Big Brew-Haha! The Battle Of The Beers

By Daniel Eisenberg

It may sound like an obvious motivational tool, but not every beer boss is willing, as Miller Brewing CEO Norman Adami is, to tap a keg and chug a beer at a corporate gathering in front of several hundred cheering workers. There are probably even fewer at his level who are given to earthy battle cries like "If you want to run with the big dogs, you can't piss like a puppy" or "Never come to a gunfight with only a knife." But Adami surely needed all the fighting spirit he could muster when, almost 18 months ago, his longtime employer, South African Breweries (now known as SABMiller), dispatched him to Milwaukee, Wis., to help restore its floundering new subsidiary as a serious rival to behemoth Anheuser-Busch.

For a guy who spent the bulk of his career climbing the ladder at his native land's dominant brewer, Adami, 49, has quickly learned to relish the role of feisty American underdog. Since he took the helm in February 2003, eight months after SAB bought Miller for $5.6 billion, Adami and his team of transplanted South Africans have defied the skeptics by starting a remarkable turnaround at Miller. Over the past decade and a half, the company had been neglected, treated as an afterthought by its parent, food and tobacco giant Philip Morris. But thanks to an irreverent ad blitz that has presented Miller as a fresh alternative to the self-anointed "king of beers," Miller has drawn its rival into an unusually bitter media war and almost overnight "given itself a new identity," as beverage consultant Tom Pirko puts it. In its ubiquitous series of mock political commercials, Miller has mercilessly poked fun at Budweiser by declaring that a democracy should have a president, not a king. Taking a cue from the cola wars, Miller has launched its own version of the Pepsi challenge, engaging beer drinkers in blind taste tests, the results of which will form the basis for a new ad campaign Miller announced last week.

Miller's resurgence has injected a much needed dose of excitement into the $70 billion U.S. beer business, where growth and creativity had gone stale. It comes at a time when hard liquor and wine have captured the imagination (and wallets) of growing numbers of pub crawlers and partygoers. Although Anheuser-Busch's roughly 50% share of the U.S. market still vastly outweighs Miller's 18%--and A-B's sheer size affords it huge advantages in distribution and marketing--Miller is no longer being dismissed as a dinosaur destined to fade away like Schlitz, another once popular Milwaukee beer. In the first quarter of 2004, Miller's volume grew a healthy 3.4%, while sales of its flagship brand and main profit driver, Miller Lite, have grown 18% so far this year. "A-B is a mean machine, with the competitive power of a Wal-Mart or a Microsoft. We can't overthrow the competition, so we have to restore the concept of choice in the marketplace," says Adami, whose stocky frame is well suited to his onetime passion, playing rugby. "Our mission is to be a strong No. 2."

As heated as it is, the escalating battle between Miller and A-B in the U.S. is only one part of a much wider heavyweight fight for beer drinkers around the globe. For decades the beer business has been relatively fragmented, dominated by local tastes and brewers. In recent years, multinational players like Anheuser-Busch, SABMiller, Heineken and Interbrew have embarked on a wave of consolidation, buying up smaller brands in Eastern Europe, Latin America and Asia. In May, SABMiller and A-B briefly engaged in a bidding war for Harbin, the fourth largest brewery in China, which is now the fastest growing and biggest beer market in the world. Though SAB lost out to Anheuser's higher offer, Miller's parent still holds a 49% stake in China Resources Breweries, the country's second largest brewery.

If future growth lies in China, the U.S. market remains easily the most profitable. Even in the down-and-dirty beer business, the recent skirmishes between Miller and Bud have been notable for their aggressiveness. With more and more Atkins-conscious beer drinkers watching their waistlines and Anheuser's Michelob Ultra low-carb beer taking off, Miller launched ads in late 2003 pointing out that Miller Lite had half the carbs of Bud Light. Then, in April, Adami upped the ante with the humorous President of Beers campaign. Once it became clear that Miller's well-crafted messages were having an impact, Budweiser responded with a negative counterattack, challenging both Miller's heritage, by making an issue of its foreign ownership, and its manliness, by dismissing Miller Lite as the "queen of carbs." "That's a very macho accusation against a brand that has been giving them a royal shellacking," said Adami, a hard-swearing chain smoker, in a recent speech.

Only lately, however, has Adami started to find such charges funny. In May, Miller took the battle with Budweiser from the store shelves to a courtroom, seeking an injunction to stop Anheuser and its distributors from what it claimed were false and deceptive marketing practices, including the defacing of Miller products in stores with pro-Budweiser stickers. A federal court ordered Anheuser to pull liquor-store posters that said Miller is owned by South African Breweries--its parent, SABMiller, is now headquartered in London. But the judge allowed the continued airing of TV ads declaring that Miller is South African owned--and therefore ineligible, Budweiser's talking lizards informed viewers, to run for "president of beers." The legal offensive has since been dropped, but the bad blood persists. "They'll lead you to believe the ads are all part of their plan, but really it's desperate," says Michael Owens, A-B's new vice president of sales and marketing. "They've got all their juice on one brand--we're giving it back, in kind."

Adami was brewing for a fight the minute he arrived at Miller more than a year ago. At the company's sprawling brick complex on a hillside above downtown Milwaukee, he encountered a complacent, top-heavy organization that seemed to have lost any sense of urgency. Some industry observers thought Miller and the No. 3 player, Coors, should merge to provide a stronger challenge to Anheuser-Busch. (Today the betting is that Coors may have to align with one of the multinationals or perhaps Canada's troubled Molson brewery, which is embroiled in a family succession battle.) For a brief moment early on, when he was living out of a suitcase at the Hyatt, says Adami, he was "looking out the window over the snowy streets and thinking, How did I ever get into this situation?"

Soon enough, however, he set to work refocusing on the company's three core brands (Miller Lite, Miller Genuine Draft and the long-dormant Miller High Life). He increased the company's ad budget 50% and reformed what he once dubbed the Socialist Republic of Miller by getting rid of some 200 executives and implementing strict, performance-based metrics to judge those who managed to avoid the ax. Just as crucially, he set about improving relations with the independent distributors--many of whom ship both Miller and Coors from the breweries to the retailers, unlike Budweiser's primarily exclusive distributors--who had felt ignored by the old regime at Miller. With Adami hitting the road to press the flesh and rolling out marketing plans tailored to each of Miller's top 33 U.S. markets, the distributors' perspective has changed. "The [sales reps] come in weekly and sit down with us to put together a plan," says Brock Anderson, owner of Bonbright Distributors in Dayton, Ohio.

Despite the plaudits Miller's advertising has won, Adami's real talent lies in execution. Several months after he arrived, Adami dropped several of Miller's flavored malt beverages, sold off one brewery and added 200 new positions in sales and marketing. Around the industry he is known as a methodical thinker and cost cutter who asks lots of questions--the kind of executive who can tell you the production rates of every Miller plant, broken down by line and by shift, and will immediately dispatch help to markets he believes are underperforming. "Norman is a great field general," is how his boss, SABMiller CEO Graham Mackay, puts it. And though Adami can come across as blunt, his colleagues say he eventually gains the fierce loyalty of his employees. "For the first year, you'll curse the day he arrived. But by the second year, you'll notice how much has changed," says Mitch Ramsay, SAB's communications manager for Africa and Asia, who worked with Adami in the late 1980s.

Given his background at South Africa's entrenched, virtual monopoly brewer, Adami knows how hard it is to unseat the top dog. "We certainly haven't declared victory," says Adami, adding that his reclamation project, especially around the still flagging Miller Genuine Draft brand, has only begun. But if he can sustain the momentum, and Miller can become more of a legitimate contender, then Adami will really have reason to celebrate--and not just to rally the troops--by tossing back a cold one in one big gulp.

--Reported by David Thigpen/Milwaukee and Simon Robinson/Johannesburg

With reporting by David Thigpen/Milwaukee and Simon Robinson/Johannesburg