Business: Beer: Big Battles Are Brewing

Pots of money plus hard marketing are the basic ingredients

Tradition, order, simple marketing methods, sales that rose reliably in good times and bad—all these were qualities of the beer business a few years ago. Now the $16-billion-a-year industry is being shaken by a costly battle for market shares that has sent some brewers to search for cash-heavy merger partners, other companies to reassess their marketing strategies, and nearly all the well-known firms to bring out new brands to curry the customers' fickle favor. Small regional brewers can scarcely keep afloat, with the result that sales are increasingly concentrated among the Big Five. Since 1972, Anheuser-Busch, Miller, Jos. Schlitz, Pabst and Coors have increased their combined share of the market from 55.5% to just over 70% last year.

The market has been roiling ever since Philip Morris in 1970 acquired full control of Miller Brewing, a Milwaukee company with a well-known label but stagnant sales. In came a team that knew little about the relative merits of hops and barley but was highly skilled in the arts of advertising, packaging, cost analysis and marketing. John Murphy, who was Philip Morris' chain-smoking, beer-quaffing international executive vice president, was made head of Miller, and he brought to his office the same marketing drive that had made Philip Morris the biggest American tobacco company in Europe, Africa and Latin America. Says Murphy: "You never set out to become No. 2."

Spending $500 million to expand in the beer business, Miller introduced the 7-oz. "pony" bottle and bought the Lite label for its low-calorie brew, which became a runaway success; Miller staged a high-budget ad campaign that featured Mickey Spillane and ex-Football Star Bubba Smith to give a macho image to Lite. In order to crack the highest-priced market segment, which has been dominated by Anheuser-Busch's Michelob and imports, Miller last October began national sales of Lowenbrau made under license in its U.S. breweries.

With all this, Miller surged from seventh place in 1972 to edge out Schlitz for second place last year, with net sales of $1.1 billion and operating income of $106 million. While industry volume grew by 4%, Miller reported an increase of 31.6%. Of Philip Morris' $500 million capital budget in 1978, more than half will be devoted to Miller, a ratio that will continue for several years. The aim is to raise capacity from just over 24 million bbls. to 40 million bbls. by 1980 and draw even with Anheuser-Busch by 1983.

That will take some doing. Anheuser, which had 23% of the market last year, outsold Miller, 36.6 million bbls. to 24.2 million bbls.; the St. Louis company rang up sales of $1.8 billion and pretax profits of nearly $170 million, both records. It has been willing to spend to match Miller in every segment of the market. Anheuser's Natural Light has overtaken Miller Lite in some markets, and Michelob has a wide lead in the battle with Lowenbrau.