SAN DIEGO (CN) — Consumers love a “free gift” with purchase.
Even beer drinkers.
That’s why Molson Coors CEO Gavin Hattersley said the company formerly known as MillerCoors found “tremendous success” when it introduced a 15-pack of its Keystone Light economy beer to the United States market in January 2017.
“It goes to that value proposition of ‘I’m getting something for free,” Hattersley said during his third day of testimony in a trademark trial where the second largest American beer company is accused of violating craft brewer Stone Brewing’s trademark.
U.S. District Judge Roger Benitez — a George W. Bush appointee overseeing the trial — had jumped in during questioning by Molson Coors’ attorney John Bunge to ask why instead of just lowering the price of a 12-pack of Keystone Light the company sold new 15-packs of “stones” for the price of a 12-pack.
Hattersley told Benitez: “Frankly, we don’t control the price — distributors and retailers control the price.”
He added: “To convince distributors or retailers to drop the price of a 12-pack would be hard because their margins would go down.”
While on the stand Thursday, Hattersley testified it was this new 15-pack of Keystone Light beer that significantly boosted sagging sales of the economy brew which was being outperformed 2:1 by other economy beers including Natural Light, which is sold by Anheuser-Busch.
Internal Molson Coors documents shown in court noted between 2012 and 2015 MillerCoors had lost 45 million cases of its economy beer portfolio, including 12 million cases to wine and spirits, 19 million cases to premium beers like Coors Light and 14 million cases to other economy beers including Natural Light and Pabst Blue Ribbon.
Hattersley said once economy beer drinkers had moved on to wine and spirits, it was difficult to recapture those customers and MillerCoors had a longer-term strategy for doing so.
The company also didn’t want beer drinkers who had moved up the beer “hierarchy” and purchased more expensive premium drinks like Miller Light or Coors Light to go back to purchasing Keystone Light since the company was making more profits.
So recapturing economy beer drinkers who had moved on to its competitors in the beer industry was considered a “quick win” by a steering committee of MillerCoors executives and outside consultants and marketing professionals working to increase sales of Keystone Light.
Demographic data of Keystone Light consumers was also top of mind for Hattersley when MillerCoors introduced the 15-pack of Keystone Light.
Forty percent of Keystone Light consumers earn less than $30,000 a year and either work in a blue collar job or not in the workforce.
“It means they are price conscious — don’t mess with the pricing button,” Hattersley said.
The “Buy 12, Get 3 Free” strategy worked: data compiled by market firm Nielsen in a “shifting volume” chart showed Keystone Light recovered double-digit sales from competitors like Natural Light and Busch.
The revelation calls into question Stone Brewing’s claim MillerCoors rebranded Keystone Light a few months later in April 2017 to confuse consumers into thinking the San Diego craft brewer known for such concoctions as “Arrogant Bastard Ale” was selling the inexpensive lager.
“Would it be helpful for those consumers to think Keystone was made by a craft brewer?” Bunge asked Hattersley.
“It would make no sense to confuse an economy beer drinker that is price conscious that you are a high-priced craft beer,” Hattersley responded.
The Molson Coors CEO also denied Stone Brewing ever came up during strategy discussions about creating the 15-pack of Keystone Light or rebranding the economy beer.
But during re-direct questioning, Stone Brewing attorney Noah Hagey suggested the importance of Keystone Light’s sales was less about maintaining the brand’s loyal customers and more about offsetting costs to produce MillerCoors’ best selling beer: Coors Light.
Hagey showed Hattersley ingredient lists for the two Molson Coors brews showing they use the exact same five ingredients: water, barley malt, corn syrup, yeast and hop extract.
“You said one of your concerns was you wouldn’t cover fixed costs of Coors Light. One of the most important reasons volume [sales] of Keystone Light is important for the entire business is because it uses the aftermath of Coors Light to brew Keystone Light,” Hagey said.
He asked Hattersley: “Sir, you’ve been in the beer industry for 25 years and are CEO of the second largest beer company in America and don’t know how the beer is made?”
“I’m not in that detail of brewing the recipes, no,” Hattersley responded.
The trial was scheduled to continue Friday morning.
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