Molson Coors Brewing Company (TAP)
December 05, 2011 2:30 pm ET
Tom Long - Chief Executive Officer, President and Chief Commercial Officer
Gary Leibowitz - Senior Vice President of Investor Relations
Kevin Doyle -
Gavin Hattersley - Chief Financial Officer
David Dunnewald - Vice President of Global Investor Relations
Unknown Executive -
Andy England - Chief Marketing Officer
Ed McBrien - President of Western Division
Thomas Cardella - President of Eastern Division
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Kaumil S. Gajrawala - UBS Investment Bank, Research Division
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But just a quick word on why we're here today. It's been 3 years since we've combined forces between Miller and Coors. And we're very pleased with the progress to date, and are looking forward to seeing the joint venture continue to succeed and to continue to evolve. There's been great successes in terms of synergy programs, Premium Light share gains, the establishment of Tenth and Blake and making a real impact in the craft and import sector. A lot of successes and a lot more to do in a category that we all know, frankly, has its challenges in terms of industry headwinds and the state of the consumer. So we're here to be able to just spend a little bit more time.
Rather than just being short, with short answers on the conference calls quarterly, to be able to take a step back and look at the commercial issues and our philosophy and our thinking as much as just direct answers to short-term questions, and to continue the spirit of what was a really nice lunch with a lot of you in New York during the summer with Tom, a chance to just meet the team and get to know the individuals involved in the leadership of the company, again beyond just the specific day-to-day issues.
So that's all I wanted to say. We’ll look forward to taking your questions at the end. By way of Safe Harbor language, we're duty-bound to tell you that today's presentation will be full of forward-looking statements. These, as always, are subject to considerable uncertainties and dependencies. And our statements today reflect the best judgment of management at the time. SABMiller and Molson Coors shareholders should look at the parent company's respective websites for disclaimers around factors that could affect these statements. And as usual, we undertake to update these statements only in our normal reporting and seminar routines. With that, I'll hand it over to Dave.
Thanks, Gary. Hi, I'm Dave Dunnewald, Vice President of Global Investor Relations for Molson Coors. On behalf of Molson Coors, I'd like to thank you for joining us. It's great to see such a large illustrious group today here in Chicago. As many of you know, we have a 42% economic interest in MillerCoors and a 50% governance interest. So MillerCoors has become increasingly important to our company over the last 3.5 years. And so we have, call it, a strong interest in not only the business but what the kinds of things that you'll hear today.
And I'm looking -- I'm personally looking forward to, and I hope you are, a broad and deep view of the U.S. beer business today. So without more time around that, I want to let you know that the speakers we have today are: Tom Long, CEO of MillerCoors; Andy -- excuse me, Gavin Hattersley, Executive Vice President and CFO; Andy England, Executive Vice President and Chief Marketing Officer; Ed McBrien, President of Sales and Distributor Operations; Tom Cardella, President and Chief Beer Merchant of Tenth and Blake Beer Company; and Kevin Doyle, Chief Customer Officer. So with that as a brief introduction, I'll turn it over to Tom Long.
Without wanting to hog the mic, I've got one other thing to say. I am conscious that there are a lot of our people who are not here today, they're listening online. As I mentioned to a couple of our shareholders last week, if anyone among our analysts and investors who's listening online would like to email me directly with any questions for the Q&A as you're listening, I'll be happy to put those to the team when we get to the Q&A session. Thank you.
Thank you, Gary, and thanks, David. Welcome, everyone, to MillerCoors headquarters. You're on the floor with our new company Tenth and Blake, and you'll have an opportunity to hear from Tom Cardella today, and at the end of the day, have a couple of our fine beers in our pub upstairs. So welcome, we're -- with a full agenda today, and tomorrow, we'll have a chance to hit the trade and see how consumers respond to our portfolio at what we call the moment of truth, when consumers make their decisions between our beers and lesser substitutes. So we expect an energized session, and we will look forward to seeing you tonight at Fred and Adolf’s Pub, which is upstairs, at the end of the day.
It's 3 years on at MillerCoors. And we've rightly focused on building our culture, hitting those synergy targets that we promised as a new company, building the right team. And we've done that quite effectively. We've over delivered on our original cost savings projections, and we now expect to reach our original target, our target, elevated target of $750 million in total synergies and other cost savings by the end of this month, which is a full year ahead of our commitment. Now that's a big accomplishment in and of itself. But we know we can't save our way to prosperity. Winning in the future requires growth, growth in share and profit and cash flow and return on capital.
Now I spoke recently at the NBWA Convention about beer's continued loss of share to spirits over the last decade. And undoubtedly that's something that's on your mind because it's a critical challenge to us, and we take it very seriously. And beer is interacting more and more with spirits and wine. So let's take a quick look at why it's happening. And we've discussed the importance of the changing palate of millennial consumers and their greater interest in experimentation, variety and diversity. When I came into beer industry just over 6 years ago, the average number of brands consumed by key beer drinkers was only 3.5, 3.5 different brands. Well, it's over 7 now. And so this degree of experimentation and fragmentation inside beers even carried over to spirits and wines. But it shouldn't be a surprise. This fragmentation at the top end of almost every consumer packaged goods company is happening in all of the developed markets of the world. And I'm sure you see it if you cover other industries.
So you'll see here that spirits and wine are encroaching on beer's traditional strongholds of sociability and belonging and cut above the best. So what does that imply for us? Well, it implies that we have to play more powerfully in these spaces. And this is what we do as marketers, and we'll talk about that today. They've also had some tailwinds with the combination of adding advertising to their portfolio, as well as penetrating sponsorships with the NFL. And frankly, learning some lessons from beer, they've been able to make advances. And they've aimed at their strategies at differentiating their portfolio and premiumizing their products.
Now even though they haven't been able to demonstrate the same pricing power as the beer industry, we do think they've used education, packaging, innovation and positive third-party health claims, in addition to increased availability, to win new consumers. So I'd say they've been looking at beer pretty hard, and they've learned some pretty good lessons. So what are we going to do about it? Well, that's much of what you're going to hear about today from Tom Cardella and Andy England. And generally, we have to attack wine and spirits' traditional strongholds from our point of strength, which is really fun and liberation. And we do that with our Premium Light brands. And we'll tackle the savor-the-experience and the cut-above opportunities with our imports and crafts.
And we're also focus on quality. Everything we do should shout quality. Now I don't mean being precious. But I do believe that beer drinkers want to know that their beers are made with the best ingredients with the best processes available. And we know this is true because we see it through our most authentic brands like Coors Banquet. Now we've launched news-making and value-driving innovations in the first 3 years of our joint venture. Innovations like the Coors Light Cold Activated Can, the Coors Light Window Pack, Coors Light Super Cold Draft, the Miller Lite Home Draft system, Coors Light Home Draft system and the Super Cold Activation on all of Coors Light's primary packaging. All of these innovations have contributed to Coors Light's frankly stunning success. It's had a 7-year run as the growth leader among American light lagers. And this is one of the performance promises of the joint venture that we're most pleased with.
While it's been a more of difficult road, we've also stayed focused on Miller Lite bringing new innovations to Miller Lite like the Vortex Bottle, the Aluminum Pint, the Home Draft system and Taste Activator Glass. And we've dramatically raised Miller Lite's net revenue per barrel. In fact, we've raised Miller Lite’s more than any other light beer in our portfolio. We've also made big bets in support of both Coors Light and Miller Lite with our new college sports alliances and major investments in Mexican soccer, our NASCAR sponsorship and continued partnerships with dozens of NFL, Major League Baseball and NBA teams, not to mention the new NHL deal for Coors Light and Molson Canadian, which is already producing results. And we do this because we believe in the future of the light portfolio and the light segment of the American beer business. In fact, it is the American beer business.
But it's not enough. We launched Tenth and Blake Beer Company just a little over a year ago to drive our leading craft positions with brands like Blue Moon and Leinenkugels, and also to strengthen Peroni's position in the import segment. And we launched new innovations like Colorado Native and Batch 19 through separate beer companies that we have out West. These are business models inside of business models with separate sales front ends that concentrate fully and exclusively on their portfolio, so they can incubate those brands and grow them powerfully.
But we know we have to do more. So over the past year, we've spent considerable time updating and evolving our strategy to make us a better fit for growth. And we call that new strategy, winning in beer, quite simply. Its first, focused in the center there of this bull's-eye, on the consumers who buy our beer. And then on the distributors and retailers who sell it, then our own people who brew and make our beers and sell our brands. And finally, on a larger role that we play in society, where we're building our reputation as a responsible and committed corporate citizen. We know that the total alcohol beverage market is changing rapidly and the brand and retail landscape is becoming increasingly fragmented. Consumer taste are transforming right before our eyes. And frankly, it's never been a better time to be in beer. If you like change, if you've got some chutzpah and are willing to make changes out in the marketplace, then this is a great place to be. In fact, I think it's the best time ever to be in beer.
Now we've got a lot of opportunities and risks on the horizon, including the potential for higher taxes and tougher regulations. So we need a thoughtful, long-term approach. And we believe that winning in beer delivers that. Let me just take you through that, the 5 strategic planks very quickly. First, elevating brands. That's all about big brands that pull. Now you'll see that we have a number of brands that we're incubating in the market in very small platforms. Tom Cardella will talk about barrel-aged brews that we have, when we make only a few barrels at a time and we'll delight consumer palates with those. But they're not transformative in and of itself, but we do demonstrate our capabilities to our retailers and consumers across the world for our capacity to brew the very best beers.
Earning customer preference. That's about earning the confidence and conviction of the retailers and distributors who sell our beers. And Ed McBrien and Kevin Doyle are going to speak to you this afternoon about our distinctive capability in this area. Fueling growth is all about making our business more efficient. We have demonstrated confidence in this area. Gavin Hattersley is going to talk the highlight, the work we're doing to increase the efficiency and the transparency of resource allocation so that we can continue to do a better job there. And he'll touch on our recently announced business transformation program and our ongoing work in business information systems. I'll talk a little later today about engaging people. It's our effort here on developing and attracting a diverse workplace, creating training programs to build the capabilities we need for growth and ensuring we have an inclusive, flexible and safe working environment. Perhaps of all the things that we did in the first 3 years, this was the most strategically important.
And of course, as brewers, we know we have a special responsibility because we have to promote and protect the responsible marketing and enjoyment of beer, and to practice sustainability in a way that earns us the respect of our regulators and protects our license to trade, and helps us build our position in communities and relationships across the markets where we do business because beer remains uniquely local. So those are the broad strokes of our strategy, and you're going to hear much more about those today.
But before I invite Andy up to speak, let me add one more key point. Before we do anything else, we know that in order to succeed, we have to evolve. Standing still and relying on what got us here certainly won't get us there, and we're bold enough and ambitious enough to know that we have to take deliberate risks. So in the months and years ahead, you would expect to see a faster MillerCoors, a more nimble MillerCoors and a more urgent MillerCoors. And we'll take those educated bets based on our understanding of the consumers and customers to make those bets return for our shareholders. Sure, the economic environment is tough, we all know that. But it's been challenging since the day we opened our doors for business in 2008. And we're not daunted by that challenge. Instead, we're going to face it head-on.
The last 3.5 years have been about coming together, making the right decisions to move forward. We are, I believe, the best-positioned American beer company to capitalize on change. We've saved money. We've increased efficiencies. We've made big bets. We have a commanding position in the fastest-growing sector the American beer business, and we expect to capitalize on that. And now we must do even more. So after your visit with us here in Chicago, I hope you'll agree that our winning in beer strategy makes sense, that you have some insights into our capability and capacity to execute it with distinction and that we will evolve to deliver the next level of growth in shareholder value.
So we'll take your questions at the end of each section, if you can hold them until then. And then at the end, we'll have a round of questions. So I hope you'll enjoy the day. Now let's hear more from Andy England, our Chief Marketing Officer. Andy?
Thank you, Tom. Good afternoon. As Tom said, I'm Chief Marketing Officer for MillerCoors. I also have the privilege to be Chair of that Strategy Committee. And I thought I'd start actually by talking a little bit about the Strategy Committee and our role and the way we look at the business.
Not surprisingly, the committee is there to determine what our core strategy should be. And in determining that, as like many things in the beer industry, we tend to start with a sports analogy. And one of my favorite quotes comes from the Great One, Wayne Gretzky. And at one point, he was asked -- and I'm going to butcher this a little bit, so I apologize. But at one point, he was asked why he was so good. And his answer was that, "Most guys skate to where the puck is. I skate to where it's going to be." And I particularly like that as an analogy because at the end of the day, we're going to be successful by skating to where the puck is going to be, not where it is right now.