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Price War Ahead?

June 1, 2005 - A price war in the US beer market is being widely predicted as executives at leading brewer, Anheuser-Busch, promised investors that it would do "whatever is necessary" to grow its market share and increase profits.

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However, A-B said it wasn't a question of undercutting competitors but simply reducing its premium to competitors' prices. While A/B is pricing its beer aggressively, it isn't engaged in a price war with its rivals, Patrick Stokes, A-B's president and chief executive, told analysts at an investment conference in St. Louis. Stokes said the company would regain sales momentum by increasing its promotional pricing activity in selected markets.

Nevertheless, analysts are expecting a summer of extremely tough competition. "If everyone was playing nice in the sandbox, this would be OK," Marc Greenberg, a Deutsche Bank analyst, told Down Jones News Service. "But we sense a much more competitive attitude among domestic brewers." Greenberg added that A-B's main competitors, SABMiller Miller and Molson Coors Brewing, "seem unlikely to let A-B off without a worthy fight."

Norman Adami, chief executive of Miller, has repeatedly cautioned against a discounting battle, saying that any progress made would simply be a question of "renting share." But Adami still expects the coming summer to be "one of the most competitive," and said Miller would match competitors' moves on pricing.

Last year, Anheuser-Busch saw anemic sales-volume growth due to the rising popularity of distilled spirits and wine as well as reinvigorated competition from Miller Brewing Co.

In response, A-B swiftly rolled out new products and packaging, boosted advertising and dramatically increased marketing spending and staff at bars and other on-premise locations, where spirits are on the rise.

Those efforts are hurting profit, and A-B expects second-quarter per-share earnings to decline compared to the year-ago quarter.

What affect a price war among the three major domestics would have on the craft and specialty segment is unclear, but in the past it has had little impact. Most consumers swayed by discounted major brands are either not in the buying market for specialty beer or may in fact "add on" a six pack of better beer with the money saved. The biggest impact seems to be in distracting distributors in-store time away from specialty beers and in many cases, excluding display space for high-end beer brands.


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