Q&A

'WE CALL IT ACTIVE ESCAPISM’

Molson’s CEO on the global beer business and marketing Brazilian suds

DAN O’NEILL May 26 2003
Q&A

'WE CALL IT ACTIVE ESCAPISM’

Molson’s CEO on the global beer business and marketing Brazilian suds

DAN O’NEILL May 26 2003

'WE CALL IT ACTIVE ESCAPISM’

Q&A

Molson’s CEO on the global beer business and marketing Brazilian suds

DAN O’NEILL

IN HIS FIRST TWO YEARS as head of Montreal-based Molson Inc., Dan O’Neill focused on Canada. He closed breweries, laid off staff and tied his managers’ pay to the company’s share price, which more than doubled to $50. The company now wants to become one of the world’s largest beer-makers, and introducing Brazilian beer to Canadians is part of that strategy. The company bought a small Brazilian brewery called Bavaria in 2000 and spent $1.1 billion in 2002 to purchase the country’s second largest brewery, Cervejarias Kaiser SA. Now, an ad campaign, featuring a bikinied Brazilian, has just been launched to promote Molson’s first Brazilian label, A Marca Bavaria. O’Neill, 51, met recently with Maclean’s National Business Correspondent Katherine Macklem.

Why import a Brazilian beer?

The Bavaria brand is a 100-year-old product from Brazil and we’re bringing it into the country to compete with super-premium-priced imports—the Heinekens, Stellas, Coronas and the Beck’s. This segment of the market is really the growth engine of the Canadian beer industry. The liquid is not bitter, as most imports are. It’s an easydrinking beer.

Do you like it?

I love it! I much prefer easy-tasting brands. Export, for me, is a little bitter.

You’ve said you wanted to boost Molson’s market share in Canada. How does importing Bavaria fit that strategy?

The Canadian marketplace is divided into the super-premiums, premiums and value beer. We did not have one of our own products competing in the super-premium import segment. Bringing Bavaria up from Brazil gives us the ability to get into the higher margin products.

Out of the roughly 400 super-premium beers sold in Canada, you want this one to be in the top five. How do you plan to do it?

You have to make sure you’re appealing to the right market. We’re looking at a drinking age of about 24, the younger segment.

What’s the pitch that comes with this beer?

People are asking us always, “How is this different from Corona?” Well, Corona is about holidays and relaxing and easing up a little. This is very much about getting out and forgetting and escaping on Friday night at a club—partying like mad. It’s carnival. We call that active escapism.

Depending on what numbers you look at, Molson’s market share has slipped a little. What’s happening?

Anyone in Canada could grow share if they wanted to. It’s not a hard thing if you reduce the price. We are going to start pushing the quality of our brands.

On the cost side, what have you done?

In the last three years, we’ve reduced costs by $ 152 million. We had too many breweries in Canada. We had two breweries 100 km apart that were both working at less than 50 per cent capacity. We had to make the hard decision and close one. We did a lot of work to see how Molson Canada compares to other brewers around the world. On every dollar of sales, we were making 18.3 cents, while other guys were making 28, 29 or 30 cents. Something’s wrong with that equation.

The industry, globally, has been consolidating.

Everyone would have loved to take us over, for obvious reasons. They knew that our 18.3 share wasn’t good enough on a global scale, so we would probably have ended up like Labatt, bought out by somebody else. I was brought in to build a great Canadian global company. Now, after three years, we’ve gone from the 24th largest brewer to the 12th. But to really feel comfortable that we can be a global brewer, we have to get to number 7 or 8.

What other markets are you looking at outside of Canada?

About three years ago we did a huge global study. We picked three countries we’d be interested in, and Brazil was one of them.

What are the other two countries?

I don’t want to tell you, because they may come up again. By September we will have our debt level back to where it was before we spent $1 billion to buy the Brazilian company. So the question becomes, “What’s out there that we can buy?”

How much of a challenge are the microbreweries?

The pesky microbreweries, they’re doing extremely well. Most of them have rolled their prices back so they can compete and that makes it a little more difficult. In Western Canada they’re doing a really good job.

What can you do in response to them?

Not much. I mean, because we look like the big guy fighting the little guy and we have to be cautious of what we do. They get a huge amount of government support.

What about the U.S. market?

We’re only in nine states and 22 cities. That’s over 60 per cent of Molson’s U.S. business. But Molson Canadian has huge upside in the U.S., and I think we have to recognize that. As a matter of fact, I wrote notes on the airplane this morning on that subject.

But Molson pulled back in the U.S. market.

The reality is we missed that whole growth cycle in the U.S. We focused on older-style brands, Molson Golden and Molson Ice, so now we’re bringing in Molson Canadian— it’s growing 36 per cent a year. It’s got a lot to do to catch up to the marketplace.

You’ve come from H. J. Heinz Co. and Campbell Soup Co. How is the beer business different from the food industry?

They’re similiar but the beer business is dif-

ferent in the breadth of activities. Where you can impact the consumer is much broader in the beer industry than it is in the home products or food business. If a consumer can’t find Tide detergent, or Colgate toothpaste, they’re going to go to the next store. They have a commitment to that product. With beer, if their brand isn’t there, they’ll pick one of another four or five. That’s the difference.

Do people identify with their beer?

They sure do! Where do people drink

Heineken? Down on Bay Street. Well, would they drink Corona? Not in that setting. They would drink Corona in an outdoor patio in the summertime at lunch. You see, those are different people in different occasions. If you go to someone’s house for dinner, or you’re out to dinner with your boss and you want to have a beer, what beer would you order? Well, if they have Rickards you’d probably order Rickards as opposed to Molson Canadian. Peer pressure is really important. And people are very nervous about that.

What’s at home in your fridge?

Molson Canadian and Rickards are in my fridge and my wine cellar.

Your wine cellar?

In Montreal it’s important to have a wine cellar. I’ve got 15 kinds of beer, and all these wine purists are totally appalled that my wine cellar’s an array of beer. No matter— if you come to my house and you want to try one of our most obscure beers, I have a black beer we produce in Brazil called Xingu. It ’s in my wine cellar if anyone wants it. Hil