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A talk with Pete Coors: the Coors Brewing Co vice chairman talks about the cost and benefits of being America's number three brewer.

We recently spoke with Pete Coors, vice chairman and chief executive officer of the Coors Brewing Co., during his visit to the Northeast to help celebrate a successful 10-year anniversary for the Coors brands in New York and New Jersey. That anniversary is a fitting reminder of just how quickly Coors managed to expand from a regional into a national player. The jump has not been without its hurdles, but Coors has settled into a stable position as the nation's number three brewer (although this past year, Coors was number four in production, after the Stroh Brewery Co., which jumped ahead due to its heavy Heileman and contract barrelage.) This year, Coors stock rode high, as the company's revenues jumped, in part due to a large penalty payment from Molson Breweries (a windfall due to a problematic licensing deal for Canadian production and sales). The stock eventually corrected somewhat, but Coors is still a very healthy number three brewer. The rub lies in its "number three" positioning. With a ten share, Coors is half as small as number two Miller. Miller, in turn, is half as small as number-one Anheuser. These size disparities present Coors with competitive inequities that are difficult to surmount. Coors can be creative, but can never bring quite as much weight to bear on the market as its larger competitors. In the interview that follows, we talk about that and other issues with Pete Coors, vice chairman and CEO of the Coors Brewing Co.

MBA: How's business? Wall Street certainly seems impressed...

PETE COORS: We've had a wonderful year so far, and we attribute that to a number of things. Most important, from my perspective, is that Coors Light continues to grow with very solid numbers.

The domestic business is good. In spite of a very aggressive pricing environment, we've been able to hold our price realization pretty well. Not relative to where we'd like it to be, but relative to a year ago, and relative to A-B and Miller.

We're also executing some plans that we've been working on in Golden for a long time. Particularly in operations this year. Our GNA and operating costs are holding the line, and even improving a bit. All that adds up to a pretty good year, and I think the market is recognizing the efforts we've been making.

How has the Anheuser-Busch and Miller set-to on pricing affected Coors?

Big time. We're a mouse running around with the two elephants, and we try to stay out of the way. But it's a very aggressive pricing environment at the moment, not only in terms of traditional pricing, but in terms of packaging. They are doing some things in terms of multi-packs that make it very difficult. We're trying to be innovative, and I feel real good that we've been able to play that game and come out pretty well.

You've been making efforts rejuvenating the Coors banquet brand. How is that going?

Last year we did our relaunch, as you know. We gave it new graphics and the whole nine yards. We saw a definite reversal of the downward trend and a flattening out of the brand. We're seeing a continuation of that this year.

Frankly, we're going against some pretty tough numbers last year, and some very heavy advertising weight. But as we look at the overall market, we're very pleased with what's happened. It's a brand that's been in decline for about twenty years, on a cumulative consecutive year compounded basis. So we're real pleased to see it flatten out and look as though it's got some life in it.

If you can bring it back, it would certainly go against the conventional wisdom that beer brands can't be resuscitated...

I don't think it's ever been done before, at least not while maintaining a premium price level.

Will you continue to put marketing resources behind it?

In recent years, we've been doing a lot of new brands. Our focus right now is on Coors Light, number one, and Original Coors number two. And we'll give weight to Killian's and Keystone in markets where they are strong in the marketplace.

We are focusing on existing brands, Coors Light and Coors, in that order.

Is that why Unibev was melded back into the corporate structure?

It was combination of things. Number one, we didn't have enough people on the street with Unibev to be as effective as we should have been. Both for the brand portfolio we had, and for bringing new brands in that system. Number two, we found ourselves tripping over our Coors and Coors Light salespeople. It was confusing to our distributors, so we just decided to bring it all back together.

So you'll sell all the brands, including any imports you handle, through your regular salesforce from here on?

Yes. From the standpoint of our import partners, it's probably good news. Instead of a limited Unibev salesforce, they'll have access to our entire sales force.

What is the current status of the Blue Moon brands?

It's growing nicely, and it fills that little niche. They're not big brands for us, but they are important brands. Maybe more for our distributors than from the standpoint of the brewery. They are going to sell micro-type beers, and they'll probably sell many more than just Blue Moon. But Blue Moon gives them a product that we can provide for them, from our stable, as opposed to somebody else's. With Blue Moon, we can give them a full-line selling proposition. And we've got Steinlager in there as an import.

So we're trying to be more effective for our wholesalers in the marketplace.

So you see a future for Blue Moon as a small volume specialty?

Sure. It's going to do as well as the average micro. Right now, it's doing better. So I think it has the capacity to do very well. Could it get to the size of Pete's Wicked Ale or Sam Adams? I'd be skeptical about that, but it's growing well, and gaining volume all the time. It's just not very big yet.

Will you bring in any additional imports in the short term?

We've talked to a number of foreign breweries about bringing their beers in. We've also talked to some that are already here.

One of the reasons we closed down Unibev is that some of the people we talked to told us "Hey, we just don't think it's enough of a sales effort for us to justify giving you our brand." So I think offering access to our entire sales organization will help us in that regard.

We don't have any plans, by the way, but we're looking at a few things.

What became of the Herman Josephs revival?

We revived it, and then we shut it down again (laughs). You know, it's really good beer, it's just one of those situations where we couldn't convince the consumer they really needed it.

Most of the big brewers, including A-B and Miller, have fiddled around in that higher priced category. We've all been trying to find something that would bring us back into the realm of the old super-premium segment. We just haven't been able to spin that number yet.

You mentioned Pete's and Sam's a moment ago. Those brands have slowed down a lot this year. Why has the specialty segment hit a wall?

I'll give you an opinion. I think Sam Adams, and Pete's to a certain extent, grew primarily by extending the product line. Last count, Sam Adams had 23 flavors. They get really good shelf space, and they are very effective at retail. I applaud them for that.

But I think that product differentiation is losing some of its "specialness." People who are interested in micros are willing to try raspberry wheat for awhile, but then they'll look at other brands.

Will Coors continue to make new offerings in the specialty sphere, or do you see the specialty arena as being less of a force in the future?

We will continue to play in the areas where there is industry growth, and where we see opportunity. Frankly, in the specialty market, when you take out Sam Adams and Pete's, it's pretty small potatoes. It's difficult for a company our size, that puts out 20 million barrels, to get too excited about 50,000 or 100,000 or even 300,000 barrels of product.

It's my impression that the "Last Real Beer" campaign takes an oblique slap at the micros. Does that express an irritation with the micros?

No, I don't think so. That campaign was designed to attack the larger premium beer segment. We're really going against A-B with that, certainly not targeting the micros. We do kind of poke fun at all the flavored beers in our ads (laughs) so from that standpoint it does a little bit.

What's in our container is beer. Original Coors is a mainline premium beer that once sold 12-1/2 million barrels. I don't know what our volume will be this year, but somewhere between two and three million barrels. So we've got to have more on our agenda than just poking fun at the micros.

Do you see an opening for the return of full-calorie premium beers? You got the micros on one end and the lights on the other...does this open room for renewed growth of the regular premiums?

Not necessarily. The full-calorie premium lagers don't satisfy those who are drinking micros in a search for taste. And they certainly don't qualify in the light calorie, which is still growing like gangbusters.

For the time being, our thinking is that Budweiser has the bulk of that market. There are some other brands that are failing in that segment, so there is plenty of room for us to play. So we'll be in position. And if that changes in the future and the category starts growing again, with people coming back from lights or away from micros, we'll be there to get that business, or at least our share of it.

Some analysts have suggested that Coors is on the small side to compete with A-B and Miller. What is your response to that?

They're right (laughs). By the same token, being small allows us to do some things that our larger competitors have a hard time doing. We can be more tactical. Clearly we're way out in front in terms of innovation and technology. And we need to continue to do that to provide excitement in the market. So we get a jump on them, and they catch up with us in relatively short order. In packaging, for example, the large opening cans and our bat bottles. That kind of innovative packaging is our hallmark. The competition will jump in, but if we get four to six months head start we get some advantage in the marketplace. And we can do those things with our flexibility, whereas for A-B and Miller to tool up their plant and get things going is a tougher challenge. So there are ways we can compete that make sense.

But the majors will continue to set the agenda, in terms of pricing, for example. Does that make Coors vulnerable?

Sure it does. How low is low? We're selling beer today for less than we did ten years ago. I don't know how much appetite that Miller or A-B has for this. We are not typically the price leader. Our strategy is to try to get full pricing.

But that's been Miller's agenda this year, because I think they initiated this thing. They have had a modest success with that pricing strategy in terms of volume, and A-B doesn't like that. So Anheuser has said they won't be undersold in any market. We're not in a very good position to hang out there and say "you guys fight it out and we'll just sit here until you get it settled." To a large extent, when those guys start dancing, we really feel the vibration, and we have to get into it to a certain degree.

I think we've been clever about it, in trying to keep our price realization relatively in line where we'd like it to be, and not going too far overboard.

Our attitude is that we've got great beer, and we don't have to give it away.

Some analysts believe boer is basically underpriced. What's your take on that?

Frankly, I think that the micros are giving us a great opportunity to improve price realization of beer in general. The strong economy lends itself to that as well.

I just mystifies me that we're here scrambling for volume by pushing prices in the opposite direction. But, although we're not leading that charge, we'll have to fall in line with what our big competitors do.

Do you see this pricing environment continuing in the new year?

We've had two or three years now of relatively good price increases across the board, only to give them back away through deep discounting and couponing. Will it continue? I don't know. Will we get another two, three or four percent price increase going into 1998? My bet is that there will be a lot of pressure not to push prices up.

It's strange that, given that the brewers are trying to revive their premium full-calorie brands, that we're seeing this price war. Do you think this will damage the consumer's image of premium beer?

Yes.

Will these brands suffer long-term damage?

Ultimately the consumer will begin to say, "I've been getting it at a certain price. Why should I pay more for it?" And that concerns me a great deal, in terms of the future of the premium category, both for the regular lagers and the light beers.

We spoke of Herman Josephs a moment ago. For the time being, is the super premium category dead?

I think it is, as long as the micros and specialty beers are in the marketplace. That's where the business has gone. People who are looking for super premium imagery are looking for variety. A brand like Michelob or Herman Josephs isn't perhaps viewed as being "premium" enough anymore. I think as long as there is this micro craze, the odds of a large brand, say four to five million barrels, developing in the super premium category are not very good.

Turning to distribution. How is the ongoing consolidation in the wholesale tier affecting Coors. Are you comfortable with Coors-Miller houses these days?

There's a growing resistance among the Miller folks in Milwaukee to consolidate Miller distributors with Coors distributors. You'd have to talk to them about their rationale for that.

Clearly, consolidation will continue. There are good aspects to that, and negative aspects. The good aspects include the efficiencies of volume and so forth, that give the distributors, whose margins have been squeezed, an opportunity to spread their overhead.

The negative aspect, from a supplier standpoint, is you've got the same guy going in and selling Coors, Miller and Stroh. In terms of focus, that's a problem. How do you handle holiday periods, when we all have major promotions during the same weekends, or during the same weeks. When you are consolidated with other major brands, it gets hard to play that game. Certainly, some people are getting pretty clever about it, when they take it to retail.

I would say consolidation has to continue. There are a lot of distributors that are just too small to last through this. When they are too small, they won't be able to innovate themselves, and bring themselves up to speed with the technology and new strategic thinking that will be needed to compete.

Are you resigned to your brands melding with other major brands in large distribution houses.

We're more than resigned to it. We think it's clearly indicated in some markets. Frankly, though, I think it depends on the distributor. Clearly, if there is a really good distributor, and he has Coors and Miller in the same house, he'll be a good distributor for both brands. When we have mediocre distributors, with blended houses, we sometimes see Miller doing better than us, but not very well in the marketplace. In many of those cases, that distributor is not doing very well with either set of brands.

In my view, the issue isn't so much consolidation, as it is selecting the ideal distributor who can manage brands in that environment.

Do you see new threats to the three-tier system, given the growing power of the chains?

I don't discount the possibility that they will continue to exert their muscle. But at this point in time, I don't see us yielding to that kind of pressure.

So the traditional beer wholesaler offers added value for Coors?

Absolutely. If we were eventually to look at going direct in some fashion, we would use our distributors to do it.

What is your feeling on the impact of the trend toward .08 blood alcohol content nationwide?

I don't see enormous effects on the beer market, and it won't solve the problems we have with abusive behavior. The difference between .08 and .10 is not the issue in this country. It's the people with .2 and .3 levels that are responsible for 80% of the problem. That's where we ought to be looking, instead of fiddling around with .08. It is an issue, and there is a lot of legislative pressure to push the BAC down. It's well meaning, but I don't think it will be very effective.

What do you see happening for Coors in the next couple of years?

We'll continue to grow. When you're 10 or 11 share, you take what you can get. We've got a very strong brand in Coors Light, and Original Coors is looking like it can develop a positive trend. Killian's has been slowed down by all the other red beers that rushed into the market, and besmirched the name of red beers, but we'll see Killian's come back into a growth mode in the next year or so. So we've got plenty to work on.

We're seeing Zima show some flattening out of the negative trends that we had over the last two years. That's very good news for us.

So you remain committed to Zima as a franchise?

You bet. We're also reintroducing Coors Cutter as Coors NA. So we've got plenty on the plate, for little guys from Golden, Colorado.

The reason I'm in the East is our tenth anniversary on the East Coast. It's pretty exciting that we've got the number one light brand in New York and New Jersey. In New Jersey, we out sell Bud Light and Miller Light combined with Coors Light. So we've got a very strong franchise that is continuing to grow, and we're comfortable there.

Our plans are not too aggressive in terms of trying to get from 10 to 20 share in the next two or three years, but we're in this business for the long haul.

Thanks for taking the time to speak with us.
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Publication:Modern Brewery Age
Article Type:Cover Story
Date:Nov 10, 1997
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