Scene: a beer store lineup in midtown Toronto. Atmosphere: the usual detritus spread throughout an unappealing shopping environment. T-shirts and beer glasses for sale. A sampling of beer offerings arrayed along two walls. Shoppers lined up like prison inmates awaiting their dungarees. Lead character: a beer store regular, male, early 30s. Action. Lead character turns to address complete stranger to his rear. “What do you think about that commercial with two lesbos kissing, eh? That’s supposed to sell beer? If it was two guys they wouldn’t sell a case.” Cut.
Scene 2: the uptown Toronto headquarters of Molson Breweries. John Barnett, the company’s beer-drinking, British-born chief executive, addresses the latest dustup at Molson, a not-yet-aired, though much talked about, television commercial for Molson Dry that, yes, shows women kissing. This is a real shocker in beer land, fuelled by the Liquor Licence Board of Ontario’s insistence that the commercial be altered. Not the kissing part, but rather the implication that beer buying can lead to sexual conquest So Molson made some changes. “It is not a gay or lesbian ad,” says Barnett. “It’s really a joke on a guy.”
(The “guy” orders up a beer for a woman he has never met, only to have her show more interest in someone of her own gender.)
Too bad. An advertisement overtly aimed at as much as 10 per cent of the human population might have convinced consumers that beer marketing has at long last shed its Neanderthal image. And if any beer company is under pressure to captivate a larger share of the beer-buying public, it is Molson. Eight years ago, Molson merged with Carling O’Keefe, gaining a commanding 52.2-per-cent market share and leapfrogging Labatt at 43 per cent. In its first fiscal quarter ending July 1, Molson’s share of the domestic beer market, including imports, was down to 45.8 per cent. According to industry estimates, a single share point is worth about $16 million. The $80million tumble taken by Molson has not been well received at headquarters. The company brought Barnett up from its U.S. operations in November, 1995, to reverse the slide. “The reality of life is you’re either winning or losing, and falling market share is a measure of losing,” says Barnett.
The stocky 53-year-old, who grew up in the town of Codsall in the English Midlands and emigrated to Canada 30 years ago, has been
aggressive in his attempts to bulk up the Molson beer franchise. There was the advertisement last April sticking it to archrival Labatt over Labatt’s introduction of the Kokanee beer brand to Ontario. “B.C. or BS?,” said the ads, arguing that Labatt had misled Ontarians into thinking that their Kokanee came from the glacial waters of Crestón, B.C., as opposed to the rather more tepid waters of London, Ont. “I think a couple of those Kokanee ads were grossly misleading,” says Barnett. “Look at those ads and any reasonable person would see the beer was coming out of a brewery shack up in the mountains.” That’s not, he says, “fair game,” though such marketing fantasies haven’t stopped beer makers before.
The same month, Molson sued Labatt in the Supreme Court of British Columbia, alleging that production dates on their beer cartons were inaccurate. In June, Barnett countered a Labatt price cut in Ontario by chopping $3 from the price of a case of 24, a move that cost the brewer somewhere in the neighborhood of $4 million in earnings. In tactical terms, the price reductions were a wash for both companies. “I don’t think it gets them anywhere at all,” says Bill Chisholm, an analyst with Deacon Capital Corp.
Barnett has made some smart moves, creating a decentralized structure for the brewery, recognizing the fragmentation of the Canadian beer market. “One brand will do extremely well in one piece of geography and not in others,” he says. “That’s part of the magic of the game, trying to understand why that happens.” That applies to taste and marketing. In May, the company introduced Capilano Pale Ale to British Columbia and Alberta, exhorting its “higher bitterness,” “clean hop aroma” and “dark, warm mahogany” color. In other words, trying to capitalize on the growing popularity of alternative premium beer.
Not only do beer-drinking tastes vary from region to region, but beer drinking overall continues to slide. In 1992, according to
a survey by the Brewers Association of Canada, average per person beer consumption stood at 78 litres, a drop from 83 litres a decade earlier. That has now dropped to a mere 70 litres, making Canadians look like pikers compared with, say, the Czechs, who consume 160 litres per person annually. Not only is overall consumption on the decline, the share claimed by small and regional breweries continues to climb.
Molson has to prove itself nimble in this flagging market. Its critics say it is still too fat, has too many plants, too many employees and spends too much on marketing. In January, the company announced the closure of its facility in Winnipeg, citing competition from U-brews, microbreweries and declining consumption. But that effort to cut costs is a mere drop in the bucket “Molson makes $100 million less than Labatt making the same amount of beer,” says Michael Palmer, an analyst at Loewen Ondaatje McCutcheon.
Molson Breweries’ ownership structure—40 per cent held by Molson Cos. Ltd., 40 per cent by the Foster’s Brewing Group Ltd. of Australia, and 20 per cent by Miller Brewing Co. of Milwaukee, Wis.—would appear to be an impediment. Barnett, however, says the brewery has no difficulty speaking “with one voice.”
But that doesn’t jibe with the parent company’s stated desire to be an operating brewing outfit once again. The performance of the brewer is critical to Molson Cos. Last fall, the parent company, still controlled by Montreal’s Molson family, said goodbye to CEO Mickey Cohen, who had staked his reputation on building Molson into a global, diversified holding company. That plan ultimately died with the sale of Diversey Corp., the company’s chemical subsidiary, in January, 1996. An old Molson hand, Norman Seagram, was appointed to replace Cohen six months later and set about negotiating further divestitures to move the company back to its brewing roots.
Beaver Lumber, wholly owned by Molson, was an obvious target. Before his departure, Cohen was working on an all-cash sale of Beaver to Cashway Building Centres of Port Hope, Ont., which has keenly pursued Beaver since late 1995. But the parties failed to agree on terms. After Cohen left, there was a plan, devised under Seagram, that would instead see the merger of the two companies, with Molson retaining an equity stake in the new company. But that didn’t fit with the all-beer plan dictated by Molson Cos. Discussions ended last November. “I would still like to acquire it,” says Cashway president Craig Graham.
In the end, Seagram wasn’t around long enough to make it into a single annual report: Molson showed him the door in May. Responsibility for jettisoning Beaver, and Molson’s 25-per-cent stake in Home Depot Canada, now falls to Jim Arnett, a career lawyer whose challenge is to return Molson to a 100-per-cent beer company. His first priority has been to attempt to buy back, along with Foster’s, the 20 per cent held by Miller. On Sept. 10, Arnett will address shareholders in his first annual general meeting as CEO. The pressure is on him to complete the Miller deal before then. In the meantime, he’s not giving interviews. “People have accused him of hiding,” says Molson’s spokesman Paul de la Plante. “It’s definitely not that.” Arnett has a big agenda, he says. “Basically, we think time’s going fast. People watching us think it’s going slower.”
If Arnett fails in taking out Miller, he will have just four months to obtain Miller’s approval for a partnership between the Coors Brewing Co., Foster’s and Molson. The Coors file turned into a debacle for Molson, which manages the Coors brands in Canada, when Coors claimed that Miller’s stake in Molson breached its own marketing arrangements. In April, Molson paid $100 million to Coors to settle the claim, and now faces a far less profitable brewing and sales agreement with Coors.
Then there is Foster’s. This new notion of manifest destiny at Molson means buying back the 40 per cent held by the Australian brewer. But earlier this month, Foster’s announced that it has no interest in selling. In five years, Molson has the right to buy back 10 per cent of the brewery from Foster’s. But under the partnership agreement, Foster’s will retain an equal say even if its equity position is diminished.
John Barnett makes it sound as though the goings-on at HQ do not affect him at all. Through the corridors of the brewery’s management offices, a good mile from the parent company’s executive offices, workers in casual dress seem to take pride in the cultural divide between the two and make small jokes about how publicity-shy the top bosses are. Posing for photographs, Barnett takes a pull on a draft tap, a chore he is supremely comfortable with. His market share may be getting squeezed, but Barnett swears he is having a heck of a lot of fun playing the beer game. □
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