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MacDonough time.

Miller's new president brings a wealth of experience to the embattled number-two brewer.

John MacDonough, new president of the Miller Brewing Co., comes to Miller from archrival Anheuser-Busch. Analysis have applauded Miller's recruitment of MacDonough, and have taken his appointment as a sign of Philip Morris' commitment to the beer business. At A-B, MacDonough built a reputation as a marketing whiz kid, and is credited with a major role in A-B's market ascension of the 1980s.

MBA: Do you find any differences in the corporate culture between Anheuser-Busch and Miller?

MacDONOUGH: I don't know if it's all that instructive to compare the corporate culture of the two. Both companies are selling beer. Both companies are competitors. I'm delighted with the caliber of the people here and their commitment to the quality of the product, and their willingness to welcome a former competitor into the ranks.

MBA: What have your first priorities been?

MacDONOUGH: I think you could say we've had multiple priorities. Let's look at what has occurred: The Miller Lite business has shown signs of improvement; We have balanced the portfolio by repositioning High Life as a near-premium brand, and we've made agreements that show we're interested in expanding our market outside the U.S., through our North American partners FEMSA and Molson. Our agreement with Molson has also allowed us balance the portfolio of Miller products with imports we did not have before.

MBA: You mention an improvement in Lite sales. In your estimation, when did those numbers begin to improve?

MacDONOUGH: Coincidentally, things started looking better in September. One must remember that Miller Lite is the leader in the low-calorie segment and that segment has always been growing.

MBA: What tactics will you employ to further Lite's growth?

MacDONOUGH: Most important, we have to emphasize to our sales and distribution system that two difficult years should not change their attitudes about the brand. It can grow.

In 1991, we had an excise tax challenge. In 1991 and 1992, we had the impact of our own introduction of Miller Genuine Draft Light. We were our own competition during that introduction, and it took focus off the brand. Where we have focused back on the brand, we're having success.

MBA: In your opinion, did the introduction of Genuine Draft have a similar impact on High Life?

MacDONOUGH: Well, High Life was declining before Genuine Draft was introduced. So I don't believe that High Life's challenges arose because of Genuine Draft. Clearly, however, in many parts of the country Genuine Draft has become the brand with more sales momentum.

MBA: Would that become your de facto flagship brand?

MacDONOUGH: I'd call Miller Lite the flagship. It's the second-largest brand in the industry. It's our largest brand. It's in a category that will continue to grow, and if we do the right things the brand will continue to grow.

MBA: What is your feeling on declining brands? Can they be rebuilt?

MacDONOUGH: There have been many situations in the 1980s in which declining brands recovered. The old stories that you couldn't turn a brand around refer back to the 60s and 70s, before the kind of marketing resources were invested in the brands that exist today. And, in a few of those cases, those declines started when you had a product problem.

MBA: Schlitz?

MacDONOUGH: Specifically, Schlitz.

I look at the beer business very regionally. And, if you look at Miller Lite, it was declining in Texas several years ago, and Miller turned that decline around. So, as long as you have the resources to address the problems--which we have--a brand like Miller Lite can continue to grow.

It's more challenging if it's a brand like Budweiser, which is in the full-calorie category, and that category is no longer growing. The only brand in that category that's still growing is Miller Genuine Draft.

MBA: In terms of Lite's turnaround in Texas, what tactics were used?

MacDONOUGH: The key thing that turned it around was the promotion called "The Biggest Party in Texas." Overall, Miller used marketing to create new excitement for a brand and renew distributor focus.

The Texas promotion was a concentrated marketing effort. It was a totally integrated local market effort, and I don't think anyone has ever done that to the extent it was done in Texas.

MBA: Could that experience serve as a model for rebuilding Lite in other markets?

MacDONOUGH: We have had an improvement in trends in 39 states, and it is the leading brand in the only category that is growing. With continued improvement in advertising and distributor focus, we don't think that Lite needs a special party to get it going in every state.

MBA: So you are confident that you can get Lite turned around?

MacDONOUGH: I wouldn't have taken this job if I didn't believe that Miller Lite could be turned around.

MBA: How is the morale of the wholesaler corps?

MacDONOUGH: The best time to ask me that question would be after the national sales meeting, but the meetings that I've had with wholesalers in small groups have been very encouraging, because they've been encouraged. They've been encouraged that Miller is doing things pro-actively. They are very encouraged with the FEMSA and Molson moves. Frankly, they are encouraged that, if Miller was going to bring in someone from the outside, that person was a beer person.

On the other hand, all wholesalers, regardless of their brewery affiliation, are concerned about how they can grow their business, and, most importantly, how they can keep their business profitable during what has been very intense price competition.

MBA: What is your feeling on this price competition. Do you believe that it could cause some brand erosion?

MacDONOUGH: If a brand cuts back on its advertising while it is price promoting, it will erode the brand image. Miller's premium brands have maintained their advertising weight during periods of price promotion. It's a concern, but it's not alarming.

MBA: Some wholesalers have complained that Miller has been somewhat inflexible in some of its negotiations with wholesalers, particularly in terms of inventory levels.

MacDONOUGH: There is no question that at the end of 1991 wholesalers were unhappy with the inventory levels they had. We heard that concern, and I was pleased that we were able to get the inventories down substantially at the end of 1992. It hurt our reported shipments to do that, and it was unfortunate that the news focused on our shipments rather than our retail sales, but it was the right thing for the business long-term. We haven't heard any complaints since.

So I certainly don't blame them for complaining, and I'm pleased we were able to do something about it.

MBA: We had heard that Miller might introduce a clear, malt-based beverage. What is the status of that product? (Miller announced the introduction of a clear beer at the end of February).

MacDONOUGH: There has been quite a bit of speculation that we would introduce a clear beer.

MBA: Do you think there is potential for that kind of beverage?

MacDONOUGH: Let me put it this way. Miller is in the business of trying to satisfy our customers better than the competition. There are a lot of beverages on the market today that the customer is selecting because they are, in many cases, clear. So that arena is worthy of exploration. I don't guarantee that we're doing it, but we're in the business of trying to identify consumer desires, and meeting them. And in our new products, we will try to that.

MBA:What was the strategy behind the national roll-out of Miller Reserve?

MacDONOUGH: Here is brand that is unique. It is a non-pasteurized, all barley-malt beer, and it is a demonstration that Miller Brewing can make a unique and extremely high quality beer--equal to, or better than, a microbrewery beer. We use Reserve as a quality statement about what Miller Brewing can achieve.

Because of that, we do not expect it to sell at the same level as a premium-price brand.

MBA: Despite the fact that the above-premium segment was shrinking, Miller felt that the introduction of Miller Reserve would pay off?

MacDONOUGH: If you combine above-premium and add microbreweries and American specialty beers, the segment is growing. So we would rather call Miller Reserve an American specialty beer than a super-premium.

MBA: How has the wholesaler response been to Miller Reserve?

MacDONOUGH: Very positive, in that it exceeded their expectations.

MBA: Will you continue to promote that at the same level?

MacDONOUGH: It was introduced with introductory marketing weight, but we will continue to support the brand. Not only because these efforts sell the brand, but because the brand is such an important quality statement about our brewing capabilities.

MBA: Turning to the Molson deal, what steps led up the agreement?

MacDONOUGH: Well, we can't explain all that went into that. But we're all very excited about it. We think that Molson products have great potential in the U.S. There are also a few other brands that are intriguing--Foster's, Steinlager, Kronenbourg.

With the borders coming down in North America, we see greater potential for Molson in the U.S.

Molson U.S.A. will also give us an additional selling arm for these imported brands. That will give us an edge over anyone else who is importing products through their general sales force.

MBA: Will Molson U.S.A. be kept intact?

MacDONOUGH: It will be kept separate and intact.

MBA: The last time Miller handled an import, they decided to ultimately brew it here--Lowenbrau. Would that approach make sense today?

MacDONOUGH: It would not make sense today. It has been demonstrated that the American consumer likes imported products, and we are working with the American consumer. Therefore, we will not brew Molson in the U.S. It will always be an import.

MBA: Will the licensing agreement with Coors in Canada stay intact?

MacDONOUGH: We hope so, and we believe so. We have said that we will not involve ourselves in any of the decisions that the Molson partners make on the Coors brands.

MBA: What impact will the Molson deal have on American wholesalers? Will you try and consolidate those brands in Miller houses?

MacDONOUGH: Franchise laws are such that it's really up to the people who have those brands now, as to what they wish to do. If a Miller wholesaler wants to buy a Molson brand from another distributor, that's their prerogative. We are not making distribution changes.

MBA: How about the FEMSA brands?

MacDONOUGH: At this point we don't have that influence. We have 7.9 percent of FEMSA, and that doesn't impact what's going on in the U.S. at this point.

MBA: Molson reported that Miller would promote Molson products commensurate with domestic products. Is that accurate?

MacDONOUGH: We bought the brand with the intention of growing the brand, and that will take marketing investment. We have not been specific on what type of marketing investment.

MBA: Does Miller's new relationship with Molson change Miller's corporate attitude on GATT in any way?

MacDONOUGH: I think we will bc consistent with our past perspective, although our past perspective might have confused some people. Let me put it this way: I think it will be easier to understand our past actions now that we are clear on our association with Molson.

MBA: Will Miller continue its strategy of international expansion using this strategy...purchasing shares in foreign brewers?

MacDONOUGH: We look at it on a case-by-case basis. That's about all I can say.

MBA: Philosophically, do you think the international market is one of the better avenues of growth for American brewers?

MacDONOUGH: Well, I think all American brewers are looking to international growth. Our strategy is to do it in two ways. One, we have very strong trademarks, and we believe that Miller Genuine Draft can be sold in many different countries, because it's a very good product, and there is more and more interest in American products and American beer in other countries. So expansion through export or local production of Miller Genuine Draft is desirable.

Secondly, however, we do not believe that any brand of beer in the foreseeable future can dominate the world as a global brand. So in addition to expanding Miller Genuine Draft, if one wants to build an international business, acquisitions are the second way to go. And these are done on an almost country-by-country basis.

We would look at a country that was very profitable, or having great growth potential. And we've just demonstrated our willingness to do that--Canada is very profitable, and Mexico has great growth potential.

MBA: In one of Miller's European partnerships, with Alken-Maes, Miller produced a beer specifically for the European market. It was brewed with a profile aimed at the European consumer, with a higher hopping rate. Does that approach hold promise?

MacDONOUGH: I think that if you're going to take an American beer to the rest of the world. Take it as an American beer.

MBA: Do you think the rest of the world wants that?

MacDONOUGH: I think that American journalists misinterpret the desirability of American beer. There is an assumption that the rest of the world wants a full-bodied, heavy German-style beer.

In Germany, for example, German brewers can't even agree on what the German consumer wants. The largest individual brand in Germany has a two-percent share. We've seen several cases in which North American beers have come in and done surprisingly well, because the consumer wants the kind of taste that an American beer provides, which is more refreshing. That's the key.

They also like the American imagery. Therefore, you have Miller Genuine Draft as the largest-selling imported beer in Ireland, a country where the beer of choice is obviously quite different--Guinness Stout. Budweiser, brewed in Ireland, does extremely well. Miller Genuine Draft is doing well in the U.K. It was just recently introduced, but it's doing nicely in a country where ten years ago the market was primarily ales. Corona sold an awful lot of product on Germany, to everyone's amazement.

MBA: And Corona certainly doesn't meet the Reinheitsgebot.

MacDONOUGH: Well, as you know, Reinheitsgebot was declared a trade barrier by the European Community. I think it's clear that Germany created its own definitions to protect their market. For example, wheat beer did not meet Reinheitsgebot, but wheat beer was sold everywhere in Germany.

The way I see it, Reinheitsgebot is not important to a 24-year-old German consumer, although it is to a 60-year old German.

In Japan, the largest selling imported beers are all American. So American beer is desired in many countries. Those countries may not even like the U.S. government, but they like American consumer products. Marlboro cigarettes, Coca-Cola, and hopefully Miller Genuine Draft.

MBA: Do you prefer to produce under license or do it through export?

MacDONOUGH: You get the brand there by export or local production. The decision on which way you go is dependent on tariff barriers. It's pure economics.

In Canada, for example, there are barriers. In that country, we license with Molson and we have participation with Molson. There might be other situations where we would produce it other ways.

MBA: Taking the broad perspective, will the world turn towards light lagers?

MacDONOUGH: The world has continuously turned towards lager. But, while we will have some profitable success in some countries, American beer cannot expect to dominate a local beer market anymore than imported beers dominate in the U.S., although they have been significant and profitable.

MBA: On a more general note, some analysts say that Miller will have a pretty tough time in the years ahead, because the economies of scale are on Anheuser-Busch's side. What is your response to that?

MacDONOUGH: First of all, we are large enough to have economies of scale to produce a high-quality beer as efficiently as anyone else. Miller Lite and Miller Genuine Draft are very well supported.

As a matter of fact, I think that sometimes it's easier to gain growth as the number two.

MBA: I think the line of argument was that, since Anheuser-Busch has twice the volume, they would have twice the resources to compete. Would you say that is accurate?

MacDONOUGH: No. What they have is a much more profitable company.

We are a subsidiary of the largest consumer products company in the world. If we had not had the association with Philip Morris, we would not have been able to negotiate the North American partnerships we have just done. Philip Morris' experience internationally and in deal-making gives us a substantial advantage over anyone else in the U.S.

MBA: Will Philip Morris give Miller the resources it needs to compete? Are they committed to the brewing business?

MacDONOUGH: It's not a question of Philip Morris giving us the resources. We are expected to be a self-sufficient company, but Philip Morris understands the value of an incremental share point as well as we do.

Because of that, they have demonstrated their commitment to the beer business in the last six months through a number of actions. The acquisitions in Mexico and Canada would not have happened without Philip Morris' help. And the fact that Philip Morris gave Miller Brewing the flexibility to adjust our inventories this year, even though it had an effect on profitability, is another example of their willingness to invest in the beer business.

The key news is that Philip Morris has demonstrated their level of commitment. I think it is a closed issue.

MBA: What is your view of the future potential of the beer business, and where do you see Miller's place in it?

MacDONOUGH: All consumer product businesses in the U.S. are situations in which to grow you have to grow share. I believe that Miller will be able to grow share in the U.S., by offering a portfolio of products that meet diverse consumer demand. Additionally, we have potential outside the U.S., but that's frosting on the cake. Right now, my focus is domestic.

To your point on how the business is looking in the U.S., one of our concerns as an industry is regressive excise taxes. I believe that Anheuser-Busch, and Coors and Miller and our wholesalers are working together to address this concern better than ever in the past.

The Clinton administration pledged not to raise taxes on lower and middle-income Americans. An excise tax on beer is a regressive tax aimed directly at lower to middle-income people.

President Clinton ran an advertisement during his campaign that blamed Bush for raising excise taxes on beer. I wouldn't think he would want to see an ad from a future opponent saying the same thing about him.

This industry gave a 100-percent increase in excise taxes two years ago. It hurt the industry. It cost jobs at Miller Brewing, which I feel very badly about. We think to go back and ask for the American beer consumer to be taxed again this soon is unconscionable.

MBA: Does it look to you like the President's Task Force on health care will be coming at the beer industry?

MacDONOUGH: There's no question in my mind, and I think that it's ridiculous.

The idea of earmarking taxes to help pay for health care reform is questionable in itself. There are plenty of economists who think that earmarking is a bad idea. Beyond that, forcing a moderate beer consumer who may benefit from beer consumption pay for health care reform is ludicrous, and unfair.

Using that logic, they could as easily come up with an excise tax on automobiles or potato chips--anything that has the potential for misuse. This industry spends a lot of time and effort directing educational messages at the consumer, discouraging abuse more pro-actively than any consumer industry in the world. We think those efforts go further towards avoiding abuse of our products than an excise tax ever will.

MBA: Miller, A-B and Coors each have their own programs on this. Would you support an overarching program, perhaps through the Beer Institute to address these issues?

MacDONOUGH: Well, I think they both have a place. However, I think there are times when we can accomplish the most on our own. That gives us the flexibility to take quick action if we see an opportunity to help in a given area. Someone else may have another idea, and it's easier just to say, 'Well, you do yours

and we'll do ours.'

Incidentally, I think that Ray McGrath is a great choice to head up the Beer Institute. I'm sure he will come up with programs in which we as an industry can work together better.
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Title Annotation:John MacDonough; Miller Brewing Co.
Publication:Modern Brewery Age
Article Type:Interview
Date:Mar 22, 1993
Previous Article:Canadian brewing companies face competitive pressures amidst falling trade barriers.
Next Article:King Henry.

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