Four senior executives from Adolph Coors flew into the UK last week for their first meeting with chief executive Jerry Fowden and the board of directors from the US brewer’s newly acquired Carling brewing business. While their message to their UK employees was that it was going to be “business as usual” for Carling’s marketing team, there are many concerns over the &£1.2bn deal, which delivers Coors the Carling, Caffrey’s and Worthington brands and the rights to Grolsch, as well as a clutch of smaller products such as Reef and Hooch.
The arrival of a new overseas player in the UK could signal a huge shake-up in the brewing market, as did the arrival of Belgian beer producer Interbrew in 2000. It is Coors’ biggest foray into Europe and a massive investment for the company, equalling almost half of its annual turnover of $2.5bn (&£1.7bn).
The Carling portfolio was put up for sale in September after the Government decided Interbrew’s 32 per cent market share was uncompetitive, forcing it to offload the brands. Coors snatched the Carling business from under the nose of Heineken, which was tipped as the favourite to buy it. But Coors is going to be under pressure to sustain – or indeed increase – margins on its UK beer estate to make the deal pay off.
When it was first announced, some predicted that the deal could spark a price war among the UK’s leading brewers, as Scottish & Newcastle, the largest player and Interbrew, now the third largest, would turn on the new entrant knowing that Coors has not got the resources to sustain a downward price spiral. But one drinks analyst says: “A price war contradicts everything that S&N has said about value growth. And Coors would be eager to raise its own profit margins.” He believes, in fact, that quite the opposite of a price war is likely: “The market has been unstable. Interbrew has been trying to sell off these assets and has tried to strip as much out of them as it can.
“It has cut back on the brands’ marketing support to give it leverage to increase volume and keep margins growing. There has been a lot of discounting, though S&N has not been predisposed to engage in this and it has hurt its volumes.”
He believes that resolving the Carling issue could now restore some “stability” to the market – in other words, allow the brewers some breathing space for increasing the wholesale prices and prices in the off-trade sector.
But Bass Brewers claims that marketing investment in Carling has increased from &£20m in 1994/1995 to &£35m (including media and sponsorship) in 2001/2002 and that for the year to September 2001, &£6.5m was spent on advertising the Carling brand through the Leith Agency.
It has pulled out of sponsoring the Premiership, replacing it with the lower profile – and cheaper – music sponsorship with Clear Channel Entertainment.
Bass Brewers head of public relations Paul Heggerty says: “We are very positive about the deal and are pleased to be partnered with a company with a fine brewing tradition and ambitious plans. There is no large presence of Coors in the UK, which means there will be no painful integration of the two companies.”
Coors shares fell by a third during 2001 but, despite the purchase of the Carling portfolio, prices dropped again on the back of investor concerns about the UK beer market’s steady decline.
The Coors brand has also been the target of a boycott in the US from gay and lesbian bars, which have refused to stock the product due to the historic support of far right causes by the family that founded the Coors company, including the alleged funding of right-wing, bible-bashing politicians Jesse Helms and Pat Robertson. Although the company is listed on the New York Stock Exchange, all of the shares with voting rights are held by the family and its charitable trusts.
As one analyst says: “Coors has had a difficult time in the US, where it has come a poor number three. The brand has been associated with big, hard drinkers and homophobic groups. It would appear that Coors has got the positioning of the brand wrong in the US.”
Still, sales have been strong. In 2000 they were $2.4bn (&£1.66bn), up $358m (&£248m) on the previous year, so perhaps the company has learned something from the criticisms – or maybe the hardman approach to beer marketing is one way to keep sales rising. Aware of the bad press, the company has attempted to improve its poor image by advertising in the gay press and introducing a non-discrimination policy and its own gay worker’s group called the Lager, Lesbian and Gay Employee Resource.
But critics question Coors’ motives and argue that the move is a response to global ambition. The attitude of the UK gay community to Coors remains to be seen, though a spokesman for one London-based gay organisation, Outrage, David Allison says: “The gay community is one of the best customers the brewing industry has and it is of much concern that we may be financing extremists when we buy beer.”
The Secretary of State for the Department of Trade and Industry Patricia Hewitt has still to rule whether the takeover satisfies competition rules and is expected to do so by the end of February, though it would be surprising if she were to block the merger. Coors is keeping quiet on what it told Carling executives last week, but its marketing plans will become clear soon enough, though few are expecting it to pump resources into the main Carling brand.
With the Carling question sorted out, the UK’s brewers are looking forward to the days when they can start putting prices up again.