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Brewing the future at Coors.

Leo Kiely didn't start out as a beer man, but he's catching on fast.

W. Leo Kiely ill was named president and chief operating officer of the Coors Brewing Co. in February of this year. Prior to joining Coors, Kiely was a division president of Frito-Lay, Inc., a division of Pepsico. Kiely is the first person outside the Coors family to serve as president of the Golden, Co-based brewery.

MBA: How are you enjoying the beer industry so far?

KIELY: I think it's great. It's a fun business. It's a people business, and relationships really do make a difference, in terms of conveying point-of-view and making things happen at point-of-sale.

MBA: You've been making some adjustments here at Coors. A new chain of command, as well as changes in your sales and marketing effort. How do you think this will alter the way Coors does business?

KIELY: I think that all businesses today have to do a couple of things to survive. Number one, you have to be more competitive tomorrow than you are today. You have to be constantly seeking that, in every aspect of your business. Second, you have to give a fair return to your banker. We are genuinely working on both fronts.

In terms of competitiveness, I see us becoming more responsive, quicker, less bureaucratic, less centralized. We'll be lining up closer with our wholesalers to impact what is a fast-changing retail environment. We just have to do that, if we're going to have the intense focus, what I call the "eye of the tiger," at point-of-sale.

At the same time, we're changing a lot of things internally, to make sure we've got access to the resources we need to grow our business. We need to improve our returns on the business. It's not a crisis, but it's a critically important issue to us. So a lot of the changes you see inside are changes that are designed to get our resources reallocated to focus on growth. We want to have the leverage to access the resources we need to grow. That's been the first order of business.

Concurrently, we're working on our sales organization, to line up closer to our wholesalers. We're doing that by going out and talking to wholesalers and retailers and finding out what they need.

I like to refer to it as being on the offensive with our wholesalers...not against them. That's an important distinction, because I think that the wholesalers need growth ideas from the brewery, and need support to grow.

But we also both have to be on the same page at the same time as we go to retail.

MBA: How would you characterize Coors' strengths as a company?

KIELY: I think that to be a great company, you have to do a certain number of things right. Coors has done a lot of those things right for a long time.

If you were to pick six pivotal things, number one is great products. Coors has always made great products.

Two, you have to have a great brand name. And, when you put your family name on a can, you tend to take that pretty seriously.

Three, you need great people.

Four, you have to be an innovator.

Coors has those four qualities, and we have them in spades. That's why the company is where it is today.

I think there are two others, however. You have to have what I refer to as "the eye of the tiger" when you get to retail. Whether that's distribution or merchandising, or just plain execution of point-of-sale, or selling focus at each channel.

Coors is a company that grew up for a hundred years of its history, virtually on allocation. We're a regional brewer. People really did fly to Colorado to buy our beer and take it home. In recent history, Coors has literally been on allocation. So we didn't grow up with that sort of "eye of the tiger" on selling focus.

At the company I grew up with, Frito-Lay, Herman Lay built a business displaying potato chips in front of products that people really wanted to buy. Their whole thrust was distribution, because they were a commodity product.

Today, to be a great company, you really have to be into the strategy of hustle at retail. Customer focus is the name of the game, and you hear that in any industry today.

The sixth point is quite simple. You have to manage your finances aggressively. Coors has always been a family business, and as long as there was enough money in the bank, they didn't worry about ratios. Today, we're almost a two billion dollar company. We better be able to look to our stake-holders and show them we've got a great financial future, so they'll continue to invest in us.

That's it. So you ask why we're changing the things we are, it's to complete the picture. It's to make us as strong as we have to be to compete in today's world. It's a tough marketplace out there.

MBA: How have your meetings with wholesalers gone so far?

KIELY: I've had a great time meeting the wholesalers. There are a lot of changes going on in this business, and the wholesalers are right on point.

I think the wholesalers, in conjunction with the whole industry, have done a great job this year, focusing together on some of the big external issues facing the industry. It's never over |til it's over on the excise tax, but I believe that the wholesalers have had a great impact, educating legislators as to the true facts of the beer business. The brewers have been working some of those levels with them, but it's primarily been the wholesalers.

I think consumers really do care about taxes on products like beer. I think people are very sensitive to it, and putting that into the appropriate context has been very smart.

With the economy the way it is, every company in America is facing the battle on how to make a buck today, and the competitiveness of the beer industry, and the specters hanging around on the legislative front, there's a lot of stuff going on.

MBA: When you talk to wholesalers these days, what are their primary concerns?

KIELY: I would say that the big issues today are power retailers, discounting, slow growth of the category and regulation. Not necessarily in that order, but those are the issues I hear most about.

In terms of regulation, number one is the excise tax. That has really gotten people's attention, and will give us a positive resurgence in terms of being in touch with our communities. But that isn't the only regulatory issue we face - this ad ban issue is right up there.

In California, the viability of the three-tier system is of real concern to people. I'd say that's true in Florida and several other states as well. The question is, how do we evolve the three-tier system to match up with these retailers who are leveraging their size?

As I see it, it's nothing but an extension of the competitiveness in the supermarket business. The supermarkets are getting competitive pressure from club stores, category by category. So they're not picking on beer alone, it's just our turn in line.

MBA: How can the brewers contribute to maintaining a viable three-tier system?

KIELY: I think the brewery has a purposeful role in this. We need to work with our wholesalers to develop ways of bringing value to those retailers, and still make a buck at it.

The wholesaler is the key to this industry. Three-tier legislation is not going to go away, and there are positive reasons for it.

Sometimes, though, I think we may hide behind it as an industry. I think we have to work to find innovative ways to evolve the three-tier system, so it doesn't lock into a structural position that's 30 years old, while the retail system continues to evolve.

What's happened is that breweries are consolidated on one side of the wholesaler, and the retail system is consolidating on the other side. And the wholesale system runs the risk of becoming an anachronism. It was developed coming out of Prohibition, and it has not changed an awful lot in the past 20 years.

I don't think change is a threat, although people take change as a threat. Change is an opportunity, if we look at it the right way, and we tackle it together.

I think if we end up bickering with our wholesalers about it, we're making a huge mistake. And I think if the wholesalers allow themselves to stay in a fight with their customer, which is the retailer, that's also a mistake. You don't want to be in a fight with retailers, because you're not building the category.

The numbers out of California show that we're not building the category, doing what we're doing in that state. It's not healthy for the business.

MBA: What is the proper course, given the kinds of competitive pressures wholesalers are facing? What direction should the wholesaler tier evolve in?

KIELY: I think that we have to look to other industries, and the answers are there. We may have to work together with the retailers for legislation that will allow us to approach some of those answers, but I don't think that's an empty set. I think we can get there.

There are advanced delivery systems, there are smart merchandising systems. The analogies are out there in the soda pop business, and in the snack business. Businesses that have not been regulated and have evolved in tandem with retail.

If you went to Frito-Lay today and looked at their store door system, you wouldn't recognize it if the last time you saw it was in 1980. It is totally different.

If you went to a beer distributor, you might find things pretty much the same as they were in 1980, with substantially the same delivery system. I'm not being critical, but I think that this is the nature of the problem. This pressure at the interface, where one part of the system is evolving at a different pace than the other, and that's creating a crisis.

MBA: Is there a way to fit these power retailers into the scheme of things?

KIELY: Sure there is. Absolutely. If you talk to most of them, they don't want to manage the warehousing and merchandising of 100% of the beer category. Warehouses cost them money, so does their fleet, so does in-store labor. They're just looking at the split of the pie right now. They're looking at it like good businessmen, saying, "Hey, explain to me why I shouldn't be getting more value?"

I'm not trying to make anybody into the bad guy in this. The retailers are playing hardball. But I think everybody has to get around the table and find a rational solution to this. To the extent that we can help people come to the table, that's an important role for us.

MBA: How can Coors help wholesalers as the system evolves?

KIELY: I think that we have resources to bring to bear, in terms of helping the wholesaler innovate. Whether it's systems work, or helping them study delivery systems. We run some wholesale operations ourselves, and we want to make sure our wholesale operations are at the forefront of any changes, and stay successful.

We have a huge stake in this, as do all the brewers.

MBA: In your earlier comments you mentioned growth. Will growth be difficult for Coors in this climate? What avenues for growth do you see?

KIELY: From an industry perspective, I'd give you two thoughts. One is, on the domestic front, the key to growth is innovation. Beer is already a great value, but for the category to grow, we have to innovate and bring new ideas to the consumer.

If you look at growing categories in today's market, and cookies and snacks are a couple of them, they've brought real innovation to the marketplace.

What we're doing with Zima, and the extent to which other people are bringing new ideas to the marketplace, that's good for the beer category.

The other reality is that the international world is opening up in a major way for domestic brewers. North America is opening up, because of the NAFTA situation, and a world market is developing for beer. I think this decade will see a lot of that long-term international growth playing out.

Another thing for Coors is that we're the ten-share brand, and we've got ninety-percent of the market to grow in. People have asked me what the biggest change from Frito-Lay to Coors has been, and that's one of them. Frito-Lay is a fifty share company, and at a fifty share company, you're always looking around wondering who's trying to steal your business. As a ten-share company, we don't have to worry about where we're going to get it from, but there's ninety percent of it out there to get.

MBA: So you look at Coors' size as an advantage?

KIELY: Absolutely. You are what you are. We're not going to be the biggest brewery in America in my lifetime, but you don't have to be the biggest to be a great company, to be a successful company.

MBA: You mention expansion in North America a moment ago. Will that be challenging, given that both Anheuser-Busch and Miller have been active in cultivating Mexican and Canadian partners?

KIELY: I don't have too much perspective to offer on that, except that I'd say that where there is change, there is opportunity. And, so I think there is opportunity for Coors to significantly broaden its horizons.

We already have a fine Coors Light franchise in Canada, in fact it's the number-one light beer in Canada, and it's growing very nicely. That is brewed in partnership with Molson, and we have a long-standing positive relationship with them. We have strong personal ties with companies in Mexico as well. I think the hand is yet to be played out. I'm not sitting here telling you that I know how we're going to grow, but I know that the industry is changing, and I know there will be opportunity. Things will move around.

We won't win every slot, and we won't be all things to all people, but we'll try to build a pretty good batting average.

MBA: Would you follow a similar strategy domestically?

KIELY: We do have to pick your spots, and understand what our assets are. I think Coors' assets are fundamentally those I mentioned earlier, and I'm not bragging. I get this from the wholesalers and retailers. They tell me Coors makes great products. Coors has a great brand name, and a hot brand name in Coors Light.

We're also innovators, and that's unusual for the number-three company in a field. That comes out of the Coors' family's wonderful bias towards engineering. They were the first guys to bring out the aluminum can, and when a company like ours can come along with Zima, the hottest new thing in the beer business, that's pretty good. That's good for the category, and it's an advantage that we'll pursue.

MBA: Do you see other new categories developing, beyond Zima?

KIELY: Well, somebody is going to hit a home-run someday in the non-alcoholic category. My impression is that the category has slowed down a little, but we as an industry haven't unlocked the product code on non-alcoholics yet.

You've got to watch your consumer. There is a right time and a right place for products, and I believe that in the near future there will be a big play in non-alcoholic.

If you look across the border, ice beer is hot as the dickens. We don't have the same play on ice beer here in the U.S., because ice beer is partially positioned in Canada as a higher alcohol product, but I think "ice" is a much more compelling concept than "dry."

To the American consumer, "ice" is beer. This is a concept that works, and it's pretty intriguing. I'm not offering hints on what we're doing, but you asked, "Are there growth ideas?" You bet there are. Six months ago, nobody was selling ice beer. I think you're only limited by your imagination and how close you stay to your customer.

MBA: How has Zima been performing?

KIELY: One thing that's very encouraging about Zima, is that it's not traditional beer drinkers who are building the bulk of the Zima business. It's people who have been drinking other alcoholic beverages, who are looking for a light, refreshing product. It's a unique bar call, that crosses over some categories, and that's great for the beer business.

MBA: How far could it go?

KIELY: I really don't know. We haven't been in it long enough to know that it's not a hula-hoop, to be real honest with you. But it's certainly not a six-month phenomenon. We're approaching a full year in our test markets, and it's holding up very nicely.

Inevitably, someone will move into the category with us, and I think that will be good. It will give the category more store presence. People are still discovering what Zima is. They are finding out that it's not beer, and it is refreshing, and that it is surprisingly drinkable. It's mixable with a lot of things, cranberry juice for instance, and it's a fun product.

MBA: On the subject of growing segments, what is your opinion of the microbrewery and brewpub phenomenon?

KIELY: Well, we've seen a lot of brewpubs open up here in Denver, and I think it's great for the industry. What intrigues me about it, is that it really brings into focus the craftsmanship of brewing. It helps people form a bond with the product category. I think that consumers in their 20's are experimenting with lifestyle things that will stick with them over a lifetime.

When a consumer can appreciate a well-made beer, that's going to be good for the long-term attitude that generation takes toward beer.

It's also good in that it directs us in the right usage direction for beer, towards moderate consumption of the product.

MBA: How will Coors benefit from the microbrewery trend?

KIELY: Well, I think we already are benefiting. I think Killian's Red is a play on that phenomenon. We are certainly participating in that with Killian's, which is a high-quality, crafted beer.

I think we'll also get ideas from the microbrewers. There is no doubt with all that experimentation going on, that there will be good ideas for the industry to pick up, copy and take national.

Frito-Lay discovered Doritos being made in California in the early |60s. They bought the brand from some little guy and took it national, and look at it today.

That's what companies like Coors have to do to be successful. Look around, see what's successful, check it out, and try to take it to more people.

MBA: So you could foresee Coors developing a much more diverse portfolio, adding more specialty products?

KIELY: I think so. Our Winterfest product has been a great success, and this year we're looking at extending that into other seasons of the year with seasonal specialty beers.

We also now have Unibev. As a selling focus, I think Unibev is very exciting. We're getting some very interesting calls. Access to the U.S. market for companies like Lion Nathan with Castlemaine is a neat asset for Coors.

MBA: Do you think that the growing diversity of products will help build a stronger beer culture in the U.S.?

KIELY: Yes, I do. It comes down to what people grow up with. If you grow up with a product in a positive environment, you will take that product into your home, and you adopt it into your lifestyle in a positive way. I think that's good, as opposed to some of the more negative models we've had in this country about how people adopt beer.

MBA: How does your new popular price brand, Shuler's, fit into the Coors portfolio?

KIELY: The Shuler's brand falls into the category of an experiment. To be honest with you, I'm not sure we should be in that business or not. But, if we're going to make a mistake, I'd rather that it be a sin of commission than omission.

The only way to find out is to try it. Certainly there is a major trend towards trade-down in value in the industry. I wouldn't say that is a positive trend. On the other hand, we're using this brand as a strategy to support our wholesalers in markets where we have high Coors share. Where our wholesaler needs a tool to participate in this economy segment. So that we can maintain a fair share of shelf space, and merchandising leverage.

We're looking at it as a tool to help us make our overall beer business more successful. We're certainly not looking at it as a way to trade down our portfolio.

We're being cautious, putting it into strong Coors markets like Kansas and Oklahoma, and we'll see if it helps us build the business. But it's not a precursor to a national roll-out.

We've got some excess capacity right now, largely because of a successful strategy with our satellite warehouses, helping us flatten our production curves. So, if we have the capacity to try something, we'll try it.

MBA: Do you think that the current wave of discounting has tended to devalue premium brands?

KIELY: I think what's happened in beer has happened in every market category. This is a macro factor, and discounting is just the form it's taking in our business.

Beer is a pretty good value, and always has been. Unlike the cigarette example, with the huge margin disparity, beer has been like the soft drink business, in its level of competition.

So I don't expect this to be a revolution in beer. Nonetheless, it's a phenomenon we have to watch closely.

This is a pendulum swing. American consumers are telling us that they are not going to pay a premium price for a commodity product. Consumers are smarter and smarter every year, and they are not going to do it. And there are retailers that will give them an option.

Therefore, if you are going to get a premium price, you better have a premium beer. You have to constantly build the image of that brand, and fine tune the quality.

To be successful as a brewer, and to be a successful partner for our wholesalers, our job is to build our premium portfolio. That means we have to go to the consumer with new ideas, new products, whole new segments like Zima.

What drives interest today is news.

MBA: You mentioned that consumers are looking for quality and value. Have the older super-premium brands hit the skids because they didn't offer that perceived value?

KIELY: I really don't have an opinion on that. I think some things just happen, in terms of life cycles of brands. Every dog has his day.

MBA: Can those brands who have had their day be rejuvenated?

KIELY: I've heard many people say it's never happened in the beer business. I don't know. In consumer-products land, though, the answer is "of course they can." But I would say it's a hard trend to turn.

What happens in most businesses like ours, is that people grow up with products, and take those products through life with them. Once someone chooses a premium brand, they are likely to stay in the same brand family they started with.

What marketers have to be aware of, is what age group is bonding with that product. For Coors, it's that 21-27-year age group.

It's critical that you constantly bring relevant messages and relevant products to each emerging consumer group.

MBA: As you point out, it's often said that beer brands are generational...that young adults don't want to drink their father's brand...does that consign older brands to the ash heap of history?

KIELY: No, but those brands have to find a way to refresh their position with a new generation. Take Coors as an example. Although we weren't national 12 years ago, the Coors Banquet brand was 90% of our business. Today Coors Light clearly is the lion's share of our business.

Twelve years from now, it will be something else, and Coors better have the relevant product and relevant message for the next generation that grows up with its beer. If it's ice beer, or whatever, we have to be there.

MBA: The brand cycle seems to be speeding up...would you say that is accurate?

KIELY: Things don't move in a forty- or fifty-year cycle, it's a five- or ten-year cycle. That seems to be true of everything...the world has just speeded up on us.

For a hundred years, Coors Banquet was our business. Now Coors Light is the franchise. Coors Light could have a twenty-year run, and I'd be the happiest guy in America. But if something else is hot, we better get on it.

People have criticized the brewers for pushing the "dry" category so hard, but I don't feel that way. I think it was a good idea, that the industry had to try. If it doesn't turn out to be a viable category, I guess we better find a way to get out of it.

Consumers will tell you eventually, but you have to be patient, because it can still take a couple of years before you find out whether you have a viable idea or not.

MBA: In closing, do you have an over-arching vision for Coors? If so, what would it be?

KIELY: Coors to me is a jewel. It is a really unique company, and it handles the fundamentals of business remarkably well, but still has some great opportunities for growth. I described earlier the six things that have to go on in a business.

It's like anything else. You don't want to throw out the baby with the bath water. My vision would be to add a couple of things to Coors' already strong portfolio.

I want us to maintain our pressure on product and brand and innovation, and not lose a step there, but push them harder. At the same time, I want us to become more savvy about performance at retail, and better stewards of our financial position. I think we can be a remarkably successful company.

Clearly, we can't play the game the way the big guys play it. We have to have a different strategy. We have to be quick, responsive and very close to the marketplace.

That's to our customers - and I consider the wholesaler a customer and the retailer a customer - and to the consumer. Those are two separate streams of thought in a company like ours. You have to take the customer world and the consumer world and focus on them very closely. That's one reason we've focused our sales and marketing into two strong functions.

MBA: Was the marketing out-sourcing a way to lean down the company?

KIELY: Out-sourcing to me, solved three things.

One, it is a way to be more nimble. The more things you do internally in a company, the less agile you are when it comes to changing. That's been the philosophy here, and in that sense the move with the marketing services group is just one move of several that will make us leaner.

Second, a creative resource like that, and it is an excellent creative resource, will perform better for you as an outside company rather than a company-owned resource. They will, as they gain new clients, gain new perspective, and generate fresher ideas.

It also gives us a scale. We'll get great benefit from the creative power of a bigger group of people. And I think that scale gives those people a better career opportunity.

Coors was the kind of company that used to look at things like that and said, "We're in Denver, and we're kind of remote, and we can do that as well as anybody else." And that was a damn good strategy for a hundred years. Today, successful companies are looking to be less structured, and I think Coors has to join that crowd.

MBA: Thank you very much. for your time, Mr. Kiely .

The Coors Brewing Co. has plans to add new specialty products to the portfolio, according to Leo Kiely. To that end, the company formed Unibev. Ltd some months ago, to serve as a specialty beer marketing arm for the brewer. One of the first brands out of the Unibev stable is Castlemaine XXXX, an Australian-style lager that Coors will brew at its Memphis plant. The production of a "import" beer under license at a domestic plant is something of a departure in the U.S., where great value is attached to imported "cachet." According to Frank Burnett, chairman of Castlemaine-Perkins, he company isn't worried about that. "We agree with Coors that the brand that is sold here in the U S. should be identical to the beer that is sold in Queensland, Australia, and our brewery has worked with Coors to that end. The brand is brewed using our own yeast, hops and malt, and uses cane sugar from a plant in Louisiana,"

Burnett says that the brand has fared well in other international markets, and pointing to its strong sales in the U.K. "We are selling more Castlemaine XXXX in the U.K, than we do in Queensland," he says.

The brand was imported on a limited basis into the U.S. some years back, but Burnett is certain that the partnership with Coors will produce greater sales volume this time around. "I am confident," he says, "and my company is confident. In Coors we have a strong partner, with an excellent distribution network."
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Title Annotation:Adolph Coors President and COO W. Leo Kiely III
Publication:Modern Brewery Age
Article Type:Interview
Date:Sep 20, 1993
Previous Article:Beer, health & taxes.
Next Article:Asahi and Molson U.S.A. will sell dry beer in U.S.

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