Beer firms unite, seek a potent mix
When Dunbar Gibson reaches for a cold one, it’s going to be a microbrew or an import.
Forget about a Miller Lite or a Bud, says the 35-year-old business analyst from Long Beach, unless “it is really hot, and I need something like water.” And often he’s just as happy with a glass of wine.
Americans drank 6 billion gallons of beer last year, but to the chagrin of U.S. brewers, they consumed 2% less domestic beer than five years ago and 24% more imported brews. They are also drinking more wine and spirits.
On Tuesday, the nation’s second- and third-largest brewers announced plans to team up in the United States, taking on giant Anheuser-Busch Cos. and intensifying their efforts to win back American consumers.
A proposed deal between Miller Brewing Co.'s parent company and Molson Coors Brewing Co. would create a U.S. joint venture claiming about 30% of the U.S. beer market.
The new company “is about creating a stronger, more competitive U.S. brewer,” said Peter Coors, vice chairman of Denver-based Molson Coors and the person tapped to be chairman of the new business, MillerCoors.
The two brewers know they have a major challenge ahead.
Although domestic beer still outsells wine and distilled spirits by a large margin, it is steadily losing ground to wine, distilled spirits and specialty drafts, even among older drinkers, who have been among the most loyal customers.
“I’ll rarely drink a Miller or a Coors,” said Jeff Drobman, a 59-year-old software engineer from Agoura. “I like to drink good-tasting beers, local microbrews, a hefeweizen or something made with a special ingredient.”
Drobman said most of the large brewery offerings were so bland that they were like drinking water.
“We’re seeing the declining per capita of beer consumption, increasing cost pressures, consolidation of distributors and retailers, and continued growth in the wine and spirits business” as well as stiff competition from craft and import beer brands, said Leo Kiely, chief executive of Molson Coors.
The proposed venture would sell more than 2.1 billion gallons of beer annually and have revenue of about $6.6 billion. Each company would have an equal voting interest in the operations, but SABMiller, the British parent of Miller, would have a 58% financial interest.
Whether federal regulators would approve such a corporate brew is a significant question.
“The antitrust issues get pretty big when the No. 2 and No. 3 players in a market join up,” said Tom Pirko, president of Bevmark, a Buellton, Calif., beverage consulting firm.
Although it is too soon to tell, the transaction might raise U.S. beer prices, experts said. It would leave just two companies -- Anheuser-Busch and MillerCoors -- in control of 80% of the domestic beer market, paving the way for the type of tacit price increases that alarm regulators, he said.
“Consumers could suffer if you take away that extra element of competition,” Pirko said.
Smaller brewers also would be at risk, said Susan Johnson, outside counsel for Pyramid Breweries Inc., a Seattle craft brewer known for its unfiltered wheat beers such as Hefe Weizen.
Distributors, which by post-Prohibition alcoholic beverage regulatory laws control much of the domestic beer market, “will have so much money tied up in marketing the brands of just two companies that it will be hard for the small folks to get their products distributed in a wide variety of outlets,” Johnson said.
In an age when even fast food comes in an international panoply of flavors, consumers are increasingly viewing mass-produced domestic beer as a homogenized commodity.
“There is no difference between the Miller Lite or Coors Light or Bud Light. They are essentially the same product,” Pirko said.
Peter Coors said the new venture must address these trends.
“Consumers are broadening their tastes and are increasingly looking for greater choice and differentiation. Wine and spirits companies are encroaching on traditional beer occasions, and global beer importers and craft brewers are both taking a larger share of volume and profit growth,” he said.
Shares of Molson Coors rose $5.32, or 10.5%, to $56.15. SABMiller rose 1.43% in London.
The combination would enable the companies to eventually shave about $500 million in annual expenses and provide room for the venture to support its flagship brands “while taking full advantage of consumers’ demand for imported and craft brands and innovative products,” Kiely said.
Both companies have made previous moves in an attempt to keep pace with shifting beer preferences.
Miller has turned Steel Reserve, a potent malt liquor, into its seventh-largest brand, catering to consumer demand for higher alcohol brews, said Frank Walters, an analyst at Impact, a beverage industry trade journal.
Molson Coors has logged strong growth for its craftlike beer Blue Moon Belgian Ale. It is the second-best seller at Yard House, an Irvine-based chain of 17 restaurants that is known for its extensive beer collection.
Still, about 60% of the millions of pints sold by Yard House restaurants annually are imports such as Newcastle Brown Ale and Heineken or craft beers such as Pyramid or Lost Coast Brewery’s Great White, said Kip Snider, the eatery’s beverage director.
“We have people who make light beer their staple and don’t step out,” Snider said. But “many of our guests want the new beers. They want brews that are more unique, more flavorful and more satisfying.”
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Chief executive: Graham
History: South African
Breweries (SAB) acquired Miller Brewing in 2002.
Annual sales: $18.6 billion
2006 profit: $2.8 billion
Beer sales: 184 million barrels a year
Main brands: Miller Lite, Miller Genuine Draft, Icehouse, Miller High Life, Milwaukee’s Best, Peroni Nastro Azzurro, Pilsner Urquell, Leinenkugel’s, Henry Weinhard’s, Mickey’s
Source: Times research
Headquarters: Denver and Montreal
Chief executive: W. Leo Kiely III
History: Adolph Coors Co. and Molson Inc. combined in 2005.
Annual sales: $5.8 billion
2006 profit: $361 million
Beer sales: 42.1 million barrels a year
Main brands: Coors, Coors Light, Keystone, George Killian’s Irish Red Lager, Zima, Molson Canadian, Molson Dry, Rickard’s Red, Carling, Pilsner, Grolsch
Source: Times research