Anheuser-Busch: Tough Approach Made It King of BEER

ST. LOUIS â€”  One day late last year, a production executive at St. Louis-based Anheuser-Busch, the world’s largest beer company, called an official at Anchor Glass Container. Anchor made long-necked bottles both for Anheuser’s top-selling Budweiser brand and for Dixie Brewing, a small brewery with about 10% of the market in New Orleans where Anheuser has been trying to expand its sales.

Anheuser was losing sales to Dixie because Dixie’s bottles, unlike Budweiser’s, were non-returnable and featured a twist-off cap. Yet the bottles were so similar in other respects that Dixie’s were getting mixed up with the Budweiser bottles returned by bartenders to Anheuser where they were mistakenly reused, disrupting Anheuser’s automated bottling machinery.

The Anheuser executive, according to Neal W. Kaye Jr., then Dixie’s president, suggested that Anchor should stop making bottles for the small brewery. Anchor, which derived much of its business from Anheuser, proceeded to halt further sales to Dixie.

Anheuser President Dennis P. Long admits some excessive “enthusiasm at a lesser level,� but says that after complaints from Kaye, he told Anchor that it could do whatever it wanted with Dixie. Yet Anchor declined to sell Dixie any more of those bottles and Dixie lost sales and profits while it scrambled to find another supplier, whose bottle prices turned out to be higher than Anchor’s.

“We were a threat to Bud,� says Kaye, “or at least as big a threat as a little firm like Dixie could put forward.�

Anchor general counsel Richard Everett concedes that Anheuser called Anchor to complain about Dixie’s bottles, but says Anchor stopped shipping to Dixie solely because the tops of Dixie’s bottles, when fitted with Budweiser caps, could crack when opened and were unsafe.

The episode was only a minor skirmish in the increasingly rancorous, bruising, and often vicious competitive battle that is wrenching the rapidly consolidating American beer industry and has forced hundreds of small regional breweries to close their doors.

But Kaye and other brewers feel this sort of “enthusiasm� is one reason why Anheuser, the leading brewer for the past 28 years, is widening the gap at an accelerating pace.

Due to slumping beer consumption caused mainly by the aging of the population and public concern over alcohol abuse, production by all other major brewers declined in 1984. But Anheuser, taking sales away from competitors, increased production and raised its share of shipments by domestic brewers from 33.5% to 35.8%, according to R. S. Weinberg & Associates, a research firm. The figure so far this year is above 38% and Anheuser executives are now aiming for 50%. Miller Brewing, the second largest beer firm, which is headquartered in Milwaukee, had a 21% share in 1984.

Anheuser, whose holding company last year earned $392 million on sales of $7.16 billion, is archetypical of the corporate giants, such as Coca-Cola and Pepsico in soft drinks and Philip Morris and R. J. Reynolds in cigarettes, that have come to preside over much of the packaged goods business. Not all of these firms, though, compete as vigorously as Anheuser.

“They’re tough, tough, tough, really ruthless,� says Paul Lohmeyer, chairman of All Brand Importers, which brings in beers from Canada, Mexico, and Europe. “They seem to have the absolute intention of running everyone else out of the business,� Lohmeyer said.

“They are more rough and tumble than anyone else,� adds Alan G. Easton, Miller’s corporate affairs vice president. “And some of what they do isn’t all that legal.�

Some of Anheuser’s rivals allege, for instance, that the company has systematically attempted to deny them access to national television sports programming, team sponsorships, stadium beer sales, and Anheuser’s powerful network of independent wholesale distributors.

Last year Anheuser, without admitting wrongdoing, paid $2 million to settle charges of illegal trade practices by the Bureau of Alcohol, Tobacco and Firearms. Anheuser’s marketing tactics are currently under investigation by the Securities and Exchange Commission and Internal Revenue Service.

Competitors also say that Anheuser uses huge profits from its Budweiser brand to subsidize an almost Sherman-through-Georgia campaign to conquer every significant product and geographic niche that it doesn’t already control.

Anheuser’s Long responds that “we’re incredibly competitive. I’d hate to compete with us.� But he denies any illegal or unethical acts.

Long asserts that many of the other brewers’ complaints derive mainly from Anheuser’s size. “Others just can’t keep up with us when we move into a market,� he says. “We have the ability to buy it all. . . . We expect more brewers to cry foul because we’re taking their markets away. But is that unfair? We worked hard to get where we are.�

Growing Disadvantage

Smaller firms, whose survival depends on their ability to retain small market niches, are at a growing disadvantage in all packaged goods industries. Kaye, who recently sold Dixie, puts it this way: “The little guy is having his brains blown out by the big guys.�

The key reason is marketing, which has become ever more crucial as distinctions between many brands increasingly become a function of image and success becomes a function of advertising, promotion, packaging and distribution. The better-mousetrap builder must be able to afford many millions of dollars to gain public attention or the path to his door quickly will become overgrown with weeds. Launching a national brand can cost $80 million, according to Harvard Business School marketing expert Mark S. Albion, up from $35 million in 1980.

And once a major brand is entrenched, dislodging it can be prohibitively expensive. This explains recent billion-dollar acquisitions of such firms as General Foods, Richardson-Vicks, Nabisco Brands, and Revlon, whose brands (General Foods’ Jell-O, Birds Eye, and Maxwell House, for example) have come to be regarded, said Advertising Age, as “the most coveted corporate asset of all.�

Anheuser was itself the target of informal takeover discussions last year by R. J. Reynolds and, in turn, has considered a bid for Pepsico. Its stock has soared recently on speculation that a takeover was imminent.

First National Brewer

The foundation of Anheuser’s hegemony was laid during the company’s early days. Many of its 19th-Century competitors were run by German brewmasters who, like their counterparts in Germany even today, saw the business as a service to the local community. But Adolphus Busch, a young brewery supplier and German immigrant who took over a small St. Louis brewery owned by his father-in-law Eberhard Anheuser in 1880, had other ideas. Determined to be the country’s premier brewer, he became the first to ship beer nationally and to actively promote his products to consumers.

He bequeathed those proclivities to a succession of Busches. (Family members still own or control about 33% of the company’s stock.) Henry B. King, former president of the United States Brewers Assn., tells how the head of a local beer company once went to St. Louis to complain to August A. Busch Jr., who ran the company from 1946 to 1975, about what he regarded as a particularly reprehensible marketing tactic. Busch said the tactic was legal and that he intended to persist regardless of what anyone thought.

“What do you want to do, take over the whole business?� his visitor asked irately.

“Exactly,� Busch replied.

Anheuser encountered several formidable rivals, especially Schlitz during the 1950s and Miller during the 1970s, but it always emerged stronger than ever.

Miller Spent Millions

The most serious threat was from Miller. After acquiring the brewer in 1970, Philip Morris invested hundreds of millions of dollars of cigarette profits in sophisticated packaged goods marketing campaigns that transformed Miller High Life and Lite from languishing also-rans into market leaders.

“They did us a favor,� says Anheuser’s Long. “At the time, we needed a greater sense of urgency.�

Leading the counterattack was August A. Busch III, 48, who pushed his father, then 76, out of the chief executive’s slot in 1975.

Busch had been meticulously groomed for succession by his father literally from birth.

“The first thing I ever tasted, before mother’s milk, was beer,� Busch says. “It was five drops of Budweiser from an eye dropper when I was five hours old.�

Even today, Busch, who has a brewmaster diploma from Chicago’s Siebel Institute of Technology, officiates at twice-a-week tastings to ensure the quality of Anheuser’s beers and sample competitors’. He is not exaggerating when he says, “I personally live and breathe this business every day.� He frequently tours Anheuser’s facilities, and if he spots an errant scrap of paper, he will snap it up and deposit it in a receptacle or his pocket.

Strong Personality

In first meeting Busch, one is impressed most immediately by his tightly focused intensity. He has a bulldog shape, a short but amply muscled body and block-like head mounted on an oversized neck, and he seems ready to charge at any moment. His personality, like that of Anheuser in the marketplace, appears fearsome, stern to the point of humorlessness, proud and brash to the point of arrogance. He speaks--often in clipped sentence fragments--with great force.

But appearances present an incomplete picture. “Though he is perceived as brusque and dictatorial,� says Russell L. Ackoff, a Wharton School professor who has worked on projects with Anheuser, “he is anything but that in practice. He runs as democratic a company as any I know. He operates by consensus.�

Busch encourages freewheeling second-guessing of company policies, frank post-mortems of failures, and a dialectical questioning of proposed new ventures by teams assigned to present the most persuasive contrary case.

He has assembled a remarkably diverse but carefully counterbalanced executive team, most of whom are in their 40s and who have been at Anheuser since Busch took over. Some, like him, grew up in the business while others are MBAs from such packaged goods firms as Procter & Gamble. Though he relies on individuals steeped in the firm’s Germanic keep-the-machines-well-oiled heritage to oversee brewing, he delegates marketing to a band of more creative, less rigid, often Irish, executives, such as Long, who started at Anheuser as an office boy, and marketing boss Michael J. Roarty.

Yet, Busch, more through sheer weight of personality than his last name, seems in clear control of the process. He has been able to unite these disparate elements, imbue everyone with the Busch passion for primacy, and create a highly organized structure that, says Robert S. Weinberg of R. S. Weinberg, a former Anheuser executive, “analyzes, evaluates and plans almost everything.�

Army on the March

Adds Ackoff, “When they decide where they’re going, they’re like an army on the march.�

When he assumed command, Busch knew that Philip Morris’ revival of Miller had permanently rewritten the industry’s rules and he resolved to beat the cigarette firm at its own game.

Anheuser’s marketing plan came to include the same kinds of promotions as the slick, “Miller Time� life style advertising on network television.

More impressive is its local marketing. Due to beer’s regional origins, selling campaigns must be more customized than those of any other packaged good. Anheuser developed a highly sophisticated demographic and psychographic strategy that segmented the population by such characteristics as sex, income, age, race and ethnic origin which were then further divided. The Latino segment, for instance, was subdivided into Puerto Ricans, Mexicans and Cubans. Geography was broken down not only into states, but also into cities, neighborhoods, even individual bars. A distinct program was designed for each tiny slice. The result is about 10,000 different sales promotion programs serving 250 market segments.

Most impressive of all are the ways in which Anheuser has been able to employ its size advantage to generate extraordinary profits from its marketing campaigns.

Much of Anheuser’s remunerativeness, like that of other packaged goods leaders, has its roots in economies of scale, especially in national advertising. As expensive as national TV time is, the costs per viewer are much cheaper than advertising in specific markets. Yet one must already market national brands, as Anheuser does, to capitalize on those economies. Detroit-based Stroh Brewery, La Crosse, Wis.-based G. Heileman Brewing, and Golden, Colo.-based Adolph Coors Co., primarily regional brewers which rank in size immediately below Anheuser and Miller, are now laboring to expand distribution of their chief brands.

National advertising is important to Anheuser for other, less obvious reasons.

Brews Varied Widely

Historically, beer was sold mainly on the basis of taste, which varied widely from brewery to brewery. A broad taste selection is still available, but now mainly among imports and a few distinctive regional brews such as Anchor Steam in San Francisco. In the vast middle ground of relatively mild domestic beers--more than 90% of the market--taste differences are minor.

“The American consumer has a relatively narrow range of taste preferences with regard to beers, narrower than with products like soft drinks and cigarettes,� says Miller’s Easton.

Anheuser executives, especially August Busch, fervently make the case that their brands, especially Budweiser, are superior products. They cite more costly ingredients and such proprietary brewing methods as “beechwood aging.�

But the great majority of beer executives would not challenge the assessment of Henry King, the former chief of the United States Brewers Assn.: “Most people can’t distinguish the taste of one beer from another. Beer is a psychological choice more than anything else.�

Much of the psychology, King says, has to do with the fact that beer is mainly a “social product� consumed in group situations.

“When a guy orders a beer,� adds Easton, “he’s making a personal statement to his friends that he’s a certain kind of person.� In selling beer, Easton says, “you have to play the image game.�

People Drink Advertising

The major weapon in the image game, of course, is advertising, which in the beer industry has doubled in the past five years. As Burt Manning, chairman of J. Walter Thompson USA, a large ad agency, has put it: “People don’t always drink the beer; they drink the advertising.. . . If they feel good and involved in the advertising, they like the beer and they get involved in it.�

The classic example is Miller High Life. When Philip Morris bought Miller in 1970, High Life was the upscale “champagne of bottled beers.� Philip Morris “repositioned� it as a beer for working men, who are the heaviest beer drinkers. Sales zoomed eight-fold.

But then High Life peaked in 1979 and began a sharp decline, now close to 40%. After much study, Miller decided that its “Miller Time� advertising had become too generic and its positioning too down-scale. Miller recently launched a new “Made the American Way� ad campaign, devised by J. Walter Thompson, to rectify these problems. Throughout this roller-coaster ride, the actual product has remained unchanged.

Last year, according to Advertising Age, Anheuser spent $350 million on beer advertising, more than 40% of the industry total. About $75 million was spent on Budweiser alone, making it perhaps the most heavily advertised single packaged goods product in the world. That money did more than make people feel good about Anheuser beers. It also made them willing to pay more.

When Anheuser and a few other brewers began selling their beer nationally, they charged an extra “premium� to cover shipping costs. But gradually, beer drinkers began associating premium price with superior quality, an image national brewers then seized on in their advertising.

Larger Profit Margins

Premium brands such as Budweiser, High Life, and Lite sell for from 50 cents to as much as $1 a six-pack more than largely regional “popular-priced� beer. Yet, say industry executives, they cost little if anything more to produce. The profit margin on premiums, thus, is vastly greater.

But, in a classic case of needing money to make money, only the biggest brewers have been able to afford the advertising necessary to sustain the premium image. Even Stroh, the third largest brewer, which spent $85 million on advertising last year, has had much difficulty converting its Stroh brand from a popular-priced regional beer to a premium national beer. Budweiser had a 55% share of the premium category in 1984, according to Beverage Marketing Corp., a research firm. High Life garnered another 18.4%. And Anheuser’s Michelob had 77% of the “super-premium� category, which sells for between 50 cents and $1 a six-pack more than premium.

Even worse for Anheuser’s rivals, the below-premium market has erupted into a fierce price war due to widespread production overcapacity, especially at Miller. To compensate for High Life’s decline, Miller is spending millions promoting low-priced Meister Brau and Milwaukee’s Best. That is taking business from less expensively promoted popular-priced beers from Heileman and Stroh, which accused Miller of selling below cost. They have responded with further price cuts, creating a new “budget� category with prices as much as $1 a six-pack below popular-priced beer.

Pressure on Regionals

All of this price cutting and concomitant margin shrinkage, finally, is intensifying pressure on already beleaguered smaller regional breweries, which usually have little going for them except low prices and regional loyalty. Several are said to be on the verge of closing down or selling out to larger firms.

“The competition is absolutely beyond belief,� complains William Smulowitz, president of the Lion Inc.-Gibbons Brewery in Wilkes-Barre, Pa. “People are so desperate to sell beer they don’t care whether they make a profit or not.�

Though it indirectly instigated the contest, Anheuser remains unscathed. “We don’t play the price game,� says Long. It periodically discounts Budweiser and in some markets has repositioned its Busch brand from a premium to a popular-priced beer to fend off incursions by popular-priced competitors. But price competition in the premium or super-premium categories, where Anheuser has 94% of its sales, is rare--almost by definition.

“If a consumer is paying $3.30 for my premium six-pack and I let him have it for $2.70 two or three times a year, he thinks that’s a bargain,� says consultant Weinberg. “But if I overdo it and sell it too often for $2.70, he gets confused and wonders whether he’s buying a $3.30 beer for $2.70 or a $2.70 beer that sometimes sells for $3.30. That can sink a premium beer.�

Thus even though beer, in the view of many in the industry, is a largely homogeneous product, the cost of a six-pack, depending largely on images, can range from under $2 to well over $4.

Squeezes Rivals

Instead of simply coasting along on the advantages of its size, beer executives say Anheuser misses few opportunities to squeeze rivals.

Much of the current competitive struggle in the industry is being played out in a series of territorial battles. In some regions, Anheuser is on the defensive. For instance, it is fighting off invasions, for the most part successfully, of its strongholds in the Southeast and New England by Coors, Heileman, and Stroh.

But most of the time Anheuser is playing offense. To bolster its arsenal, it has proliferated its brands so that it has a product for every major price, taste and demographic segment. For instance, Anheuser is throwing no less than three brands at Miller’s best-selling Lite: super-premium Michelob Light aimed at Yuppies, premium Bud Light pitched at bar drinkers, and popular-price Natural Light as a beer to go with food at home.

Pointing to a chart of taste combinations, August Busch says, “We want to be here.� He points again. “We want to be there. We want to be everywhere. We are going to target every segment.�

The only survivors, some brewers feel, will be the widely publicized “microbreweries� which fill market niches too small to interest Anheuser.

“Anheuser makes more beer in 15 minutes than we make in a year,� says Matthew Reich, founder of Old New York Beer Co. which last year sold $1.2 million worth of a very heavy, dark beer called New Amsterdam Amber.

Like a military commander mopping up pockets of resistance after defeating the enemy army’s main body, Busch is also targeting every piece of geography where Anheuser doesn’t already have a commanding market share.

Results Impressive

Results to date have been impressive. California, which leads the United States in beer consumption, was the first target state after Busch took over, and he personally supervised the campaign. During the mid-1970s, Coors, whose marketing orientation has always been toward the West, controlled more than 35% of the market, while Anheuser, though it had breweries in Los Angeles and Fairfield, had only 25%. Today, Coors has fallen to 14% while Anheuser has more than 50%. By the end of 1985, Anheuser expects to lead in 43 states.

Current target states include Pennsylvania and Louisiana. Anheuser’s battle with Miller in New Orleans is so fierce that Heileman President Russell Cleary calls it a “tong war.� The Anheuser-Miller rivalry has long been both intense and highly personal.

But Anheuser’s biggest campaign is in the Midwest, especially Chicago, which it lost to Heileman’s Old Style premium brand in the early 1970s. Old Style has a 30% share in Chicago while Budweiser has only 7%.

“They’ve tried everything, money, advertising, but they just can’t beat that market,� says John S. Pedace, marketing director for Heileman. Considered perhaps the savviest second-tier brewer, Heileman has enjoyed much success from acquisitions of a large array of strongly entrenched regional brands.

A Matter of Ego

Long, who took personal charge of Chicago last July, has a book of battle plans a foot thick. Putting special emphasis on the city’s blacks and ethnics, it includes everything from bar visits by black disc jockeys--�We dominate the black radio stations,� he boasts--to sponsorship of Irish and Polish cultural events. Though Long denies it, Chicago seems to be a matter of corporate ego at Anheuser.

“Sure we don’t like it,� says Anheuser Chief Financial Officer Jerry E. Ritter. “I mean we’re being beaten not by a big guy like Miller, but by little bitty Heileman, so maybe that adds insult to injury.�

“We’re the biggest pain in their necks,� says Pedace. “We’re like guerrilla fighters and that annoys them.�

Anheuser is also making plans to invade Heileman’s other stronghold, the Pacific Northwest, where Heileman’s Rainier is the leading beer.

Anheuser’s competitors are sharply critical of the tactics it is using to expand its hegemony, especially those involving sports promotion.

The beer industry has always been heavily involved with sports, not just because “the average beer drinker is an avid sports fan,� says Anheuser marketing boss Roarty, but because of sports’ imagery.

Sports, says Major League Baseball corporate marketing head Joel Rubenstein, “are identified with positive things we admire like winning and physical condition, and with leisure, having a good time.�

Exclusive Arrangements

Some of the criticism focuses on the exclusive arrangements Anheuser and Miller have with the TV networks for most of the major sporting events. When it approached the networks two years ago as part of its national expansion, Stroh found that it was excluded from about 50 programs and events. It also found that Anheuser and Miller had the right of first refusal when the exclusives came up for renewal.

“We had the money to play, but we couldn’t get on,� says Christopher W. Lole, Stroh’s vice president for corporate planning. “That precluded us from reaching our target audience.�

Stroh protested to the Justice Department. After an investigation, the Justice Department last August concluded that the exclusives actually indicated healthy competition because they were held by the companies with the largest ad budgets.

Since its protests, Stroh has gotten on some telecasts but says it is still barred from 20 broadcasts, including Monday Night Football, the Indianapolis 500, the Kentucky Derby and National Basketball Assn. games. Anheuser is reported to be planning to work with NBC or ABC to outbid Miller when Miller’s CBS exclusive with the NBA comes up for renewal next year.

Anheuser also has a big budget for team sponsorship. It owns the St. Louis Cardinals baseball team and Busch Stadium. It currently sponsors 81 out of the 114 professional teams, more than 300 college teams and numerous local teams, including leagues of apartment softball teams. Sponsorship, which Anheuser tries to make exclusive, can involve not only advertising on radio, television and scoreboards and in programs and schedule cards but also numerous other tie-in promotions such as visits by players to bars and supermarkets.

Can Outbid Rivals

When Anheuser targets a new market, says Long, “we’ll sometimes buy everything in that market.� Other brewers say Anheuser can afford to outbid them for any property it wants. In Chicago, it acquired sponsorship of most of the major league teams, including the Chicago White Sox, Cubs, and National Hockey League Black Hawks. According to Stroh’s Lole, Anheuser took away sponsorship of the White Sox a few years ago by bidding more than twice the $250,000 that Stroh had been paying.

Anheuser’s rivals say this strategy can be very effective not only in promoting its own beers but also in undermining support for local beers.

Says Smulowitz, the Lion Inc.-Gibbons president: “The consumer watches a football game, and there’s a Bud scoreboard, Bud commercials, day in and day out, and eventually he says, ‘what the hell, I’ll have a Bud.’ �

Anheuser was accused last year of trying to lock up stadiums and other sports facilities and entertainment events as well. According to the Bureau of Alcohol, Tobacco and Firearms, a division of the Treasury Department, Anheuser monopolized beer sales by illegally inducing retailers to purchase only its products. Deputy associate director Robert J. Maxwell said, “They engaged in what can be characterized as predatory trade practices. They caused competitors’ products to be thrown out or excluded. In effect, they bought the accounts.�

Stadium sales are regarded by brewers as a valuable opportunity to get drinkers of rival brands to sample its beers.

The BATF complaint cited 10 instances, including the Knoxville World’s Fair and Chicago’s Comiskey Park, home of the White Sox. According to Bruce Weininger, chief of the BATF’s industry compliance division, Anheuser tied its purchase of television, radio, and sign advertising from the White Sox, which owns the stadium, to a requirement that the stadium’s refreshments concessionaire, which was selected by the White Sox, sell Anheuser’s beers exclusively.

Inducements Prohibited

Direct and indirect inducements by producers and wholesale distributors to retailers for such anti-competitive purposes as the exclusion of competitors, a common practice in many other industries, are prohibited by the Federal Alcohol Administration Act when alcoholic beverages are involved.

Weininger said the BATF found evidence of similar behavior at over 40 other locations but lacked the resources to conduct full investigations of all suspected violations.

An Anheuser spokesman said the alleged activities were not “attributable to company policy or top management of the company.� The $2 million Anheuser paid to settle the charges was the largest amount ever by a brewing company.

Anheuser paid $750,000 in 1978 as part of a settlement with the BATF on similar charges after admitting $2.7 million in possibly illegal payments. Several other brewers, notably Joseph Schlitz Brewing, were also implicated during the mid-1970s a wide-ranging probe of illegal payoffs to retailers.

The BATF, which is also investigating Stroh and Coors, has turned over material on Anheuser to the SEC and the IRS.

BATF deputy director William T. Drake says IRS charges against Anheuser could “be a big number.� The tax laws forbid deductions of illegal payments.

Some brewers say their access to stadiums where Anheuser is involved as a sponsor has improved since the BATF settlement, but only slightly.

“You’ll still have a hell of a hard time finding Stroh,� says Stroh’s Lole. “You can’t induce a retailer to make your beer exclusive, but everything from 99% to zero is acceptable.�

And while there is at least the semblance of competition in the major sports arenas and events, Anheuser’s competitors say exclusivity is still widespread at such local activities as the hundreds of music concerts Anheuser sponsors every year.

Get Frozen Out

“The reality is that you get frozen out 99% of the time if you don’t sponsor an event,� says Robert Stahl, general manager of Golden Brand Bottling in San Francisco, a wholesaler for Miller and Heileman brands. “You’re not supposed to talk about it, but it’s an unwritten understanding that if you sponsor an event, they’ll serve your beer exclusively.�

This is especially true, Stahl says, of Anheuser distributors, who sponsor far more events than anyone else. He mentions, for instance, San Francisco’s Festa Italiana, a three-day annual affair held last October on Fisherman’s Wharf that attracted 40,000 people. The Anheuser distributor paid a reported $25,000 to become one of the chief corporate sponsors.

“His beer didn’t get in,� John Bracco, owner of Bracco Distributing, the local Anheuser distributor, says in response to Stahl, “but my beer didn’t get into his Navy event either,� a reference to Miller’s sponsorship of the annual Fleet Week affair organized by the city and the Navy.

Anheuser’s network of 950 wholesale distributors, who market its beer to taverns, supermarkets, and other retail accounts and organize most of its local promotions, is perhaps its most powerful territorial weapon.

Anheuser’s economies of scale advantage is almost as large at the distributor level as at the national level.

Can Spend More

“The Anheuser guy and I cover the same number of accounts, but he sells five times as much beer as I do,� says Richard Harrison, sales manager for Kern Valley Distributing, the Miller wholesaler in Bakersfield, where Anheuser has a 60% market share, “That means he has five times as much discretionary money to spend on handshakes and kissing babies.�

Principally in major metropolitan areas where it has a large market share, Anheuser’s strategy, and Miller’s as well, has been to work through the most powerful, best connected distributor and to persuade the distributor, who is technically independent, to handle only Anheuser products.

“We discourage them from carrying other brands,� says Long. “We want to keep the advantage of our size in house.�

“Being a Bud wholesaler in some cities is a license to steal,� says one beer executive, “and so you do what you’re told.�

In California, according to the Modern Brewery Age Blue Book, the Anheuser distributors in such cities as Los Angeles, San Francisco, San Diego, Bakersfield and San Jose, who are all the largest in their regions, do not carry any brands from other brewers that compete directly with Anheuser products.

Anheuser encourages their loyalty through extensive incentives, bonuses, cost-sharing of promotions, assistance from special marketing teams, and a heavy dose of Anheuser’s winning esprit. (“Losing is not in our vocabulary,� says Kevin Forth, president of Orange County’s Straub Distributors, the state’s largest Anheuser wholesaler.) To combat a so far very successful invasion of New England by Coors, it has been providing thousands of dollars in awards to salesmen with the best record of reclaiming accounts and shelf space lost to Coors and obtaining new accounts.

Practice Under Attack

Anheuser (and other major brewers) also give their distributors exclusive rights to certain territories, a practice that while mandated in some states, though not in California, has come under attack. New York State Atty. Gen. Robert Abrams says exclusivity is “anti-competitive and should be illegal.� He and other critics allege that it eliminates price competition that would otherwise exist between rival distributors of the same brands and permits the brewer to control retail prices. And they say it further entrenches the position of the largest distributor in a certain area.

Brewers attempting to move in to Anheuser-dominated territory say Anheuser-affiliated distributors (and sometimes Miller distributors) usually refuse to carry their brands, forcing them to deal through much smaller firms. According to Heileman’s Cleary, “There have been many places we couldn’t get in at all due to Anheuser and Miller pressure.�

Some Anheuser distributors carry other brewers’ products in categories where Anheuser is not represented. The most common example is Heineken, the best-selling imported brand. Anheuser, though, recently became the importer for Carlsberg beer from Denmark and Long says other imports will be added to Anheuser’s product line. The import market share, though only 4%, has been expanding rapidly.

Long concedes that Carlsberg is currently too small to threaten Heineken, but he suggests that over time he would prefer that Anheuser’s distributors carry Anheuser’s imports instead of other importers’ brands.

Distributors Cautioned

“We tell them, be careful when you take imports,� he says, “because that prevents us from growing in that segment. We tell them they’ll lose the strength of their allegiance to us if they carry something extraneous to our system.�

For all of its seeming insuperability, Anheuser’s rivals still harbor hopes the juggernaut can be derailed. That hope centers on the fact that, despite brand proliferation, about 70% of Anheuser’s beer sales derive from Budweiser.

In the past, virtually all widely selling brands such as Carling Black Label, Pabst Blue Ribbon, Schlitz, and High Life--and Lucky Lager and Hamm’s in California--have eventually fallen from favor. Beer drinkers, not known for brand loyalty, will tire of a brew, it is argued, and look for something new. And, it is pointed out, no brewer has been able to resurrect a major rejected brand. Even Miller’s millions have not, so far at least, rescued High Life.

August Busch claims that Budweiser is immune because it is clearly the best beer. But he is not taking any chances. He is diversifying into baking products and snack foods, though so far not very gainfully. (More than 96% of Anheuser’s operating profits are from beer-related products.) And he is watching his beers very, very carefully.

“We’ve seen others in this business get to the top and get in trouble because they got too big for their britches,� he says. “We’re scared to death of that. It makes us keep questioning everything we do, attend to every detail, try to do everything better. It makes us live on the razor’s edge.�

THE GROWING DOMINANCE OF ANHEUSER-BUSCH Table shows percentage of total annual shipments by largest brewing companies and is based on brand ownership as it stood in 1984. For example, 1975 shipments by Jos. Schlitz Brewing Co., which was acquired by Stroh Brewing in 1982, are included in Stroh’s results for 1975.

1975 1980 1985 Anheuser-Busch 23% 28% 38% Miller 9 21 21 Stroh 23 14 13 G. Heileman 9 9 9 Coors 8 8 8 Pabst 14 10 5 All others 14 10 6

Estimate

Source: R. S. Weinberg & Associates, Brewing Industry Research Program