What's on Tap for MillerCoors

Retailers voice surprise, curiosity about future of new No. 2 beer brewer

Published in CSP Daily News

By
Samantha Oller, Senior Editor/Special Projects Coordinator

TROY, Mich. -- Surprise, curiosity and certainly a level of concern: These are some of the emotions retailers are feeling just days after the SABMiller and Molson Coors brewing companies announced plans to merge their U.S. operations.

I am waiting for further developments to see what they have in mind, as the structure of the new entity seems unusual, Mike Scarpelli, vice president of marketing at Southwest Convenience Stores LLC, Odessa, Texas, told CSP Daily News.

A majority (59%) of respondents to a Kraft/CSP Daily News [image-nocss] Poll said they expect the joint venture will benefit the convenience-store industry. But the predicted reasons the channel will benefit were widely spread:

22% of respondents felt the benefit was the creation of a larger No. 2 brewer. 21% said the joint venture will improve distribution. 9% said the deal will provide a greater availability of brands. 7% said other reasons prevail.

About 27% of respondents said the c-store channel won't benefit, and 14% said they weren't sure.

For Scarpelli, however, the surprise is in the structure of the new company, MillerCoors, that is being established.

Miller owns 58% of the assets but only has a 50% vote on the board, and Miller will have second place on the board, said Scarpelli, whose chain operates 160 c-stores in West Texas and New Mexico. While this may be a good move for both, it should benefit Coors the most, I would think, since Miller is the stronger brand.

He added, Miller has brought us much more in category strength as they have the better resources. I guess this will be a wait/see as the structure seems a bit Byzantine to me, but then I am not privy to all the details and expect there will be a lot more to work out.

Ken Rash, category manager for Maverik Inc., North Salt Lake, Utah, thinks the Miller-Coors combination will be a good match.

The merger pushes their combined market share to a level that is closer to what they need to compete with A-B [Anheuser-Busch] and the growing imports, Rash told CSP Daily News. The products they offer seem to complement each other pretty well.

Rash noted thatCoors has a strong presence in the West, while Miller seems more established in the East.In addition, Coors has had success with their craft beer such as Blue Moon, while Miller has enjoyed some success with the chelada-style beer, Miller Chill, he said. The unknown seems to be if the two companies' cultures can come together, as they seem quite different.

Rash doesn't anticipate much of an impact for Maverik, which operates about 170 stores in seven states, since many of the chain's distributors are already dual Coors and Miller houses.

There will be a couple of markets that are separate now that will probably have to combine so the stores will deal with one less vendor in those areas, he said. Eventually, I think we may see some impact in the look of our Coors and Miller displays in the stores as the new company combines marketing efforts and will have potentially more marketing money to spend with their increased market share.

Tom Fox, a partner in the CM Profit Group consultancy, Troy, Mich., agreed that the two brewers' brands may get more marketing muscle, rather than less, under the combined structure. Using Miller Lite and Coors Light as examples, he told CSP Daily News, Those are the No. 2 and 3 brands in the country. There's no way you're going to see any dilution of effort. When you have a deal that's going to save you $500 million, you could argue that both are going to get more support. They're going to invest that money back into the business.

For Fox, a beer-industry watcher, there were two surprises in the deal announced Tuesday. I'm surprised at the timing, he said. Normally, there's a little bit more loose lips than what you had here. There really were only three or four people on each side that were making this happen, and normally there are a lot more rumors. Very rarely do you hear something that's a complete change from one day to the next with a big announcement.

Like Scarpelli, he also voiced surprise about the outlined structure of the new company. It appears to truly be a merger of equals, he said, and normally you don't see that. I would have expected Miller to buy Coors or Coors to get pretty leveraged and to buy Miller. For it to be a merger of equals, these are companies that have been fighting tooth and nail for decades, and for them to now be partners is a little odd.

If the deal is approved by federal regulators, the new company ultimately will pose a new competitive threat to A-B such as it hasn't seen in decades; however, Fox said in the meantime, A-B may actually have some advantages on which to capitalize.

A-B has already sent out a memo to their distributor sales force saying that when these things happen, there's a loss of focus [for the merged companies]. There's going to be people worried about their jobs, he said. So I think A-B short term views this as a big opportunity for them to provide the typically very good service that they've always delivered, and frankly will be looking for vulnerabilities because during a transitional time period, you tend to see companies struggle to keep their eye on the ball 100%.

Miller and Coors will try to do [maintain their customer service], but A-B will be looking very closely at opportunities to grab space, to grab displays. So I think A-B in the short term is probably licking its chops going, Boy, this is a chance to get some of our market share back'.

Click here to view CSP Daily News coverage on the MillerCoors announcement.

Click here to view the MillerCoors investor presentation.

Samantha Oller By Samantha Oller, Senior Editor/Special Projects Coordinator
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