Miller's Genuine Drought

Even an elite SWAT team can't boost sales

As the long hot summer approaches, few are as thirsty as the managers heading up Miller Brewing Co. The elite team was parachuted in by parent company Philip Morris Cos. (MO ) to fix years of flagging sales and dwindling market share at the nation's second-largest brewer. But after two years, the taps are still running dry. Philip Morris recently reported a disastrous first quarter for Miller, with income plunging 18.4%, to $124 million, on a 5.1% decline in volume, to $991 million.

Wholesalers, ad execs, and former managers say that Miller CEO John D. Bowlin and his team of beer-industry novices have had a hard time getting the hang of the beer market. Meanwhile, they are facing strengthened domestic rivals at a time when a long-running beer boom, sparked by a healthy economy and a demographic spike in legal-age drinkers, may be sputtering to a stop. Compounding the problems, Bowlin and company fumbled a pair of import brands that might have given Miller a leg up on nemesis Anheuser-Busch Cos. (BUD ) The result: They've been unable to stem a slide that has knocked down Miller's share of the U.S. market from 22.9% to 20.5% over the past five years.

There may be an extra incentive to get it right at Miller these days. Analysts believe that Philip Morris could be preparing its beer unit for a spin-off or sale, perhaps to an expansion-minded foreign brewer or No. 3 domestic player Adolph Coors Co. (RKY ) Although Philip Morris has been unequivocal in its support of Miller, that could change once a planned initial public offering of its thriving Kraft unit is completed in June. A spin-off of the remaining 80% should follow, leaving Philip Morris overwhelmingly a tobacco company. Because of the huge capital gains a sale would generate, many believe a Kraft type spin-off is in the cards for Miller. "I see a spin-off down the line, but because of tax issues I doubt a sale," says Caroline S. Levy, an analyst with UBS Warburg LLC.

WITLESS ADS. When Bowlin and his handpicked team from Kraft and Marlboro arrived at Miller's Milwaukee headquarters, the former Kraft CEO promised "world-class" advertising for the slumping Miller Lite and Miller Genuine Draft brands. Help from some master brand builders was just what Miller needed. Budweiser's talking lizards and time- tested Clydesdales were cleaning Miller's clock. "You watch some of the Bud ads and ask yourself, `How hard is this stuff?"' laments a major-market Miller wholesaler. But instead of the breezy wit offered by its rival, Miller and the agencies brought in from the Kraft roster resorted to nudity, gross humor, and wrong-headed settings such as a hospital maternity ward. Beer-drinking younger males were drawn instead to Bud's new "Whassup" ads.

Why has it been so hard for the Miller team to get the formula right? For starters, aside from Bowlin, who put in a stint at Miller in the mid-1990s, they had little beer experience. For marketers used to pitching Kraft mac-and-cheese to moms or Marlboro cigarettes without TV, it proved a steeper-than-expected learning curve. "Early on it was clearly slower," acknowledges Robert L. Mikulay, senior vice-president for marketing. "We and the agencies needed to hit our stride." Bowlin compounded the problem by harping on his goal of "world-class" advertising, setting unrealistic expectations. That phrase now is verboten within Miller.

SUMMER MAGIC? There have been other problems. At a time when imports were enjoying double-digit sales gains, Miller's rights to Canada's Molson and Australia's Foster's should have conferred a rare edge over Anheuser-Busch, which offers no significant imports. But Bowlin's team couldn't pull Molson out of a prolonged skid, even as it underspent on the healthy Foster's brand. Molson subsequently bolted to Coors.

As another summer selling season approaches, there have been some hopeful signs. Last week, Miller unveiled to 4,000 wholesalers new ads that humorously skewer courtship and male bonding rituals and celebrate the brewery's heritage. While there weren't any Whassup-type wows, many felt that the new ads showed marked improvement. Now, with the ad budget getting juiced by 20%, to nearly $300 million, Miller hopes to regain lost ground. Even just a point of recouped share might help slake the thirst of the Miller team--and add to the price Miller Brewing might fetch in a sale.

By Gerry Khermouch in New York

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