The Miller-Coors Merger

We admit to being a bit nonplussed at the news this week that Miller and Coors – numbers two and three in the U.S. beer market – were planning to combine their domestic operations. On the surface it seems to make some sense, at least business wise, in that they are better positioned to compete with the behemoth that is Anheuser-Busch; the combined MillerCoors now control roughly 28% of the market, while A-B commands 48%. Additionally, the portion of the combined $426 million marketing budget they spent competing against each other last year can now be aimed squarely at A-B (who alone spent $512 million on marketing last year) or utilized in other areas. You’ve also got the cliched reasonings that always pop up in these mergers between large companies: it will save millions through utilization of economies of scale, streamlining of production/distribution, elimination of redundancies, yadda, yadda, yadda.

Some of those things are, no doubt, true and this move shouldn’t come as too much of a shock to the system of either company. Coors recently went through a fairly successful merger with Molson, and Miller has actually been a part of South Africa based SABMiller (one of the world’s largest brewing conglomerates – the SAB stands for South African Breweries) since 1999. The bottom line here, to us anyway, is that this merger just doesn’t work from a product perspective.

Miller Lite is the 3rd best selling beer in the country, followed closely in 4th by Coors Light. These two, obviously, make up a huge portion of the new company’s sales. They are also disturbingly similar in another area – taste. Let’s be honest, there’s just not much difference between the two beers. Sure, you’ll get some loyal followers who blindly swear allegiance to one brand or the other, but had this merger happened a couple of decades ago, either the Tastes Great, Less Filling Lite, or the Silver Bullet Light would not be in existence today. It will be interesting to see how MillerCoors markets their way around this.

The co-existence of the craftish brands of each brewer, Coors’ Blue Moon and Miller’s Leinenkugel will be a development to watch as well. Will a Sunset Wheat tap appear next to the Blue Moon handle at the local bar a grill? Will it be an either/or proposition? It does seem safe to say that this won’t mean good things for fans or brewers of craft beers, at least in the short term. The most obvious initial development we see is the small guys getting squeezed out of a tap handle here and some shelf space there. You know, the things that these small companies really need to stay alive and sustain growth.

The best case scenario here is that the new MillerCoors puts a real scare into A-B and the two duke it out for pale lager supremacy for a few years, leaving the crafties to continue to do their own thing without interference from the big fellas. If you want a real dream scenario, how’s this: Blue Moon continues its’ rise in popularity while further developing it’s seasonal line, Leinenkugel’s solid offerings are expanded and more widely distributed, and Coors’ recently announced line of “super premium” beers is rolled out to much critical acclaim. A-B responds by shifting their development of “craft” beers into hyperdrive and America is suddenly waist deep in the midst of a beer revolution, with all the big boys’ watery yellow beers largely forgotten and these new brews serving as a gateway to the discovery of all the hundreds of wonderful beers that were right there in our backyards all along!

Realistically, our fear is that this move sets off another chain of acquisitions in the beer industry that eventually leads to the big players InBev, A-B, Diageo, SABMillerMolsonCoors, et al, madly buying up even some of the more successful craft brewers. With sales in the rest of the industry largely stagnant, and nowhere else to turn to acquire more market share, this may be a distinct possibility. The most successful craft breweries (we’re talking in terms of overall sales and market share) like Sam Adams, Sierra Nevada, New Belgium, may be able to resist the overtures, but everybody has his price. If it’s not one (or more) of these big fish in the small craft pond, it is likely to be some of the many slightly smaller fish. This may prove especially true with the impending cost crunch as the prices of hops and malts is predicted to soar over the next few years.

No matter what happens, the beers scene has evolved enough that we are still going to see a fairly good selection of beers in an increasing number of supermarkets and even chain restaurants. It remains to be seen, however just how diverse that selection will be.

  • The Milwaukee Journal Sentinel offers a cautionary word on smaller brewer’s being left behind in the wake of the merger.

Finally, we leave you with the wise words of the dearly departed Beer Hunter, Michael Jackson. This quote is actually in reference to the acquisition of Miller Brewing by SAB back in 1999, but the words ring even more true today.

“Quite simply, the bigger the major brewers become, the greater the number of consumers who feel left behind, even alienated. These people want the chance to exercise their individuality when they order a beer. They are potential buyers of imports, microbrews and the products of brewpubs.”

Michael Jackson

Amen.

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~ by bojangles on October 14, 2007.

2 Responses to “The Miller-Coors Merger”

  1. As far as the lite beers, I think brand loyalty will keep each selling well. American consumers have been conditioned to buy by brand/marketing, precisely because there’s so little differentiation between the product itself.

    The marketeers at Miller/Coors might just decide to stick with concurrent brands in order to keep an aggregated market share, rather than kill a brand with loyal customers and risk losing them to Bud Lite.

  2. Mark,
    I have no doubt that both the Light and the Lite are here to stay – they’d be crazy to kill off a brand that popular. I just don’t see the big advantage they get by having two “flagships” that are essentially the same and marketed to the same (admittedly huge) demographic. It’s not the same as rebranding a Ford as a Mercury, you have to keep the two as separate entities and respect the loyalties of regular drinkers of each brand. Doesn’t mean the merger won’t work, I just think it adds a layer of complications and takes something away from the potential return for M/C. Thanks for the comment.

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