pomegranate line extension. It’s apparently trying to build the brand on premise now.

FMBs typically are sold in bottles, so offering it on draft is an unusual move.

The application can be seen here.

Smirnoff Ice Lightens Up

Diageo files label application for low-cal flavored malt beverage.

Diageo North America, which has used a steady flow of line extensions to drive its Smirnoff Ice label, appears poised to introduce a light version of the No. 1 flavored malt beverage.

Diageo on October 17 received a label certificate from the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau for Smirnoff Ice Light.

According to label information, the drink has 110 calories and 11 grams of carbohydrates per 11.2 ounce bottle. It has 4 percent alcohol by volume.

Diageo has another flavor in the hopper as well: Strawberry Acai.

Smirnoff Ice had 0.9 case share in supermarkets for the 52 weeks ended October 6, down 0.2 points. It had 1.6 dollar share, down 0.2 points.

The label image for Smirnoff Ice Light can be seen here.

The label image for Strawberry Acai can be seen here.

A-B Earnings Up … But Core Brands Soft

Third quarter sales, shipments driven by new brands.

Anheuser-Busch earnings rose nearly 16 percent in the third quarter despite continued softness by its core brands, the brewer disclosed today.

A-B’s earnings per share increased by 15.9 percent in the third quarter as net sales increased by 7.9 percent.

However, A-B’s core brands -- a focus of attention by analysts -- were soft.

A-B sales to retailers increased by 2.2 percent during the period, but 1.7 points of that growth was driven by import brands, including the InBev European brews.

Shipments increased 2 percent, with 1.6 points coming from imports.

Beer Marketer’s Insights noted that STRs for core brands were up by half a point. It continued:

"That’s considerably slower growth than Miller and Coors. Meant core brand STRs still down about 0.8% for 9 mos., while shipments essentially flat."

BMI added that domestic beer income before income taxes “up just 1.5% in 3d qtr as higher rev per bbl and volume” were partially offset by higher production and marketing costs.

A-B got a lift from its investment in Grupo Modelo as equity income increased by 18%.

William Pecoriello, an analyst for Morgan Stanley who had raised questions as to whether recent softness at Modelo would affect A-B, said in a report today that moving forward a “key will be if the recently reported Modelo weakness will hit BUD in its 4Q results.”

In an earnings release, A-B President and CEO August Busch IV said:

"We are pleased with our earnings performance this quarter, with all of our operating segments reporting higher sales and profits," said August A. Busch IV, president and chief executive officer of the company. "Sales volume and revenue growth in our U.S. beer business benefited from our broadened beer portfolio, with greater participation in the high end segment. The wholesaler transition and supply issues we encountered earlier this year regarding the InBev European brands have been resolved. Earnings contribution from our international segment accelerated, led by Grupo Modelo. And we continue to expect the company's 2007 earnings per share increase to exceed our long term growth target of 7 to 10 percent."

The A-B earnings release can be seen here.

The BMI homepage can be seen here.

Bud Loses Share, Keeps Space in C-Stores

Number of items carried holds steady over the years.

Budweiser has lost 2.7 points of share in convenience stores since early 2005, according to beer sales statistics from Nielsen.

However the number of Bud items carried by c-stores – a proxy, albeit imprecise, for shelf space – has remained constant at 9.1, according to Nielsen’s beer market analysis. (It briefly increased by a couple tenths of a point in mid-to-late 2005 before coming back down.)

The loss of share in C-stores – a channel in which A-B has dominant share – reflects the long-running decline of the Bud brand, which has suffered declining sales for more than a decade.

Bud shipments declined by nearly 13 percent between 2004 and 2006 to 25.8 million barrels, according to Beer Marketer’s Insights. In 2006, Bud represented 12.1 percent of total U.S. beer shipments, according to BMI.

The fact that A-B has been able to maintain space in C-stores is a testament to the strength of the Bud brand name and the distribution network. It’s also likely driven, at least in part, by packaging innovation.

Bud commanded 14.7 percent case share in C-stores during the four weeks ended Jan. 1, 2005, according to Nielsen. At that time, C-stores carried 9.1 Bud items.

During the four weeks ended Oct. 6, 2007, Bud had 12.0 percent share in C-stores. But C-stories carried the same number of items: 9.1.

Miller Stepping Up Chill Support

New ads, packaging on tap.

MILWAUKEE -- Miller Brewing Company is stepping up marketing support for Miller Chill with new ads, programs and packaging to maintain momentum for the brand, company executives said last Thursday here at a distributor meeting.

Miller Chief Marketing Officer Randy Ransom laid out five components for Miller Chill marketing over the next six months to drive awareness and trial and maintain its solid base. They are:

1. New advertising that builds on the theme “Chill is in the air.”
2. A steady national media plan.
3. An on-premise plan to push sampling.
4. Holiday off-premise promotional programs and cross-promotions.
5. New packaging including a 22-ounce, single serve bottle. This will be followed in February with an aluminum bottle targeted for “the right accounts.”

Tom Cardella, Miller’s executive vice president of sales and distribution, called on distributors to maintain support for Miller Chill. Competitors are sure to come, he said.

“We were the first ones out of the gate with a differentiated product that makes us all a lot of money,” he said. “A-B sees that now and wants a piece of the action.”

Could Modelo Weakness Hurt A-B?

Analyst cuts A-B earnings estimates.

Anheuser-Busch’s investment in Mexican brewer Grupo Modelo, maker of Corona Extra, more than once has helped offset weak performance in A-B’s domestic business.

What happens now that Modelo has reported weak earnings?

Morgan Stanley analyst Bill Pecoriello on Friday cut his third quarter estimate for A-B based on weaker-than-expected performance by Crown Imports, the U.S. marketer of Corona, as well as general weakness by Modelo. He also sees risk for the fourth quarter.

From the report:

"We are reducing our (third-quarter) equity income growth forecast from +27% to +15% based on softness (relative to forecasts) for the Crown import business as well as general weakness in Modelo’s results that were just reported. The reduction in equity income reduces our 3Q EPS to $0.94 from $0.96."

The report adds “we see potential for downward revisions to (fourth quarter) as Modelo reported net income down 10% in 3Q…”

Coverage of Modelo’s earnings can be seen here.

New Look for Miller Lite

Trying to build on brand momentum.

MILWAUKEE -- Miller Lite is getting a new visual identity as Miller Brewing Company tries to build on momentum behind its flagship brand.

The new primary and secondary packaging, as well as new advertising, were unveiled at Miller's regional meetings earlier this week.

The new, stand-apart look for Miller Lite is intended to give the beer a modern, differentiated look as Miller continues its effort to establish Miller Lite as the “ultimate light beer,” Miller Chief Marketing Officer Randy Ransom said at Thursday's meeting in Milwaukee.

Before showing the new packaging, Ransom highlighted some Miller Lite stats: Volume was up 2.1 percent from April through September; on premise volume grew by 3.3 percent in July and August; and Miller Lite’s average price has increased 2.1 percent since April compared with only 1.5 percent for Bud Light.

But Miller knows “we still have a great deal of work ahead and none of us are resting on any laurels,” he said.

The new logo emphasizes the blue background and simplifies and elongates the swirl. The simplified swirl (the “all natural pilsner” icon is dropped) extends beyond the dimensions of the packaging (glass, bottle or can) to provide strong visual branding at retail.

Secondary packaging is getting updated with a cleaner look as well. Two panels of secondary packaging feature a glass pour and two show a single bottle or can.

The packaging shows “a brand that is very serious about separating itself from the competition,” Ransom said. “The look is very disruptive and challenges the status quo of typical beer aesthetics and the perceived ‘sameness’ we are seeing within the beer category.”

The new packaging comes to market in the spring.

Ransom highlighted the current ad campaign for Miller Lite, which includes “More Taste League” work tied to football; new “blue and whites” that sharply drive points about Miller Lite’s attributes ; new humorous “World Beer Cup” spots that drive the “4-Time World Beer Cup Winner” credentials; and new Hispanic work.

He also pointed out how Miller Lite is positioning itself as the alternative to Bud Light with new work from BBH. The “Trucker” spot, which started airing recently, shows a Bud Light truck stuck behind a Miller Lite truck. He also previewed a humorous spot called “Dalmation.”

Commenting on the Miller Lite work, Jim Doney, president of Chicago Beverage Systems said: "That hard right turn we took on Lite six months ago was definitely the way to go."

Miller CEO: We’re “determined to build off momentum”

“Sharper, bolder, faster.”

MILWAUKEE -- Tom Long, President and CEO of Miller Brewing Company, on Thursday told distributors the brewer won’t get distracted in wake of the recently announced joint venture with Coors Brewing Company.

“We are determined to build off the momentum that (Miller and our distributors) established together and create additional momentum that will carry right into the formation of the new company,” Long said at a distributor meeting here. The proposed creation of MillerCoors is subject to regulatory approvals.

Long summed up the brewer’s approach with three words: “sharper, bolder, faster.”

The sharper element means focusing on big opportunities. The biggest is Miller Lite. Said Long: Looking "out at the next five years ... (Miller believes) Miller Lite is going to be one of the big stars.”

Another focus: Miller Chill, which has already surpassed 350,000 barrels, ahead of expectations. While noting sales have slowed, Miller has "another stage on the rocket" to drive sales in winter and spring.

By bolder, Long said “We need to over-commit ourselves to those big ideas that are going to drive the growth.”

And faster means Miller must “be the brewer that anticipates the market" and moves quickly to make things happen.

He also noted Anheuser-Busch’s call to its distributors to take advantage of potential disruption leading up to the creation of MillerCoors.

Despite what the thinking may be in St. Louis, Miller won't be "giving them an inch,” he said.

Carlsberg, Heineken to Buy S&N?

Brewers in talks to make a run at brewer.

Carlsberg and Heineken are discussing forming a consortium to take out the U.K. brewer Scottish & Newcastle plc, the companies confirmed.

From a joint release:

"Carlsberg A/S and Heineken N.V. confirm that they are in discussions regarding the formation of a consortium to make an offer for the entire issued share capital of Scottish & Newcastle plc. An offer, if made, is likely to be in cash. It is currently intended that Carlsberg will ultimately acquire Scottish & Newcastle plc's interest in BBH, France and Greece and that Heineken will ultimately assume control of Scottish & Newcastle's business in the UK and other European markets."

S&N, however, calls the bid “unwelcome,” according to a report in Bloomberg. It said it’s ``confident in its future as an independent group'' and ``strongly urges shareholders to take no action.''

A British analyst quoted by Bloomberg says the deal is driven partly by Carlsberg’s desire to take control of BBH, its Russian venture with S&N.

From the Bloomberg report.

``Carlsberg is desperate to get its hands on BBH and control over the biggest-growth part of its business, which has been half-owned,'' said Bruce Davidson of Blue Oar Securities in London, who has a ``sell'' rating on Scottish & Newcastle. ``The driving force is the need to get into emerging markets.''

The Bloomberg report can be seen here.

The Carlsberg/Heineken release can be seen here.

Heineken Trying to Regain “Specialness”

Changes in advertising looming.

Heineken USA executives told distributors they plan to take steps to ensure Heineken keeps its cachet, according to coverage of the importer's sales meeting last week.

While Heineken has posted good numbers -- sales were up 6.6 percent last year and up 3 percent in the first half of this year, according to Beer Business Daily -- the importer is seeking a marketing fix to burnish the brand’s image.

Andy Glaser, the brand’s marketing chief, told distrbutors at a meeting last week that “balancing Heineken’s mass appeal with its prestige can be difficult, and perhaps Heineken was leaning too far toward mass appeal, and a 'loss of saliency' with consumers has resulted. 'We must refocus on Heineken’s specialness,'"according to a report in Beer Business Daily.

Said Beer Marketer’s Insights:

“…with Heineken brand at "inflection point" in US, co has 'reappraised' and is moving to new campaign, brand mktg chief Andy Glaser announced. HUSA made final 'it's all about the beer' spot for holidays 2007. Moving on to new campaign around presenting brand as 'world class' (beyond 1st class) and Heineken as the 'inspired choice.'"

It appears Heineken USA is trying to address a phenomenon Brew Magazine has identified as the mainstreaming of the two leading imports, Corona Extra and Heineken.

From the December 2006 issue of Brew:

"Indeed, the brands (Corona and Heineken) are so large that they increasingly resemble mainstream beers, which trade on image instead of traditional import hallmarks such as quality or heritage. Signs of this mainstreaming include their expanded presence in convenience stores; their growing TV advertising and sports sponsorships; and large pack sizes. And – bowing to U.S. consumer tastes – both Corona and Heineken are offering light brand extensions.

"The behavior of Corona and Heineken shouldn’t be surprising: Critical mass leads to mainstream behavior. The key question for these two brands is what happens on pricing. As the brands’ volume numbers get bigger, increasing price gets tougher. So they need to strike the optimal balance between volume growth and price increases relative to mainstream beer. That’s how they generate the optimal profit."

New advertising from agency Berlin Cameron United (tapped earlier this year after a lengthy review) is coming early next year, the reports said. Work will highlight the “brand’s prestige and worldliness,” BBD said. The creative also will play off of brand iconography such as the logo, star and bottle.

(It will be interesting to see what direction this work takes. Recall that in the mid-1990s Heineken tried to turn the red star into an icon.)

(Another question: One has to wonder if the future direction of Heineken was an area where former Heineken CEO and the company did “not share exactly the same perspectives on the business,” as Thomas said in the release last month announcing he was leaving the company.)

The Beer Marketer's Insights home page can be seen here.

The Beer Business Daily home page can be seen here.

The December 2006 issue of Brew Magazine can be seen here.

Coverage of management changes at Heineken USA can be seen here.

Miller STRs Up

Miller Lite performance drives growth.

Miller Brewing Company’s organic sales volume increased by 1.4 percent during the six months ended September 30 thanks to a strong showing by Miller Lite.

Miller Lite sales to retailers increased by 2.1 percent during the period, Miller parent SABMiller plc reported on Monday.

Including Sparks and Steel Reserve – acquired last year from McKenzie River Corporation – Miller’s total sales volume was up by 5.9 percent during the period, according to the trading statement.

Meanwhile, Miller’s worthmore portfolio showed strength. Miller Chill sold above expectations, while sales of Peroni Nastro Azzurro and Leinenkugel’s posted strong double-digit growth.

Overall net revenue per barrel increased by 3.9 percent.

Wrote Morgan Stanley analyst Nico Lambrechts: “Miller Lite and Miller Chill are trading strongly and are driving positive mix.”

The SABMiller release can be seen here.

A-B Exec Critiques Bud.tv

"Flawed idea” but a “brilliant concept," Lachky says.

Bob Lachky, a high-profile Anheuser-Busch marketing exec known for overseeing some classic beer ad campaigns, used a speech at a marketing conference to deliver a critique of Bud.Tv

Lachky offered a variety of criticisms of Bud.tv, which has failed to achieve the traffic A-B had hoped, according to coverage of the Association of National Advertisers conference by Advertising Age.

He described it as a “flawed idea” but a “brilliant concept.”

Lachky ticked off three main problems. He said Bud.TV, in which A-B has invested tens of millions, had no end goal defined in the beginning.

The registration mechanism turned off viewers as well.

Another problem, from his point of view: the lack of branded content.

“The other thing that is totally flawed -- and I don’t understand this -- as you can tell I was doing something else at the time ... I don’t understand why you’d have Bud.tv and then not have anything branded on it at all and just have this bizarre content that wasn’t branded,” Lachky said in a video clip posted by Ad Age.

He added that people “got it” when A-B put the “Swear Jar” Bud Light commercial on the site.

The Ad Age story can be seen here.

The video clip can be seen here.

Adami Reflects Part 2

"I believe that a solid foundation was put in place."

Norman Adami faced daunting challenges when he took the reins of Miller Brewing Company in March 2003.

The brewer was in the midst of a 15-year decline. Miller Lite had slipped to the No. 3 light brand. Anheuser-Busch was firing on all cylinders. Consumer appeared to have grown bored with beer.

The conventional wisdom held those facts were unchangeable. How’s that conventional wisdom held up?
A-B has been losing market share since 2004. Miller Lite is once again the No. 2 light beer. And brewers are innovating and, once again, “standing up" for their beers.

The latest issue of Brew Magazine takes a look at how the beer business has changed during the Adami era.

Brew Magazine sat down to discuss those changes with Adami, who was promoted last year to the position of CEO and President of SABMiller Americas. He is retiring at the end of November. (Note: This interview was conducted before SABMiller plc and Molson Coors Brewing Company announced their intention to create the MillerCoors joint venture.)

The first part of the interview ran in last Friday's installment of Brew Blog. This is the second and final part.

Q. What’s the biggest challenge facing brewers now?

A. The single biggest challenge in the 21st century for the big domestic brewers is how to leverage scale on one hand but also how to manage complexity in the marketplace…. that is product complexity, the market complexity … and do so in a successful way.

Every brewer’s challenge is to build a complete and differentiated brand portfolio.

The U.S. beer market is not one single market, It’s made up of several different markets each with their own unique characteristics, their own competitive sets, their own consumer profile, their own dynamics. All this adds a level of complexity to the competition in the marketplace that I think is a challenge for any brewer.

At the end of the day it boils down to the challenge of building a portfolio that can capitalize on the consumer trends and deliver sustainable growth.

Q. Where do you see opportunities for growth in beer?

A: The Light category will continue to grow. You can see that happening. The light segment will be a battleground and it’s a critical battleground.

But light’s not the only source of growth in the industry.

In recent years we’ve seen the drammatic shift to premiumization. So value growth is definitely going to continue to come from that opportunity. That represents both volume and value growth.

The Latinization of America provides a huge source of growth and is an important success factor.

The consumer is relatively promiscuous. Twenty years ago a beer drinker was a beer drinker. A scotch drinker. Today you’re talking about repertoire drinking. Consumers will go from one occasion to the other and drink different brands and now it’s a question of capturing the imagination and capturing the occasion with the appropriate brand and that’s why a complete and differentiated portfolio is important.

I do believe that the category will grow share in the total alcohol market over the next 5 years.

Q. How?

A. We’ve got to continue to differentiate, we’ve got to continue to stand up for our beers we’ve got to innovate across multiple dimensions, we’ve got to make it exciting for the consumer.

We’ve got to capture the imagination of the consumer and avoid the sameness that the category has suffered from, particularly five years ago.

Consumers are looking for variety. They are looking to use beer or whatever alcohol beverage they’re drinking to badge themselves, and to meet their specific needs depending on the occasion.

We need to understand the need state and compete effectively across the broad alcohol category. From Miller’s experience in recent years, as well as other brewers and suppliers, we have seen the consumer respond and the category perform when this level of focus is directed at the brands.

Q. How would you characterize Miller’s progress in reshaping its portfolio and capitalizing on opportunities for growth?

In 2003, we set out a 5-year plan to shape and build a portfolio of brands. The starting point was to rejuvenate our flagship Miller Lite, followed by strengthening a number of our core legacy and heritage brands (given their size and importance) and then developing literally from scratch what we call our worthmore portfolio.

Given our situation and limited resources, it was not possible to boil the ocean all at once. So we had to prioritize and put in place and invest in the building blocks, the marketing skills, capabilities and infrastructure and systems that would sequentially enable us to get there over time. E.g., in 2003 we established a new product development team from scratch knowing that there would be a gestation period before delivering.

The aim each year was to build on what was established the year before, and by and large we have been able to achieve this… and we will continue to shape and build off the base that we havee stablished.

At Miller there is an appreciation for a full and differentiated portfolio.

Our focus and imperatives are:

1. Stoking our flagship Miller Lite
2. Protecting our legacy and heritage brands
3. Very importantly, exploiting and developing the potential of our worthmore brands

At Miller there’s an appreciation for a full and complete portfolio.

We have access to great international brands – none of the other brewers have as much access. We’ve got great brands in our portfolio already -- We’ve got Pilsner Urquell, we’ve got Peroni -- which have great potential into the future.

We’ve got Sparks, which is a great unique differentiated brand.

We have Leinenkugel’s, which is a genuine, authentic craft that plays into the need state for craft brands.

We’ve got a product like Chill, which is the outcome of a new product development capability and process in which we are very selective about how we go to market with new products. We’re not going shotgun.

Then we’ve got access to other SABMiller brands. There’s over 150 brands outside the U.S. that we haven’t brought in.

We believe we are well positioned.

Q. What are the challenges in managing the complexity of a complete and differentiated portfolio?

A. One needs to balance the portfolio in its totality. It’s not a question of looking at each brand or subcategory in isolation.

The consumer landscape, competitor portfolios and distributor realities need to be considered .

And the way one takes those brands to market is not a one-size fits all. And certainly that’s where I think we’ve learnt a lot and continue to learn by getting our feet wet. We’ve made good progress.

The way one nurtures and grows an import brand is not necessarily the same as the way one would do it with a craft beer or a mainstream brand. They all have unique success factors that one needs to take into account. That’s what I mean when I talk about a business model within a business model…..

The portfolio is a critical dimension for any brewer. That’s just not true in the US, it’s true the world over. SABMiller and Miller have been putting a lot of effort into dealing with this level of complexity, this level of consumer shift, this broader landscape.

Q. What would you point to as your proudest accomplishments during your time at Miller?

What’s most satisfying?

First, I think really the whole able challenger approach, which helped created a sense of possibility within the industry at large. It added vitality to the competitiveness in the industry. Today the beer business is a place where a good idea can be successful.

As far as Miller specifically is concerned, our fortunes were inextricably linked to the performance of our flagship brand, Miller Lite. Prior to 2003 it had been in decline for about eight years, and we were able to rejuvenate it and, within a period of just over three years, grow the brand by almost 3 million barrels. That fundamentally changed Miller’s situation and prospects.

Second, there’s the new relationship with the distributor network. Distributors were very leery of Miller. We committed to fulfill our end of the bargain. And we asked them to step up and support us in terms of bringing brands to the marketplace and executing local market plans and, very importantly, working as a unified system. We committed in turn to provide the leadership. The Miller distributor network is enthusiastically engaged and committed to Miller’s success.

In addition, the mindset and capability within the Miller organization is substantially advanced. We’ve pursued an executable strategy that will allow us to grow in the changing environment and have built strong teams at critical levels within the business. We made sustained progress in building real commercial capability, enhancing our competitiveness as a company. Over the years I have also focused on building a strong executive team.

Very importantly, Miller people have an expectation, a self belief and a determination to win. Having experienced success they know they can and will win.

In summary I believe that a solid foundation was put in place that allows Miller to grow on a sustained basis.

Bud Light Slows in Supers

Tough comps ahead.

Bud Light failed to gain share in supermarkets during the four-week period ended September 29, according to beer sales statistics from Nielsen.

That’s the second straight four-week period in which Bud Light was flat, according to Nielsen’s beer market analysis.

Thing is, Bud Light benefited from a very easy comparison vs. a year ago, when it lost 0.7 points of share. And tougher comps lie ahead for Bud Light for the remainder of the year (it faces only one more share down comp for the rest of the year).

In all, A-B lost 0.9 points of volume share and 1.1 points of dollar share during the period, according to Nielsen.

Miller Brewing Company picked up 0.3 points of case share during the period, thanks largely to Miller Chill and a 0.1 gain by Miller Lite. It gained 0.5 points of dollar share.

Coors Brewing Company gained 0.8 points of case share during the period, with Coors Light gaining 0.5 points. Dollar share was up 0.6 points.

Transformational?

Would MillerCoors JV change the game?

Will the proposed joint venture between SABMiller plc and Molson Coors Brewing Company’s U.S. and Puerto Rico operations fundamentally alter the competitive landscape of the American beer business?

At the end of the day that’s the biggest question around the creation of MillerCoors, and the one that runs through analyst and media reports about the joint venture (still subject to regulatory approval).

It’s one that won’t be answered for a while. Analysts do view the JV as a long-term negative for Anheuser-Busch, although SABMiller CEO Graham Mackay, quoted by the Financial Times, noted: "I don't think it's realistic to expect the joint venture to get to Anheuser's domestic margins any time soon ... but we expect to make progress."

And there are challenges. Execution risks face any joint venture and provide potential opportunity for competitors.

And A-B will remain, far and away, the industry leader.

But there are plenty of arguments to be made that MillerCoors will make an impact.

As noted by analysts and others, the JV would have greater resources and scale than the companies have on their own – which helps in everything from buying raw materials to distribution to working with retailers. Morgan Stanley analyst William Pecoriello analyst ran down the benefits of this in a Wednesday morning note:

"Miller Coors would have (1) significant funds to reinvest in the market ($500m in synergies), (2) an opportunity to improve the efficiency of its distributor network (who would in turn have the opportunity to reinvest in the business), (3) a catalyst for greater consolidation at the wholesale level, primarily within the Miller - Coors network, which in turn improves the wholesaler economics making a more able competitor, (4) an opportunity to improve the efficacy and the impact of its marketplace investments, (5) leverage a more significant voice at retail, and (6) better align brands vs consumer needs and competitors."

Addressing Miller employees Wednesday morning via a live feed from London, Mackay said scale matters: “The deal will give the business – our business in the U.S. – the scale and the resources to compete. The market is becoming ever more competitive … and we need that scale and need those resources to enable production efficiencies, supply efficiencies and capital capacity utilization that would not be possible for us in our current layout.”

Also, the JV would have a stronger geographic presence than either brewer has on its own. Coors’ strengths in the West and parts of the Northeast complement Miller’s strength in the central part of the country and the Southeast.

And, critically, the JV’s brand portfolio would be well positioned to capitalize on industry trends, such as the continued growth of light beer.

The portfolio also would be poised to capitalize on the premiumization trend. The Jacob Leinenkugel Brewing Company (owned by Miller) and Coors’ Blue Moon brand have benefited from the growth of craft beers. And the combination should help other worthmore brands, including Peroni and Pilsner Urquell.

“When it comes to brands, the joint venture is going to be marvelously placed,” Miller President and CEO Tom Long (who would be president and chief commercial officer under MillerCoors) said during the employee meeting. “Imagine our craft portfolio, imagine our import portfolio, imagine our light portfolio. For all of you who care about brands – and I hope it’s every single of one of you – this is an amazing opportunity.”

Norman Adami, the outgoing President and CEO of SABMiller Americas who led a turnaround of Miller when he arrived in 2003, had no doubt on the meaning of the deal.

“It’s truly a transformational deal, a game-changing deal that is hugely important to our long-term ability to be stronger and even more competitive,” he said at the meeting.

Indeed, the Wall Street Journal quoted a distributor who saw upside in the JV. From the story:

"I think we'll sell more and our costs will go down, so we should benefit," said Phillip Terry, chief executive of Monarch Beverage Co., a big distributor in Indiana selling 15 million cases of beer annually, including both Miller and Molson Coors products. He said he hopes the merger savings will be "translated into additional market spending, more promotions around the brands."

The Financial Times story can be seen here.

The WSJ story can be seen here.

Miller, Can Supplier Settle Dispute

Ball to pay Miller $70 million.

Ball Corp., the exclusive supplier of Miller Brewing Company’s aluminum cans, announced today it was paying the brewer $70 million to settle a dispute over an alleged breach of contract.

Ball Metal Beverage Container Corp., the Miller supplier, will make a one-time payment of approximately $70 million to Miller in January 2008 to settle various business issues between the parties, Ball said in a release.

Miller and Ball Metal Beverage Container have agreed to make certain adjustments to the provisions of the supply arrangements, according to the release.

Ball Metal Beverage Container will continue to supply all of Miller’s beverage can and end requirements through 2015, the release said.

"We are pleased to have this dispute behind us and that the good faith mediation process resulted in this settlement," R. David Hoover, Ball’s chairman, president and CEO, said in a release. "We value Miller Brewing Company's business and are proud to have been a past recipient of numerous supplier awards from Miller. We look forward to performing to the same high level that merited these awards during the remaining eight-plus years of our contract."

The release can be seen here.

MillerCoors: What They’re Saying

Wall St. reacts favorably to deal. What about A-B?

The creation of the MillerCoors joint venture received favorable reviews on Wall Street.

The combination of Molson Coors Brewing Company and SABMiller plc’s U.S. and Puerto Rico businesses in a joint venture (subject to regulatory approval)is generally seen as a move that will create a company that will operate from a stronger financial position and better compete with Anheuser-Busch.

Wrote UBS analyst Kaumil Gajrawala in a note titled “Able Challengers Get More Able”:

“Benefits of the deal include (in order of importance): 1) increased scale with retailers, distributors, and suppliers; 2) limited overlap between key brands in most markets; 3) cost savings of at least $500m; and 4) better brand ‘portfolio management’ with a focus on high-margin brands.”

Morgan Stanley analyst Bill Pecoriello said:

“We see the implications of a MolsonCoors / SABMiller JV as significant on the US beer (and broader alcohol) industry.(1) marketing dollar effectiveness, (2) improved wholesaler efficiency, and (3) improved voice / effectiveness at retail.”

Bonnie Herzog, an analyst for Citigroup, said:

“The combination of Coors and Miller creates a more rational and stronger No. 2 player in the U.S. market, especially for the pricing environment.”

Benj Steinman, publisher of Beer Marketer’s Insights, observed:

"What's more, combined MillerCoors had 28.5 share in US in 06, compared to AB's 47.9. So theoretically MillerCoors can be a much larger and stronger #2, with lots more resources, a much broader portfolio and a stronger distribution network.”

One big question was what impact the JV would have on A-B.

Harry Schuhmacher, publisher of Beer Business Daily, wrote:

"..the deal also has implications for Anheuser-Bush, which has benefited from its two smaller rivals battling between each other on the sales and marketing levels. They can differentiate Miller Lite and Coors Light based on positioning, price, etc. Now A-B faces a more unified front."

Wrote Morgan Stanley’s Pecoriello:

"As BUD is the largest player in the US beer industry, we see this as incremental negative as we believe that this transaction will create a more able competitor with significant funds for marketplace investment. BUD has already been losing share year to date."

Gajrawala suggested that the deal would be negative in the long term for A-B. But he added that A-B will likely try to take advantage of potential distruptions in the short term.

From his note:

"We believe A-B will be quick to react near term, understanding that they may soon face a substantially more able competitor."

Other observers speculated that the deal might push A-B to pursue a tie-up with InBev. From Herzog’s report:

"We anticipate that this transaction should be more neutral for Anheuser-Busch and could accelerate (its) eventual combination with InBev.”

The BBD home page can be seen here.

The BMI home page can be seen here.

A-B Weighs in on MillerCoors JV

“This joint venture represents an attempt by these companies to better compete against us.”

August Busch IV, the president and CEO of Anheuser-Busch, on Tuesday said in a memo that the MillerCoors joint venture “represents an attempt by these companies to better compete against us.”

The memo, sent to all A-B wholesalers and employees, said: “This new entity does not match our size or portfolio of beers, yet there are undoubtedly synergies that this new company will eventually realize.”

Busch claimed the deal also represents an opportunity for the A-B system. “There will be significant transition confusion from this change, and it’s up to us to capitalize on this disruption now.”

A-B’s drive to bring approved crafts and imports to its distributors leaves it better positioned to handle new competition, Busch said. (Some have called this approach the “funnel strategy.”)

“With our leading core brands, our import alliances, the inclusion of regional craft brewers in our portfolio, as well as the non-alcohol additions to our product offerings, all of which have gained us entry into key accounts and provided leverage for growth, we are an even more formidable opponent today than we were just 12 months ago,” the memo said.

The memo can be seen here.

New Coors CEO Named

Swinburn led Molson Coors’ European and Asian businesses.

Molson Coors Brewing Company has named Peter Swinburn as president and CEO of Coors Brewing Company effective December 1.

From the Molson Coors release:

"Swinburn is currently serving as Chief Executive Officer of Coors Brewers Limited, Molson Coors’ European and Asian business unit. Molson Coors today also named Mark Hunter, currently Chief Commercial Officer of Molson Canada, as CEO of Coors Brewers Limited replacing Swinburn.

“Peter is a seasoned and strong leader, generating significant positive change in our UK business despite an incredibly challenging industry environment,” said Leo Kiely, Chief Executive Officer, Molson Coors. “He has successfully strengthened Coors Brewers through a strong focus on brands, consumer-driven innovations and marketing strategies, cost reduction, and production efficiencies.”

Swinburn succeeds Frits van Paasschen, who left last month to become ceo of the Starwood Hotels.

The Swinburn release can be seen here.

SABMiller and Molson Coors Announce U.S. Joint Venture

SABMiller plc and Molson Coors Brewing Company announced today that they have signed a letter of intent to combine their U.S. and Puerto Rico operations.

The new company, which will be called MillerCoors, will have combined net revenues of approximately $6.6 billion and beer sales of 69 million U.S. barrels (81 million hectoliters).

The transaction is expected to generate approximately $500 million in annual cost savings by the end of the third full year of combined financial operations.

Leading the MillerCoors management team will be Molson Coors Vice Chairman Pete Coors who will serve as chairman. SABMiller CEO Graham McKay will serve as vice chairman. Molson Coors chief executive Leo Kiely will be the CEO of the joint venture, and Tom Long, Miller CEO will serve as president and chief commercial officer.

SABMiller and Molson Coors will have a 50% voting interest in the joint venture and five representatives each on its Board of Directors. SABMiller will have 58% economic interest and Molson Coors will have 42% economic interest.

The closing transaction is expected to be completed by the end of 2007 and subject to clearance from U.S. trading authorities, regulatory clearances and third-party consents as required.

The press release can be seen here.

More Changes at A-B

Sales structure overhaul.

Anheuser-Busch, which made some changes in its upper management last week, is reorganizing its sales department.

According to a report in Beer Business Daily, citing an A-B memo, the brewer is returning to a more decentralized, five-region sales structure. Quoting the memo, BBD says the structure is designed to “better align our sales force with large regional retail chains, and provide greater emphasis on sales execution and strategy.”

BBD says the change “is said to be another step toward the New A-B” that will be unveiled, at least in part, at upcoming distributor meetings. It goes on to say:

"Distribs are awaiting new creative for Bud Light, which some think has been on auto-pilot this year, and a more streamlined organization. “Where is A-B?” has been the most common theme we’ve been hearing from distribs, as Coors and Miller make hay with innovation and new product news. The year 2008 may be the year when an awakened A-B comes back to the marketplace with a vengeance."

The BBD homepage is here.

After Adami

Adami era was a time of change.

The beer business has undergone a great deal of change over the past five years.

In 2002, Anheuser-Busch appeared to be an unstoppable juggernaut. Consumers thought one light beer was the same as the next. And consumers appeared to have grown tired of beer.

Fast forward five years and A-B is losing share, brewers are differentiating, and consumers are returning to beer.

Obviously, many factors drive a $70 billion industry. But a lot of people in the business will tell you that Norman Adami -- who joined Miller Brewing Company as president and CEO in March 2003 -- was a catalyst for change. And he did it by energizing Miller with an “able challenger” mentality.

The latest issue of Brew Magazine takes a look at the industry status quo before Adami joined Miller and the current reality.

From the issue:

Then: Slide toward one-brewer dominance
Now: The smaller guys take share

Back in 2002, Anheuser-Busch was on a roll and appeared on track to hit its goal of 60 percent share.

“A-B was growing faster than the industry,” Adami says. “They were powering ahead, achieving market share of 50 percent and commanding over 70 percent of the profit pool and growing ever stronger. Everything was going their way and this industry was moving into a state where one brewer would be dominant.”

Then two things happened. Miller was acquired by South African Breweries, a global beer company, which put a “beer guy” in charge of Miller. Adami transformed Miller from a company that followed A-B to one that challenged A-B. That bold move revitalized Miller Lite – and disrupted Bud Light’s growth algorithm.

The other factor was the explosive growth of crafts and imports – a part of the business where A-B and its restricted distributor network weren’t well represented.

A-B fought back against Miller by slashing prices. And it made a series of acquisitions or licensing deals to bring more crafts and imports into its fold, notably InBev’s stable of European bands, including Stella Artois.

But the picture has changed. A-B saw its share dip by 0.1 points in the second quarter. During a call with analysts, A-B’s chief financial officer Randy Baker said: “The industry has grown much faster than we anticipated … If the extra volume growth comes from imports and craft brands, it will be difficult for us to increase market share, just because of the math.”

Then: Bigness rules
Now: Differentiation rules

For nearly three decades, the leading American brewers focused all their attention on making big brands, which they advertised through big campaigns and sold in big retail displays.

This model worked well in the 1970s, the 1980s and the 1990s. Then, at the turn of a new century, it stopped working so well. Consumers started picking up wine and spirits instead of beer. And beer calls increasingly were for imports and crafts.

The big American brewers – whose dabbling in the high-end had been inconsistent – now are in the midst of transforming their portfolios to reflect this new reality.

A-B – which, as the industry leader, has the most to lose by these marketplace changes – has responded with a wide range of actions. It’s launched a flurry of new products in a wide range of niches; inked distribution and marketing deals with established craft and import brands; and has diversified into beverages ranging from spirits to energy drinks to water.

Adami got Miller started on portfolio transformation by increasing focus on two high-end imports from parent SABMiller plc, Peroni Nastro Azzurro and Pilsner Urquell, deepening Miller’s presence in craft by launching Leinenkugel’s Sunset Wheat, and acquiring the fast-growing Sparks brand from McKenzie River Brewing Corporation.

Miller refined this approach with the Stoke, Protect, Exploit strategy. The prongs are driving growth of Miller Lite (“stoke”), prudently managing core brands such as Miller High Life and Miller Genuine Draft (“protect”) and tapping emerging high-growth and high-margin opportunities, including imports and crafts (“exploit”).

Coors Brewing Company has indicated its desire to tap into higher-end beers by creating a new brand-incubation unit, the AC Golden Brewery Co.

The entire issue can be seen here.

If you would like a subscription to Brew Magazine, please drop an email with your name and mailing address here.

Adami Reflects

“We knew we had to take bold action.”

Norman Adami faced daunting challenges when he took the reins of Miller Brewing Company in March 2003.

The brewer was in the midst of a 15-year decline. Miller Lite had slipped to the No. 3 light brand. Anheuser-Busch was firing on all cylinders. Consumer appeared to have grown bored with beer.

The conventional wisdom held those facts were unchangeable. How’s that conventional wisdom held up?

A-B has been losing market share since 2004. Miller Lite is once again the No. 2 light beer. And brewers are innovating and, once again, “standing up" for their beers.

The latest issue of Brew Magazine takes a look at how the beer business has changed during the Adami era.

Brew Magazine sat down to discuss those changes with Adami, who was promoted last year to the position of CEO and President of SABMiller Americas. He is retiring at the end of November.

Here’s the first half of that discussion. The second installment will appear next Friday.

Q. What was your biggest challenge when you arrived at Miller in March 2003?

A. Creating a sense of possibility. Miller had been in decline for 15 years. All of the brands in the portfolio were in negative momentum. Really the single biggest challenge was to break out of the negative inertia that Miller found itself in.

This was against a backdrop of industry pundits and industry commentators maintaining that Miller was destined to become the next Schlitz, Pabst, Blatz. This was against a background where distributors had become quite disillusioned with Miller. Miller hadn’t followed up on its previous promises. This was against a backdrop where employees had seemingly accepted the objective was to prudently manage the decline and lacked the confidence to believe that they could win.

The big questions at Miller at the time were, Can Miller deliver effective marketing and turn around its flagship brand? Once a brand is in decline, can you ever revive it? Can Miller also deliver a constructive and robust relationship with its distributors, particularly given its historical track record? Can Miller mobilize and motivate and reinvigorate the organization, given the situation and circumstances in the company and lack of confidence?

Q. How would you describe the competitive environment when you arrived at Miller?

A. The industry was dominated by the industry leader. Anheuser-Busch was growing faster than the industry. They were powering ahead, achieving market share of 50 percent and commanding over 70 percent of the profit pool and growing ever stronger. A-B was really in this virtuous cycle of reinvestment in its brands and a virtuous cycle of success. It had an exclusive network and was making it more exclusive.

Everything was going their way and this industry was moving into a state where one brewer would be dominant.

Miller was stuck in a state of serious decline.

Many of the other players were going nowhere.

The imports and crafts were doing OK, but they were relatively small.

Wine and spirits started becoming aggressive largely because the beer category had stopped differentiating itself.

Beer was moving toward an approach of sameness. A light beer was a light beer. The beer industry lacked differentiation. Everyone was trying to follow the lifestyle approach of Bud Light.

Q. How would you characterize the competitive environment today?

A. If you look at it today, it’s still tough, but you see increased competitiveness. Brewers are standing up for their beers. That in turn has encouraged consumer choice, and consumer choice has encouraged brewers to differentiate. Competition has been reignited and the marketing folks have shifted to the beer itself, focusing on the points of difference of what makes their beers unique and special. We see that amongst many beers.

Q. How would you characterize Miller’s competitive position now compared to when you arrived?

Three key issues stand out.

First, as far as Miller’s brands are concerned, Miller Lite was the third biggest light beer behind Coors Light. Now it’s the second biggest light brand. It’s been able to revive itself and rejuvenate itself. It was the fastest-growing brand in the market for two years. In a three-and-a-half-year period, it grew almost three million barrels. No one believed that once a brand was in decline it could revive itself. Miller defied the odds and created a sense of possibility.

We’ve also shaped and built a more complete and balanced portfolio of brands that will allow Miller to grow in the changing consumer environment.

Second, the Miller system is now working as a unified system. Five years ago that wasn’t the case. I think the resourcefulness, the entrepreneurial spirit of the Miller and independent houses, people started to adopt the able challenger in the sense that you turn your competitors’ strength into weaknesses. That also created a sense of possibility. Distributors, ahead of the game, stepped up. They were hungry to win, they were competitive, they wanted to enter the fray. The minute Miller signaled it’s intentions they stepped up.

The Miller distributor network is now engaged and committed to Miller’s success.

Third, five years ago the Miller people didn’t expect to win. They had lost confidence. They’ve now tasted what it’s like to win. The Miller people do expect to win. They have a self belief and a sense of possibility. I think that would extend to other players in the industry as well.

We now not only have the will to win but have developed an executable strategy that will allow us to grow in the changing consumer environment. And we have built the capability and skills across the business to allow us to execute and win.

We have a much more robust business, a solid foundation that has proven it can with stand environment uncertainties and competitor attacks. That foundation has provided a solid platform for Miller into the future.

Q. You energized Miller with the able challenger spirit. Why was that necessary?

A. Miller’s mandate changed the minute SAB acquired miller. SAB would not be satisfied with prudently managing a decline. Our mandate was to grow notwithstanding the challenges and adversities.

Quite frankly A-B was so big as a 50 share player that there was no way that we were going to grow without bumping into them. At the same time we also knew that it would be foolhardy to try to emulate A-B. Historically Miller had tried to emulate A-B and had adopted a follower strategy. That was no way to compete and win. We didn’t have the resources, we didn’t have the economies of scale of the dominant industry leader.

If you want to fight a crocodile you don’t fight it in the water.

What we needed to ensure is that we were “able” in the way that we went to market. And that we had the competences and capabilities to compete effectively in the market.

As a company with only 18% share of the market there was substantial opportunity for us to grow.

Q. What were the elements of the able challenger approach?

A. While many people think able challenger was just about Miller Lite, it was more about the organization at large. Miller Lite was the manifestation of that.

The able challenger is not just about challenging dominance. A large part of the able challenger is also about challenging history. It’s about challenging conventional wisdom (eg. when a brand’s in decline it can never be revived.) It’s also about challenging ourselves.

It was a question of making sure that people understood that what we were doing was just and that we were keeping the industry from becoming a place where one brewer would be dominant.

We were going to turn A-B’s strengths into weaknesses and we needed to be thoughtful to that. We needed to be focused and overcommitted. We needed speed and we needed to be agile in terms of the way we went about it.

Q. Was there some nervousness about challenging Anheuser-Busch?

A. There were a number of people who were nervous about this. No doubt Miller had its fingers burnt many times before by A-B. There was a lot of trepidation in certain quarters.

If we could have found a way to grow without bumping into A-B we would have. But we also knew that if we were going to take them on head-to-head, resource-to-resource, we weren’t going to win. Miller had tried that in the past and failed.

So it was a question of being able about what we did and having competence in the areas that we were competing and understanding where there were differences and what we were trying to do and not do.

We knew we had to take bold action. If you wanted to disrupt the inertia, you weren’t going to be able to do just the basics. We knew we had to take bold actions.

The latest issue can be seen here.

If you'd like a free subscription to Brew Magazine, drop an email with your name and mailing address here.

Corona Volume Hurting On Higher Prices

Recovery on the horizon?

Constellation Brands said on Thursday that volume was likely down by low single digits in the latest quarter for its Crown Imports unit, which handles Corona Extra and other Modelo Group brands.

The decline follows significant price increases.

Beer Business Daily and Beer Marketer’s Insights both weighed in on the news.

From BBD, which calls Crown an “example in patience”:

What strikes me about Rob's comments are that Constellation doesn’t seem too concerned over Corona’s volume softness after the price increase. Why? Says Rob: “There is a pattern to this in the beer business, as to how the volume leans after you take a price increase, and how it gradually comes back over time as retailers and consumers adjust to it.”

From Beer Marketer’s Insights:

Modelo brands, "continue to experience" some "short-term retraction" in IRI data because of price increases, acknowledged Constellation ceo Robert Sands in conference call. Though hesitant to provide much detail on beer volumes, he said with prices up "around mid-single digits," volume "was probably down low-single digits," for qtr. Price increase was the "right long-term decision" for Modelo brands, he added.

The Constellation release can be seen here.

The BBD home page is here.

The BMI home page is here.

Will High Hop Prices Squeeze Crafts?

Will craft brewers raise prices?

The Wall Street Journal on Friday took a look at the implications of higher-priced hops and barley for craft beers.

From the story:

"Consumers could pay 50 cents to $1 per six pack more in the coming months for many small-batch "craft beers," as brewers pass on rising hops and barley costs from an unpalatable brew of poor harvests, the weak dollar and farmers' shift to more profitable crops. Other makers of craft beers, the fastest-growing segment of the U.S. brewing industry, say they may eat the higher ingredient costs, which will pare their profits."

The article quoted Boston Beer Company Chairman Jim Koch as saying that Boston might raise prices by 3 percent or more next year. Koch called the hop and barley increases “the largest we’ve ever faced.”

The article can be seen here.

A-B Creating Organic Vodka?

Purus is “100% Organic Wheat Vodka.”

Anheuser-Busch appears poised to introduce an organic vodka.

The Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau on October 2 issued a certificate for Purus, a “100% organic wheat vodka” that’s distilled in Italy and bottled in Holland.

The label says it’s imported by “Purus, St. Louis, Mo.” The applicant was Long Tail Libations Inc., a new product development arm of Anheuser-Busch.

Assuming A-B goes to market with Purus, it will mark the latest effort in A-B’s effort to try to make inroads in the spirits business. Its first move came two years ago when it rolled out the liqueurs Jekyll & Hyde. Since then it has inked distribution deals for vodka and soju brands, as well as creating new products.

A copy of the label application can be seen here.

A label image can be seen here.

Miller CEO Talks Chill

“Focus, boldness and speed” critical for beer industry, Miller CEO says.

LAS VEGAS --Tom Long, the President and CEO of Miller Brewing Company, on Tuesday gave distributors at the National Beer Wholesalers Association convention a peek at lessons the brewer’s learned from the launch of Miller Chill.

“We know Chill is in its very early days, and we aren’t celebrating something that hasn’t happened yet,” he said, discussing Miller Chill, which is on track to exceed its target of 400,000 barrels this year. But he added: “It is moving in uncharted territory… and so we are watching it closely, and making adjustments as we go.”

(Indeed, speaking later, UBS analyst Kaumil Gajrawala said “Miller Chill is a good example of where the industry’s going.”)

Moreover, Miller is moving to apply lessons learned from the Miller Chill launch across the business.

“We have been explicitly challenging ourselves to become sharper in our focus, bolder in actions, and faster in our execution than we’ve ever been,” he said. “Focus, boldness and speed are what made the American beer industry what it is today… and those qualities are going to be more important than ever in the years to come.”

Long identified six key lessons that have emerged from the Miller Chill launch.

Lesson #1. Big, simple ideas rule. Miller Chill was launched to capitalize on the trends of premiumization, the growth of light beer and Latinization. And it had a simple clear positioning: “A new twist on refreshment.”

Lesson #2. Old strengthens new, and new strengthens old. Putting the Miller name on Chill communicated quality and light beer credentials to consumers. And Chill has had a halo effect on Miller Lite sales, Long said.

Lesson #3. New turf can and must be staked. Miller Chill’s refreshment proposition enables it to “play offense” against wine and spirits by attracting new consumers – including women – to beer. Therefore, Miller doesn’t plan to “dial down” attributes that make it appeal to women or an attractive summer time drink.

Instead, Miller plans to stake out that turf and “then build from those established strengths,” he said. “Our strategy is not to minimize those distinctive, winning characteristics because we want it to look and perform exactly like every beer out there.”

He added: “By the way, my understanding is that in the early days, there used to be the same seasonality concern about Corona. But you don’t hear much about that any more… because they’ve done a great job over the years of making sure their positioning translates across seasons, occasions and consumer groups.”

Lesson #4. The support must be as unique as the brand. While Miller Chill, out for seven months, has relatively low awareness, it has high rates of trial and adoption by people who are aware of it. So Miller is focusing on driving awareness.

“If we can optimally manage our marketing support of Chill, then we really are just scratching the surface of what’s possible with the brand,” he said.

Lesson #5. Speed energizes. Long recounted the nervousness he and other Miller executives felt upon making the high-stakes decision to accelerate the national roll out of Miller Chill. But once the decision was made, leadership felt energized – and that sentiment spread throughout the system, he said.

Said Long: “Speed is critical for us at Miller, and I believe that speed will become increasingly important to our entire industry… as the competitive game with wine and spirits will increasingly go to the swift.”

Lesson #6. The learning can never stop. While Miller Chill’s launch has been successful, Miller is keenly aware that it’s still early in the game. “We have huge conviction that it has great potential to be a game-changer,” said Long, “but we also know the brand will encounter many crossroads as it develops… and that we will need to be wise stewards as we make those decisions.”

Reacting to the speech, James Moffett of Crescent Crown Distributing, said “Innovation is key to the future success of the suppliers.”

Miller CEO: 3 Tier Best for Beer Business

Independent distributors “essential to the future of the American beer industry,” Long says.

The three-tier system is the best business model for the beer industry, Miller Brewing Company President and CEO Tom Long said during a speech at the National Beer Wholesalers Association.

The reason: distributors have unique local market insights and relationships.

From the speech:

“… I believe, when you look at it against any reasonable alternative, it would be very difficult to match the three-tier system’s ability to deliver market development that is truly multi-local… the entrepreneurial instincts of local owners and operators… and the heritage and passion of the families that built this business into what it is today.

“That multi-local nature of the middle tier allows local relationships between local customers and a penetration up and down the street, that in my view, is the backbone of the business… on-premise… one drink at a time ... with consistent long-term focus building brand worth in the local market.”

Because of this, “independent beer distributors are essential to the future of the American beer industry,” Long said.

Also essential to the beer industry is unity among wholesalers and brewers on the key public policy issues.

From the speech:

“I have been in the beer industry long enough to know that the brewers and the NBWA don’t always see every issue exactly the same. But I’ve also been around long enough to know that when we do have differences that we are pretty good at working things out. …

“And my great hope is that every time there is an issue to be resolved -- be it an economic issue between us and an individual distributor… or be it an industry-wide issue that affects us all -- that you will find the Miller Brewing Company to be good, helpful partners… and that our conversations are guided by strong mutual respect and a shared appreciation for the fact that neither one of us has much of chance of succeeding without the other.”

No Bud-Budvar Deal?

Czech PM dismisses speculation.

The Czech Republic’s prime minister threw cold water on speculation that Anheuser-Busch will acquire its longstanding trademark foe, Budejovicky Budvar.

Prime Minister Mirek Topolanek said that in an address to the country’s Chamber of Deputies.

From the Prague Daily Monitor:

He also dismissed speculations that his adviser Marek Dalik is in talks with US brewing giant Anheuser-Busch on the privatisation. Budvar and Anheuser-Busch lead a number of trademark lawsuits.

Topolanek also said a tender will be issued for the transformation of state-owned Budvar in October. The transformation of the brewer into “a joint stock company would take about 12-18 months,” the story said.

Rumors have been rife that the government has been in talks with A-B about selling Budvar. The two brewers have been locked in trademark disputes around the world over the use of the name “Budweiser.”

By buying Budvar, A-B could put an end to expensive litigation.

A-B imports the Budvar brand in the U.S. under the name Czechvar.

The Prague Daily Monitor story can be seen here.

Previous Brew Blog coverage on the rumored deal can be seen here.