Marquette Wire

MillerCoors flourishes despite recession

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An amendment to the Constitution couldn’t stop the alcohol industry, so what chance did an economic recession have?

Despite what it called a “sluggish U.S. beer market,” MillerCoors posted a 36 percent increase in profits for the third quarter compared to the same time period last year, despite its overall sales figures dropping.

In a press release, MillerCoors said it was able to increase profits from $224.4 million to $334 million, with its net revenue increasing 0.3 percent to $2.12 billion.

MillerCoors’ headquarters are located in Chicago, with offices and a major brewery in its founding city of Milwaukee. It is the second-largest beer company in America behind St. Louis-based Anheuser-Busch.

MillerCoors is currently in the midst of a multi-year process of cutting $700 million from its operating budget, said Michael Korpela, an adjunct professor in the College of Business Administration and a MillerCoors employee.

The company is cutting costs through reduced inventory days, less waste and transportation costs, and using its mass buying power to get its ingredients and other materials cheap, Korpela said.

While many would blame the sluggish beer market on the sluggish economy, that may not be the biggest factor in the poor beer sales.

James Pokrywczynski, a professor of advertising and public relations, said the economy is not the driving force in beer sales.

“The bigger issue is the beer industry battling decline in beer drinking overall, (and) competition from wine and hard liquor,” Pokrywczynski said in an e-mail. “Especially the latter, given relaxed standards related to such ads appearing on broadcast TV as well as cable.”

Korpela said buyers alter their purchasing behaviors during tough economic times.

“Rather than buying their preferred premium or super premium beer, they buy the sub-premium beer or discount beer,” he said. “Unfortunately, the profit margin is less on those brands.”

According to Korpela, MillerCoors’ sales at bars and restaurants are down considerably from past years, which should benefit liquor stores. He said this trend is not expected to last forever.

“When the economy and jobs picture improves, it’s anticipated that consumers will trade back up to their favorites and once again hang out in their favorite eating and drinking establishments,” Korpela said.

In the meantime, beer companies may be highlighting their discounted brands more than before. For instance, MillerCoors’ Keystone Light brand has its “Keith Stone” campaign, and Anheuser-Busch’s Natural Light brand had its “Nattyisms” advertising spree.

Pokrywczysnki said the hundreds of millions spent each year collectively by beer companies on advertising is essential to the bottom line, and unlikely to be among the spending cuts orchestrated by the corporations.

“People won’t admit it, but beer brands are bought as much on image and personality as on price and taste,” he said. “If a brand can strike a chord early in a beer drinker’s life, that brand can stick in the accepted set for a long time.”

Scott Converse, the director of the Process Improvement and Technology Programs at the University of Wisconsin-Madison’s School of Business, has worked on a series of yet-to-be-released surveys of businesses from Wisconsin for First Business Bank. Converse said the results of that survey fit in with the cost-cutting technique of MillerCoors.

“Many business owners in that survey state that they are focusing on the variables they have control over in this tight economy, their own operating costs,” Converse said in an e-mail.

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