Coors deal a marriage of necessity for Molson
Canadian-based Molson Inc. and US-based Coors Brewing Company announced their merger plans earlier this month like an overjoyed couple walking back up the aisle.
The couple pledged their vows with Coors paying Molson $65m for a 49.9% stake in a US partnership, while Molson keeps 50.1% including full ownership and control of the Molson brands.
This is yet another example of brewing companies from one country teaming up with a company from another, rather than attempting to crack an import market solo. It is a second trip up the aisle for Molson in the US; last year an earlier marketing agreement with Coors rival Miller Brewing broke down and Molson ended up buying back control of its brands.
Eric Shepard, executive editor of the US drinks newsletter Beer Marketing Insights, told just-drinks.com why he thought Molson preferred the safer route.
He said: "Sure they could have done it alone but other very well-funded importing organisations like Heineken, Labatt and Barton have been there (the US) for years and are spending quite a bit of money. For Molson to go up against that, starting from scratch would have been certainly more difficult. Molson probably feel they got a good deal."
According to both Molson and Coors, the joint venture could not "have made better sense" considering they have worked well together in the past.
In 1997, Coors and Molson signed a deal whereby Molson marketed Coors Light throughout most of Canada. Molson also agreed not to advertise any of its own light beers but instead focus on profits from Coors Light. Both parties were happy with the relationship, so it was probably only a matter of time until a more substantial deal was on the table.
"We want to recapture our number three position in the US import market that was lost with Miller."
Furthermore, Molson's options of appropriate suitors were shrinking as its rival giant brewers have been teaming up years before. Shepard said: "Molson does not have a lot of options in terms of big brewers. Labatt is partnered with Anheuser-Busch in Canada, so it would make sense for them not to make that move since Molson and Labatt are extremely competitive.
"Molson are also partnering with a marketing organisation that is intact and has established field sales teams. It seems to us to be a natural partnership," he added.
The deal is not without advantages for Coors as well as it allows up to 800,000 hectolitres of beer annually to be made by Molson for Coors, which will then be sold in the US. An extension of the existing agreement is also on the cards, whereby Molson guarantees performance levels to Coors for its light beer, which will now be marketed in the Canadian Maritime Provinces - an area excluded from the earlier agreement.
John Paul Macdonald, vice president for corporate affairs at Molson said that the brand suffered from the rocky relationship with Miller in the early 1990s. What Molson needed was a reliable match that would allow the company to retain control and work together. He said: "We want to recapture our former number three position in the US import market that was lost with our partnership with Miller."
The acrimonious affair between Miller and Molson was a lesson Molson learnt the hard way. All control and brand marketing for Molson had been handed over to the US company, but the results were not to Molson's taste. It subsequently spent more than $133m on recovering control of its brands from Miller and its partner Foster's.
"This is an import market that was growing somewhere around 10% a year and Molson was losing," said Mr Shepard. "Miller had to fix the problems they had with their own brands and Molson got less attention than it would have had elsewhere because of it."
However, unlike many divorcees coming out of a bad marriage, Molson was prepared to take a second plunge and the return to single life was shortlived.
Macdonald said numbers had been crunched and it was unviable for Molson to develop its own distribution network in the US. "Too expensive," he told just-drinks.com.
Only time will tell whether this new relationship will last.
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