July 8, 2007/Milwaukee Journal Sentinel-- Miller Lite remains the heavyweight brand for Miller Brewing Co., accounting for nearly half its sales volume.

However, in a strategic shift, the nation's second-largest brewer is focusing more on some smaller brands that offer high growth potential - and strong profit margins.

Miller president Tom Long calls the strategy "stoke, protect and exploit."

Miller is stoking Miller Lite, which Long said is again showing sales growth after a lag in 2006. Miller is protecting its vulnerable older brands, chiefly Miller High Life, Miller Genuine Draft and Milwaukee's Best. All three are full-calorie, mainstream beers -- an industry segment that has been losing market share for years to lower-calorie beers.

Finally, Miller seeks to better exploit its higher-margin import and specialty brands. They include Foster's Lager, from Australia, Czech brew Pilsner Urquell and Italian beer Peroni Nastro Azzurro. The "exploit" segment also features the Leinenkugel's product line, as well as the new Chill, billed as a Mexican-style "chelada" beer, with hints of lime and salt.

Chill is already seeing a healthy rate of repeat buys, Long said, an indication that drinkers view it as more than a one-time novelty. He said Chill taps into consumer preferences for specialty beers, while also appealing to the "Latinization" of the U.S., with Mexican-inspired foods and drinks appealing to a growing crowd, including people who are not of Hispanic origin.

"They like a touch of exoticism," Long said.

Miller hopes to sell 400,000 barrels of Chill in its first year. That would put Chill on roughly the same sales level as Foster's Lager, Miller's biggest import.

However, Chill, the Leinenkugel brands, the imports, and specialty drink Sparks, a caffeinated malt beverage bought last year, together make up only around 5% of Miller's U.S. sales volume. While that share is growing, with the debut of Chill and the addition of more imports from corporate parent SABMiller Plc, Miller is still largely a company of mainstream beers.

After Lite, which accounts for 47% of its sales, Miller's two largest brands are High Life, with 13% of sales, and Genuine Draft, 9%, according to trade publication Beer Marketer's Insights. Next is Milwaukee's Best, with 5% -- although that share increases to 13% by including Milwaukee's Best Light and Milwaukee's Best Ice.

High Life and the Milwaukee's Best brands are considered "sub-premium," an industry term for beers that sell below the premium prices commanded by such brands as Miller Lite and Bud Light.

Miller owns several other smaller sub-premium brands, and over one-third of the company's sales come from that segment, said Benj Steinman, publisher of Beer Marketer's Insights. Anheuser-Busch Inc. draws less than 25% of its sales from sub-premium beers, while Coors Brewing Co.'s sub-premium sales are less than 15% of that company's overall business, Steinman said.

That's a tough circumstance for Miller, Steinman said. So it makes sense that Long would take steps to "reinvent" Miller's portfolio by focusing more resources on the higher-priced specialty brands and imports, he said.

That view is echoed by Alexandra Oldroyd, a beverage industry analyst at the London office of Morgan Stanley.

"It's the only way to go, really," said Oldroyd.

A visit to your neighborhood liquor store shows why Miller is undertaking the effort, which Oldroyd calls "a long, slow repositioning."

At Discount Liquor, in Waukesha and on Milwaukee's south side, a six-pack of Chill is selling for $6.49, priced at just 30 cents under Corona, the nation's most popular imported beer. Meanwhile, a six-pack of Miller Lite sells for $4.39.

"People are willing to pay more for things they think are different, better and special," Long said.

Miller's track record in selling such high-end brands "hasn't been terrific," Steinman said. For years, Foster's Lager has seen lagging sales despite a boom in imported beers. Miller owns the U.S. marketing rights for Foster's, which is brewed in Canada.

Miller, however, recently expanded its licensing partnership to brew Foster's Lager in the United States. The new arrangement will reduce shipping costs and allow Miller to invest more in the brands' long-term growth, Long said.

Also, Miller's Leinenkugel unit, an independent operating subsidiary, last year saw its sales soar around 12%, thanks largely to its popular new Sunset Wheat brand. That brand continues to enter new markets throughout the nation.

There also are positive signs for some of the older brands Miller is trying to protect, Steinman said. He said new TV spots for High Life seem to be working. Those ads feature a delivery man who removes High Life from stores and restaurants deemed too snobby to deserve the beer.

And then there's Lite, the main engine for Miller's growth.

After strong sales in 2004 and 2005, Lite's sales volume dropped 0.6% in 2006, while Miller's overall sales dropped 1%. That led Miller to drop the "Man Laws" TV spots that featured the "Men of the Square Table." The ads drew a buzz, but didn't sell beer, Long said.

Miller has since rolled out lower-key spots, including ads that emphasize Lite's history of four gold medals at the annual World Beer Cup competition

"When we focus on beer in our advertising, the beer sells," Long said.

From the July 16, 2007, Prepared Foods e-Flash