The Chicago Tribune yesterday ran a story breaking down the chronology of the latest outbreak of the beer wars.
To beer industry veterans, the ins and outs of Anheuser-Busch’s attacks on widely used brewing ingredients might sound like a story they’ve seen play out before. It goes something like this.
- With Bud Light facing increased competitive pressure, the dominant industry leader lashes out.
- AB then acts in ways that hurt the category.
- It denigrates the competition.
- And as onlookers suggest restraint, it keeps on swinging.
That was AB’s playbook during the last major escalation of the beer wars in the early-to-mid 2000s — and it tracks pretty closely to their approach today.
Industry veterans also may remember AB’s effort fell flat, and that its self-inflicted damage arguably was another domino leading to its $52 billion takeover by Belgian brewer InBev in 2008.
All of which raises questions around what AB will do next and what the unintended consequences may be for both the company and the beer industry.
A familiar playbook
It’s too early for answers, but it’s clear that while beer war history doesn’t repeat itself, it does rhyme.
- The last episode of the beer wars unfolded as long-dominant Bud Light tried to fend off a challenge from Miller Lite. Fast-forward to today and Bud Light is coming off its worst percentage decline ever (according to Beer Marketer’s Insights) and is losing share to Miller Lite.
- In 2003 AB responded with a scorched-earth approach that ultimately hurt profits and perceptions for the entire industry. Now it’s attacking common brewing ingredients — including some used to make its beers.
- Back then AB denounced Miller Lite as the "Queen of Carbs;" ads attacking Miller Brewing Co.’s South African ownership appeared in the restrooms at AB-owned amusement parks. Now it’s encouraging distributors to put up point-of-sale messaging denigrating ingredients — materials that many retailers don’t want in their stores.
Questioning AB’s actions
During the last war, many questioned the wisdom of AB’s moves. It’s the same story today.
In a recent article, Forbes called Bud Light’s now-infamous corn syrup ads “fake news” and based on “a half truth.”
Speaking to the Wall Street Journal, Heineken Chief Executive Jean-François van Boxmeer said, “The tone of competition was as unfriendly as I’ve seen during the Super Bowl. No wonder the beer category isn’t going to elevate itself.”
Opined analyst Robert Ottenstein to Ad Age: "We're not crazy about negative advertising — we don't think it's great for the category. But when things aren't working I guess you try anything."
Then and now, there are broader questions as well. During the last go-around, a big question was whether AB was going to be an acquirer or a target as the global beer business consolidated. Now, it’s whether its cost-cutting business model is sustainable, particularly in light of the recent problems at Kraft Heinz, which shares some of the same investors.
Fighting the last war
For those not around at the time, the last major round of the beer wars happened after SABMiller acquired Miller Brewing in 2002. One of its first moves was to reposition long-struggling Miller Lite to challenge Bud Light with ads touting how it had fewer carbs and calories – but more taste – than Bud Light.
The bolder approach paid off. Miller Lite posted a 0.8 percent increase in shipments in 2003, its first gain since 1999, according to Beer Marketer’s Insights data. Bud Light posted a 2.5 percent increase, but that was off from 7.4 percent in 2002 and its worst showing since 1995.
Early on AB countered by reducing prices in markets where Bud Light sold at a premium to Miller Lite.
Then things escalated quickly. Heading into the 2004 summer selling season, AB launched its “Unleash the Dawgs” campaign. It ran an ad in USA Today blasting Miller Lite as the “Queen of Carbs” and “South African Owned.”
It didn’t matter. Miller Lite that year grew by 12.3 percent compared to 3.9 percent for Bud Light, and AB’s stock posted its first meaningful year-over-year decline since 1993.
The next year, AB wielded the price hammer, but with little effect beyond hurting its margins. “It doesn’t appear that so far (Anheuser-Busch) has gained much share from its aggressive (pricing) actions,” Beer Marketer's Insights' Benj Steinman told the Financial Times at the time. The company’s stock dropped 15.3 percent that year.
The next two years were marked by endless new product introductions, rumors that AB was seeking a distribution deal with Grupo Modelo (didn’t happen) or InBev (happened, whoops), August Busch IV succeeding the legendary August Busch III, and mounting rumors that AB was in InBev’s sights. It closed the year at $52.34, just below its opening price of $52.68 in 2004.
The takeover offer came in June 2009. InBev offered $65 per share (later sweetened to $70), representing a hefty premium on AB’s price at the time. After a brief resistance, AB agreed to sell. And so marked the passing of an American icon.
What happens next?
Plenty of factors played a role in Anheuser-Busch’s sale to InBev: a lack of meaningful international expansion, the fact that the Third was no longer in the big chair, the accelerated growth of wine and spirits, and that’s just for starters. But AB’s competitive actions — and their repercussions — during the beer wars was clearly part of the story.
(And no one knows that better than the current owners of Bud and Bud Light.)
While it’s too early to say whether AB’s latest gambit will pay off, the first sales data from Nielsen after the Super Bowl showed Bud Light continuing to swoon.
In the meantime, ongoing questions loom around what AB will do next and whether AB’s attacks on ingredients will hurt consumer perceptions of beer, just as its pricing actions hurt profitability (and perceptions) for the industry previously.
As we saw during the last war, there’s no predicting the outcome.
The MillerCoors Behind the Beer news blog is typically published three days a week. Subscribe here. Do you have story ideas? Questions? Comments? Email Peter Frost at peter.frost@millercoors.com.