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Battling back.

MBA: Stroh has obviously seen some decline in recent years, what are the main reasons for that?

BH: The fact is, we're in a very competitive industry, with very limited industry growth. At the same time, our company has been under financial pressure. We were not in a position to spend marketing dollars head-to-head with Anheuser-Busch, Philip Morris or Coors. So, we had to pull back a little bit. A little bit later, we got into the situation with Coors, where they were going to acquire us, and I think, quite naturally, we took our eye off the ball and lost some momentum.

When that deal came unglued, there were a lot of things to put back together. We had not, because of financial constraints, been actively involved in the new product side of the business. And, if you look at the industry fro, 1982-1990, it was up 10 percent. There was about 44 million barrels of growth in new products, basically five new brands and the light category. There were also about 10 million barrels of Budweiser growth during that time frame. So you've got about 55 million barrels of growth, while the industry as a whole only grew 15 million barrels. That means older brands have lost a lot of barrelage.

The other large brewers are growing through introduction of new products and light brands. When Budweiser began to level off, Anheuser-Busch covered their flanks with Bud Light and Bud Dry.

We've always had this conventional wisdom in the beer business that the new generation isn't going to drink the same beer that their fathers did. I've wondered if Budweiser would prove the rule wrong, but maybe not. Don't get me wrong, I'm not writing the Budweiser brand off, it's a mighty strong brand. But they have to be concerned, because it's a big hunk of their volume.

MBA: Do you think that generational explanation explains why all the flagship brands are down?

BH: To a certain extent, yes. Obviously there's been this tremendous shift to the light brands, which has moved people from premiums to premium lights. And there have been lots of new products in other categories as well.

MBA: In your view, is there any way to turn faltering flagship brands around?

BH: Well, I'm sure there is a way, although there's no evidence that people have found ways to do it. I think what we're seeing now, is people extending brand families to keep them contemporary. I think what Miller did with Genuine Draft could be the classic example of that.

But, although I wouldn't say there's no way to do it, there's not a lot of evidence to suggest that you can turn around brands that are declining.

MBA: What efforts are you making to bring the Stroh's brand around?

BH: We're trying to find a position for it where it's not competing head-to-head against the other premiums. We're not in a position to battle with Budweiser and Miller. They're going to outspend us, and there is a big volume gap as well.

We've now reintroduced the 15- and 30-packs on a full-time basis in selected markets. That differentiates us from the other major premiums, because they're not available in those packages.

We've also been trying to find a slightly more aggressive price-point for the brand, although we are keeping it within the wide range of premium pricing. As an example, if $10.49 is the best premium price point in a given market, we might got to $9.99. What we're talking about in the premium category is offering the consumer the right sort of value equation.

We've done some other things, as well. We've frashened up the outer wraps on the packages, and I think they're a lot more contemporary and in-tune with what's happening in the marketplace.

We also have some very effective TV advertising for the 15- and 30-pack. We only run the ads in what we call our "core geography." Since we sell a disproportionate share of our volume in the Midwest, that's where we focus our market support. Despite that, the brand is still distributed nationally, and we support the brand nationwide with consumer promotions and sale promotions.

And we've been working on our creative aspect of the brand a little. We're going to go back to some of the advertising we had a few years ago, and try to further develop it. In particular, we're going to carry on with some of the "from one beer lover to another" spots.

We know from our research that our consumers are more individualistic than those of some of the other premium brands, and I think that the "beer lover" spot were effective in addressing that group.

MBA: You mentioned the term "core geography" a moment ago. Is that term indicative of Stroh's retrenchment?

BH: I don't know that retrenchment would be the right word. In the mid-80s we rolled the brand out nationally, and we provided a very high level of marketing support, and at least on television we were competitive with what the other majors were doing. But, when you start to look at all the sponsorhips and everything that was going on, we really weren't comeptitive in total marketing spending.

We tend to focus on TV or radio, and it's one thing to be competitive there, but when you start looking at all the other sponsorships that are going on its' very difficult. It takes a long time to get recognition. Because of our financial difficulties, we could not provide that high level of support for the Stroh's brand. As a result, the volume started to drop.

These financial constraints hit us before we were in a position to have a separate, distinct advertising campaign for our light brand, so Stroh's Light never developed like the other premium lights did.

What it comes down to is we never had a strong strategic position in the premium category from which to build on, and then with our financial problems, we could only spend the money we had, which was not near as much as our competition had, on a more limited geography.

MBA: Are the resources you've freed up, through the La Cruz del Campo and Sundance sales, becoming available to you?

BH: I think all of the things we did to raise cash, and reduce our debt, have yielded results. We've in a good, solid financial position today, from a balance sheet point-of-view. We now have reasonable amounts of money to invest in our brands, and we're doing that. This year, we'll spend 50-percent more on marketing than last year.

So, we're headed back in the right direction in terms of marketing. Even so, we'll still spend substantially less than Anheuser-Busch and Philip Morris. And we have to be careful how we allocate our resources.

MBA: You seem to be allocating quite a bit of your resources to your Old Milwaukee brand. Will that emphasis continue?

BH: Yes, we're doing a number of new things. We've put new outer wraps on Old Milwaukee, and we've got a new advertising campaign. It's a campaign that builds on the old campaign, but it's more contemporary and designed to reach a wider demographic than our previous campaign, which was skewed a bit towards the older consumer. This one is targeted for 21-49 year olds.

We've just introduced Old Milwaukee N.A., that's doing well in a category that's growing. We think that brand has a good future.

We're also introducing a product called OM Genuine Draft and OM Genuine Draft Light in Florida. Virginia and Ohio. We think it's a contemporary product with excellent packaging and strong advertising. Cold-filtered packaged draft products are a category that appears to be growing very well, and it's a trend of the future.

MBA: Why have you chosen to make all your brand extensions off Old Milwaukee rather than Stroh's?

BH: Basically, it's a question of volume. We have about eight million barrels in Old Milwaukee and Old Milwaukee Light, and 1.2 million in Stroh's and Stroh's Light. If you look at those numbers, I think that answers the question.

Although the margins for Old Milwaukee aren't as high as those for the premium category, the wholesalers are still getting good margins from the brand. Old Milwaukee is a very important brand to us, corporately, and we've put a lot more support behind it in the last couple of years. It's doing well in what has been a very competitive category in the last couple of years. With Keystone and Keystone Light, and Busch Light, there's been a lot of activity in the category. Old Milwaukee has been off a little bit for the last couple of years, and last year you had all those new products introduced. But I think it's held up well, and its continuing performance is a testimony to how strong the franchise is. We plan on providing it with plenty of support.

MBA: You mentioned before that you are not in a position to face the other major brewers in terms of marketing support, how do you overcome that problem?

BH: Well, I thinl we have to avoid going head-to-head. We have to find some places where we can make end runs, and not run into their strengths head on. If we can do that successfully, which I believe we can, we can begin to grow again. And, as we begin to grow, we'll generate more resources. Maybe in a few years, we'll be able to take someone on in a head-on battle. Right now, that would be ill-advised.

The popular category, where Old Milwaukee competes, is an area where we have some strength. Old Milwaukee is a solid number-two brand in that category. Keystone, which came out last year to a lot of hoopla, has done reasonably well,but when all is said and done, Keystone and Keystone Light combined are doing less than half the volume that Old Milwaukee is.

We think we are coming from a position of strength in the value-priced category. That's an area where we are getting turned around and headed in the right direction. Eventually, that part of our business will generate growth, and more money to fund more end runs. When the time comes, maybe a head-to-head battle.

We're going to try to be a lot quicker in the new product area. I think Old Milwaukee N.A. is a good example. We might bring in a premium Stroh's N.A. in the future, but right now we don't think it's real smart to go head-to-head aginst Sharp's and O'Doul's. It's a growing category, so we decided to bring in a brand that has a well-recognized name in the popular-priced category. We're offering the consumer something different in the category, in terms of value.

MBA: How widely is Stroh's super-premium Signature being marketed?

BH: Most of the Signature volume is done in Michigan, and some in Chicago. We will continue to produce it, and make it available to our wholesalers. It's not a priority for us, but it's a brand we plan on maintaining.

The super-premium category is an extremely difficult one. Michelob has lots of difficulties, and so has Lowenbrau. It's very much an image game, and you're competing on-premise against imports and now microbreweries. When a consumer is just having a beer or two, he's not necessarily concerned with what it's going to cost. That helps the imports and the microbreweries.

It's a tough category, and the fact that it's on-premise makes it very expensive. You're talking neons and signs, and all that fancy stuff just to get in the door. It's an area where we would be at a competitive disadvantage trying to compete right now.

Again, we're looking for areas where we think we've got a good chance of winning. And, head-on-head against Michelob is not where we want to be.

MBA: The trend towards lighter products is continuing. Do you see the major brewers lightening up their premium brands to stay contemporary?

BH: I think it's accurate to say that all the American brewers have lightened up their products over time. We have not noticed any major changes in our competitors recently, but usually these changes are done over a long period of time. If you took a beer from 1940 and tasted it next to the same brand today, I think you'd notice a difference.

MBA: Do you think that trend will continue--people seeking out lighter and lighter products?

BH: I think so, yes. We believe that the next step is into the lower calorie light products, which may, incidentally, be lower in alcohol content. It's getting to the point where you either have alcohol and water, or you get rid of some of the alcohol.

Obviously Miller has a product out that they're testing right now in that area, and we've been doing a lot of product development work in that area as well.

I think the real trick will be in the marketing, and I don't know if the consumer is ready for it or not. I don't think you can hit the consumer over the head with the fact that it's low alcohol. The industry tried that a few years ago with the low alcohols, and it fizzled. But, as lifestyles change, that's where we see the trend going. For the mass market, it will be lighter products.

MBA: Does Stroh have a position on alcohol-content labeling?

BH: We are not opposed to alcohol-content labeling on a national level. And I stress national level. We would oppose efforts like those in Washington state for state-by-state labeling.

MBA: Would you be interested in picking up any Heileman brands or facilities?

BH: We would be interested in acquiring other brewing assets in this country, whether from Heileman or somebody else. However, we are not talking with Heileman at this time.

We have a very clear objective of getting bigger in the U.S. beer business, and we're willing to do that by building our existing brands or by buying other brands if they were to become available.

MBA: What does your capacity stand at? Do you need to augment it?

BH: No, not at the moment. We have five breweries with 19-million barrel capacity. We're running about 85-percent capacity. We'd like it to be higher, but we're not in any need of more.

MBA: Was it difficult to step back from the international market with your sale of Cruz Campo?

BH: Our role in La Cruz del Campo was more of a helpful investor. We were not directly involved in day-to-day management, so it was not what I would call an active investment. We did bring a lot to that company over the years, offering advice and help. I think we helped them a lot on the administrative side as well.

However, we have not really stepped back from the international market. Old Milwaukee has a strong position in Canada, and we sell a lot of non-alcoholic products around the world. Currently, we sell beer in 80 countries.

MBA: Stroh seems to have had some problems selling beer in Canada. What's the story on that situation?

BH: We have some complaints in right now with the U.S. trade representative about restrictions on our ability to export to Canada. The provinces have control of the situation, and the Canadian brewers have adapted to that. To compete in each province, the Canadians had to brew in each province. So you've got all these little breweries over there, relative to U.S. plants. I think the Canadians are very concerned about what will happen when the borders are wide open, and they're competing with relatively inefficient breweries against the U.S. giants. So, the Canadian brewers are not looking forward to the day when those trade barriers fall, which they ultimately will.

I would think that one approach would be to link up with U.S. brewers to protect themselves, which is part of an international trend. I think what we'll see is brewers with truly international scope. It's difficult, because you run into legal restrictions all over the world. Just try to import a beer to Germany. It'll take time, but the same things that are driving globalization in most industries are affecting the beer business.

MBA: Stroh has taken a visible role in the fight against neo-prohibitionism by joining the Century Council. Would you describe your view of this threat?

BH: There are vocal minority groups that have an interest in restricting where we sell a product, and how we advertise it. There are some elements in those groups who have a hidden agenda to go back and outlaw the product.

We don't think that's the way to deal with the real problems we face. Everyone recognizes that drunk driving is a problem, but society has to find a way to solve it, short of prohibition. The question is how? Do you legislate the problem away, or do you stress education and awareness? We think education is the way to do it. Positive programs to educate people on how not to abuse the product.

One approach to attack drunk driving is to keep lowering the blood alcohol level that defines intoxication. But, that's not addressing the problem. The real problem is the serious abuser, who is often a repeat offender. They are never at that threshold, they're always way over. What you are doing when you lower that threshold, is going after responsible people who have not been drinking to excess.

MBA: Why haven't the other large brewers joined the Century Council?

BH: I think forging an alliance between distillers and brewers is very difficult, because it's no secret that there have been some hard feelings on the issue of equivalency.

Also, I think those brewers with deep pockets may believe they can do these kind of programs on their own.

We don't have deep pockets. We are not in a position to launch major initiatives of our own, so Century Council is an opportunity for us to have an impact.

Backing away from all the politics for a moment, I think the Century Council's approach makes a lot of sense. The problem, from the customer point of view, is alcohol abuse. And it's not an issue of whether it's beer, wine or distilled spirits. It's the abuse problem. We may argue that we have a product of moderation, but when people read about drunk driving incidents, they aren't concerned whether the guy was drinking gin-and-tonics or beer.

So, I think there are a lot of things that can be addressed together through the Century Council. And, naturally, I think the whole alcohol beverage industry would be better off it we could all work together. In reality, it's not easy. Over time, however, people may come around. At the moment, I think the other brewers are taking a wait-and-see attitude.

MBA: Is Stroh leery about allying itself with the distillers?

BH: We're not leery at all. The issues where we might disagree with distiller members will not be the kind of issues that are addressed by the Council.

MBA: Is Stroh now a member of the Beer Institute?

BH: Yes, we are a member of the Beer Institute, although we do not participate in the management committee.

MBA: You don't see any conflict between the Beer Institute and the Century Council?

BH: There's potential that Beer Institute would be addressing issues that Century Council might stay away from. I think if we got into equivalency, for example, the brewers would take a different position from other people. Century Council will stay away from these kinds of issues.

Beer Institute also has plenty of issues that can't be put on the table. There are disagreements between the brewers on many issues, but the Beer Institute can address issues of common concern, and the Century Council can too.

On the marketing side, I think the industry has to make sure that we're policing ourselves. The Beer Institute and the Century Council have advertising codes that we're committed to following.

And, I think what we just saw with PowerMaster is a good example of what can happen if we step over the line of what is considered to be responsible marketing.

MBA: Will that incident change the way that Stroh markets its malt liquor products?

BH: Well, I think it makes us all focus in on what we're doing a little more carefully. We'll make a few minor adjustments in some of our marketing programs, because we do sell a product in the up-strength malt liquor category, called Red Bull. We think we've had responsible marketing for that brand, but we're examining it.

I think what it's done is made all the activist groups focus in on some things, and it will probably make things more difficult for us in the near future.

MBA: Do you think that brewers should be more circumspect in the way they market products in this category?

BH: Well, I think it's a tricky situation. We have to be responsible, on the other hand, I think that all marketers target their efforts towards the consumer groups that are consuming the product. There was a time when malt liquors were consumed by a broad range of consumers and the marketing was widespread. Over time, the demographic for that product has changed, and I think it's reasonable to expect that companies will market to where the consumer is. That makes sense.

On the other hand, we do have a responsibility to be careful about how we go about it. We can't cross the line.

MBA: Will Stroh survive as an independent player in the U.S. beer market?

BH: Absolutely. We have a goal to reclaim our position as the number-three brewer. Maybe not tomorrow, but down the line. We would like to grow, and we think we have the staying power now, due to our improved financial position. That will allow us to invest more in the beer business, and our intention is to be around for a long time.

MBA: Is the Stroh family committed to brewing over the long haul?

BH: Absolutely. Peter Stroh is the chairman and chief executive officer, and four members of the family are on our eight-person board. The family is very well represented, and very involved in the business on a day-to-day basis through Peter.

MBA: Do you see them ever restructuring, perhaps going public to finance acquisition possibilities?

BH: Not at this time. I wouldn't want to rule anything out at this point, but right now we have no intention of going public.

At the moment, from a balance sheet point-of-view, we are in the best shape the company's ever been in.

On an operating basis we have work to do. We know that. Our volume was off pretty substantially last year, but we think we've made a lot of progress. From the perspective of the first five months of our fiscal year, this year our business will be off about six percent, and we're projecting the industry at large might be off one-and-a-half percent. If that proves out, we look at that gap between ourselves and industry performance and we're about four-and-a-half points behind the industry. Last year during that same period, we were running off about 14 percent and the industry was up.

So this year we're doing better, and we've got a few things we're just rolling out. So I think we're making progress. But, at the same time, we're careful not to get overconfident. The marketplace hasn't changed--it's still very competitive. As fast as we do things, other people are doing new things as well. There's no guarantees in this business, but I think everyone here feels good about the progress we've made.

MBA: What helped you close that gap?

BH: I think a number of things. Increased levels of marketing support and some of these new things we've done. Improving our relations with our wholesalers, Stroh 15- and 30-packs, etc.

MBA: At this point, is Stroh a national or regional brewer?

BH: When people ask whether we're a national or regional brewer, I point to our brands. Old Milwaukee, Schlitz, Schaefer and Stroh's are all marketed nationally. So we consider ourselves very much a national brewer. Admittedly, since we closed our Los Angeles brewery we don't have brewing capability on the West Coast.

MBA: What would you want to tell a Stroh wholesaler about your company's future?

BH: We've been out talking to our wholesalers a lot. Clearly, because of some of the problems we've been through, our relations with our wholesalers have not been as good as we would have liked. Plus, when we went into our agreement with Coors, wholesalers said, "well, they're going to sell," and they started to shift their priorities a little. Quite frankly, that's one of the things that slowed us in the marketplace. We have lots of wholesalers that sell both Coors and Stroh brands, and a wholesaler looking at that situation would be inclined to shift their priorities. That was a major concern of ours coming out of that transaction when it fell apart.

The story we've been telling our wholesalers is much the same as we've been talking about here. We're back in the business, we're financially secure, we're going to be putting more money behind our brands, we'll be developing new products. That's something wholesalers have been very interested in, because one of the things that has happened with new products coming on the market, is they have to fight for shelf space like never before. For the most part, beer sections in retail outlets are fixed in size. They don't get bigger when all these new brands are introduced. People just start fighting for the same shelf space. We have not been providing new products for our wholesalers, so they haven't had fresh ammunition to fight with. That's changing.

We have spent lots of time meeting with our wholesalers, getting more involved in the NBWA, with the legislative conference. I think the wholesalers have responded very well. I'm obviously biased, but I think our relations with our wholesalers have improved dramatically over the past year. We're still working at it. Our people are on the road a log, meeting with wholesalers all over the country.

Attitude and morale have imporved dramatically, and although that in itself won't sell any more beer, it's part of a process, where everyone is starting to communicate better. Ultimately, that will mean better business.

I recently spoke at the RMBDA conference. It was an interesting agenda. On the first day, they had Pete Coors, Pat Stokes, Ron Sarasin and Jim Sanders. The next day, they had Warren Dunn from Miller, and I. What struck me was that all of us were saying the same thing. People may have focused in on things differently in their addresses, but our industry is facing a lot of challenges, and that's what came through.

As I thought about it afterwards, though, I realized that you don't see anyone that wants to get out of this business. You listen to that stuff, and you'd think people would be saving "Boy, I'd better get the hell out of the beer business." That's not happening.

This business is very much a people business, starting in the way the industry is structured. The three-tier system ensures interaction between the brewers, wholesalers and retailers. That interaction makes this is a fun business to be in, a people-oriented business.

By and large, people want to stay in this business, and that's encouraging. This industry is facing many challenges, but I think we're moving in the right direction.
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Title Annotation:Stroh Brewery Co.'s president Bill Henry reveals company's plans
Publication:Modern Brewery Age
Article Type:Cover Story
Date:Sep 9, 1991
Words:4625
Previous Article:Eastern wholesaler out of bankruptcy.
Next Article:Taking care of business.
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