Laboy: MillerCoors in "Disrepair"


Dear Client:

The "elephant in the room" for Molson Coors (and by extension probably SABMiller too) is the "state of disrepair" that stockholders don't "seem to appreciate" in the MillerCoors J-V, says Credit Suisse's Carlos Laboy, which has a neutral rating on TAP. While ABI continues its "massive" cost cutting program, Carlos' makes the argument that MillerCoors is "under pressure" to also cut costs, but that has already "run their course."

And then you have distributors. While an increasing number want to "get out", they can't realize the price they want in this economy, so they have resorted to "run the business for dividends, says Carlos. In other words, they're milking it (just like brewers?). And what about MillerCoors' distributor relations? Says Carlos: "Some key MillerCoors distributors meanwhile seem to be in outright disbelief at the sour and sad state of their supplier relationships and disturbed by a perceived lack of leadership strategies at MillerCoors."

And of course there is the issues of soft topline sales and "tired megabrands." "We have seen zero evidence from suppliers to dispute that megabrands Budweiser, Bud Light, Miller Lite, Heineken and Corona are not in a long downward phase, as industry veteran Mike Mazzoni argued in a recent study." (See below).

So.... things look bad, but why does Credit Suisse have a neutral rating rather than underperform? Carlos writes that, when the going gets tough, Molson Coors makes "transformative deals when it hits structural walls."


Meanwhile, back in Florida, MillerCoors had until October 29 to try to cobble together a coalition of groups to negotiate with 15 million case Schenck Distributing in Orlando for an acquisition after Reyes got the boot. But when it became apparent that no deal would be forthcoming, Schenck was notified by MillerCoors late last week that it was free to seek out another deal, which seems to clear the way for Reyes (now with a stronger hand than before). If Schenck wants to get a deal done before capital gains rates go up on January 1, it's going to have to be a mad dash to the finish line. Stay tuned...


Todd Frankel of the St. Louis Post-Dispatch asked Julie MacIntosh, author of Dethroning the King a few questions about her research on the takeover of A-B by InBev in 2008. On August IV's and August III's tortured relationship, Julie doesn't think it had much bearing on InBev's chances of success on the takeover (I agree). She says, "those issues had much to do with what fundamentally put A-B at risk -- a bunch of missed global expansion opportunities in the 1980s and 1990s. Their spats really only affected A-B's ability to defend itself once August IV was installed as CEO. Without his dad in his corner, The Fourth was left professionally impotent right from the start."

On the side-deal that the Fourth was working on to merge with Grupo Modelo, Julie says, "Carlos Fernández (Modelo CEO) would probably have become CEO of a combined Anheuser-Busch and Modelo within a few years, which would have been interesting -- another non-Busch at the helm, but this time for more than just a few years. Cost-cutting would still have been utterly mandatory, although I doubt we'd have seen moves as harsh as the ones InBev has pushed through. That would probably have been the most interesting thing to watch -- whether August IV and Carlos Fernández could have successfully worked as a team to slash costs and get "Anheuser-Busch Modelo" into fighting shape."

And on ABI's chances at turning around the brewer long term? Julie concludes, "That depends on which group of people we're talking about. It'll be seen as a good deal for Anheuser-Busch shareholders, at least financially, and probably for near-term shareholders of InBev. But 10 years from now, I think the market for big-name U.S. beers will still be tough. Competition from craft beers and wine could be even stronger if the economy is chugging along well and people have more money to spend. I doubt this will be the Brazilians' last move to counter those negative trends. The masterminds behind InBev just bought Burger King. Maybe we'll be washing down our Whoppers with Budweiser a decade from now."

ED. NOTE: Author Julie Macintosh will join me on stage at the Beer Summit on March 6 - 7, 2011 in Miami for a Q&A about her book, where you will have the opportunity to ask her questions about the writing of Dethroning the King. Register by calling 210-805-8006 or click here:


MillerCoors' chief Tom Long told Jeremiah McWilliams of the Atlanta Journal-Constitution (he was formerly the beer reporter for the St. Louis P-D) that premium light brands are still strong, despite soft sales recently. "I think the brands are quite healthy," says Tom. "What you have going on is you have more unemployment of key beer drinkers than you've ever had. It's macroeconomic and I think it's employment-based. Our job is to keep bringing news to this category. How can you bring news and innovation to accelerate the growth of your core brands? ... When the industry is delivering so much product news and there's so much news, the challenge of differentiation becomes more imperative. For marketers, how do you drive more distinctiveness in your beer, in a category in which, by definition, the formulations don't change? Fundamentally, what you have with light beers is you have huge fundamental lifestyle trends still at their back. People don't want beers that slow them down."

But what about Mazzoni's brand life cycle theory? Tom's response was, "how would you explain Pabst? How would you explain Miller High Life, which is having an enormous resurgence? There is no such thing as an economic life cycle of beers. What there are, are marketers who run out of ideas. There are forces, yes. [But] good marketers can change those forces."


Because of the shorter attention spans of consumers and a tight economy, marketers are increasingly turning to the 15 second TV spot rather than the standard 30 seconds. The number of 15 second television commercials has jumped more than 70% in five years to nearly 5.5 million last year, according to Nielsen. They made up 34% of all national ads on the air last year, up from 29% in 2005, says the AP. Not only is it cheaper, but it allows for repetition. That's why Anheuser-Busch would rather air four 15-second ads for Select 55, than one 60-second ad, says A-B vp marketing Keith Levy to the AP. "With Select 55, we were trying to establish the notion that this was the lightest beer in the world," he says. Simple commercials featuring a bottle that floats on air don't need a 60 second spot to make its point.


THE HITS KEEP COMING for Four Loko. The Pennsylvania Liquor Control Board has mailed letters to the state's 17,000 licensed beer distributors (retailers) asking them to stop selling alcoholic energy drinks. "It takes a serious matter for us to get involved at this level," said Stacey Witalec, spokesperson for the PLCB. The letter reads in part, "with developing research indicating that these producets pose a significant threat to the health of all Pennsylvanians, we are respectfully requesting that each of our licensees, manufacturers and suppliers cease any marketing, promotion and sale of these types of beverages." Meanwhile, several more colleges have banned the beverage from its campuses.

DRINKS AMERICAS has rolled out a reformulated Rheingold into the New York market, contract brewing it in cans at the Lion Brewery in Wilkes-Barre, PA.

GOLDEN EAGLE DISTRIBUTORS of Tucson won the Mrs. Green's World's Arizona Greenest Workplace Challenge. Thousands of votes were cast and GED finished in first place with over 35% of the votes. "Taking care of our environment and making sound business decisions that include environmental awareness has always been part of our business plan at Golden Eagle Distributors, Inc.," said GED chief Kimberly Clements.

TRADER JOE'S opened its first store in Maine last week. Trader Joe's has nearly 350 stores in more than two dozen states, but the Portland store is the first to open in northern New England. People reportedly lined up to get inside an hour before the 8 a.m. opening.

ZENYATTA, the famous race horse that is competing next week at Churchill Downs in the Breeder's Cup in a bid to wine her 20 th race out of the last 20 she's run, is creating a media splash. And what beer does she drink? Yes, 60 Minutes reveals that her trainer gives her a Guinness Stout every once in a while. "It's very expensive, and I've tried to give her other beers, but she'll only drink Guinness, and it has to be the stout," he said.

JOB POSTING: SIERRA NEVADA'S Joe Whitney wanted me to remind you that the brewer is on the lookout to fill the Director of National Accounts position. Qualified folks send your resumes directly to Joe at and put "DNA" in the subject line so he can find you in his crowded inbox. Joe also reminds me that Sierra Nevada became the number one craft beer in IRI scans without a national accounts team, so your only goal would be to improve on being number one. No pressure. As Joe says, "We're just craft guys."

SPECIAL THANKS to my old friend Jim Burma, who hosted me on my first pheasant shoot in South Dakota last week. It was great fun to break bread and shoot asian roosters with so many legends in the beer business.

NOTE: We didn't publish yesterday because our cup-and-string-and-chewing-gum email server was down. My apologies.

Until tomorrow, Harry

"Everybody hates me because I'm so universally liked."
-Peter de Vries

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