MillerCoors Heats Up Beer Market

CHICAGO The deal unveiled last week that aligns SABMiller and Molson Coors, the No. 2 and 3 brewers in the U.S., respectively, will not be finalized without major turf battles and integration hurdles.

Driving the effort will be the unified company’s attempt to take market share from Anheuser-Busch while cutting costs among the flagship brands. MillerCoors, set to be finalized by mid-2008, will have a combined 29 percent U.S. market share, with Anheuser-Busch at 49 percent.

“Both companies have battled Anheuser-Busch for a long time and that can be a unifying factor,” said Mark Miller, managing director at merger integration specialist Alvarez & Marsal Business Consulting, based in New York and Atlanta.

SABMiller and Molson Coors did not return calls for comment, but analysts said MillerCoors will make more ad dollars available for its brands by reaping production and organizational efficiencies expected to total $500 million in savings by the third year. The company will most likely spend the money on engaging consumers by boosting sales support and local marketing initiatives. “I don’t see national advertising support increasing very much,” said Roman Shuster, an analyst at Euromonitor, Chicago. “I see more money being spent on local promotions and location-specific marketing efforts.”

Even combined, SABMiller’s $240 million ad spend in 2006 and Molson Coors’ $185 million for the same year would fall short of A-B’s $512 million ad budget, per TNS Media Intelligence. Molson Coors’ lead agency is DraftFCB, Chicago. SABMiller agencies include Young & Rubicam, Chicago, and Saatchi & Saatchi and Bartle Bogle Hegarty, both New York.

The appointment of Pete Coors as chairman of the joint venture suggests that MillerCoors will adopt Coors’ model for its sales force. The brewer decentralized its sales ranks in 2005 and directed reps to make more visits to distributors and retail chain customers. Also, more responsibility was shifted to regional general managers who were tasked with making decisions based on profitability rather than on building volume. Miller tried a similar strategy during Q1 in its Texas and Southwest markets.

Jobs will be cut, but creating a super sales force could answer A-B, which added 400 sales reps in 2007 and is pursuing its own local marketing push. “The more effort that is put in bar-to-bar selling, the better off you’ll be from a sales and market share perspective,” said Mark Eden, svp, The Marketing Store, Toronto.

The duopoly of MillerCoors and A-B also means their allied craft beers might be better suited than the independents to enter long-term supply contracts and weather the rising cost of ingredients. The allied brewers could have a cost advantage and preempt any attention that wholesalers, 60 percent of which carry Miller and Coors portfolios, would give to independents.