From The Microbrewers Who Brought You Bud, Coors...Richard A. Melcher
Christopher Ruderman, 35, is just the sort of fellow to give the big brewers indigestion. Relaxing with a bottle of Pyramid Ale at Chicago's U.S. Beer Co., once a workingman's tavern and now a bar showcasing 100 regional brews, Ruderman says the trendy new beers pouring out of the national brewers leave him cold. Miller Brewing Co.'s popular new Red Dog? "It doesn't impress me in the slightest." Anheuser-Busch Cos.' Red Wolf? "I ain't buying." He goes on: "They seem so mass-produced. Now, buying micros--that's the ticket."
More and more beer drinkers have come to the same conclusion. Call them micros, craft, or specialty beers, the new quaffs come in many flavors, from wheat and honey to cherry and apricot. But they have several ingredients in common: high price, deeper flavoring, and, to the cognoscenti, a far hipper image than that conjured up by a six-pack of Bud. Partly, that's the mystique of obscurity. Anheuser produces 41.4 million barrels of Budweiser every year but will be unlikely to sell even 2 million barrels of Red Wolf in 1995. A good microbrewer might produce fewer than 15,000 barrels a year, with virtually all sold in its immediate area, maybe even in its own brew-pub.
But the specialty beers have something the big brewers are thirsting for: growth. While the U.S. beer industry is expected to stagnate for most of the decade, the specialty brews are growing at better than a 40% annual rate, with no slowdown in sight (chart). Little wonder, then, that the Big Four brewers--Anheuser, Miller, Adolph Coors, and Stroh Brewery--which control 80% of the beer industry, are rushing to tap a market that actually shows some fizz. Says Miller Chairman John N. MacDonough: "The new brands will generate our growth over the next five years." Taking a marketing page from companies as diverse as Hallmark Cards Inc., with its Shoebox Greetings unit, and General Motors Corp., with its Saturn division, the national brewers are trying to think and act small. Each is setting up specialty units with separate staffs to manage new brands and new investments. Their corporate identities are all but hidden behind colorful names that sound as if they have nothing to do with the brewing titans of Milwaukee, St. Louis, Detroit, and Golden, Colo.
Stroh, for example, expects that each of its breweries around the country will put out a regional brew like its Red River Valley Select Red Lager, produced in St. Paul, Minn. Stroh has also recently taken stakes in two small breweries--Sleeman Brewing & Malting in Ontario and another that the big brewer won't disclose for fear of damaging the micro's image. Coors, which has seen the growth rate of its specialty brew, George Killian's Irish Red, outstrip its flagship Coors and Coors Light brands, is now experimenting with its own micro: SandLot Brewery, housed at the new Coors Field baseball park in Denver. Coors will use SandLot to experiment with new products. "We will put new beers out there on almost a test-market basis," says Robert W. Joanis, vice-president for new-product marketing at Coors.
ONE-OF-A-KIND STAKE. Meanwhile, industry giants Anheuser and Miller, which after decades of acquiring smaller rivals now control 44% and 23% of the U.S. beer market, respectively, expect to similarly dominate the specialty market, which could reach 10 million barrels in five years. Anheuser and Miller have already taken stakes in two of the most successful small breweries around. Anheuser last year bought a 25% position in Seattle's Redhook Ale Brewery Inc. In February, Miller bought a controlling share in Celis Brewery Inc. of Austin, Tex.
Beyond that point, though, the strategies of the two giant brewers diverge. Anheuser's Redhook investment is likely to be one of a kind, a way to provide the brewer's distributors with a hot specialty product and its executives a sense of how the micro game is played. Redhook plans to increase capacity from 93,000 barrels per year to 225,000 barrels and, with Anheuser's help, add East Coast distribution.
But the heart of Anheuser's specialty business resides in a recently converted 15-barrel test brewery in St. Louis. That's where it concocts new brews such as Elk Mountain Amber Ale and Red Lager, and a new wheat beer, Crossroads. Other products are likely to be on tap soon. Anheuser is gambling that consumers will accept a small beer with a big brewer's name on the label--albeit not prominently displayed. "There is a certain mystique to smallness," admits August A. Busch IV, vice-president for brand management. "Ours are not beers from a small place, but they offer a variety of tastes." He says consumer research showed confidence in Anheuser's quality, convincing the brewer its name won't hurt sales of its craft brews.
PLANK ROAD MYTH. The new unit tries to act like a micro, though its bigness still gets in the way. "We have to micro check every marketing campaign," says Timothy T. Schoen, senior brand manager for specialty beers. "The toughest challenge is not to force specialty beers into the mainstream markets." To test its Elk Mountain, Anheuser went to consumers in the Northwest, home of the most discerning micro drinkers. But Anheuser isn't going to risk alienating them by throwing its mass-marketing muscle around. Instead of Elk Mountain TV commercials or Elk Mountain banners in sports arenas, the brand will be pushed in print ads and with videos and brochures aimed at bar owners. George W. Couch III, a big Anheuser distributor in Watsonville, Calif., says it's a major departure. "In the past, we wanted as much distribution as possible. Now, we're paying more attention to niches and are willing to accept that some products are regional."
Not without some effort, though. Executives at Redhook have had to work hard at times to keep Anheuser from smothering its brands. "Some of their distributors expected to use the whole range of radio and TV tools, and to sell to all of their accounts," says Pamela Hinckley, Redhook marketing vice-president. "That's exactly the opposite of how we sell."
Miller, meanwhile, is using stealth to seek growth among micros and what it calls the "macros"--beers that sell 2 million to 3 million barrels per year. None of the new brews carries the Miller name. "We heard loud and clear that the consumer doesn't want a craft beer coming from a large beer," says Richard Lalley, director of the premium brand franchise. So Miller marketers resurrected Plank Road Brewery--in name only. This 19th century Milwaukee brewery has long since faded away, except in Miller advertising, where it purports to be the producer of Red Dog and Icehouse brands. That, of course, risks turning off drinkers like Ruderman who aren't fooled.
In another attempt to keep its name off the label, Miller is buying boutique breweries, rather than creating them, with a goal of picking up one-quarter of the industry within five years. In late February, Miller set up the American Specialty/Craft Beer Co. to manage its micro deals, including Celis and Jacob Leinenkugel, bought in 1988. Miller hopes to push the new brands gradually into wider distribution.
As competition heats up, Miller and Anheuser are scratching at each other with all of the ferocity of red wolves and red dogs. Especially galling to brand manager Busch is Miller's Plank Road. He says that Anheuser research reveals that "50% of the consumers go haywire when they find out it's not a real brewery." He considered running ads deriding Miller's efforts but decided to let Plank Road "eat itself." MacDonough, who left a top marketing job at Anheuser for Miller in 1992, shoots back: "The only people annoyed are at AB. The consumer doesn't care."
BIG SHAKEOUT. Well, do they? Red Dog's early rollout does indeed look impressive, with Miller expecting to sell 2 million barrels this year. Anheuser says Red Wolf, which has only just gone into national rollout, is ahead of plan. What's unclear, of course, is how sustainable the new brands are and whether their growth will come out of sales of the core brands. Christopher Finch, co-author of America's Best Beers, has his doubts about the new brands' prospects. He calls Red Dog "totally uninteresting" and says Elk Mountain would rate a two out of five on his scale, "if I was being generous."
Even modest success by the titans will prompt a big shakeout among the nation's 500 small brewers. "Only the real quality micros will survive," predicts, Greg Schirf, president of tiny Schirf Brewing Co. in Park City, Utah. Other microbrewers, though fearful the new competition could trigger pricing pressure, doubt the giants can beat them. "Anheuser, Miller, and Coors can make anything they want," says Mark F. Bozzini, president of Pete's Brewing Co., the No.2 micro behind Boston Beer Co., marketer of Samuel Adams. "The only thing they can't do is look like us, with the name, history, and goodwill. That's not something you can replicate in a market-data room." The challenge for the megabrewers? Buying or building themselves a small image--and convincing beer connoisseurs such as Ruderman that they're the real thing.