Price Wars?

Conditions may be ripe for major brand price wars this summer

The escalating competition for marketshare among the newly merged MillerCoors and Anheuser-Busch may trigger a price war this summer according to many industry sources. Fueled by price cuts by imported brands, falling commodity prices and aggressive budget cuts give the companies more flexibility to drop prices.

A price war battered the industry in 2005, and large discounts carry the risk of lower profits without significant sales gains. Beer executives typically want to avoid heavy discounting, but competitive forces could get the best of them.

“I can see a price war breaking out if MillerCoors starts to gain share from Budweiser,” says Roman Shuster, a research analyst in Chicago with Euromonitor International PLC. “InBev is known to push back, and what they do will have a huge impact on the market.”

Summer is the key season for the beer business, and this year will be especially crucial coming on the heels of the deals that created MillerCoors and AB-InBev.

MillerCoors, which is moving its headquarters to Chicago this summer, must find a way to get beer drinkers to switch from industry leader Bud Light to Coors Light or Miller Lite. Coors Light has posted strong growth thanks to a persistent marketing blitz touting the brew’s “cold taste,” while Miller Lite has struggled from lack of a clear message. MillerCoors hopes to turn around Miller Lite with a consistent focus on taste in its advertising.

Harry Schuhmacher, editor of Beer Business Daily says struggling imports such as Corona have started to lower prices, and light beers could be forced to follow suit.

“You see the early signs of a price war, and pricing was pretty aggressive over Easter,” Schuhmacher said. “It reduces profitability, but you don’t want to lose marketshare, especially this year.”