MillerCoors, the North American joint venture between SABMiller and Molson Coors, seemed to have timing on its side when it launched last summer. The partnership became official only weeks before news that its largest competitor, Anheuser-Busch, would soon become part of the even larger InBev. The news could have been troubling to the new partnership, but becoming a more powerful competitor is exactly what brought the two brewers together and what it spent months preparing for ahead of the merger.

 

While MillerCoors has only now hit its half-year mark, the idea of merging the second- and third- largest U.S. brewers had been discussed for years. In fact, 60 percent of the company’s distributors already carried both Miller and Coors products. But it was late 2007 when the stars finally aligned and both companies deemed the time was right for a merger.

 

“The story is really that we were two companies competing against a dominant industry player who had 70 percent of the market in terms of profits, and everybody else basically was fighting for the scraps,” says Tom Long, former Miller Brewing Co. chief executive officer and now MillerCoors president and chief commercial officer. “We thought — and our distributors and lots of retailers suggested it to us — that if we got together, we could be an alternative and bring more choice to the market.”

 

The companies felt they could trim costs — to the tune of $500 million in the first three years — and streamline marketing and decision-making for the brands that more than half of its wholesalers already carried on the same trucks. The combined portfolio of brands now covers all the major beer categories, including its flagship Miller Lite and Coors Light products, craft brands such as Blue Moon and Leinenkugel beers, imports such as Molson and Peroni Nastro Azzurro, and economy brands like Keystone Light.

 

Based on MillerCoors’ third-quarter 2008 results, its first as a combined company, Long says the joint venture has met its initial goals and has put a strong business strategy in place. The group’s net sales were up 2.1 percent during the first period of combined operations. Its sales to retailers grew a little less than 1 percent, with Blue Moon, Peroni, Coors Banquet, Sparks and Keystone Light garnering double-digit increases. Coors Light grew 6.8 percent during the quarter, while Miller Lite fell 3.6 percent. The company’s newest light product, 64-calorie MGD 64, went national during the quarter and increased 77 percent against MGD Light, the brand it replaced in the marketplace.

 

In addition to a wider selection of products, the company says it is on target to meet its first year cost savings targets of $50 million.

 

“In our first quarter, we grew and exceeded our synergies,” Long says. “I think it’s pretty fair to say that we’re at the end of the beginning ... So it’s an exciting time and a crossroads.”

 

He gives much of the credit for the seamless-looking transition to former Coors Brewing Co. Chief Executive Officer and new MillerCoors Chief Executive Leo Kiely. “It really started with Leo Kiely’s leadership on what matters — on Day 1, what must we be able to do with excellence? No. 1, don’t drop a case — because the early proof points set the tone for how the joint venture is going to be received. Be able to close the books. Serve our retailers and distributors with distinction. And lastly, begin three to four months beforehand to talk about the kind of culture, the company that we wanted to be, with the senior leadership team.”

 

He describes the new company as a combination of Miller Brewing’s underdog spirit and Coors’ entrepreneurial attitude and family-based culture.

 

“I think it’s really complementary. Coors has got a great entrepreneurial culture. They’ve got a wonderful family history,” he says. “So an entrepreneurial culture of Coors, and that underdog mentality of Miller, that fighting spirit of Miller as a No. 2, have been really nice.”

 

 

With the initial transition behind it, MillerCoors now has its sights set on a new home in Chicago, as well as fine-tuning its brand lineup. The company plans to open new headquarters offices in the Windy City this summer, and chose the location for its accessibility and proximity between Miller’s hometown of Milwaukee, Wis., and Coors’ home in Golden, Colo.

 

Plus, Long says Chicago is a “Great beer town. People know beer, like beer, drink beer. We wanted to be in a big beer town. No. 2, it’s got great talent, especially in marketing and sales, which will be the preponderance of people in this office.”

 

The new office will house 300 to 400 people. Long is quick to emphasize, however, that the Miller and Coors brands will maintain their hometown roots, and that both the Milwaukee and Golden facilities will remain in operation. In fact, both facilities are set to receive investments to accommodate additional volume.

 

“Chicago will be our headquarters, but we’ll always have a big presence in Golden and Milwaukee,” Long says. “Those are our hometowns, so we expect to have a big presence there.”

 

Milwaukee will be headquarters for the company’s Eastern division and the Great Lakes sales region, and will be led by Eastern Division President Tom Cardella. Golden will be home to the Western division and the Mountain sales region, and will be led by Western Division President Ed McBrien.

 

Along with the change of company headquarters, Long says the next phase of the merger also will include “getting even more clear on our collective brand portfolio and taking all our synergies and innovation to the next stage.”

 

Top priority for the brand strategy is the company’s lineup of light brands, followed closely by its now-extensive above-premium portfolio of craft and import brands. For Coors Light, which has been one of the industry’s top sellers, despite the downturn in the economy, that will mean the company will keep doing what has proved successful in the past. It plans to expand the vented can rollout that began in 2008, as well as the brand’s Rocky Mountain refreshment imagery.

 

Miller Lite, which has floundered of late, will focus on flavor. “What you’re going to be seeing is lots of innovation on Miller Lite,” Long says. “All that innovation is going to be about taste — its winning taste vs. other light beers.”

 

Add to that last year’s national rollout of MGD 64, and the company has three players in the competitive light category. When asked if it can maintain all three brands and avoid cannibalization, Long says, “The great thing about these brands is the overlap is not that strong between the drinker base. If you go into the retailer data … you’ll find that the baskets that have Miller Lite and Coors Light overlap by about 10 percent. That’s really encouraging.”

 

In the above-premium sector, the company has combined its craft and import brands under a specialty sales force. The group will handle Blue Moon, Leinenkugel products, Peroni, Pilsner Urquell, Killian’s and Grolsch, when the transfer of that brand from Anheuser-Busch is complete.

 

“That portfolio is pretty powerful in and of itself,” Long says. “In fact, many companies would survive, and thrive, entirely on those brands.”

 

“It will be a big part of our second stage, building out the top end of our go-to-market strategy,” he adds. “Peroni has been going like a house on fire; Blue Moon as well. Grolsch was just acquired from A-B and I think we’re about 70 percent there — we’ve still got some more of that volume to get through the A-B system. Pilsner Urquell is a fabulous niche brand. As we try to bring that price point up to the right place, it’s finding its own way. Leinenkugel is doing extremely well. So the portfolio, all in all, is very, very strong.”

 

The more painful, but necessary part of the merger has been the selection of preferred distributors in the 40 percent of markets where the companies did not already share distribution.

 

“The process of distributor consolidation is very difficult, but market forces require it, and as we come together, we have some really pragmatic decisions to make,” Long says. “We have to decide who gets new brands, and that’s difficult with MillerCoors being one company and two distributors competing against each other. So we have a compelling reason to want to consolidate. Not the least of which is the tremendous efficiencies, and the ability as we put one brand portfolio together, for them to go to market with that same portfolio.”

 

In the end, he says, it will be easier for both distributors and retailers to do business with the company.

 

“The distributors, especially in our MillerCoors system, have lots and lots of brands from lots of brewers,” he says.

 

“The ability for us to come together and simplify our systems and put them together so they have a MillerCoors system that’s easier to do business with is really compelling.

 

“From the retailer point of view, by combining these companies, we’ve been able to take our chain sales force, and put more feet on the street,” he adds. “What we’re trying to do with retailers together that we really couldn’t do before because we weren’t big enough, is drive the size and value of the beer category, and hopefully earn more than our fair share of the growth by doing that.”

 

The company also is in the process of moving production throughout its newly expanded brewery network. The joint venture now has eight breweries throughout the United States and is moving production of some of its brands to be closer to distributors. The process began during the third quarter of 2008 and the company expects it to take about 18 months.

 

“It’s all been about proximity to our distributors, getting beer to our distributors and trucking it with the fewest miles,” Long says. “We are doing that by selectively, very carefully, making sure that our breweries have all the quality and taste specifications required to make any of the other beers. So it’s a very rigorous process that starts with technical capabilities, then expert taste panels, then consumer taste panels so that we get perfect quality before we move any production between the breweries.”

 

 

While the timing of the MillerCoors merger proved beneficial from a competitive standpoint, the tenuous state of the U.S. economy has the joint venture company, along with every consumer goods company, preparing for uncertainty this year. While alcohol beverages tend to fare better in a downturn than other products, Long says that is far from guaranteed this time around.

 

“The consumer change in behavior is unprecedented,” he says. “Consumer confidence numbers in our economy and in their future have dropped to levels that many of us haven’t seen in our adult lifetimes. Historically those drops in consumer confidence didn’t necessarily presage a change in spending. This one has. Even as gasoline prices come down, the big question is: will consumers have the confidence to spend that pocket money that they were spending on gas? The evidence is they might not be.”

 

In addition, he acknowledges that his company’s merger and the Anheuser-Busch InBev acquisition have significantly changed the dynamic in the U.S. beer industry. He feels those changes are to the benefit of MillerCoors.

 

“We as a challenger company have an opportunity to execute our strategy with distinction, take advantage of these changes. That’s a big part of our message,” he says.

 

“Let me just say there’s no place I’d rather be in the world of business right now than in beer, and it doesn’t matter which brewery or distributor you’re with,” he adds. “The beverage industry performs well in recessions, relative to other industries. Inside the beverage industry, alcoholic beverages do better. Inside alcoholic beverages, beer does better. We like beer. We like where we are in beer.”