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Miller launches another salvo against A-B discounting.

In a press release, the Miller Brewing Company has reported heavy discounting by A-B during the July 4th selling period, asserting that "Anheuser-Busch discounting continues to eliminate a long-established pricing umbrella, further shifting A-B portfolio mix toward economy brands."

Miller released a similar press release after the Memorial Day holiday period, dissecting beer sales in detail, and citing Neilsen data to bolster its arguments

According to Miller, sales data for the July 4th sales period indicates that "discounting did not drive volume or share gains."

According to Miller's conclusions, based on Neilsen data, the two-week sales period ending July 9 showed that the "industry is slow-growing, but fast-changing."

The company said that overall volume for the industry itself grew a "respectable" 1.8%, "dramatic share shifts within the industry continued. Most notably, higher-priced imports and craft beers continued to surge, while mainstream, full-calorie American lagers continued to suffer."

And Miller said that "volume and share movement did not correlate with discounting ... [as] Miller Brewing Co.'s share of total beer sales remained flat versus the prior year, while increasing prices by 1.2% ... [and] in contrast, Anheuser-Busch lost 0.5 share points despite lowering prices versus the prior year by 0.5%."

Citing Neilsen figures, Miller said Lite's share grew 0.6 share points, and the import category grew by 0.9 share points.

Miller credited Budweiser Select as driving gains for the Budweiser franchise. Since its debut in February, Miller notes that Bud Select has captured a 1.8 share, but sales of Bud Light declined 0.1 share points while sales of Michelob Ultra declined 0.6 share points, and original Budweiser dropped 0.9 points.

Miller reports that over the July 4 sales period, A-B cut the average price per case for Busch 4.4% and Natural Light by 5.6%, and each has picked up 0.2 share points, while the premium-priced Michelob franchise declined 0.9 points.

"Price discounting is not an effective growth lever for the industry, unless you want to rent volume in the economy segment," said Tom Long, Miller's chief marketing officer. "Driving brand value is the growth lever, and we will play aggressive offense there, while playing smart defense on the pricing front."

In its press release, Miller said that the sales data indicates that the company "had moderate success in executing its stated strategy of not ceding share based on A-Bled pricing initiatives." After the Memorial Day sales period, Miller said that A-B had out-executed it in securing discount programs with retailers, under-estimating both the depth and breadth of A-B's cuts, and for the 4th of July period, Miller said it "competed more effectively in discounting activity, but was unable to close the gap with features and displays."

"We made progress, but we're chasing a moving target," said Doug Brodman, Miller's senior vice president for sales. "Fortunately, the growing brand strength of Miller Lite is more than making up for the relative price swings."

Miller said A-B's current discounting activity resulted in its deepest average price decline since 1998. And Miller also said the July 4 results indicate that "even though that pricing umbrella continues to collapse to its lowest level in years, Miller Lite continues to gain share."

"We were encouraged by the fact that we were able grow Miller Lite's share and price, particularly while A-B's share and price were declining," said Long. "We see brand reconsideration occurring at a rapid pace, and we are determined to capitalize on that, leading with Lite."

Miller cited the recent July 4 period as "the midway point of one of the most competitive summers in the modern history of the American beer industry, as the nation's three major brewers have engaged in discounting. In early February, Anheuser-Busch lowered its earnings projections, saying it would use discounting throughout the summer to reinvigorate its business. Subsequently, Miller rejected the notion that discounting could restore momentum to either specific beer brands or the industry as a whole, but also vowed not to cede share from Miller Lite based on price."

Miller called A-B's discounting "highly unorthodox for a market leader, [and] the company's aggressive price cuts with economy brands over the 4th of July are particularly perplexing. Far more than other beer brands, economy beer brands tend to be highly price-sensitive, and price-based share gains within the segment require ongoing discounting to be sustained."

"If this is a one-time push, they've simply rented some very expensive share for a couple months," Brodman said. "And if they stick with it, they will have permanently gutted much of the profitability out of their economy brands for their system."

Miller said that A-B discounts "intensified the recent deterioration of the pricing umbrella A-B enjoyed in the economy segment, as the Busch brand once sold at a premium price over High Life and Natural Light brand commanded a significant premium over Milwaukee's Best."

Long said Miller would not automatically move in lockstep with A-B cuts. "We believe the right kind of highly targeted marketing support will allow us to protect our economy brands without over-reacting on price."
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Title Annotation:Miller Brewing Co. and Anheuser-Busch Companies Inc.
Publication:Modern Brewery Age
Geographic Code:1USA
Date:Jul 25, 2005
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