Printer Friendly

Price of playing poker.

Price of Playing Poker

With national expansion complete, Coors Brewing Co. finds the beer-marketing game challenging but the stakes rewarding, Peter Coors, president, says. MBA: In contrast to the company's five-percent increase in 1988, Coors Brewing Co. sales declined 5 1/2 percent in the first quarter of 1989. To what do you attribute the volume decline? COORS: A combination of factors. First of all, we completed our marketing expansion into the East in 1988. We had the benefit of some pipeline filling in the first quarter of 1988 which, of course, we were cycling against this year. We also began our national expansion of the Extra Gold brand during the first quarter of last year and I think that accounted for a little bit of the slackening early this year. In addition, I think the industry in total in the first quarter looks to be a bit soft. Frankly, now that we've completed our expansion we're seeing a stabilizing of our market. MBA: Do you expect this trend to continue for the remainder of 1989? COORS: I can't answer that. It's very difficult to know what's going to happen in the industry. We see lots of new products being introduced by the competition. We have new advertising campaigns that are just now entering the marketplace. We are looking at some new product possibilities between now and the end of the year. When you put all of those factors together it's very difficult to understand exactly what might happen. If we were to look at a one-quarter trend line, I think you could extrapolate that and say Coors might have a five-percent-or-so decline in 1989. That's certainly not what we have in our plans and not what we expect for the rest of the year. What it's going to do--based on competitive activity, as well as things we're doing to counteract--is a question that probably everyone in the industry is asking themselves. MBA: In reporting on the first-quarter loss, chairman Bill Coors stated, `Our challenge is to maintain market share now that our national expansion is complete.' How is the company attempting to maintain and even gain market share? COORS: We're doing alot of things, some of which have been successful and some of which have not, over the past few years, to try and stabilize our brands. Our growth, as is evident from our sales experience, has been in the Coors Light product. The Coors brand is where we have seen significant slippage in our volume. But it is still a significant brand, number eight or nine, I believe, in the domestic beer rankings. However, the trends on that brand are not very good. We did a number of things last year to try to stabilize the trends of that brand, including a packaging change which has been described as a major marketing flop. But I think that's an indication that our company is willing to take risks and do whatever we can to make things happen in the marketplace. When you have a brand that's off double digits, you do some things that you wouldn't do with a brand that's growing or even flat.

The brand is just going through its life cycle. I don't think there's anything unusual about that. It's not something we enjoy seeing happen. But we'll continue to work on ways to change the trends on the Coors brand. We have new advertising for the brand and we're trying to build the Coors Extra Gold brand to capture some of the people who are switching away from Coors, who are looking for a little bit different taste, a little different product, or even a new product. This, again, is the kind of thing that some of our competitors are doing.

An operating philosophy Coors recently adopted is customer satisfaction improvement. This philosophy empowers our employees to make decisions at levels we frankly didn't allow in the past; to speed up our decision-making process; to force focus on consumer needs, whether that be consumers internally at the company, including inter-departmentally or consumers external to the company, distributors, retailers and ultimately, consumers.

Between October, 1988 and April, 1989, we trained all 6,700 of our people on one full-day seminar on the concepts of customer satisfaction improvement. We think this is going to be a key as we look at how we manage, operate and address problems in the industry. While this is a relatively new concept and will take some time to work, we think it will give us, in many respects, a competitive edge as we look down the road long-range. This concept may not make a big difference in 1989, but will position us, from a management and operational sense, in a very positive way, longer range.

CSI is partly a result of the needs of the marketplace. The marketplace is clearly becoming more regionalized and localized. Our ability to respond to the needs in one market have become totally different than, perhaps, the old days when brewers used a major national advertising campaign for one product. This brewery is a perfect example of the way things have changed as it was designed to make 12-ounce cans of Coors beer, period. As Coors and the industry is learning, the consumer is asking for variety. We've consolidated breweries and brands have begun to drop out, and consumers are still looking for new and different things. So, the need for different brands hasn't changed; they just have to be provided by a fewer number of breweries. Being able to deal in that environment really changes how we look at the decision-making process. Being able to regionalize, in terms of marketing and sales activities, moving the decisions to the marketplace where decisions have to be made more rapidly, is key. MBA: Does this mean CSI carries over to the local marketplace, at the distributor level? COORS: Yes. We have begun to develop some training of distributors in the concepts of customer satisfaction improvement and some of the philosophies that go along with it and we're finding that to be very fruitful. As we develop this thing, it will really be a very comprehensive process. MBA: What types of challenges has the movement from a regional to a national brewer--absent of merger or acquisition--brought to Coors? COORS: Probably the biggest challenge has been an expanded distributor organization. When we had 11 states 12 years ago, we were looking at about 170 distributors. Today we have close to 700. Most of them are multi-brand distributors. The challenge for us is competing for their attention.

Another challenge for us today is to manage a sales and marketing organization that is now spread across the entire United States. The challenge is also realizing that 13 years ago we were a large, but relatively small regional brewery, and now we're a national brewery that has to be regionalized in our efforts. So learning how to cope and deal with that from a sales and marketing standpoint, as well as a logistics standpoint, as a shipping brewer, is certainly creating some interesting challenges for us. MBA: Coors' image among different consumer groups has been a problem in the past. As that has changed lately, how has the improved image been reflected in Coors beer sales? COORS: We've never really been able to measure the impact of some of the issues that we've had to deal with in the last 10 years, including issues with organized labor and some minority groups. So not being able to measure accurately how that has affected us, it's been difficult to measure how we might have benefitted. Over the course of the last 10 to 15 years, there have been industry problems that transcend any kind of individual brewery problems. During that period of time, we have seen some very large and substantial companies not being able to compete in a competitive environment that's overwhelmed the industry. So trying to sift out the issues problem from the industry and the competitiveness of the industry is very difficult for us and that continues to be the case. As we've solved some of the public relations, if you will, issues that we've had to deal with, what we've done is provided an environment where the company is perceived as a much better company today than perhaps it was perceived in the public's eye a few years ago. I think we prepare them to buy our products but then we have to compete, once we're on a relatively-even footing from a public relations standpoint, on the basis of advertising programs, product quality and so forth. MBA: Coors reportedly has the highest advertising costs per barrel of any of the major brewers. Why is this? COORS: This is a demonstration of Coors' commitment to being a long-term player in the industry. We're currently the fourth-largest brewer in the industry; our intermediate term goal is to become number three. If we're number three and growing in a three-to-five-year time frame, we'll feel pretty good about things. We have invested a huge amount of money into advertising because we feel that is a way in which we look like a major competitor, which we consider ourselves to be. It's an issue of simply trying to keep pace. On a dollar-per-dollar basis, we spend significantly less than Anheuser-Busch and Miller, but on a per-barrel basis, because our volume is lower, we look quite a bit bigger. That's the price of playing poker, I guess. MBA: When does Coors expect to begin brewing beer at its Virginia plant? COORS: We will build capacity in Virginia when we need the capacity. We finished 1988 at about 16.5 million barrels. With the packaging facility in Virginia we have the capability to move that up to 19 or 20 million barrels. After that, we'll begin to need brewing capacity. We don't have the luxury at this point of cash flow or a parent company to invest in brewing capacity to enable us to brew in Virginia. Since we're internally financed, we don't see sense in putting money into a facility when we're not absolutely certain yet how the shakeout within the industry is going to happen. As we see our volume grow, we'll start turning dirt. MBA: Turning to some of your brands, Coors Light had a phenomenal year in 1988 with an approximate gain of one million barrels. To what do you attribute the brand's success last year? Is this pace continuing in 1989? COORS: Coors Light continues to be a phenomenal success story for our company. It continues to grow in 1989. We're putting a lot of energy behind the brand, in terms of marketing support. I think the brand is growing because it's a very good beer. MBA: On the other hand, as you mentioned earlier, Coors Banquet has been suffering. Last year sales of that brand fell a reported 11 percent. What are the reasons for the brand's trouble, considering Coors' expansion efforts? COORS: I earlier mentioned life cycle. Additionally, there are markets within our national distribution where the Coors brand is really doing quite well. But it is not doing well enough to make up for the areas where it is doing quite poorly. Fortunately--as we saw in 1988--in areas where it isn't doing very well, the Coors Light brand is doing phenomenally well and so we make up the differences. We're doing everything we know how to do to bring the Coors brand back but if we're able to do that it would be probably the first time in the history of the industry that a major brand was knocked out of the declining position that it was in to come back. MBA: The company's other premium beer, Coors Extra Gold, was expanded nationally last year. Doesn't that product directly compete with the flagship? COORS: I think both Coors Extra Gold and Coors Light compete with the Coors brand if that indeed is the flagship. Although since Coors Light has passed it by, I think we have to say that Coors Light has become the flagship. People are going to try new products.

We went to Coors Light in 1978 after a great deal of soul searching because consumers were switching, they were looking for something different in a product. Coors beer, itself, had been advertised as `America's fine light beer;' in fact, at one time we advertised it as being a low calorie beer, with 13.8-percent fewer calories than other premium beers. After the war, things began to grow here so rapidly that we kind of forgot that we really invented the successful low-calorie product. But we realized the Coors brand could not be all things to all people. Coors was stuck as a brand with a lighter taste but not lower calorie, per say. And it had an image of being a bit weak and watery. So people were leaving the Coors brand for Miller Lite on the one end of the spectrum and Budweiser and Miller on the other end of the spectrum, saying that Coors just didn't have enough flavor. So the Coors Lite brand gave us a brand to compete for those consumers who were going to be leaving the Coors brand anyway, looking for a low-calorie beer, and gave us an opportunity to begin to take some of our consumers back that we lost.

The Coors Extra Gold brand is designed to be at the other end of the spectrum. We advertise the `full tilt taste" of Coors Extra Gold. So we have bracketed the Coors brand so the consumers who do leave the brand have the option of going to a lighter beer or a full-tasting beer, again giving us a product where perhaps we can attract a competitor's consumer at the higher end of the taste spectrum. MBA: Are you finding that happening? COORS: Yes. MBA: Coors reportedly is working on a dry beer entry. What can you tell us about it? COORS: Not much at the moment. We're watching this phenomenon called dry beer very carefully. However, dry beer is not something that is particularly new. The concept as it has been developed by the Japanese is a bit different than the concept here. We have the luxury of watching to see what happens and if it becomes a serious segment in the marketplace. If it does, we have a product ready to go and we're working on packaging, design and other things which would give us an opportunity to enter the market quite quickly if we felt that it was appropriate to do so. If it makes sense for us to be there, we'll be there. MBA: What is the potential of the U.S. dry beer market? Will the market reach the status it has in Japan? COORS: I once speculated that Coors Light might get to as high as 15 percent of our total volume. So I'm rather reluctant to speculate as to what dry beer or any other undefined new idea might do as far as lighting up the interest of the American consumer. MBA: What about your malt liquor, Turbo 1000, presently in test markets? Is there any chance of that being expanded? COORS: We are having mixed results with the Turbo project. That's the reason we have delayed it so long in test market, trying to determine whether or not it made sense for us to expand the brand. The competition has been very intense in our test markets. At this point, we would just like to continue with the test market to determine if we will have an opportunity to make that brand successful. We think the product is terrific, the concept is terrific. But we've watched both Anheuser-Busch and Miller be relatively unsuccessful in the malt liquor category and they have a lot more muscle than we do. I take nothing away from their efforts but it's a very difficult segment of the market to break into. MBA: Why is that? COORS: I'm not totally certain why. There's alot of brand loyalty for the brands that already exist in that segment and not a great deal of motivation for new products at a premium price. MBA: Of the five major brewers, Coors is the only one that does not market a popular-priced beer. Why is that? Will Coors enter the market? COORS: Coors has resisted entering the popular segment primarily because we're concerned about capacity capabilities and meeting demand. If we were to enter the marketplace with a popular-price beer and it was to be successful, how we would develop the capacity to produce that product is a question that has been a source of concern to us. We don't believe that with the way the pricing structure is, building capacity for the purpose of growing a popular-price beer makes much sense. Whether or not we could brew one in someone else's brewery to meet our needs is a question that we haven't totally come to conclusion on. We are studying the possibility of a popular-price beer currently. We have the same concern as other brewers, however, of a price beer that begins to cannibalize other brands within the company. To cannibalize higher-margin products for lower-margin products doesn't seem to make much sense. But we are studying it very intently at the current time and when the time comes to make a decision on that, we'll let you know. MBA: Coors is also reportedly developing a bottled water. When will that product be available? COORS: We'll be in test market with our bottled water in August. We're intrigued by the concept for a couple of reasons. First of all, we want to have some experience in the marketing of non-alcohol beverages. Secondly, we feel that a bottled water, which will have at least part of the pure Rocky Mountain spring water name attached to it, will heighten the awareness of the importance that we place on the water, both here in Golden and in Virginia. We think it will enhance our overall program. MBA: Will Coors wholesalers distribute? COORS: Yes. MBA: How are the sales of Coors beers, brewed under license agreement in Canada and Japan, doing? COORS: We're very pleased. We're doing extremely well in Canada. We're doing well, but we'd like to be doing better in Japan. The dry or extra dry phenomenon in Japan has taken alot of the focus and energy away from our partner Asahi and promoting our products. We understand and it's difficult to argue with that. But as that effort and energy dissipate somewhat, I think we'll see additional emphasis on import beers. I think it's a great opportunity for us long term. It's important for our company to be involved internationally. We have alot of activity going on internationally right now and there are other opportunities that we see available to us. With each one of these international expansions we learn a little bit more about how to operate and how to work with foreign partners. We feel very good about our involvement in both Canada and Japan and have high expectations about our potential. MBA: Turning to the overall U.S. beer market, do you see the flattened sales trend of the 1980s continuing into the 1990s? COORS: I don't think there's any question that we anticipate a continued very flat beer market. I think the beer market is going to be better than the rest of the alcohol beverage industry in total. Our forecast is that the wine and spirits categories will continue to decline. So I'm very pleased that we're in the part of the alcohol beverage industry that is stable. Our products are seen by the population at large as being very legitimate and beverages of moderation. But primarily because of demographics, I don't see much growth. MBA: Imported beer sales in the U.S., meanwhile, have also begun to sag. Do you see this trend continuing into the 1990s? COORS: I think the sagging of the imports is, to a large degree, a function of the value of the dollar. As that changes, I think you'll find that the ability of American consumers to purchase at what they think is a reasonable price won't be as great as what we saw in the last decade. I look for continued slow growth of the import business. MBA: Has the consolidation of U.S. brewers, prevalent in the early part of the decade, ended? COORS: There has been speculation that our industry is going to end up with three or maybe four brewers, with maybe the exception of second-tier operations. From that standpoint, I think the consolidation is getting relatively close. At the current time, there are two very big competitors. There are three competitors at the point that they could go either way. And there are a lot of rather small competitors, some of which are very successful, some of which are not doing particularly well. The five top brewers in the country now command close to 95 percent of the total volume. I don't know what consolidation means, but I don't see that changing. There's too much power in the top five brewers. MBA: Does that also hold for that second tier? COORS: I think among that second tier, at least one brewer, or maybe two will emerge. But at least one will fall out. MBA: What role will Coors play in all this? COORS: We're going to grow and take as much market share from our competitors as we possibly can. As I already stated, our goal is to be number three and growing in the medium time frame. I think if we can do that, we've been very successful. MBA: You were recently quoted as saying, `We envision ourselves as a global company.' Does this mean Coors will involve itself in the worldwide consolidation taking place in the beverage industry? COORS: I don't think that there's any question in my mind that in order for us to be a major player, to be number three and growing in the U.S., it's going to be important for us to be involved internationaly. What that means in terms of international consolidation--partnerships, agreements, how that structure looks as we look down the road--is very difficult to predict at this point in time. Clearly the situation up in Canada would indicate that just about anything can happen. By the same token, we look at the situation in England where the Scottish & Newcastle acquisition by Elders was turned down. That's a different phenomenon than what we're seeing in other places so I'm not really sure what `international consolidation' really means or what it will look like. What we feel is important is that we develop partnerships globally that put us in a position to have a competitive position in the marketplace in a broad sense. MBA: Where do you envision Coors in 10 years? COORS: As I said, our intermediate goal is to be third and growing. If we're that in five years, then in 10 years I would expect that our position would be one of being a strong and viable competitor to Anheuser-Busch and Miller. I don't have visions of being quite their size but I have visions of being close enough to be in the game for the very long haul. MBA: Do you think the warning label requirement, which is effective later this year, will have any impact on malt beverage or alcohol beverage sales? COORS: No. Given the choice of having warning labels or not having warning labels, we'd rather not have them. But if we've got to have them, we're going to live with them. There's already a great deal of awareness about the hazards of the over-consumption of alcohol and abuse of our products. And I don't think by simply having a message on the container we're going to see different behavior. I just don't believe that it will have any immediate impact. MBA: Labeling that Coors does support includes ingredient and alcohol content labeling. Some of your competitors, however, are opposed to that. Does Coors plan to actively pursue the legal requirement of those type of labels? COORS: At the present time our company feels that we have some very important industry issues that we have to be united as an industry on; issues such as taxation and advertising. Though we feel strongly about the value that we think alcohol content labeling would have in helping to fight those issues, we're not willing at this point in time to make a major fight within the industry, generate a civil war, at the expense of accomplishing some very important things that we need to do as an industry. My role is to, as forcefully as I possibly can, convince my competitors that alcohol content labeling would work to the advantage of our industry in fighting some of the other bigger issues. And I intend to continue doing that. MBA: Do you expect a federal excise tax increase this year or in 1990? If so, what impact will an increase have on Coors and on the industry? COORS: Any increase in excise tax is going to create an increase in the price of our products. To the extent that those price increases have a negative impact on people's desire to purchase the same or

greater quantities of the product, I think we see an increase as a very negative factor. Whether or not there will be an increase is totally speculative. I don't know what the mind of Congress will be. On one hand, I know they want to look at increases on excise taxes, but on the other hand, they are interested in their constituents who feel that an excise tax increase on beer is going to hurt the little guy as well as the brewer. So they may be very reluctant to pass excise taxes but we're going to have to work very hard to keep excise tax increases from occurring. MBA: Is an ad ban or restricted advertising likely in the near future? COORS: Again, I'd have to give an answer that's totally speculative. I think there's adequate evidence to demonstrate that advertising and increased advertising has not had any impact on consumption, whatsoever. I think Congress would have a difficult argument suggesting that advertising bans would make sense. But it's impossible to predict how Congress will act. I think the industry has compelling arguments. And we're going to have to fight very hard to keep advertising bans from occurring, and we will do that. But, whether or not we'll be successful...We're at the whim of Congress. MBA: As a brewer, what type of advice can you offer beer wholesalers to improve the way they do business? COORS: We're learing alot of things from our beer wholesalers. We have what we call our Distributor Development Council which provides extremely valuable input to us, in terms of how we can operate better. We're also looking for ways that we can help wholesalers do better. One of the ways we can help our distributors is to do a better job of regional and local marketing, which will work to their benefit. Clearly, training programs and getting them oriented in our philosophy of customer satisfaction improvement as a process of their organizations is very important. We're working very hard in moving in that direction. There are a lot of ways in which a brewery can help its distributors, but also ways in which the distributors can help us.
COPYRIGHT 1989 Business Journals, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Adolph Coors Co. marketing
Publication:Modern Brewery Age
Article Type:interview
Date:Jul 10, 1989
Previous Article:Upscale beer segment bucking the trend.
Next Article:Wholesalers and suppliers deal with recycling demands.

Related Articles
Coors shipments lower in second quarter, 100 positions cut.
Coors wins POPAI promotional award.
Coors begins its search for a new president, COO.
Trading opens for Coors spinoff unit.
Coors to sell Extra Gold in Ireland.
Coors reports 23.7% increase in earnings.
Coors plans reintro for Zima in some markets.
Lion CEO says brewer won't pull out of China.
Low beer prices take toll on the major brewers.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters