Anheuser-Busch and Miller slug it out over a $30 billion market
For Americans by the millions, summer is that mellow and hazy season of beaches, baseball and, of course, beer. Yet for the folks who brew the U.S.'s favorite grownup beverage, the summer of 1982 has been anything but serene. American beermakers are engaged in the most ferocious free-for-all in their 357-year history. After years of steady expansion, two giant companies, Anheuser-Busch of St. Louis and Miller Brewing Co. of Milwaukee, are locked in a struggle for dominance of the entire market, while smaller regional and local brewers are getting trampled underfoot. In the past five decades, the ranks of American brewers have dwindled from 750 to a mere 45. Says Emanuel Goldman, a beer-industry analyst for the Sanford C. Bernstein & Co. investment firm of New York City: "The industry truly is in the final throes of consolidation."
In the fight to stay alive, smaller brewers have been racing to find merger partners, adding yet more turmoil to the churning industry. Pabst Brewing Co. of Milwaukee, once a leading brewer, has spent the past two months trying to merge with Olympia Brewing Co. of Washington State, while in the process having to fend off takeover attempts by the Wisconsin-based G. Heileman Brewing Co., as well as legal attacks by a dissident Pabst shareholder, Irwin Jacobs. Meanwhile, the Stroh Brewery Co. of Detroit, which acquired New York City's F. & M. Schaefer Co. in 1981, is still struggling to digest its latest takeover victim, the venerable Jos. Schlitz Brewing Co. of Milwaukee, which Stroh acquired for $497 million in June.
As the struggle intensifies, angry and anxious brewery bosses have discarded their easy, neighborhood-pub relations with competitors. Says Pabst President William F. Smith Jr.: "I think some of the camaraderie that existed ten years ago has changed. We've put on boxing gloves." Smith has hung a sign on his office wall that reads: SHOW ME A GOOD LOSER AND I'LL SHOW YOU A LOSER. Miller Chairman John A. Murphy has been known to take satisfaction out of wiping his feet on an office rug bearing the familiar eagle logo of Anheuser-Busch. Over at Anheuser-Busch, Chairman August Busch III has reportedly disparaged Miller's parent company, Philip Morris Inc. of New York City, by making derogatory remarks about "tobacco people" and lecturing his executives on the effects of smoking.
Big companies are winning their beer battles because making and marketing the amber drink has become an enormously expensive enterprise. The most efficient way to brew beer is in huge modern breweries that can cost $250 million or more to construct and many millions of dollars more to operate. The best way to market the resulting product is by setting up a national advertising drive and an efficient, but costly nationwide distribution network.
Once a brand is established and costs are met, each extra six-pack means more profits. Two weeks ago, Anheuser-Busch reported six-month profit gains of 24% over 1981 levels while selling only 10% more beer. That showed just how large profits can be once a firm is able to swallow the huge cost of launching a national product. As one beer executive points out, the drink's ingredients cost less than the bottle or can that it comes in and the advertising that is used to sell it.