BUSCH FIGHTS TO HAVE IT ALL After a decade of calling the shots, the King of Beers is now duking it out in a costly price war with a reenergized Miller Brewing. The losers? Heileman and Coors.
By Patricia Sellers REPORTER ASSOCIATE Laurie Kretchmar

(FORTUNE Magazine) – IF YOU HAVE BEEN BUYING beer for the holidays, you've probably noticed that Santa was being very good to you. In Indianapolis, Miami, and Corpus Christi, Texas, you could buy cases of Miller or Coors for under $10, instead of the usual $12. A case of Miller Lite went for $7.99 at Dominick's supermarket in Chicago. Even Budweiser, the self-styled King of Beers, has been discounted right along with the common brews. Stater Bros. grocery stores in Anaheim, California, sold 12-packs for $4.69, $2 less than the regular price. The holiday spirit does not prompt these bargains. There's a price war raging among the nation's beer barons. For the past two years, Philip Morris's Miller Brewing unit, the second-largest beer company, and Adolph Coors, the fourth largest, have been discounting to grab share away from two tottering competitors, Stroh Brewery and G. Heileman Brewing, Nos. 3 and 5 respectively. But as Emanuel Goldman, Paine Webber's beverage analyst, puts it, Miller and Coors ''went after the elk and the deer, and shot the elephant.'' Anheuser-Busch felt the bullet when sales of Budweiser declined in the big beer-swilling summer months. Shaken and perturbed, it joined the battle in the fall. When they heard about it, startled Anheuser investors knocked $1.2 billion off the stock's value in four hours. Says August A. Busch III, 52, the deliberate, steely chief executive of the world's largest brewer: ''We don't want to start a bloodbath, but whatever the competition wants to do, we'll do. Everyone understands that market share is key in a mature industry. We want 50% of the market in the mid-1990s.'' This battle for market share, reminiscent of the cola wars that bubbled up a decade ago, raises the question of how to grow in a slow-growing industry. Discounting is dangerous for any company. Once consumers see a product at a low price, they don't want to pay more. Coke and Pepsi are discovering that as they try to stop the wild promotions -- such as 79-cent six-packs -- that have kept soft-drink prices from rising for eight years. When consumer demand slackens, as it is doing in the beer industry, using price as a marketing tool can turn a once great brand into a less desirable commodity. That's what happened to Schlitz, ''the beer that made Milwaukee famous,'' and Pabst, ''the premium beer at a popular price.'' The sales volume of these brands is a small fraction of what it was at their peaks. The idea that Anheuser-Busch (estimated 1989 revenues: $9.6 billion) would need to compete on price astonishes people who have observed its outstanding growth during the past decade. Earnings per share have increased 17.2% compounded annually, and the company has guzzled market share -- up from 28% in the U.S. in 1980 to 43% today.

Ian Crichton, marketing chief at Heileman, plants a barb in the elephant's hide: ''Do Rolls-Royce and Ferrari have to keep lowering prices to compete with Nissan?'' But First Boston analyst Martin Romm has kinder words for Anheuser: ''It was a smart move. You can't let the opportunity pass to go after weakened competition.'' And not all the competition has been weakened. In Miller, Anheuser-Busch faces a revitalized company. Two years ago Philip Morris, Miller's Daddy Warbucks, installed two new top managers in Milwaukee: Leonard Goldstein, 62, who made his name directing Miller's sales organization, is now CEO, and Charles Schmid, 47, an import from the parent company, is in charge of marketing. Known as ''Lenny,'' Goldstein, a jolly extrovert, recently showed up at a sales meeting disguised as the Masked Marauder, Miller Lite's wrestler mascot. As he pinned an opponent to the floor of the stage, Goldstein yelled, ''I'll do anything to sell a case of beer!'' So, apparently, will Philip Morris, which gave Goldstein a free hand to drop prices and spend heavily on new products and marketing. Says Michael Bellas, president of the New York consulting and research firm Beverage Marketing: ''Miller is in the best shape I've seen in several years.'' GOLDSTEIN'S formula for building market share is this: ''You've got to be the change leader, constantly doing things a little differently from your bigger competitor.'' An example of what he means is Genuine Draft, a Miller beer that's cold-filtered instead of heat-pasteurized and tastes like fresh beer from a keg. Miller's research showed that quality-conscious consumers liked the idea of a clean-tasting draft beer in a bottle. Introduced nationally four years ago and backed by $250 million in advertising so far, Genuine Draft sold 4.5 million barrels in 1989 to become the industry's most successful new product since Bud Light came out in 1981. Says Goldstein: ''If we had focused on other brewers' products instead of on consumer trends we might never have come out with Genuine Draft.'' THE BEER has attracted young, upscale drinkers and even switchers from the King itself. A 52-year-old taxi driver in St. Louis, where Anheuser-Busch has its headquarters, says that he used to drink Bud or Busch, Anheuser's low- priced beer, but now prefers Genuine Draft, which he puts in the freezer. ''When you get it real frosty and cold, ooohhh!'' he says. ''I don't know what they did to that beer, but it sure tastes good.'' Schmid and Goldstein have also been pushing Miller into blowout marketing ventures. ''The Biggest Party in History'' was just that, an outrageous bash designed to help Lite, which accounts for almost half of Miller's volume and is the No. 2 brew nationally, snatch first place from Budweiser in Texas. On Labor Day weekend, in 102-degree heat, 450,000 partiers converged on arenas in six Texas cities for 12 hours or so of volleyball, professional wrestling, and concerts by the British rock group, the Who. Competitors say the cost of the party and its 16 months of pre-bash publicity was exorbitant -- an estimated $15 million -- and Miller paid for it all, instead of splitting with its wholesalers, as is the norm. If August Busch's dictum that market share is all applies, however, the money was worth it. Lite's sales in Texas, Miller's biggest-volume state, rose 6.5% during the first ten months of 1989, vs. a 9.4% decline in 1987, before its TV ads for the parties began. Budweiser sales fell 6% during the ten-month period in 1989. Says William Barrett, executive vice president of Willow Distributors, which sells Coors beer in Dallas: ''That promotion created as much visibility as anything I've ever seen.'' Miller's pockets are every bit as deep as those of Anheuser, which spent an estimated $346 million promoting its brands in 1989. Says Peter Coors, president of Adolph Coors's brewing operations: ''Miller operates in a different environment than we do. They have a bank behind them.'' August Busch notes that Philip Morris wants to increase its own profits 15% to 20% annually, ''so I'd think they would want this discounting finished.'' But that may be wishful thinking. Philip Morris is the world's largest and highest- profit packaged-goods company, and Miller's $209 million in estimated 1989 operating earnings amount to only 3% of the parent's total. Even if Miller earned nothing in 1990 -- impossible in its gumptious incarnation -- the tobacco giant's earnings should grow 20%. OF ALL THE major players, Anheuser can best afford to discount because it's the only one without excess brewing capacity. It produces operating profits of $14.31 on each barrel of beer it sells, vs. $4.67 for Miller and $4.27 for Coors. Anheuser says that its wholesalers are, on average, twice as profitable as competitors. In the distribution business, with its high fixed costs, the more you sell, the more you earn. The wholesaler's financial wherewithal is important because when brewers discount, they must absorb half the hit. With two heavyweight competitors prepared to slug it out, don't look for an end to the price wars soon. Michael LaMonica, an Anheuser-Busch executive turned Illinois wholesaler, sums it up: ''Where the hell is the bottom? I suspect the heavy discounting will be around for at least a few years.'' When peace finally does break out, beer drinkers are going to see a larger Miller Brewing, an even larger Anheuser-Busch, and a lot of casualties. Chief among them: Heileman. Australia's flamboyant beer and press baron, Alan Bond, bought the company in 1987 for $1.3 billion, nearly doubled ad spending, then got crunched in the price wars. In the year ended last June, Heileman lost some $100 million, and Bond was forced to postpone interest payments due on his debt. Coors could be another long-term loser. In what many considered a survival move, the company agreed last fall to buy most of struggling Stroh for $425 million, but the agreement expired in December with no deal. Pete Coors, 43, says he has discovered problems with the condition of Stroh's breweries, among other things. Though negotiations are continuing, Coors may bow out completely or just cherry pick the assets he wants at a much lower price. Coors has the highest distribution expenses per barrel in the U.S. beer industry because it brews all its suds in one plant -- the world's largest brewery in Golden, Colorado -- and transports it in refrigerated railroad cars and trucks across the U.S. Wall Streeters wondered whether Stroh's five breweries, which are scattered throughout the country, could alleviate that transportation problem. It turns out that adapting the plants to the Coors brewing process would be extremely expensive. It also turns out that those Stroh plants are nowhere near the Rocky Mountain spring water that Coors boasts goes into all its beer to produce its distinctive taste. The key to profitable growth in the Nineties is attracting customers, whose accustomed brews might die in the price wars, with truly different-tasting brands. Pete Coors says he has an idea for such a product brewing. Without elaboration he says: ''We're talking breakthrough for a serious, mainline part of the market.'' Funny, Leonard Goldstein at Miller shares the same view of the future. But in Genuine Draft, he's already got his product.

CHART: NOT AVAILABLE CREDIT: SOURCE: BEVERAGE MARKETING CAPTION: ANHEUSER BAGS A BIGGER SHARE OF THE BREW