Leo: I'm a Big Believer in the U.S. Beer Business

FILED FEBRUARY 10, 2010

BBD had the opportunity to speak with MillerCoors chief Leo Kiely on the phone yesterday on a variety of subjects. We excerpt from that conversation and you, my friends, are a fly on the wall.

LEO ON INDUSTRY SOFTNESS. "Things held up pretty well for us in the Summer. But since then, both our retailers and our consumers have pulled in their horns. The best perspective I've had on this is, Harry, is talking to key retailers. And when they talk about traffic and buying patters, they can see the paychecks in their business trends. When the paycheck shows up, they get a little jolt, and in between it's pretty darn dreary. I think this is about money in beer drinkers' pockets, period. But I'm a long-term believer in the U.S. beer business, and I know you are too. Our biggest assets are our great brands, and beer is still relatively a cheap treat. But no doubt it's the toughest quarter I've ever seen."

LEO ON LIGHTS AND CRAFTS. "The thing that you see when looking at the numbers is that light beer continues to be 40% of the category, and it's going to continue to grow. As you know, even within the below-premium, our key focus is put the peddle to the metal on Keystone Light which has such a great opportunity. Light beers are still the epicenter of the business. But the balloon that tugs us upward is the craft business, and thank God for that. Crafts continue to reaffirm that there are two sides of the coin in terms of value."

ON COMPARING TODAY WITH 2005 PRICE WAR. "I think the situation in 2005 was very different than what we have today. At that time it was more about head-to-head competitors who acted based on personalities. That wasn't provoked by pervasive industry softness, that was provoked by an 'in your face' mindset. I don't think the analogy holds at all. I'm actually pretty proud of the beer business for keeping their eye on the dollars. Our wholesalers and our retailers take dollars to the bank, Harry. We provide full alternatives on value with our below-premiums, which are a hell of a value. People have plenty of choice in this business. I still expect this Summer to be very competitive, (and I hope it's very hot by the way). In 17 years in the beer business, I've never seen a Summer when it wasn't competitive. That's where the volume is."

LEO ON DISTRIBUTOR CONSOLIDATION. "We saw consolidation pick up towards the end of the year, some complete and some still in progress. We were surprised. Our activity picked up in November and December significantly. Denver and some areas in the Northeast were emblematic of that. I think two things are going one: One, there are some compelling economic reasons that would encourage distributors to take this very seriously now. And secondly, they see the reality with how the brands are lining up, and they have a bias to just get on with it. There always will be exceptions, Harry. We won't consolidate 100% of this thing in my lifetime. It's a slow process, and you want to do this respectfully. I have a tremendous respect for our wholesalers. And I clearly understand the angst, and it's a hard thing to ask the industry to go through. On the other hand, for the lonterm health of this industry, it's really critical to have that toe-to-toe capability."

ON DISTRIBUTOR ACCEPTANCE OF EM. "I was really gratified with the ultimate response on our new economic model that we wrapped up in January. There was a lot of nervousness about it as you know. We took it slowly, we really worked people through it. And on the 95% rule, the feedback we're getting is is appreciation that we walked the walk on that."

ON PROGRESS MERGING TWO CULTURES AT MC. "I think our teams have made remarkable progress. Thing things transition more quickly in the field, Harry, because frankly our wholesalers help us get over it. It's fun to watch our GM and their teams now. Their vocabulary really is as one. We've got one plan that these teams own this year. Last year they inherited plans that two different companies had formed. So that's good.

"On the brewery front it's interesting. I was in Albany last week. While the breweries will always be entrenched in their legacy equities, they see it as positive call to action. They see these new brands coming into their breweries, and learning to brew new beers, and seeing utilization rates to up, and they get it. It's difficult, but culturally they are on board.

"The slowest places to mix culturally are the people at headquarters. The people I have the most empathy for are the people in Golden and Milwaukee, who maybe feel a little bit of the sting of not being at the epicenter of these two companies. It's getting better, but I don't kid myself. Until we can all adopt the new culture and personality of this new company, that's going to rub for awhile. The new HQ in Chicago has been fabulous. There's a real buzz and a real coming together, especially on the marketing and commercial teams. It's a great beer city."

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