Beer: Big Battles Are Brewing

Pots of money plus hard marketing are the basic ingredients

Tradition, order, simple marketing methods, sales that rose reliably in good times and bad--all these were qualities of the beer business a few years ago. Now the $16-billion-a-year industry is being shaken by a costly battle for market shares that has sent some brewers to search for cash-heavy merger partners, other companies to reassess their marketing strategies, and nearly all the well-known firms to bring out new brands to curry the customers' fickle favor. Small regional brewers can scarcely keep afloat, with the result that sales are increasingly concentrated among the Big Five. Since 1972, Anheuser-Busch, Miller, Jos. Schlitz, Pabst and Coors have increased their combined share of the market from 55.5% to just over 70% last year.

The market has been roiling ever since Philip Morris in 1970 acquired full control of Miller Brewing, a Milwaukee company with a well-known label but stagnant sales. In came a team that knew little about the relative merits of hops and barley but was highly skilled in the arts of advertising, packaging, cost analysis and marketing. John Murphy, who was Philip Morris' chain-smoking, beer-quaffing international executive vice president, was made head of Miller, and he brought to his office the same marketing drive that had made Philip Morris the biggest American tobacco company in Europe, Africa and Latin America. Says Murphy: "You never set out to become No. 2."

Spending $500 million to expand in the beer business, Miller introduced the 7-oz. "pony" bottle and bought the Lite label for its low-calorie brew, which became a runaway success; Miller staged a high-budget ad campaign that featured Mickey Spillane and ex-Football Star Bubba Smith to give a macho image to Lite. In order to crack the highest-priced market segment, which has been dominated by Anheuser-Busch's Michelob and imports, Miller last October began national sales of Lowenbrau made under license in its U.S. breweries.

With all this, Miller surged from seventh place in 1972 to edge out Schlitz for second place last year, with net sales of $1.1 billion and operating income of $106 million. While industry volume grew by 4%, Miller reported an increase of 31.6%. Of Philip Morris' $500 million capital budget in 1978, more than half will be devoted to Miller, a ratio that will continue for several years. The aim is to raise capacity from just over 24 million bbls. to 40 million bbls. by 1980 and draw even with Anheuser-Busch by 1983.

That will take some doing. Anheuser, which had 23% of the market last year, outsold Miller, 36.6 million bbls. to 24.2 million bbls.; the St. Louis company rang up sales of $1.8 billion and pretax profits of nearly $170 million, both records. It has been willing to spend to match Miller in every segment of the market. Anheuser's Natural Light has overtaken Miller Lite in some markets, and Michelob has a wide lead in the battle with Lowenbrau.

This week Anheuser will announce the introduction of Michelob Light in major markets. Says Chairman August Busch III, the founder's great-grandson, also a brewmaster: "You will see other marketing and product innovations as the year unfolds." Industry scuttlebutt has it that Anheuser is contemplating a move into soft drinks, where profit margins and growth are larger than in brewing.

Hurt by the drives of Miller and Anheuser, the sales of Milwaukee-based Schlitz slipped last year from 24.2 million bbls. to 22.1 million, and pretax profits plunged from nearly $97 million to $35 million. The Uihlein family (pronounced Ee-line), which controls 75% of the stock, is squabbling over methods to recoup. Chairman Daniel McKeithan Jr., an Uihlein in-law before his divorce in 1974, has brought in some outside executives and is seeking a new advertising agency to change the company's cheap-beer image. Schlitz is also thought by some to be for sale; merger talks with cigarette-making R.J. Reynolds Industries (Winston, Salem, Camel) broke off three weeks ago.

Milwaukee's Pabst, with sales off from 17 million bbls. to 16 million last year, is also looking for a compatible partner. President Frank DeGuire, a onetime Marquette University law professor, says he would welcome a company "with deep pockets." Management is fighting a takeover bid by APL Corp., an $80 million New York-based manufacturer of tissue paper, plastics and vitamins. DeGuire thinks APL is too small. He reckons that Pabst, which is strong in the Midwest but weak elsewhere, will have to spend $150 million to build a new brewery, an additional $80 million to expand existing plants. Says he: "Philip Morris has raised the ante for staying in the game."

Coors, the fabled company in Golden, Colo., that was on a Rocky Mountain high for years also declined in 1977, from 13.7 million bbls. to 12.8 million. Part of the drop was due to a bitter strike that led to a customer boycott; it has been particularly damaging in California, where Coors has lost its leadership to Anheuser-Busch. Coors also suffered under the new competition because it long had paid little attention to marketing, figuring that its popular product would just "walk off the shelves." As a regional brewer that sells almost all its beer to 16 states concentrated in the West, Coors cannot hope to match the ad budgets of the national firms. Even so, Vice President Peter Coors concedes that the family company has to make a basic policy change. Says he: "We must now begin actively marketing our product to guarantee our survival in an intensely competitive industry."

So too must many of the 42 other smaller regional breweries, whose overall market share has been shrinking. Those embattled companies might adopt as their anthem the jingle composed by Irish Novelist Brian O'Nolan in praise of Guinness stout, a brew so syrupy that a well-fed mouse could safely tread across its creamy head:

In time of trouble and lousy strife, You still have a darlint plan. You still can turn to a brighter life, A pint of plain is your only man.

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