McBrien on Premium Lights, Pricing, Ohio, and the Blue-Silver Network

FILED JUNE 29, 2012

Dear Client:

With A-B making a lot of news lately, we decided to ring up MillerCoors president of sales Ed McBrien, and ask him about what's going on over there. Here is an excerpt of our conversation.

BBD: How do you see beer trends going into mid-summer and July 4th?

ED MCBRIEN: We're encouraged by category trends overall. I'd say we're optimistic but maybe not exuberant. Gas prices are down, unemployment is improving a little bit, construction is ticking up a little bit which is usually a good indicator for the US beer business, consumer confidence according to most measures is on its way up. We're seeing category growth across all Nielsen channels, and that's the first time we've seen that in a long time.

What I find very encouraging is seven major US beer brands are showing improved trends - these are big established beer brands - and four of them happen to be MillerCoors' brands: The Leine's franchise lead by Summer Shandy is absolutely killing it and getting better week to week. Coors Banquet continues to be a quiet success story. Miller 64 trends are much better since re-launch. In fact, our week to week trends are back in the black. Coors Light is arguably the darling of the US beer business. It is on track to be the biggest volume gainer in barrelage of any established beer brand in the US. We're proud of the contribution that brand is making to the category.

On the Miller Lite front, a big brand for us, as you know we launched a new campaign headed into the summer. We're encouraged by the early signs on Lite. Our off-premise business is getting better sequentially every week, particularly cans. Our punch top cans appear to be making a real connection with young adult drinkers. In the 7 weeks since we launched punch top can, we are now up 1% for Miller Lite in cans, and that's the first time that's happened in a long time. We still have a ways to go on-premise, but we expect those trends to follow.

BBD: At our Beer Summit you talked a lot about the power of premium lights. How is that going?

ED: Yeah, we are out there preaching the gospel of premium lights. Since our convention, we've had about 320 sales rallies with distributors, where we've told the story of premium lights. And we followed that up with some muscle in the market with 2,600 crew drives at retail leading into Memorial Day, and that's the equivalent of about 520 people working five days a week hustling beer and building displays. The message is getting through and we're encouraged by that. I can cite dozens of examples of big retailers who heard the story and have begun to respond with more support for the premium light segment. The numbers tell the story. If you look at Nielsen measured distribution on premium lights in the latest 13 weeks, distribution for premium lights is up about 2.5 points, feature support is up about 2 points, but most importantly, the premium light category is up about 1% in Nielsen measured stores, and that's compared to being down 1% for the 52 weeks. So it's working.

But there's another chapter to this story, and Harry I'll give you a sneak peek: It's about talking more regularly about the importance of displays. So while distribution and feature support are rebounding, we still have work to do on display. Premium lights are losing display space at retail, so the features are being under-merchandised. The reality is, 47% of incremental volume for the category comes from premium lights. Merchandising those brands on displays so the consumer can find the brand that's featured is really important to the health of the category. That's the next chapter to the story, and we'll be unveiling it soon.

BBD: With Yuengling and Deschutes and others recently choosing the red network, does that concern you, and what do you think the benefits are of going with the blue-silver network?

ED: Those distributor choices are really up to the supplier and that's their business. But what I'll tell you is, I'd go to war alongside the blue-silver network any day of the week. I say that for a couple of reasons: One is, our guys have a spectacular portfolio of brands. If you look at the portfolio they bring, it is powerful, it is meaningful, and retailers value it. And that is a real point of difference at retail. They also do a spectacular job in terms of execution, not just on MillerCoors' brands, but on all their brands. They are experts at knowing how to bring each segment of the beer category alive. They are pillars of the community stretching back generations.... And in my experience, the blue-silver distributors are great partners. They are eager and capable of investing in growth behind brands that earn that support. I would tell you that regardless of brands that might come and go inside the blue-silver network - I can't do anything about that - but at MillerCoors it's our job to build powerful brands for our distributors, and it's our job to add value at the local level, and it's our job to win in chains. So regardless of what changes from a portfolio standpoint at our distributors, at MillerCoors those are the three things we strive to excel at.

BBD: With Yuengling's very successful launch in Ohio, Dave Casinelli said that MillerCoors seems to be getting hit on the chin the most. What's your take on Ohio?

ED: I do understand what motivated Dave's comment, but I would characterize it differently. The fact is, every retailer and every supplier in the state of Ohio with the exception of the new one is suffering. The other fact is, our portfolio compared to A-B brands from a share standpoint is performing better in the state. Our premium lights are performing better than Bud Light. But I can't help but point out the correlation as it pertains to the power of premium lights. This is what happened: There was pent up demand by consumers and retailers for a really great brand [Yuengling]. Unfortunately, retailers provided outsized support for that brand. They took shelf and display space and feature support away from premium light and gave it to this new brand entering the market. What's interesting is Ohio, a very big volume state, has the worst percentage trends this year in the United States..... and by the way, Ohio is a healthy state. Unemployment is getting better and the economy is improving there. But the beer industry is down. There's a direct correlation here. I think retailers made a win bet on a show horse, and it translated to poor results for the category. I think retailers will now get back to supporting premium lights.

BBD: This summer we've seen some whacky pricing (couponing, scanbacks, etc.) in certain markets. Is this out of the ordinary?

ED: I don't think we're seeing anything out of the ordinary. The headlines for the hot spots are the same, you just need to change the date on the publication. At least at MillerCoors, we really advanced our revenue capability. We are much tighter on gap management. We have classified each market into one of four archetypes. So we know where the gaps matter, we know which gaps between brands matter, we know which gaps between packs matter, and what you'll see is that we'll make our pricing decisions one market at a time based on what we need those gaps to be. And we're very resolute about that. You'll see more discipline rooted in this idea of optimal gaps. We now have it down to the brand-pack level in about 50 major markets.

BBD: You're out in the trade a lot. What's on the mind of retailers these days with so many new craft SKUs, tight shelf space, etc?

ED: I do get out a bunch. I joke that if I spend too much time in Chicago I lose 20 IQ points that I can't afford to lose. I think there are three things that have emerged with retail as this summer has unfolded. One is they are eager to support news and innovation. That showed up in terms of how folks are merchandising brands at retail. What that means for MillerCoors is we have to play more aggressively in that space. We need to be on the front end of bringing news and innovation that our distributors can sell..... the reality is we under-indexed on innovation this year. In 2011 we did a good job. In 2012 our pipeline was thinner than we wanted it to be. But in 2013 that pipeline will be quite full.

The second thing is that retailers continue to be highly supportive of craft and imports, particularly on-premise. And that's completely appropriate: they are great brands that make a difference for the category, as long as you get the focus right. The call to action for MillerCoors is we have to play in that above-premium space at a greater rate than we do. That's what Tenth & Blake is about, and Tom Cardella and Lee Dolan and their team are doing a spectacular job of quickly moving us into that space.

And third, what's different from a year ago, and will become more pronounced as we go into 2013, is retailers are back on understanding the power of premium lights, and what it means to their business, and how critical it is to their business. And as I said, the next chapter that we will be rolling out is displaying premium lights. It just shows up in the numbers. Displaying and featuring premium lights is critical to the health of the entire beer category. It's an axiom for the beer business.

BEER BRIEFS:

ABI IS PUTTING THE final touches on the deal with Grupo Modelo today, says Reuters. "Both parties are ready to do a transaction. We would expect the deal to be announced tomorrow [Friday] as the final details are now being worked upon," said one person with knowledge of the situation.

Constellation Brands, the co-owner of Crown Imports with Modelo, will be announcing quarterly results in a few hours. We'll be there.

Until tomorrow, Harry

"I like not only to be loved, but also to be told I am loved."
-George Eliot

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