Friday Beer Blogging: MillerCoors Edition

The folks at the Coors and Miller brewing companies have decided to get together:

The marriage of the Coors and Miller brands promises to reshape the U.S. beer industry, likely creating a stronger challenger for reigning industry titan Anheuser-Busch, maker of Budweiser.

The pairing of the U.S. operations of Molson Coors Brewing Co. and SABMiller PLC, unveiled Tuesday, is expected to save $500 million a year, a healthy sum that analysts say will give the combined company a larger war chest to use in its battle against Anheuser in a slow-growing market for mainstream beer.

But some of those cost savings will come from cutting redundant functions, a fact certain to spark worries from Milwaukee, where Miller's U.S. business is based, to Chicago, home of the agencies that do much of Coors' and Miller's adverting work.

Milwaukee could suffer job cuts, while some of Miller's and Coors' advertising work is likely to be consolidated, analysts say. Draftfcb in Chicago is Coors' lead agency. Starcom in Chicago is Miller's media buyer, while Y & R's Chicago office handles the Miller Genuine Draft account.

London-based SABMiller and Denver-based Molson Coors, itself born from a 2005 merger between Coors and Canada's biggest brewer, Molson Inc., will form a joint venture called MillerCoors.

The new company will have $6.6 billion in revenue and produce 69 million barrels of beer annually.That's still short of the 102 million barrels produced for the U.S. last year by Anheuser- Busch.

But together, Miller and Coors would have a U.S. market share of around 29 percent, compared with the 18 percent and 11 percent they respectively had apart in 2006, according to Beer Marketer's Insights, an industry publication. Anheuser- Busch had a 48 percent share last year.

"This is bad news for Anheuser, "Nikolaas Faes, an analyst at Exane BNP Paribas in London, told Bloomberg News. "Together, Molson and Coors are tiny competitors, but in a joint venture, they are much more formidable."
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The Miller-Coors combination renewed speculation that Anheuser-Busch itself will eventually combine with InBev, a Belgium-based beer giant with which it already has a distribution deal.

Behind the merger fever over the past several years is a sluggishness in the beer market.

Sales of import and specialty beers have grown at fast paces, but the volume is in the Buds and MGDs of the world. And growth in that area has averaged about one percent annually over the past five years, according to Beer Marketer's Insights.
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The new company will combine Coors' two breweries with Miller's seven plants. Under the deal, a Coors product can be brewed at a Miller plant and vice versa. Thus, the combined firm will bring its production closer to end markets, creating huge savings on shipping.
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MillerCoors said both Denver and Milwaukee will keep some headquarters functions but hasn't chosen a home base yet.

Have a great weekend! And avoid speculative merging.