Tom Long - Chief Executive Officer, President and Chief Commercial Officer
Gary Leibowitz - Senior Vice President of Investor Relations
Kevin Doyle -
Gavin Hattersley - Chief Financial Officer
David Dunnewald - Vice President of Global Investor Relations
Unknown Executive -
Andy England - Chief Marketing Officer
Ed McBrien - President of Western Division
Thomas Cardella - President of Eastern Division
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Kaumil S. Gajrawala - UBS Investment Bank, Research Division
Molson Coors Brewing Company (TAP) Investor Day/Seminar December 5, 2011 2:30 PM ET
We're ready to get going here at MillerCoors headquarters in Chicago. I'm Gary Leibowitz, Senior Vice President of Investor Relations at SABMiller. And we're happy to cohost you here in Chicago. And for those of you who are joining us online on our webcast, to cohost you with our partners, Molson Coors Brewing Company. And Dave Dunnewald will join me here at the podium in just a moment. But I just wanted to say welcome. Dave will introduce all the speakers, to be led today by Tom Long, our Chief Executive Officer.
But just a quick word on why we're here today. It's been 3 years since we've combined forces between Miller and Coors. And we're very pleased with the progress to date, and are looking forward to seeing the joint venture continue to succeed and to continue to evolve. There's been great successes in terms of synergy programs, Premium Light share gains, the establishment of Tenth and Blake and making a real impact in the craft and import sector. A lot of successes and a lot more to do in a category that we all know, frankly, has its challenges in terms of industry headwinds and the state of the consumer. So we're here to be able to just spend a little bit more time.
Rather than just being short, with short answers on the conference calls quarterly, to be able to take a step back and look at the commercial issues and our philosophy and our thinking as much as just direct answers to short-term questions, and to continue the spirit of what was a really nice lunch with a lot of you in New York during the summer with Tom, a chance to just meet the team and get to know the individuals involved in the leadership of the company, again beyond just the specific day-to-day issues.
So that's all I wanted to say. We’ll look forward to taking your questions at the end. By way of Safe Harbor language, we're duty-bound to tell you that today's presentation will be full of forward-looking statements. These, as always, are subject to considerable uncertainties and dependencies. And our statements today reflect the best judgment of management at the time. SABMiller and Molson Coors shareholders should look at the parent company's respective websites for disclaimers around factors that could affect these statements. And as usual, we undertake to update these statements only in our normal reporting and seminar routines. With that, I'll hand it over to Dave.
Thanks, Gary. Hi, I'm Dave Dunnewald, Vice President of Global Investor Relations for Molson Coors. On behalf of Molson Coors, I'd like to thank you for joining us. It's great to see such a large illustrious group today here in Chicago. As many of you know, we have a 42% economic interest in MillerCoors and a 50% governance interest. So MillerCoors has become increasingly important to our company over the last 3.5 years. And so we have, call it, a strong interest in not only the business but what the kinds of things that you'll hear today.
And I'm looking -- I'm personally looking forward to, and I hope you are, a broad and deep view of the U.S. beer business today. So without more time around that, I want to let you know that the speakers we have today are: Tom Long, CEO of MillerCoors; Andy -- excuse me, Gavin Hattersley, Executive Vice President and CFO; Andy England, Executive Vice President and Chief Marketing Officer; Ed McBrien, President of Sales and Distributor Operations; Tom Cardella, President and Chief Beer Merchant of Tenth and Blake Beer Company; and Kevin Doyle, Chief Customer Officer. So with that as a brief introduction, I'll turn it over to Tom Long.
Without wanting to hog the mic, I've got one other thing to say. I am conscious that there are a lot of our people who are not here today, they're listening online. As I mentioned to a couple of our shareholders last week, if anyone among our analysts and investors who's listening online would like to email me directly with any questions for the Q&A as you're listening, I'll be happy to put those to the team when we get to the Q&A session. Thank you.
Thank you, Gary, and thanks, David. Welcome, everyone, to MillerCoors headquarters. You're on the floor with our new company Tenth and Blake, and you'll have an opportunity to hear from Tom Cardella today, and at the end of the day, have a couple of our fine beers in our pub upstairs. So welcome, we're -- with a full agenda today, and tomorrow, we'll have a chance to hit the trade and see how consumers respond to our portfolio at what we call the moment of truth, when consumers make their decisions between our beers and lesser substitutes. So we expect an energized session, and we will look forward to seeing you tonight at Fred and Adolf’s Pub, which is upstairs, at the end of the day.
It's 3 years on at MillerCoors. And we've rightly focused on building our culture, hitting those synergy targets that we promised as a new company, building the right team. And we've done that quite effectively. We've over delivered on our original cost savings projections, and we now expect to reach our original target, our target, elevated target of $750 million in total synergies and other cost savings by the end of this month, which is a full year ahead of our commitment. Now that's a big accomplishment in and of itself. But we know we can't save our way to prosperity. Winning in the future requires growth, growth in share and profit and cash flow and return on capital.
Now I spoke recently at the NBWA Convention about beer's continued loss of share to spirits over the last decade. And undoubtedly that's something that's on your mind because it's a critical challenge to us, and we take it very seriously. And beer is interacting more and more with spirits and wine. So let's take a quick look at why it's happening. And we've discussed the importance of the changing palate of millennial consumers and their greater interest in experimentation, variety and diversity. When I came into beer industry just over 6 years ago, the average number of brands consumed by key beer drinkers was only 3.5, 3.5 different brands. Well, it's over 7 now. And so this degree of experimentation and fragmentation inside beers even carried over to spirits and wines. But it shouldn't be a surprise. This fragmentation at the top end of almost every consumer packaged goods company is happening in all of the developed markets of the world. And I'm sure you see it if you cover other industries.
So you'll see here that spirits and wine are encroaching on beer's traditional strongholds of sociability and belonging and cut above the best. So what does that imply for us? Well, it implies that we have to play more powerfully in these spaces. And this is what we do as marketers, and we'll talk about that today. They've also had some tailwinds with the combination of adding advertising to their portfolio, as well as penetrating sponsorships with the NFL. And frankly, learning some lessons from beer, they've been able to make advances. And they've aimed at their strategies at differentiating their portfolio and premiumizing their products.
Now even though they haven't been able to demonstrate the same pricing power as the beer industry, we do think they've used education, packaging, innovation and positive third-party health claims, in addition to increased availability, to win new consumers. So I'd say they've been looking at beer pretty hard, and they've learned some pretty good lessons. So what are we going to do about it? Well, that's much of what you're going to hear about today from Tom Cardella and Andy England. And generally, we have to attack wine and spirits' traditional strongholds from our point of strength, which is really fun and liberation. And we do that with our Premium Light brands. And we'll tackle the savor-the-experience and the cut-above opportunities with our imports and crafts.
And we're also focus on quality. Everything we do should shout quality. Now I don't mean being precious. But I do believe that beer drinkers want to know that their beers are made with the best ingredients with the best processes available. And we know this is true because we see it through our most authentic brands like Coors Banquet. Now we've launched news-making and value-driving innovations in the first 3 years of our joint venture. Innovations like the Coors Light Cold Activated Can, the Coors Light Window Pack, Coors Light Super Cold Draft, the Miller Lite Home Draft system, Coors Light Home Draft system and the Super Cold Activation on all of Coors Light's primary packaging. All of these innovations have contributed to Coors Light's frankly stunning success. It's had a 7-year run as the growth leader among American light lagers. And this is one of the performance promises of the joint venture that we're most pleased with.
While it's been a more of difficult road, we've also stayed focused on Miller Lite bringing new innovations to Miller Lite like the Vortex Bottle, the Aluminum Pint, the Home Draft system and Taste Activator Glass. And we've dramatically raised Miller Lite's net revenue per barrel. In fact, we've raised Miller Lite’s more than any other light beer in our portfolio. We've also made big bets in support of both Coors Light and Miller Lite with our new college sports alliances and major investments in Mexican soccer, our NASCAR sponsorship and continued partnerships with dozens of NFL, Major League Baseball and NBA teams, not to mention the new NHL deal for Coors Light and Molson Canadian, which is already producing results. And we do this because we believe in the future of the light portfolio and the light segment of the American beer business. In fact, it is the American beer business.
But it's not enough. We launched Tenth and Blake Beer Company just a little over a year ago to drive our leading craft positions with brands like Blue Moon and Leinenkugels, and also to strengthen Peroni's position in the import segment. And we launched new innovations like Colorado Native and Batch 19 through separate beer companies that we have out West. These are business models inside of business models with separate sales front ends that concentrate fully and exclusively on their portfolio, so they can incubate those brands and grow them powerfully.
But we know we have to do more. So over the past year, we've spent considerable time updating and evolving our strategy to make us a better fit for growth. And we call that new strategy, winning in beer, quite simply. Its first, focused in the center there of this bull's-eye, on the consumers who buy our beer. And then on the distributors and retailers who sell it, then our own people who brew and make our beers and sell our brands. And finally, on a larger role that we play in society, where we're building our reputation as a responsible and committed corporate citizen. We know that the total alcohol beverage market is changing rapidly and the brand and retail landscape is becoming increasingly fragmented. Consumer taste are transforming right before our eyes. And frankly, it's never been a better time to be in beer. If you like change, if you've got some chutzpah and are willing to make changes out in the marketplace, then this is a great place to be. In fact, I think it's the best time ever to be in beer.
Now we've got a lot of opportunities and risks on the horizon, including the potential for higher taxes and tougher regulations. So we need a thoughtful, long-term approach. And we believe that winning in beer delivers that. Let me just take you through that, the 5 strategic planks very quickly. First, elevating brands. That's all about big brands that pull. Now you'll see that we have a number of brands that we're incubating in the market in very small platforms. Tom Cardella will talk about barrel-aged brews that we have, when we make only a few barrels at a time and we'll delight consumer palates with those. But they're not transformative in and of itself, but we do demonstrate our capabilities to our retailers and consumers across the world for our capacity to brew the very best beers.
Earning customer preference. That's about earning the confidence and conviction of the retailers and distributors who sell our beers. And Ed McBrien and Kevin Doyle are going to speak to you this afternoon about our distinctive capability in this area. Fueling growth is all about making our business more efficient. We have demonstrated confidence in this area. Gavin Hattersley is going to talk the highlight, the work we're doing to increase the efficiency and the transparency of resource allocation so that we can continue to do a better job there. And he'll touch on our recently announced business transformation program and our ongoing work in business information systems. I'll talk a little later today about engaging people. It's our effort here on developing and attracting a diverse workplace, creating training programs to build the capabilities we need for growth and ensuring we have an inclusive, flexible and safe working environment. Perhaps of all the things that we did in the first 3 years, this was the most strategically important.
And of course, as brewers, we know we have a special responsibility because we have to promote and protect the responsible marketing and enjoyment of beer, and to practice sustainability in a way that earns us the respect of our regulators and protects our license to trade, and helps us build our position in communities and relationships across the markets where we do business because beer remains uniquely local. So those are the broad strokes of our strategy, and you're going to hear much more about those today.
But before I invite Andy up to speak, let me add one more key point. Before we do anything else, we know that in order to succeed, we have to evolve. Standing still and relying on what got us here certainly won't get us there, and we're bold enough and ambitious enough to know that we have to take deliberate risks. So in the months and years ahead, you would expect to see a faster MillerCoors, a more nimble MillerCoors and a more urgent MillerCoors. And we'll take those educated bets based on our understanding of the consumers and customers to make those bets return for our shareholders. Sure, the economic environment is tough, we all know that. But it's been challenging since the day we opened our doors for business in 2008. And we're not daunted by that challenge. Instead, we're going to face it head-on.
The last 3.5 years have been about coming together, making the right decisions to move forward. We are, I believe, the best-positioned American beer company to capitalize on change. We've saved money. We've increased efficiencies. We've made big bets. We have a commanding position in the fastest-growing sector the American beer business, and we expect to capitalize on that. And now we must do even more. So after your visit with us here in Chicago, I hope you'll agree that our winning in beer strategy makes sense, that you have some insights into our capability and capacity to execute it with distinction and that we will evolve to deliver the next level of growth in shareholder value.
So we'll take your questions at the end of each section, if you can hold them until then. And then at the end, we'll have a round of questions. So I hope you'll enjoy the day. Now let's hear more from Andy England, our Chief Marketing Officer. Andy?
Thank you, Tom. Good afternoon. As Tom said, I'm Chief Marketing Officer for MillerCoors. I also have the privilege to be Chair of that Strategy Committee. And I thought I'd start actually by talking a little bit about the Strategy Committee and our role and the way we look at the business.
Not surprisingly, the committee is there to determine what our core strategy should be. And in determining that, as like many things in the beer industry, we tend to start with a sports analogy. And one of my favorite quotes comes from the Great One, Wayne Gretzky. And at one point, he was asked -- and I'm going to butcher this a little bit, so I apologize. But at one point, he was asked why he was so good. And his answer was that, "Most guys skate to where the puck is. I skate to where it's going to be." And I particularly like that as an analogy because at the end of the day, we're going to be successful by skating to where the puck is going to be, not where it is right now.
And as a result, as a Strategy Committee, the first exercise we went through was one we called Horizon 2021, which for the more analytically gifted among you, you'll recognize is 10 years from now. We spent a bunch of time thinking what will the beer industry look like 10 years from now. And obviously, we don't have the right answer. But we came up with a bunch of theories and a bunch of scenarios, if you like, which we essentially distilled down into 4 scenarios. And I'm just going to give you a flavor of 2 of them.
One of those scenarios was what we called flat, fractured and fast. And the idea was between -- over the next 10 years, there's a good chance that the beer industry will be flat in volume, not necessarily in value. And by the way, I'll come back to talk a little bit about volume versus value because as an industry, we have historically obsessed over volume. And ironically, we get paid more on value. But the idea is that from a volume point of view, the industry will be relatively flat over the next 10 years. It'll be fractured. Why would it be fractured? Because if you look at the fracturing of media and the fracturing of consumer taste and the SKU proliferation, not just in our industry but in others, there's a good chance it'll become more fractured and it'll happen fast. That happened to be one scenario that we painted.
Another scenario that we painted was what we called a recovery, rebound and rationalization. And what that really means is a recovery of the economy. And remember, we're thinking about a 10-year timeframe here. We're not evaluating what's going to happen in 2012 or even over our 3-year long-range plan. We're thinking about what's going to happen over a 10-year time period. So the idea of a recovery, rebound and rationalization. Rationalization, meaning that we get to the point where people recognize, huh, are consumers' needs best served by 1,700 craft breweries with tens of thousands of SKUs? Or is there likely to be some kind of rationalization over the next 10 years. That was another scenario. And again, many of you will notice the recovery, rebound and rationalization says, "Don't change an awful lot because it's all going to come back, baby, it's going to be beautiful," whereas flat, fractured and fast says, "If you believe that as a scenario, we should do some -- we should take some important action to adjust that portfolio so that we can skate to where the puck's going to be." The other 2 scenarios that we painted out, I'm not going to go into any detail. But one of them focused more on route-to-market and one of them focused more on the regulatory environment. And obviously, we intend to take steps that reflect our generally held beliefs by the Strategy Committee on what's going to happen in those 2 areas.
And if you could move forward. Winning in beer. As Tom set up, my role here is very much to talk about elevating brands. Put another way, elevating brands is really about our portfolio strategy. What should we be doing with that portfolio in order to maximize our opportunity to win in beer over the next 1, 3 and 10 years? And when you think about that, obviously, you have to think about consumers. You have to think about what will they drink. You have to think about that in terms of fragmenting taste. But you also need to think of it in terms of the economy and value and where is value going to live. Is value going to live in sensory experiences and delivering more wholesome experiences? Or forward-looking experiences that people are willing to pay more for? Or in a world of increasing income disparity, is hitting key price points at the lower end and making sure that you can make money doing so equally important? And I think the answer to all of the above is, of course, yes.
How will consumers -- how will they be different? I won't bang on about multicultural because it's somewhat sort of hackneyed idea at this point. But the reality is that the 2010 census told us what we already knew and then more so. And the reality is for those of you who have children as I do, you'll know that they live in an increasingly multicultural world and a world where [indiscernible] culture is actually somewhat alien to them. And so you don't need to extrapolate very far to realize the multicultural audience is going to be incredibly important to our success going forward.
We have to also think about millennial values. And when you spend time with 21 to 29 year olds as we do on a very regular basis, both in a qualitative and a quantitative forum, you'll understand that they are much more experiential than their older forbearers. They seek out what they believe to be authentic, although authentic, we could have an interesting debate about exactly what that means. But nonetheless, it's a term that's used a lot. They have a deep mistrust of corporations. And I think some of the companies you represent may be something to do with that, if I may be so harsh. Way to bring your audience in, isn’t it? I'm showing you the love here.
But we also have to think obviously about how we're going to reach them. And digital is obviously going to be an increasing part of that as well as traditional. And I'm going to give you both sides of that argument. The argument for digital is the one that you no doubt make on a regular basis as do some of the beer trade press, which is that it's growing fast, social is everything, et cetera, et cetera. It's interesting to note, though, that when Steve Jobs passed away, one of the articles that was in Ad Age in the week following his passing was titled that Steve Jobs Was Digital Maverick but Marketing Traditionalist. And I'll just read you a couple of lines from this because I find it so interesting as being the pioneer that he was. It says, "Consider Apple's media spending, an estimated $420 million in 2010, dominated by network TV, newspapers, magazines, circulars and billboards." And it goes onto say, "Apple's total digital spending is harder to discern, but the numbers indicate it is well under 10% of the total budget. Yes, the company that, more than any other, made us go digital did not think much of the Web as a branding medium," which I find interesting as I'm sure you do. So obviously, those factor into how we think about where we're going to play and how we're going to play there.
So this essentially is our portfolio strategy. And I'll go into it in a little more depth. Strategy number one, not surprisingly, is to take share in premium lights. As we thought about the next 10 years, we thought about the most optimistic and what we believe would be most pessimistic scenarios. And I can tell you, under any scenario, premium lights are going to be the most important part of the beer segment 10 years from now. So let's just get that out of the way right now. The premium lights are going to be critical to the beer industry and they're going to be critical to our future.
If you think about why, it has everything to do with the benefits that are offered by premium light beer. They deliver refreshment, they deliver taste, they deliver sociability. At the end of the day, they deliver the most important benefits to the beer-drinking public. And that's why they are as important as they are. That's not to ignore the fact, by the way, that there is a new emerging segment of premium lights that we call super lights. And I'll come back to talk more about super lights because, in a way, that's an evolution of premium light beer, and best represented, as you can see on the slide here, by Miller 64.
The second strategy is around maintaining below premium portfolio net contribution. And while that may sound like a very utilitarian goal, there's a lot actually that lies underneath that. If you think about value, if you again, believe, that there's going to be increasing income disparity in this country, value becomes extremely important. And in this sense, I do mean price points that are affordable. Authenticity is surprisingly important in this whole area. And we have a wonderful portfolio of brands that offer authenticity in spades in terms of their history, in terms of their product, in terms of their ingredients, et cetera. Again, I'll come back to it, but we have a broad portfolio that is crying out for longer-term innovation in below premium. So our mission on below premium is very much to maintain their contribution, but the strategies that lie beneath that, I think you'll find more interesting.
Tom set up very nicely what's been going on with spirits. And for those of you who've watched Mad Men, there's something of a resurgence of the 1960s mindset that we should all get blitzed sometime during work or closely thereafter. Our view is that spirits do represent a threat to our business. But there is an overlap, as we think about total beverage alcohol consumption. And we should make sure that we are at the forefront of appealing to millennial tastes and taking that competition very seriously. And I'll talk a little more about that.
We need to deliver consumer-preferred quality. Why is that part of the consumer piece of our strategy? I would argue it's because if we don't deliver great quality -- I'm looking at my colleague Fernando Palacios right now. If we don't deliver consumer-preferred quality, frankly, everything else that I do doesn't matter. Because at the end of the day, it's quality that drives repeat purchase. And I can spin all the fun I want around any of their brands, but unless we have the best possible quality, it really doesn't matter. And again, more on that.
Last but not least, accelerating share in Crafts and Imports. It's going to be extremely important to us, as I think most people believe it'll be a relatively healthier part of the segment. And my colleague, Tom Cardella, will obviously talk a lot more about that. That gives you a high-level view of our portfolio strategy. We believe if we do those 5 things from a portfolio point of view, we're going to win.
So to go into a bit more detail. Taking share in premium lights. It's written that way for a good reason, whether you believe premium lights are bigger or smaller in the future, one thing's for sure, we need to be a bigger part of premium light. So taking share in premium lights is going to be critical. I mentioned the emerging super light category. Interesting to note that if you look at premium light as a segment and you include super lights within those, they're currently about 7% of premium lights, and they're about double that in grocery, which as much as anything probably goes to show the importance of women in the super light segment.
Why do premium lights matter? Let's look at this next slide. What this shows is a correlation between premium lights being up and the category being up. This is done by volume, and this shows markets around the country. And what it essentially shows with a very high R-squared is that when premium lights are up, the category is up. And when premium lights are down, the category is down. I would argue premium lights being up is, therefore, pretty important, not just to us but to our retailers and, of course, to our distributors.
Moving onto Miller Lite. I know one of the things that you're anxious to hear about, partly because I read it in Michael Branca's note last week, thank you, Michael, is Miller Lite and what we're doing about it. And the first thing I'll mention to you is that we have relatively recently restructured the entire Miller Lite marketing team to ensure that we have the best people up against Miller Lite. Secondly, Miller Lite is the premium light beer of substance for men of substance. That strand goes all the way through its brand DNA. From the very beginnings of Miller Lite in 1975, when it was introduced by the testosterone-dripping All-Stars, who were persuading consumers that Miller Lite offers great taste, less filling, all the way through the work of 2011 being a beer of substance for men of substance, has been the heart of what Miller Lite is all about.
So the job of my team on Miller Lite is to make sure that we have a communications platform that, frankly, resonates with the millennial consumer, that persuades the millennial consumer of this unquestionable truth of Miller Lite's validity and support it obviously with great innovations, which we will have for next year, including the taste flow can and the 24-ounce grip can, et cetera. And with strong partnerships, which we use as platforms to get that messaging across, whether it's college football, whether it's some of the great NFL and MLB partnerships we have or whether it's Chivas de Guadalajara, the most successful team in the Mexican Primera Division. So that's really what Miller Lite is all about.
On Coors Light. Accelerating Coors Light growth is a must for us. Coors Light is currently on track for its seventh year of share growth in 2011, something that, I think, we're justifiably proud of. Again, we have great partners out for Coors Light, college sports figures again. And I should just take a step back and note that we've done a number of deals with college sports recently that go beyond football and basketball. Frankly, they partner with schools such that we can leverage any of the sports that they play in. But we do so, let me assure you, in a very responsible fashion, our intent is to use those assets and market those assets where beer is sold and make sure that we're focused just on a 21-and-older demographic.
And just as a matter of interest, you may be interested to know that college sports actually have an older demographic. College football, for example, has an older demographic than the NFL, which may not be intuitive, but when you think through that, you'll probably realize why. Incidentally, we blew through 1 million Facebook friends for Coors Light in 2011, for those of you who are keeping digital score. The Primera Division, Coors Light is the official beer. While Miller Lite is the official beer of Chivas de Guadalajara, the most popular team, Coors Light is the official beer of the Primera Division itself for Mexican football. And again, I don't have to go into -- I don't think a whole bunch of detail about the multicultural audience and the growth of the Mexican-American, et cetera, for you to realize just how important that is and what an important property that is for us.
You can expect to see the return of Ice Cube. Ice Cube was part of the marketing platform for Coors Light this year on TV and elsewhere. And he will be back in his ongoing argument with Coors Light as to who's the coldest. Yes, really. The Aluminum Pint will perhaps be the most important part of that 2012 initiative for Coors Light. The Aluminum Pint has been a tremendous success for Miller Lite. Some of you may remember that we launched the Coors Light Aluminum Pint a little while ago and decided to abort the mission, frankly, because we weren't happy with quality. And what's happened, we also, by the way, had some issues with capacity. So what we've been doing, as we've gone around the dark side of the moon, if you like, is that firstly, we’ve been fixing those quality issues, which Fernando's team has done with tremendous success. And secondly, fixing our capacity issues, which we've done in conjunction with our partner Ball, who provide us with this package. They've invested a huge amount of money in the second line to drive capacity. And we have also invested a good amount of money in a second line, which is in our Golden Brewery, our first line being in our Eden brewery.
So we have a lot of confidence that we'll be back with Coors Light Aluminum Pint with tremendous success. We'll obviously have the NHL, which a new partnership for us and one that just makes intuitive sense because if there were ever 2 things that are about cold, it's the National Hockey League and Coors Light. And we're very confident that we're going to lead Coors Light to an eighth consecutive year of growth.
And did I mention, by the way, that Coors Banquet will grow for the fifth year in a row in 2011? That one is always interesting to me and again, a source of some pride because before it grew for the first time in 2007, so which is why 2011 is the fifth year of growth, it was actually down for 20 consecutive years. And as you'll know, if you compound 20 negative numbers, they compound. So as I recall, Coors Banquet went from 13 million barrels to just over 1 million barrels in a period of 20 years and has since grown 5 years in a row, which is a record that we're very proud of.
Moving onto MGD 64. And as it says here, we are going to reinvent MGD 64. MGD 64 was a successful launch in 2008 and through 2009 but came across some significant challenges in 2010 and 2011. And as we've really dug into MGD 64 to determine what is it that ails this brand and how come we do much better with this brand, you come up with some fairly obvious answers. And by the way, my theory on marketing is the absolute best marketing is the kind of stuff where afterwards people go, "Well, duh?" And this may well be an example because, where MGD 64 came from was it was MGD Lite. And so it was really a repositioning of MGD Lite to create MGD 64. Now that makes all the strategic sense in the world, as you're sitting inside a company like ours. As you go out and talk to consumers and discover that nobody calls it MGD 64, let's start there, and they tend to call it 64 or Miller 64 or something of that nature, you realize that trying to get people to say MGD 64 is something of a fool's errand. And the fact that its origin lie as being a lighter version of MGD is somewhat immaterial to the consumer today.
So the first thing we're doing on MGD 64 is we are renaming it Miller 64. And along with that, that gives you the freedom to not worry about whether the graphics are a direct representation of a lighter version of MGD and gives you the freedom to step back and say, "What would Miller 64 look like? What should get the consumers really excited about Miller 64?" It also, by the way, gives you an opportunity to reinvent the product, which we spent a bunch of time thinking about and experimenting with, and determined that we actually did have the optimal product, which is why we're not changing it. But Miller 64 is what the consumer asks for. It's preferred considerably in terms of a concept over MGD 64 and it marks a transition, if you like, from banging on about 64 calories to a more emotional positioning around healthy lifestyles.
And if I may, I'm just going to show 3 commercials that give you a flavor what we're doing on each of the 3 brands and take you away from my dulcet tones for a while. I'm going to show you a Coors Light ad that tells that you shows how we bring the National Hockey League to life. I'm going to show you a Miller Lite ad that begins to show you some sense of us selling our product proposition as much as our benefit. And then thirdly, I'm going to show you what's called a ripomatic for Miller 64. And I'm going to put all sorts of caveats around what a ripomatic is. A ripomatic means that all the film that you see in this ad was actually ripped from somewhere else, meaning that we don't -- have no rights to this film, and it wouldn't look exactly like this. But I know when you see it, you'll get a sense of where we're going with Miller 64. So with that intro, Mike [ph], please.
Yes, Miller 64 is brewed for the better you, and I encourage you to bear that in mind. We have a tremendous stable of economy brands, as I mentioned earlier. From the authenticity of High Life and Hamm's to the value of Steel Reserve and Mickey's to the everyday fun of Keystone Light and Mil Best. And it behooves us, obviously, to use these weapons the best that we know how. I mentioned earlier the value is going to be critical to our future within the economy segment. And just to give you a sense, this represents about 20 million barrels of the 60 million barrels that we sell. So this is a not immaterial part of our business.
We have to win the affordable options as well as what I'd call the authentic options. And this also represents, by the way -- so put another way, you can expect to see differentiated marketing for each of the brands here. You can expect to see us get very serious about the authenticity of brands like Hamm's, and you can expect us to get very serious about, frankly, ripping costs out where costs are not delivering benefit to the consumer. So that would be the summary, if you like, for our economy portfolio. I'd also mention that this is a key opportunity for SKU rationalization. Of the many SKUs that we have, we have quite a lot of SKUs in this whole area that aren't necessarily working as hard for us as we'd like. So as you might imagine, the opportunity for us to actually swap out slow-moving SKUs with faster-moving SKUs and make sure we optimize for both ourselves, the distributor and the retailer, the velocity of those SKUs is going to be critical.
To give you a sense of how we differentiate these brands, Keystone Light. It's frankly, as smooth as economy beers get. And if you haven't had a Keystone Light in a while, the bar this evening will be a fabulous joint -- choice to correct that. It's a very smooth beer, which is why the spokesperson for Keystone, which is Keith Stone, is also a very smooth guy. And he's been on TV up to now, but he's also been very successful digitally with his Smooth Musings and his canhole [ph] project. And you can expect to see us really double down on digital. Because this is where the core audience for Keystone lives.
Meanwhile, Miller High Life is an authentic original. It's frankly as authentic as it gets. And it's just common sense to pay the right price for a great-tasting beer, and by the way, to support our military, which is something that High Life does in spades. And 2012 will be the third year of partnership with IAVA, which is the Iraq and Afghanistan Veterans Association, which is very ably led by a gentleman called Paul Rieckhoff, who's an Iraq veteran himself and a tremendous leader of that organization. And we're very proud to be allied with them. So a very important part of High Life's mission, and not surprisingly, a great beer-drinking audience as well when you think about the importance of the military to our population.
I said we'll be building a presence in the emerging specialty segment. And Tom and I both talked about the emerging spirits threat, and one that's frankly been emerging for the last 10 years or so. So this is not new news as such. Within total beverage alcohol -- and by the way, if you talk to our retailers, most of our retailers, if not all, manage total beverage alcohol. While they may have different buyers on beer, spirits and wine, at the end of the day, they usually -- they either have a single buyer or they report to a single VP who manages total beverage and alcohol. It's important to know because at the end of the day, they're agnostic about where the margin comes from. Their interest obviously is in profit per square foot and making sure that we are doing the absolute best job of driving the profitable growth of the category. And if they can't get it from our category, they'll get it from somewhere else. And so within total beverage alcohol, while we are committed to being America's best beer company, so we put limitations on ourself about where we want to play, there are a number of what we like to think of as being crossover products within flavored malt beverages, ciders, et cetera, that we call specialty. And without getting into detail about where we plan to play here, I can assure you, we have many ongoing projects. And many of them have in mind the changing millennial tastes, whether they be for sweeter products, whether they be for the millennials' preference of being experimental, we believe that we need to build a tremendous capability here, not just in terms of having brands but demonstrating the new product commercialization capability to respond fast to these fast-moving trends.
On quality. I just want to finish up talking about quality. It's interesting, quality, much like authenticity, is a much misused word in my view. What quality is really about and when we talk about consumer-preferred quality, what we mean by that is when we go into a proposition where there is an existing brand or a new one, we look for the consumer to define what a great product would taste like. And then we look to produce that taste and reproduce that taste over and over and over again with religious fervor. And in fact, the supply chain team under Fernando has a project they call drive for 9. And what it's really about is they measure quality on a 10-point scale, and 9 frankly is indistinguishable to even a trained palate from 10. And our intent is to make sure that on an ongoing basis, for every single product that we have, that we're delivering at least an average of 9 on our taste barometer. And by the way, the supply chain team is doing a fabulous job of that. So in shorthand, I would argue that MillerCoors brews better beers, and we do so relentlessly.
So with that said, hopefully that gave you a tour of our portfolio strategy. Why we're aimed where we are. Our beliefs about, where the beer industry will be 10 years from now and what we need to do to make sure that we've got a winning portfolio both now and as we head towards 2021. And I'd be happy to answer questions either now or later or even in the bar, as you wish, or as Gary directs. Yes, Judy?
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Andy, so it sounds like you're hedging a little bit just in terms of the premium light category [indiscernible] category to talk about really both of you are taking share for the premium light. So can you talk about the factors that will influence premium light as a category [indiscernible], whether it's cyclical, demographic or what-have-you?
I think if you look at our overall business, I think there are 4 really important factors impacting our business right now that play into premium light, too. One of which is pricing. I mean, I talked about value and volume. And given the leverage in our P&L, pricing is incredibly important. But obviously, when you take up price, you take volume pain. And managing pricing gaps between other competitive segments is very important as well. So I think pricing is a big factor in whether premium lights grow, I think. But I also think as an industry, we need to stop obsessing over volume and obsess a lot more over value because obviously pricing drives value. I think the second thing is the economy. And I'm not an economist. I obviously worry about some of the macroeconomic things that I see based on my very 101 understanding of the macro economy. But whether or not the middle class gets shelled out or whether or not there's a recovery in unemployment, particularly amongst 21- to 35-year-old males is going to be incredibly important to the premium light sector. And again, as we think about the world over 10 years, one would assume you go through more than one economic cycle in that time period, so we can all draw our own conclusions. I think the competition both within the beer category and without, or at least within total beverage alcohol are the other 2 key factors. So it's certainly not my intention to hedge. My point of view is the premium light segment is going to be stable over the next 10 years.
If I could add to that, I think the important thing to remember is we have to drive value through portfolio migration and we have to ensure the relevance of premium lights. In fact, the beer category won't grow unless the top brewers do that.
So my point in the hedging, if you like, is just to say if you happen to be sitting here bearish on the premium light, you’ll recognize they're really, really important, even if you're bearish. If you're bullish then, this is your place. Yes, Kaumil?
Kaumil S. Gajrawala - UBS Investment Bank, Research Division
Andy, the 2 scenarios you provided are very distinct from each other. Your strategy would be very different. So what would be -- what is the strategy that you're pursuing? Or which of the 2 do you think is the most likely?
Well, the second one that I referenced, the recovery, rebound and rationalization, I would argue for that one. What that says is just stick around and things will be great. So I would argue we don't actually need to do a whole lot in that particular scenario. We happen to think that's a slightly less likely scenario than the flat, fractured and fast. And so if you look at the moves we're making in the portfolio, it is, to Judy's point, somewhat of a hedge in that we believe we need to win. We’re a broad enough portfolio, we need to make sure we're structured to win regardless of what happens. And if it's the recovery and rebound, we're going to win because of where we sit in the beer category. If it's flat, fractured and fast, we have work to do. And we have a bias towards believing that we have work to do and such that we can win in either scenario.
I think it's fair to say that all indicators are flat, fractured and fast, unless you've got 9 million jobs you're seeing in the next 6 months, so we'll go with one.
Kaumil S. Gajrawala - UBS Investment Bank, Research Division
So in the flat, fractured and fast model, how do you think about your marketing dollars? Are you going to need a lot more brand, if you say we have x amount of dollars, it was allocated differently? Or do you have to add more marketing spend to compete in that?
Yes, it's a good question. I don't know the answer to it because we don't tend to think about it that way. We tend to think of it in terms of ROI. So we do marketing mix modeling. And obviously, what marketing mix modeling would encourage us to do is spend all the way to the marginal dollar. So if we're getting a return on investment on $1, then we're going to spend it. Now I understand how intuitively you get to if you're supporting more brands, you're spending more money. That may be the case, but obviously, our intent is to make sure that we're spending the optimal amount of money regardless of how much that is.
Kaumil S. Gajrawala - UBS Investment Bank, Research Division
How long [indiscernible]?
Usually, we look at it on an annual basis. I mean, I will say marketing mix analysis is something of a clunky tool because it's essentially multiple regression. So it gives you a sense of whether you're getting return. And we intend to look at it by market and by types of spend. And so it gives us -- and by the way, it is sensitive to creative, too. If you happen to have a great TV that year, it'll show that TV is a great ROI. So there has to be some judgment applied to it as well. But certainly, it's a valid question, but we tend to gauge the size of our marketing budget on what's needed to get the job done in any one year.
I think it's a really interesting question. One of the elements of return on investment for marketing that you see in a recession like this is you begin to see some resistance to pricing activity. Surprisingly, we begin to find price promotions and couponing, for instance, driving fewer results than we did in prior years.
Kaumil S. Gajrawala - UBS Investment Bank, Research Division
And can I just follow up on that, please? I just wonder if you can just talk about perhaps in the nearer-term how you think about A&P spend rising, perhaps on a one-year basis. I appreciate further out that ROI is coming through much more to the fore. But absolutely looking into 2012, how you're thinking about A&P spend levels for next year?
Gavin, do you want to help me out here?
Sure. It's a bit of all what you say that we do have reallocation in our brand budgets for next year. So we're increasing our dollars behind the fast moving brands. We are increasing our A&P or we plan to a little bit next year. And we're also making sure that we are spending money on more efficient marketing. So we're moving dollars around, between inefficient marketing to more efficient. So it's all 3 of those things.
Yes. And if I can build on that, it's important to note that Gavin is in the office next to me. On the other side, I have Ed McBrien, but Gavin is in the office next to me. And I consider Gavin to be a trusted partner in these things. So as you might imagine, there's a little creative tension in that more dollars tend to be able to get more done. But on the other hand, I believe I have the same incentives that Gavin does. And so we have ongoing discussions about exactly those things. And our joint mission is to make sure it's the right number allocated the right way. And we tend to take our functional hats off when we determine that.
Two questions relative to spirits. One, cross elasticity. You talked a bit about unemployment and the economy having the effect on the beer industry. But how much of it has it also been that beer industry is taking more -- raised prices more than the spirits industry has? And the second, just relative to the marketing reinvestment question, how do you look at what you need to spend or what the industry needs to spend relative to what the spirits industry is doing? I mean, part of what's happened is the gap is closing, right? They're sponsoring more things. They're on television, they're digital. So has that gap -- is that gap at an appropriate level? Do you need to spend more relative to spirits in order to win back that consumer?
I think the second question is a little easier than the first, right? I think the first one, you have to look at over more than a one-year time period because it’s my perception -- someone here may have different numbers. But it's certainly my perception that at the beginning of the recession, whether you'd nail that in 2008 or 2009, I think there was lots of trade down in spirits, meaning that the idea of spending $80 on a bottle of vodka became less chic than spending $40 bucks on a bottle of vodka. So I think there was a certain amount of trade down earlier in the recession. And I think that the spirits guys have been yet to drive pricing since, while at the same time, the beer guys have been driving pricing, which has caused a mixture of joy and angst, depending on which you believe is more important, to grow volume or to -- and obviously, we'd love to be doing the same, all of the above simultaneously, growing volume, growing share and growing price obviously. But there's certainly some interaction between the categories. There's no doubt about it. It's a difficult one to read because of the nature of the channels of trade in which we operate. So for those of you who are less familiar with the beer category, it's worth pointing out that the largest channel of trade for beer is convenience stores. And I'm sure if -- I don't know if Kevin Doyle is going to talk a lot about this later. But convenience stores are the #1 channel of trade in terms of volume. Then after that, on-premise, the 250,000 on-premise accounts, for which there is so little data it’s frightening, is the second channel of trade. And the third channel of trade is liquor stores, it's grocery stores, et cetera. So the amount of data that gives us real information, and obviously, it varies by state, whether those products could be sold together as well. So interaction data, I would argue, is relatively hard to come by. But we all know qualitatively that people who drink beer often drink liquor as well and vice versa, right, and sometimes wine as well. So intuitively, it feels that, that would make a difference. But it's a tough one to track. I think, to your question about spending, I think, it's worth observing a couple of other things about the spirits playbook over the last 15 years. 15 years ago, there was a kind of spirits family agreement that they wouldn't advertise on television. And today, as you know, you wake up to ESPN SportsCenter with the taste of Jose Cuervo in your mouth, right? So that world has really changed. And it went through an iteration where they would advertise after 10:00 p.m. but it's no holds barred at this point, I think. But that's not the only area they've really focused. They obviously focused a huge amount of effort on the regulatory area as well, in terms of making their product available in more places, in more days of the week, in more channels of trade, et cetera. And so we're very acutely aware of being in deep competition with those guys, not just in terms of spend but also in terms of space where we are sold together. If you go to the United Center, you'll sort of be bumping over all sorts of folks trying to sell you spirits while you enjoy the game there, right? So we're deeply in competition with them. In terms of what it means from a spending point of view, again I'd refer you back to the conversations that Gavin and I have about what is the right amount of spend in this category. And it's a fluid discussion of how much we should spend. It has focused historically, perhaps not surprising, on beer competitive spend, but it has certainly taken into account spend in another categories, including spirits more recently.
Can you give us a feel for how the dynamic for having 2 different parents for the business works? Does innovation get focused on a single brand or are both parents quite keen to see innovation on one of their historic brands? And most of the brand extensions or the new brands seem to have a heritage in either one of the old Coors or Miller groups. Are there examples you can give of sort of parent-neutral brands that have been new within the joint venture and how that sort of works? Just to give us a feel for how as a marketing director you’re pulled between the 2.
Well, I have the unique privilege of sitting on 2 global marketing committees, the SABMiller's MDC and Molson Coors' B&IC. Marketing Directors Council, SAB and the Brand & Innovation Council at Molson Coors. I think the first thing I would tell you is that we get a uniform point of view from the board that they would like us to profitably grow the business. And anything be it below that is somewhat secondary to -- because if I understand that JV agreement correctly, and I believe I do, SABMiller, for example, owns 58% of the Coors brand in the U.S. and Puerto Rico. So they have a vested interest in us being successful with Coors Light, just as Molson Coors has a vested interest in us being successful with Miller Lite. So that's kind of the overall sentiment. I think SABMiller and Molson Coors have a couple of different marketing philosophies, I think. One is, as for those of you who were present at a investor event that Gary put on New York and London recently, SAB does a wonderful job of laying out why they believe that beer is fundamentally a local business and how, as a result, they wish to win with great local portfolios. And the SABMiller marketing way is very much built around that. And if you look at the majority of our brands and the majority of our volume here in the U.S., they would reinforce that bias if you like. Molson Coors, on the other hand, has a couple of brands that are, if not global, certainly multinational. So for example, I know Peter Nowlan very well, he's the CMO up in Canada. And Dave Perkins is the CEO up there. And Coors Light is a very important brand to them. And as you might imagine, if you happen to be marketing Coors Light in Buffalo, it would make sense that it gets marketed in a similar way across the bridge. So put another way, I think Molson Coors, particularly for Coors Light and Blue Moon and Molson Canadian, has a point of view that there needs to be a much more sort of uniformity of approach. And there's a good deal of discussion on sharing of innovation, for example, that's specifically to deliver Rocky Mountain cold refreshment. Or if you look at the recent deal we did for the NHL, it was actually a deal between the National Hockey League, MillerCoors and Molson Coors because it covered both the U.S. and Canada. So different approaches, but I would argue, as I sit here, that they’re certainly constructive approaches. And we have 2 parent companies, who I think work well together in a board environment. And I can't point to any hostilities yet.
So if you don't mind, guys, let's move on and then come back to these questions at the end.
Then Tom Cardella, Chief Beer Merchant for Tenth and Blake.
I think you'll have time for your questions, so we don't mean to cut you off. But let's just stay on track with time. Thanks very much.
Well, good afternoon, everyone. My name is Tom Cardella. And I have the pleasure of leading the Tenth and Blake organization, which is a relatively new division inside of MillerCoors.
Just to clarify how we came up with Tenth and Blake. We didn't pull it out of thin air nor did we go to a expensive branding agency. The Tenth Street Brewery is a Leinenkugel asset in Milwaukee that Miller previously owned. It's a small brewery that does about 40,000, 50,000 barrels a year right now. And the Sandlot Brewery, which is the home of the Blue Moon Brewing Company in Denver, is on Blake Street. So that's how we got Tenth and Blake, and there's not much more science behind that.
Could you turn to my first slide, please? I don't think I'm going to go into a lot of detail on the performance of the industry. I think everybody recognizes the fact that the craft segment is definitely showing a great deal of vibrancy, roughly 5%, 6% of the volume, but probably 7% from 8% of the dollar value of the industry. And it's growing this year somewhere in the mid-15% range. The import business is a little bit interesting. When you sort of peel back the big mainstream imports like Heineken and Corona, the pale lagers that have dominated imports.
You do have below the surface of a import sector that's relatively flat or soft a high degree of vibrancy in a lot of specialty imports from Europe and different parts of the world, so -- but I guess when you go back to the craft side of the business, that's where everybody's attention is right now as far as how big it'll grow. And my crystal ball is about as good as yours. I do think, though, that there's a lot of upside when you look at the consumer dynamics that are supporting that growth: experimentation, flavor and even the trend towards local.
Tom had this in his deck and I think what's really important is that we actually see the Tenth and Blake model as an opportunity to take advantage of the interplay that does exist between beer, wine and spirits, particularly on the wine side when you look at the craft business today with that consumer desire for the experimentation and flavor and even mixology. We think that the current momentum of the craft business actually provides an opportunity to really change the dynamics of the beer business in general. And when you look at the craft playing field out there, there's a lot of small fragmented players. There's a few large folks. But we actually believe that at Tenth and Blake that as we get better at understanding the dynamics of this category, we got the scale and the resources behind us to actually manifest that into changing the dialogue with the retail world, and I'll talk a little bit more about that.
Next slide, please.
What's really important is why Tenth and Blake? I mean can't -- couldn't we just do it in the context of MillerCoors? I think this chart, if you go through it, it really does demonstrate the differences in the selling and marketing approach to the 2 different segments of the industry. I mean, obviously, mainstream is more about mass promotion and above the line. Specialty and specialty import in craft is really more about hand selling. It's more about a "create, build and expand" model. It's more about very targeted distribution and activation in the early stages of creating your businesses. And at the end of the day, we felt it was critical that if we're going to learn and build capability in this area of the business, that we needed to have an organization that was somewhat separate to address it.
Now Tenth and Blake isn't a totally freestanding business, but there are elements of the model, particularly the commercial front end that are separated slightly out. First of all, we house our marketing groups. But what's different about how we've approached it is sales and marketing actually reports into the same senior manager. And that's important when you look at the fact that most of the business, marketing side of this business particularly in craft, is driven by below the line. So the ability to really merge sales and marketing thinking together as we build programs, we feel, is very important and it is starting to show some good signs of benefiting us.
From a sales perspective, I mean we've got this really strong, powerful MillerCoors sales machine. And how do you sort of separate out businesses when you've got a certain part of or a certain division that is running the Tenth and Blake portfolio yet everything really does move through the entire MillerCoors organization. And at the very end, it's up and down the street sales by distributors. What's really important here, though, is we do have a separate front end of the business. It's not extremely large. Right now there's 4 regional managers that align with our mainstream regional vice presidents. We've got 35 beer merchants. We have ambassadors against specific brands in different markets. But the key here is that our beer merchants actually own the portfolio. They own the planning, they own the budgeting. And what they do is they're the specialists that put a lot of great focus on brands that normally wouldn't get a lot of focus in the big machine to do the planning and to drive the planning and guide the execution and monitor the execution through the mainstream organization. At the same time, we have a very small chain and customer service group, and it's not our intention to burden the overall company P&L with a lot of overhead of duplicating, but we've got a small group that again is going to become or is becoming very deep specialists in building the right capability so that we can talk to the retailer differently. Through that organization, they will be assigned some account calls, but primarily through the mainstream MillerCoors national account and regional account organization.
When you go into a retail call today, whether it's Walmart, Kroger or even a smaller regional chain, the conversation very quickly gravitates to the craft and import side of the business. And what we're doing is we're creating a real deep specialization so that we can participate throughout the entire segment -- the entire category in those discussions.
Next slide, please.
This is sort of our strategy in a nutshell. I guess if you look at the overarching objective that we have, it's to galvanize the resources of MillerCoors, but galvanize those resources against building capability that can be focused against craft and import.
And there's 3 key pillars of our strategy: The first one is great beers, naturally, obviously would seem to make sense; great beer partnerships; and great beer merchants. Under great beers, it's all about our existing assets and I'm going to spend a couple of minutes on that. But it's organic growth, it's innovation growth against the existing assets we have today. The other important thing to keep in mind is that we don't look at necessarily all of the above premium or craft or import brands as a portfolio. We actually look at Tenth and Blake as managing a portfolio of small businesses. We've got the Blue Moon Brewing Company, which basically has been around for 18 years and that was the inspiration of Pete Coors sending a young brewer named Keith Villa to Belgium to get his doctorate in brewing and having Keith coming back and after falling in love with Belgian styles and actually wanting to create a Belgian witbier for the United States. There's the Jacob Leinenkugel Brewing Company, which has been a wholly owned subsidiary of Miller and now MillerCoors since 1987. That company today is run by Jake Leinenkugel, fifth generation, interestingly enough, and we're probably going to use this a little bit more is Jake's wife, Peg, actually traced the family lineage all way back to back to Meckenheim, Germany, back in the mid-1600s where the Leinenkugel family were grain farmers and they brewed the beer for the monks. But what's important is, is that these are craft breweries with craft brewery equities and it's really important that we reinforce those equities as businesses because that gives us the ability to actually drive more growth platforms from these smaller companies.
Next slide, please.
What's interesting here is that when you look at the business, everybody tries to tear businesses apart and segment them. And basically what we've done is we've looked at the way the above premium segment operates today and we've validated this and we still got learning going on. But basically there's an area called prestige, which is badge value and traditionally that's been dominated by Euro lagers, pale lagers, the big lager imports from Europe. But as we see the beer category evolving today, particularly against flavors and styles moving into an invitational space, I mean that's sort of the first step where consumers go in, particularly to experience craft. And then exploration, which is more often usage with more flavor-intense beers. And then the far segment is what we call experimentation. And this is the consumer that goes online and pays $50 to get a ticket to Three Floyds Brewery Dark Lord Day, which is once a year when they do a release of a Russian Imperial Stout and they get to stand in line with 3,000 other people to pay $20-something for a 750 of their Russian Imperial stout. So it's sort of -- is aligned by flavor intensity. And at the same time, if you look at our growth platforms, there's organic innovation, parent company offers and then regional craft equities that fall underneath that. And so that's how we've kind of dimensionalized the segmentation of the marketplace.
What I want to do is I want to spend a little bit of time in regards to how we're approaching that in the short term. I mean right now we've got a business with Tenth and Blake that will be up about 15% from a volume basis this year and we will end up at about 3 million barrels. However, we believe that there's probably 1.5 million barrels of organic and innovation growth against our core assets, Jacob Leinenkugel, Blue Moon and some of the other assets that we have today.
Let me start with the Blue Moon Brewing Company and Belgian White. Blue Moon Belgian White will have another year of roughly 20% growth. Our seasonal business is up 50% yet when you look at the organic opportunity -- the organic growth opportunity behind Belgian White, it's huge. We only have 38% on-premise penetration with draft. There's a huge upside just in that alone. We've got off-premise opportunities for Belgian White. Our seasonal business is only 10% of our mix. Traditional crafts today, its seasonals are roughly 40%, maybe even 50% of the mix. So we are just starting along the trail to really develop our seasonal business. And that today is about 220,000-barrel business so there's a lot of upside. The other key factor is in the craft industry at this point, multicultural consumers have not embraced craft. But what we're seeing in markets like Texas and California is the Hispanic beer drinker is starting to discover Blue Moon. So we believe that there's a huge upside in the evolution of this business and the development of this business with not a lot of incremental excessive marketing pressure. But we will focus against it.
As far as innovation in regards to our Blue Moon portfolio -- Blue Moon Brewing Company, we're really getting to have a little bit of fun with the consumers. They're looking to discover. So in all of our seasonal variety packs now, every season we put in a new variety. So you'll see right now in our winter variety pack, there's a spiced amber ale. This summer, there'll be an Agave blonde. And this is to basically keep our Blue Moon consumers that are primarily in that invitational space, keep them with new and interesting things to keep them in our portfolio so they don't migrate as rapidly through to more intense flavor profiles.
We're testing a brand called Farmhouse Red. It's a blend of a Flanders Red and a Saison. We think that this could be a new year-round companion to Belgian White. We'll be testing that in the first quarter. And on the higher end where we've got margins that are actually double the Blue Moon Belgian White margins, in our Brewmaster's series, we'll be expanding that out with Grand Cru, which is in its 3rd year as well as we've got a Vintage Blonde Ale that is in test right now. It's a blonde ale that's brewed with Chardonnay grape juice. And our initial results are telling us that this is something that's bringing in new drinkers, particularly women drinkers because it does have wine-like qualities.
With Jacob Leinenkugel Brewing Company, again our organic growth is primarily in the core upper Midwest. However, we see the opportunity to expand the brand the right way. There's a couple ways we're going to do that: One is through innovation. We've got a Big Eddy series, which again is double the margin structure of our core Leinenkugel business. This is our third year of Big Eddy Russian Imperial Stout. We'll be following up this year with an Imperial IPA, a Scotch ale and a porter. And again this is basically to create and drive more brewing credentials and more upscale craft credentials with the Leinenkugel business.
The real key though -- and we're really excited about this is the Leinenkugel shandy business. Shandies are traditional mixtures of lemonade and soda from Germany, both shandies and radlers. And basically, we introduced a Summer Shandy, a lemonade beer product, 3 years ago. This summer, that business did almost 200,000 barrels in about a 6-month period, which would make it, by itself, probably if shandy was a stand-alone craft brewery, it probably about the 12th or 13th largest craft brewery. So what we're looking at now, and this is our key, I think, to expansion outside of that core upper Midwest is we actually believe that shandy is a strong enough proposition, so that we are looking at variants that would accompany Summer Shandy in the fall and winter times of the year.
We talk -- Tom talked a little bit about Colorado Native. This is sort of an independent division that sits inside of Tenth and Blake as an independent division. They are really entrepreneurial and we leave them that way. They've got their own little sales force in Colorado, and basically they do it themselves. We support them on different initiatives, capital issues and things like that. Colorado Native has been in the market for a little over a year and it'll do 5,000 barrels this year, made with all-Colorado ingredients. So one of our plans in 2012 is to start to look for areas where Colorado Native actually might be seeded based on the love of Colorado and equity. Killian, a 250,000 barrel business, did not get any focus with the massive portfolio that MillerCoors had. And this is a big business that actually was one of the original craft-like products from years ago. We've restaged it, reformulated. It's closer to the original beer that George Killian Lett brewed. And on top of that we're actually testing a Killian stout line extension. So I think you can see just in 2012, we've got quite a robust platform of both restaging existing businesses, expanding businesses but also innovation. We'll have roughly 13 new craft or specialty import brands in the marketplace.
I want to touch briefly on our import business. Peroni's growing at about 9%. I'm never happy with growth rates that are 9%. We think that there's a huge upside. It is following the Stella model. Our focus is, again, against key markets using ambassadors that are trained against the positioning and represent the positioning, driving on-premise with the special Peroni draft fountain and glassware. We've seen that when we get those combinations of fountain glassware and accounts, it raises the velocity by like 30%. And then driving off-premise. We're redoing the secondary 12-pack packaging and we think there's a big opportunity to really drive that through our chain business. So I think that gives you sort of the overview of the extent of the opportunities and the excitement we've got for 2012.
I do want to touch on that last row at the bottom. This is our -- what we call our alliance strategy. We think that the craft industry is somewhat of an inflection point. It's growing so fast and everybody seems to be growing and everybody we've been out and talked to is at a point where they need to put more capital in their business. So what we're doing is selectively looking -- we're creating a lot of relationships. But we're looking for the right partners to be able to get behind their business on a regional basis and put some of that muscle behind -- yet in the way that still respects and allows them to drive their core local equities.
Next slide, please.
Great beer partnerships. Couple of areas here, obviously retailers and distributors. From a retailer's standpoint -- just a very quick story. I had the opportunity several months ago to talk at Benj Steinman's spring conference. Before I went on, Bump Williams did a panel discussion with 3 craft brewers and a prominent Texas retailer. And his first question to the 3 craft brewers was, "So what are you doing to take advantage of the momentum that's going on in this craft business? How are you helping the retail?" There really wasn't a good answer that came from any of them. And the retailer sort of took over and at the end of the day, the retailer said I'm doing it myself. Well, I think that this is too important of a part of the industry to allow it to just happen. So if you think about the opportunities of what we have as a company in MillerCoors, with the sophisticated chain organization and you'll hear more about that from Kevin Doyle a little later, the ability for us to build a specialized group that goes really deep to bring retailers more category solutions, look at different ways to manage the proliferation of brands and SKUs as well as new merchandising programs that capitalize on this new romance of pairing beer and food. We think it's a huge opportunity, and that's what we're building. We're building it, we're going to drive it through our national and regional chain organizations and we're pretty excited about it.
The other area of partnerships is in the distributor world. And I think that there's no question that the MillerCoors network does an excellent job, but they're also faced with a significant amount of import and craft companion brands in their house and we also feel that we've got the opportunity to work to really create a new approach to help distributors. About a year ago, we went in with 4 distributors and we built a 3-year planning process from scratch and literally what that process does is it actually provides a framework for the distribution network to enhance their capability in the craft and import segment. There has not been a distributor that I've run across over the last 1.5 years that hasn't come up to me going, I'm going to Cicerone-train my entire sales organization. And my answer is, great, what are you going to do with that in Green Bay, Wisconsin? So the reality is, is that all of the MillerCoors network is looking at building capability and this Apollo project really is that framework. We go in and we build specific development plans, distributor by distributor, we support the development. It's not just about the Tenth and Blake portfolio. It's about making our portfolio work harder and better inside of the distributors' overall craft and import business.
Next slide, please.
The last area of our strategy is great beer merchants. When I take a break, we're going to go through Tenth and Blake. I don't how all of us are going to fit in there at the same time. But this is really all about the culture and the capability to really be a leader in the craft beer world. We have a beer merchant series 101, 201, which will take a person, a novice, from basic brewing by going deep into the chemistry of brewing and chemistry of food pairing all the way to 201 which basically will position a rep or anyone in this company to really be able to master a beer dinner. And by the way, in Tenth and Blake, the entire organization is being trained, admin to finance folks. We want everybody to speak the same language. One of the things I'm the most proud of is here in Chicago, in a 16-story office building, we have a brew kitchen. And I think you might be able to get a chance at seeing some of our folks actually home brewing because we want people to touch, feel, smell and be around beer all the time. Capability's huge.
Next slide, please. I think it's my last one. Oh good. With that, it's kind of an abrupt ending, I'd like to open it up for questions.
One thing that was pretty obvious -- I'm just kind of curious. I was noticing in the craft and import segment you have a lot more non-light beers. Obviously, that's not part of the strategy. But light beers are obviously very important to overall business. So do light beers fit into that portfolio at any point in time or how do you think about that?
Well, I think that, first of all, everybody defines craft in a lot of different ways. There's the beer judges competition guide that lists all 144 beer styles and what they're about and what the beers, the types of different grains and hops in the beers. And what's really interesting is the first category of beer in the beer judges’ guide -- and this is used for all the festivals, the Great American Beer Festival, the first segment or the first category are American-style light lagers. And American-style light lagers really satisfy that refreshment occasion, which is still today and will be for the future, for a long time into the future, the most prevalent beer drinking occasion. Based on that, you do not see in the craft world a lot of entries that are American-style light lagers. There's a few craft guys out there. At this point I think that our focus right now is really kind of building out the invitational craft, which is more into sessionable flavor profiles and actually getting our portfolio moved a little bit more into that exploration area where we do have some more robust beers like India pale ales and pale ales and things like that.
Tom, if I could add on to that. This notion about occasions for refreshment, it's a big occasion, but for a craft player to come in, most of their strategy is Blue Ocean where there's not intensity of competition. There's a great deal of intensity of competition in the light beer category, and these beers are very difficult to make. They're like great Marceaus or Pinots. They're very light. Any difficulty or variance stands out like a sore thumb in the taste profile. And I think the intensity of competition and the difficulty of the brewing process keeps that sector free from the smaller players.
I'm going to interrupt and just take one from the web that's come in. Tom, it says, in Tenth and Blake, you basically have been increasing your revenue per barrel through price and mix for your craft brands like Peroni notwithstanding no price increases recently from Crown and Heineken, spirits and wine companies and Broad or Craft. How hard is that to be able to continue to do that if they're not taking pricing notwithstanding input cost pressure?
I think that's probably one of the most critical questions right now in the industry in regards to the mainstream imports. At this point not looking at taking pricing obviously puts pressure on the entire industry, the American-style light lagers in mainstream as well as on the upside. I think when you look at the craft side of the business, though, the price points for craft have actually exceeded the traditional import levels. I think right now, there have been several of the larger craft players that have talked about looking at increases. I think, from our perspective, the cost pressures I think will create the situation where a lot of these smaller folks are going to have to take price. But I also think that in this segment, when you've got so much explosion of brands and styles that I think it's a little bit easier for the consumer to absorb and I think basically it would work through fairly well.
Tom, given you're running Tenth and Blake and given your history or that MillerCoors is your parent company, do you think craft is over spaced at retail?
Well, I think at this point there's -- where craft will hit the wall as far as growth isn't due to the ability for new brewers to get in. We've got 700 new brewers coming in this year. It really will be at the distributor and at the retail intersection points. And I think that there are ways for retailers to provide full assortment and interesting assortment, but doing it in ways that actually allow for brands to be spaced based on velocity. I mean we do see that this proliferation is hurting the supply on shelves or the inventory on shelves of more faster moving products. I think that's part of what we believe we can bring to the party at the retail level, is looking at ways to help the retailers optimize their sets. I mean one of the things that -- and again this also about using the momentum of craft right now to make the sandbox bigger. A lot of craft beers are not drunk at traditional 42-, 44-degree temperatures. A lot of crafts are actually recommended to be drank at room temperature. So the ability to use maybe expanded warm sections where basically we educate the consumer on how these beers are consumed, educate them on the styles but expand space overall, primarily in grocery, to allow for more cold space for were faster moving items. I mean I think these are things that we have to look at. And again, I think we're better positioned than anyone in the industry to really help drive some of those solutions and some of that different thinking.
Well, I mean there's a lot of brands out there that don't turn as rapidly as you like to see, so I think that the ability to do a better job of optimizing the space, but increasing the space is kind of what I believe we should be looking at.
Well, it's always terrific to have the much coveted after-snack spot. So it's just good to be with you. I'm sorry I missed you this morning. I've got my team in and we're trying to figure out how to sell more beer and how to do it more effectively. But it's good to be with you today. I am Ed McBrien. I'm President of Sales and Distributor Operations. I'll be joined by Kevin Dolye. Kevin runs our chain organization
And a little context. When we first brought Miller and Coors together, one of the promises that we made was that this new venture would have the scale required, the resources required to be able to go toe to toe and compete against AB in terms of winning customer preference. When I say customer preference, I'm talking about big retail customers that matter and our distributors. And that notion of earning customer preference and doing it at faster rate than we could have as standalone organizations, the timing for that was perfect because if you think about it, the standard being put to us by our distributor customers and retail customers is higher than ever before. Distributors have growing craft and import portfolios that have high-margin brands that are growing at a fast clip. So they're getting attention, that they didn't just a couple of 3 years ago. When you think about retail customers, these are customers who are asking for service at a faster rate than they ever did before. They're looking for solutions that help them build their business and they're looking for ideas from us, ideas that build their brand, not necessarily build our brand. So this notion of what kind of strategies do we put in place to earn customer preference at a faster rate, is really important that we are precise and that they are effective.
And before I get to those, so I want to put some context around our progress around earning customer preference because over the last 3 years we've made a lot of progress that I personally am really proud of. I want to first talk about the Tamarron survey. The Tamarron survey. It's an annual survey that's done by an outside agency where they go to our distributors all of them across the country and they poll them and they say, talk to me about the effectiveness of your suppliers, the beer companies that you do business with. In 2011, we were rated #2 overall in the Tamarron survey by beer distributors and we improved. There are 13 major categories in which we get grades. We improved in all 13 of those major categories. We're rated #1 of all suppliers when it comes to category management. And before the JV started, so you talk about scale and the muscle to compete. Before the JV began, we're category captains with retail customers who represented under 25% of our total volume. Today we're category captain with customers approaching 35% of our volume and we'll certainly eclipse that number by the end of the year and that's just a 2 short weeks away. So really important progress there. We're rated #1 in effectiveness in C-stores. And in fact, we were the only supplier as rated by distributors, the only supplier to get a passing grade from distributors in a strategically important channel and the channel that ABI has historically dominated. We're also rated -- our biggest area of improvement was our chain on-premise business. So think about that as Buffalo Wild Wings and Applebee's and your local airport. We're now in 75 airports across the country. As much as I travel, it's terrific to be able to go in airports and be able to get our beer. So a lot of progress is rated by our distributors.
As important, we've made a lot of progress with retailers also. There's a group that's called the CM Profit Group, and they do the same thing. They go to big retailers and they say talk to us about the folks who call on you. And with the CM Profit Group -- a couple of perspectives. We're rated the #1 beer supplier. We're rated #1 in grocery. We're rated #1 in liquor. And we're named -- rated #1 in terms of category management and in terms of bringing ideas and solutions that retailers could execute. And I love this quote. The quote is, "MillerCoors has really stepped up to the plate in category management investment and they've become more aggressive and more sophisticated in their approach." So the last 3 years as measured by our retailer and distributor customers a lot of progress.
But as I said earlier, the bar is going up and we must do more. And our strategies to be able to earn customer preference at a faster rate are really threefold: The first is to become the absolute best in the beer businessman when comes to retail execution winning in market. The second one is to enable the most effective distributor network. In other words, make it easier for our distributors to win in the marketplace, easier to do business with us. And then the third one is to grow an at even faster rate with the chain business.
I will talk about those first 2 this notion of execution and the idea of enabling an effective distributor network and Kevin will be up here to talk a little bit about chain.
So let's start by talking about execution. And when I talk about execution, one of the themes that I think -- I'm hoping you've already begun to hear and will continue in 2012 is this idea of big rocks. In 2011, we went to our distributors and we introduced the idea of big rocks. And these are the major initiatives that we want to see come alive in market at retail. And the power of big rocks is it gets Fernando in our supply chain and it gets Andy in marketing them and me in sales and Kevin in chain, and our distributors all aligned around the same priorities that we want to drive through at retail. And by the way, feedback from distributors has been spectacular because they love the idea of us being really clear about what it takes to win in market.
And I'll talk about 3 of the big rocks that are very important to us in 2012, largely focused on execution. And the first one is this notion of distribution and SKU reduction.
So distribution in 2012. Our focus is on selling in quality distribution that sticks. We say right brand, right pack, right account. Distribution in many ways is the lifeblood of this business. In 2011, we sold over 200,000 incremental points of distribution worth over 3.5 million net new cases to us. And the rhythm of the beer business is you always start in the first trimester of the year so we'll start in the beginning of next year. We'll sell in new distribution. The idea is to hold that distribution throughout the year. We’ll have a national incentive in place and this is a discipline that as a MillerCoors organization we've embedded and it's very much second nature to our team. So I feel very good about our ability to land distribution next year on focused brands and packs.
The wrinkle for 2012 that is exciting and at the same time a bit risky is this idea of rationalizing our distribution and cutting out SKUs that are relatively ineffective. And the reason I say it's risky is we made this commitment to our distributors as part of our 2011 convention. We said we would reduce complexity in your system by eliminating unproductive SKUs. The reason it's risky is because nobody else in the beer business is doing that. In 2012, 750 small craft brewers will fire up their brew kettles for the first time. And they will introduce literally hundreds of relatively low-volume SKUs making an already crowded space for craft in a relatively unproductive segment high growth but unproductive on a by-SKU basis, it'll make it even less productive.
But we believe and we know that we can take complexity out of the system, make it easier for our retailers and distributors to this idea of, we call it replace the space. The idea is this: identify slow-selling SKUs, take them out of the system and replace them with packs and brands that sell at a faster rate. We'll take over 100 SKUs in 2012. If you couple that with the progress made to this point, all in, we will have eliminated over 300 SKUs from our system. That's about 14% of our orderable SKUs but only about 0.5% of our total volume. We tested this approach last year in the Southeast region. This graph, I think, is informative. The red line will be the SKUs that we targeted to be eliminated because we found them to be unproductive. The gray line is the balance of our business. The yellow line is what happened during the transition and then the green line represents the new packs that we put in that replace those unproductive SKUs. We call it replace the space. And what we demonstrated is those replacement packs sold 10 points faster than the balance of our business. So we demonstrated to distributors, to retailers and importantly to ourselves that we could sell more beer with fewer SKUs. So in 2012, new distribution, along with culling SKUs that don't pull for us, replacing them with packs that do pull, reducing complexity for everyone. So that's one of our big rocks for 2012.
A second big rock is something that we call 4 on the floor. We piloted it this year with distributors. This is all about improving our display penetration at retail. Distributors love this, by the way. They love the simplicity and they love the focus. And here's the size of the prize. Today, in the average grocery store across America, we average 2.8 displays in every store, MillerCoors brand, 2.8. AB averages about 3.2 just to put it in context for you. When we get to 4 displays per store, that's worth 1/2 a share point total category. Grocery is a $9 billion business. Half a share point on $9 billion is a lot of money. The idea is every month, we will have a focus on 4 brands that we expect to see on display. Miller Lite and Coors Light will always be 2 of the brands that'll be part of the mix. We'll also have separate programming for our below-premium brands and for our above-premium brands, driving better display penetration. And we have deep aligned it with our distributors on this idea of 4 displays in every large-format store across America.
In fact, I'll tell you a story -- I apologize, it's not on my script. But the story is this. In the western part of the U.S., in California, every one of our distributors' sales reps is tracking 4 on-the-floor display performance. Every single sales rep and provided that information to us ever single week. So powerful example of alignment that we have with our wholesalers.
The other big rock that I want to touch on for just one second has to do with C-stores and earlier you heard me say that distributors rated us as #1 in terms of effectiveness in C-stores and the only supplier to get a passing grade in C-stores. And I contend that one of the reasons for that is the focus we've had this last year on single serve. Now why singles in C-store? Couple of reasons. One is it's 45% of all transactions in the C-store would be singles. The second reason is we relatively over share in singles. That's one of the few areas where we have more clout than ABI. We average a 32% share in singles versus a 28% share for the balance of our business. And singles, historically, have been part of that business in C-stores that have been under merchandised with not much focus. So in 2011, we launched singles as a focus area. It'll be a big rock for us again this next year. Already this year, we sold 31,000 new points of distribution on singles in C-stores. We identified 6 national brands that we wanted to drive. Those brands are up 2.9% in singles. And in every market we identified 3 regional brands who were important to us. Those brands are up 9.8%. Both of those trends well ahead of the balance of our business in the overall beer category trend in C-stores. So a third big rock for us next year will be singles in C-store.
The next plank I want to touch on is this idea of earning customer preference. And we've done a number of things to improve our status with distributors. Certainly this idea of reducing complexity, taking SKUs out has been well received. Another step that we made recently was the publishing of the Three-Tier Doctrine, which affirmed our commitment to our distributor network in the role -- the critical role that distributors play in going to market and representing our brands. First, supplier to put in writing, well received by our wholesalers. But the point of difference I'd like to focus on for today is our GM structure. And this is a structure that very much differentiates us from every supplier in the beer business and I've been out at retail and when I've talked to distributors, they said, not only is this a source of competitive advantage for you, it is a departure, because at a time when you are putting more resources in the market close to us, your competitors are doing quite the opposite and they're centralizing their businesses. So we've got, call it, 30, 32 general managers all across the country. They have local business analysts who work side-by-side with them. They have local field marketing managers side-by-side. We put our resources as close to our distributors as possible and the benefit of that is our GMs understand local nuance, they are empowered and responsible to make decisions in the moment. They don't have to call Chicago and get permission. And the reason we feel comfortable with that is because unlike other beer suppliers, these general managers manage a fully loaded P&L. So their goals are closely aligned with what's important to us at MillerCoors in terms of growing profitability, driving share and ensuring that we hit our volume target and very much aligned with our distributors run their business. And it's a big departure from the old model where the salespeople are responsible only for volume and volume at any cost. Instead, they're highly accountable for delivering a profit number back to the company. That's one where the checkpoint is. I'd love it if any of you would pick up a phone, call a distributor and ask them what they think about the MillerCoors' GM structure. It is again a point of difference for us and a point of advantage. So that's a little bit about what we're doing to enable a more effective distributor network.
The other point when it comes to GMs being local and close to the market relates to pricing. And having local decision makers in the market close to our retail customers and our distributors allows us to be very surgical when it comes to how we think about pricing. So a couple of comments on pricing, 3 points: One is, we believe all pricing in the beer business is local. The second point, while we continue to work as hard as possible to ensure our brands sell for full value, we are not going to walk away from the below-premium side of the business, particularly in this environment and particularly at a time when budget competitors are bringing new packs and SKUs to the market. And the third point would be our pricing strategy revolves around something that we call mind the gaps. And that's all about ensuring that we have the right price points on our premium light brands relative to crafts and imports above us and substitute below-premium brands beneath us. So first on this notion of price, all pricing is local and that's pretty straightforward because brand strength varies market-by-market. Competitive sets vary market-by-market. Retailer dynamics vary market-by-market so we very much look at our business one market at a time with recommendations from our general managers.
Second point, below premium. There is no reason that MillerCoors should not compete aggressively for budget price shoppers in today's environment and we should be able to compete on a cost basis with anyone in the industry. So you think about it. We have 8 breweries geographically scattered across the U.S., which gives us a terrific footprint to go to market from a cost structure and we have 10 big powerful below- premium brands. Brands that have deep heritage and rich history. And so we have a broad portfolio with a good brewing footprint that allows us to compete against below-premium competitors everywhere. So even as we work to take price up, we are committed to competing for budget drinkers in this environment.
The third point is this notion of minding the gaps on premium lights. And that idea of getting the gaps right, identifying, establishing and maintaining optimal price point on our premium light brands is obviously good for us. But I contend it's good for our retailers and it's good for our distributors, too. Because as I think Andy pointed out earlier today, the sheer size of the premium light segment, the gravitational pull of those brands, is so big that there is a straight line relationship between the health of the total category and the health of premium lights. This idea that somehow high-margin craft brands that are growing off a relatively low base market-by-market is going to save the future of the U.S. beer business, in this environment it just doesn't hang. It's really important that premium lights are healthy and that we establish price points that allow us to do the best job possible of managing near-term profitability and share growth. And that's very much the balance that we work to strike.
So how does it work? Well, literally one market at a time, we work to identify and establish what we believe to be the optimal price points for our brands. Again, substitutes below us, budget brands if you will, and again substitutes above us, crafts and imports. And we track that one market at a time, establish these ranges and absolutely monitor it every single month, to see how much progress we're making. One of the questions that I've gotten from folks has been, okay so that's your strategy. It feels like you've shed some volume particularly on the below-premium side. Is this a strategy that's working for you or have you taken too much price? And my point would be, and we've looked at this 1,000 different ways. We think we've struck absolutely the right balance in terms of how we're pricing our premium light brands. We've sought since the beginning of the JV to sell our brands for full value. And this chart -- this next chart illustrates that. The idea we want to do that is because we want to be able invest against our brands and what this says is that since the beginning of the JV, our average price is up $1.36 a case, 8.4%. That's a faster rate of increase than ABI. It absolutely blows away the import folks who have not taken much price in the last 3 years at all. And it's even a faster rate of growth than the craft players. And again the reason that's important is the sheer size of our business allows -- when we are able to take price, it drives profitability back into our systems and into distributors so we can invest against our brands.
Now one of the questions as I said I've been asked is, have you struck the right balance? And I'd like to share this next slide. This is a Nielsen grocery chart that goes all the way back to 2001 and what it does is it tracks relative share change for the premium light segment. And if you look at the chart, there are 2 significant spikes. One spike is 2005 and that is the price wars of 2005. And the reason the premium light took a lot of share there is all major competitors spent an awful lot of money against loyal consumers driving the price down, driving folks into premium lights. But as you know, it was margin decretive for the entire category. In contrast, the next big spike you see is Q4 of 2010 and that's when we first put in place the mind the gap strategy, which was largely, instead of discounting premium lights, it was raising our below- premium brands so that gap narrowed and premium lights became a relatively better value against below premium. Then what you saw was consumers respond to it and you saw a surge in premium light share.
A couple of other points. One of the questions I've been asked is, well, what did that do to your below-premium bands. And the answer is we've seen absolutely no discernible shift in trend on our below-premium brands since the fourth quarter of 2010 so when we put this strategy in place, the trend line on our below-premium brands stayed absolutely the same from that point through to today.
The second point I've been asking is, gee whiz, it looks like premium lights have begun to lose some share of segment, can you please comment on that? And what do you think the dynamics are? And we just commissioned a study with Nielsen that I found to be very informative. And when you look at the premium light business there were 4 factors impacting premium light share of segment trend change. One, on a positive basis, was price. So as we narrowed the gap against below premium, we brought people into the premium light segment.
The next 3 factors were negative. The largest factor, the lion's share of the decline, in segment share for premium light is directly attributable to drinkers who were staying within premium lights and they are simply drinking less. And that is a function of unemployment north of 8%, chronic unemployment hitting our beer drinkers making it really difficult. So instead of buying a 24-pack, they're buying an 18-pack. Instead of buying an 18-pack, they're buying a 12-pack.
There are 2 other factors: One was shifted total beverage alcohol, call that wine and spirits. Very small loss to wine and spirits coming out of premium lights. And the second one was our pack strategy. And what that said, in essence, was 36-pack and 30-pack feature activity on premium lights is not a good idea. If you want to optimize total volume, you're better off selling 18 packs and 24 packs. It's a frequency play. So we've got some work to do on our pricing strategy in order to move down to smaller packs, particularly in this environment.
So those are 3 of the points that I wanted to make. First, we're working really hard to earn constant preference at a faster rate by doing several things: driving world-class execution, making it easier to do business with our distributors, enabling the best distributor network; we work really hard to effect pricing that delivers full value for our distributor partners so they can invest against our brands; and the final piece is we work hard to grow our chain business at a disproportionate rate. And over the last 3 years, we have done just that and I could not be more proud of the work that's being done on the chain side of our business. We are knocking down wins big and small every single day.
And to give you a little context, a little flavor for that, I'd like to introduce Kevin Doyle who runs our chain business. Kevin?
Thanks, Ed, and good afternoon, everyone. I'm Kevin Doyle. I'm the Chief Customer Officer for MillerCoors. So I'm going to talk to you about our chain journey and our chain opportunity and how we're actually going after it and how we're working hard to develop a differentiated strategy that will give us long-term competitive advantage and earn customer preference. So what I'll do is like give you kind of the high-level view of our strategy. And I'll spend a little bit more time on probably the most important component of our strategy, which is what we call category management space and assortment. And then I'll close with a few of the indicators about where the journey's taking us and what we have to do to continue.
So when we launched MillerCoors, one of the things we decided as a company was that we're going to make chain a strategic platform, a strategic priority for us to go in and put the resources there. It was quite simple. It was big. It was getting bigger. The margins were better primarily because of our mix and the geographic locations where chain is important, where it's not. It's where all the volumes was going. There was a lot of channel shifting. As you know, the industry has been down, but there's a lot of channel shifting and new licenses and other players come in into the market. And honestly, it was place where Miller and Coors standing separately alone surely didn't have the scale to compete against AB at the time. And as the chain was becoming a bigger part of the beer business itself, one of the key things that were actually changing is our customers were changing and the rules of engagement were surely changing. And that's what we've gone after. So the retailer dynamics were -- are significant. People ask me, in my career, I was part of the ECR Committee with FMI when we did category management. And category management today in retailer's eye is significantly different than where it was just 10 years ago. And it's about supply chain. It's about efficiency. It's about ideas. It's about solutions. And companies that actually can tie their brands to their brands. Safeway doesn't really care about growing Miller Lite and Coors Light, right? Safeway cares about growing the Safeway brand. And we had a mindset shift to figure out Miller Lite and Coors Light fit with helping Safeway grow their brand. And they were really looking for suppliers that were offering solutions. Huge, huge, mega opportunities for MillerCoors given the way we approach it and given the way that our main competitor actually approaches it.
So add it all up, we actually knew that we had to change the game. And you could see the headline. You just can't really just play the game better. You actually create new rules. So in the continuum people ask me, there's 3 things down there on the slide that says, where are we in the journey. So pre-JV and the first years of JV it's kind of like, you kind of know the rules. The rules of the game are the same. In that scenario, MillerCoors surely disadvantaged. Where I think we are in this step of our journey 3.5 years in is number two, where we're changing the game and new rules and we're surely leading here. And it's still part of the journey. In the long term, it has actually changed the rules. And surely if we can change the rules, we're going to be significantly advantaged versus what I would call the way the old status quo actually works in the business.
So to do that, we had to create a strategy. It's plain and simple and our argument’s our commercial strategy, right? We call it the MillerCoors advantage. And simply stated, is the bundle of goods and services that we provide our retailers and our customers to help grow the size and value of their category and take a disproportionate share of the growth. There's 5 planks to that. So it's most importantly as these 2 wonderful companies came together, it's a wonderful brand. So a guy that came from Miller, I get to sell Coors Light and I get to sell Blue Moon. And we have a -- we play in every one of the segments and have expertise in every one of the segments. And I think you guys have heard from Tom Cardella today about Tenth and Blake and that opportunity we have there.
It's about innovation, lifeblood of the chain business, for sure, and that's not just about new brands. But is new brands pack thinking and ways to go the market. It's about we got to pick the best people and put the great leaders in the role. It's distributor services and the portfolio, which our distributors actually bring to the marketplace. And it's one of these little levers that we had and actually pulled very hard and it's a huge strategic advantage and we pull it hard because our distributors know how to build brands locally, especially in above- premium categories.
And the last piece is the business building solutions, which I would argue that the chain organization probably owns primarily, right? And we said we looked at our strategy and said, okay, scale and what we do, how we've done it, 2 companies. And we said, look there's 5 things we're going to be famous for. And we picked the 5 things because we figured that we can differentiate ourselves.
And so I'll just tell you real briefly what they are. And you may think this is fundamental and kind of simple, but the first thing is the way we sell. When you talk to our customers, CPG companies do not do a very good job connecting what they sell to the strategy of the customer, right? And we're never connected. So we have worked really, really hard in a disciplined -- it's not like playing golf, where you have 15 things you got to do and you miss the ball. This is very, very much about, geez, you kind of actually you have to know what the customer wants to do in the marketplace before you actually go in and try to sell him a program or brand. It's also how you tell that story. And we call it selling story, and it is an art. And I tell you what, we're getting really, really good at it.
The second thing and probably the most important thing that we do is space and assortment. I'm going to talk a little bit about that. And just remember, a number, 80% of all the volume that's done in the Beer business, is baseline volume. And that means the distribution, as Ed had talked about before, and what's on the shelf and having an influence on that right assortment and that space and the right brands and the right accounts is fairly critical.
Number three is profitable beer marketing, we call it. And it's just a plain, simple concept that if we understand the algorithm, how customers actually make money, the proposals which we put out there will be more accepted and our hit rate will be significantly better.
The fourth thing is customer marketing. And we picked 23 accounts in America to go play really, really hard with customized promotions to work, to bring their brands alive through our brands.
And then the last thing is -- that I would argue, has the most opportunistic capability for us, we call it revenue-managed selling, because our retailers, honestly, are really not good at watching the margins and making nickels and dimes and making strategic decisions on pricing. We're working on that really hard.
So I'm just going to give you a little bit of perspective on the comment I made about why space and the assortment is so important, okay? And over the years, we've made a fairly significant investment here. When we put the JV together, we came back in, made another investment around space and assortment to make sure that we have the gaps filled. We have what's this thing as called a little space lab that actually is an efficiency play that we have to be able to execute planograms that our category managers execute. We got rid of a lot of analysts, honestly. We make category managers, people that actually sell and understand customer businesses. And our focus was increasing every day our capabilities in this area, differentiating ourselves to gain captainships, to influence how beer is actually sold long-term and this is the place we really believe we can change the game, and I'll tell you a little bit about our strategy, okay?
So it's really -- can you go to the next slide, please. There you go. So it's really a 3-core beliefs that we have in our strategies. It's about balance, right? It's about category growth and it's about retailer profit. It is surely consumer-centric. It is differentiated and it separates us significantly from other suppliers. And we assure you that. So fairly simplistic, there's 3 things, right? So how big is the cooler box? You may think, ah [ph], that kind of sounds obvious. Well, beer is under spaced in every single channel compared to its contribution and what it does to the store. Also, given that it’s a capital-intensive investment for retailers, we can’t expect that change to happen fairly quickly. Walmart is not going to be able to go in and add 40 feet of cold space in the supercenter overnight, especially where the adjacencies of where beer is sold in coolers in the store. But it's also about the best optimization about how beer is actually utilized. So warm space, display space and the right assortment.
And then the second thing is, what do I put in the cooler? Right? Again it may sound a little simple, but we call it -- we made the word up. So there's no such word as this, but it is what we use. We call it incrementality. It's not in the dictionary, but actually the concept is we call it our chocolate milk concept. So forever and a day, the beer industry, I would argue, rack-and-stack when it came to space and assortment. You can do it on volume. You can do it on profit. You can do it on dollars. You can do it on velocity. But it doesn't matter. And you did a rack-and-stack, and you had a baseline then you cut it off. One retailer may say 80%, another guy will say 85% and that's how he actually picks the brand and the packs to go into the cooler. Our strategy is a little different, and the best way I could explain it without getting too technical is chocolate milk, okay? So if you think about it, every way with the rack-and-stack with chocolate milk. I don't care whether you're c-store or grocery store or drugstore, chocolate milk would never ever make the cut. It just never would, because it didn't have enough volume, it didn't have enough dollars, right? The margin -- because of the dollars, the volume wasn't really good. But what happens when you take chocolate milk out of the store? It's a 100% incremental loss. And it's really a concept that resonates incredibly well with the customer. And we've been applying that with some proprietary tools. We call it our assortment. We work with AC Nielsen to create it. And it says, get the right assortment that consumers actually want and then when you add, making sure that what you actually put in there, will add some kind of incremental value versus just stealing from something else. Because the space is so valuable and 80% of that space is baseline. And it's where you win or die.
And then the third place is, what do I actually want to put into the cooler? Right? We call it trade up flow. I'll just tell you an interesting story competing against Coors, at Miller Brewing Company. I didn't believe in trade up flow. And I sold against it pretty hard. The very first 3 months, I went and told my team, I want you to tear this thing apart A to Z and tell me where the game was being played. And there was no game being played. It is a very sound strategy that says the adjacencies with the category and brands and segments actually really do matter. And we can influence the trade-up capability with brands and add-on purchases by doing trade up flow. And it differs by geography, which brands are adjacent to other, but it's something that's very sound and works.
So 3 strategies, right? And I will tell you that when we get the mouse [ph], it actually works. So you'll see in this slide, now this is a 2-year history from AC Nielsen. On the left kind, you see MillerCoors as Captain, and you see 3.7 points. The blue line says, that's what happens to our retailer's volume when MillerCoors is the category captain versus the comp market. So the rest of the market. So plus 2.3 when MillerCoors does it, the comp market is down 1.40. You can see on the right-hand side what our competitors do in St. Louis, and you can see the overall gap. And it's significant, and it's 2 years. And we track it fairly disciplined.
And over time, Ed said that we started at 24% of all the volume that we can measure with -- within chain. We took it to 30%. We're north of the 35% this year. And we'll be north of 40% next year. And the reason is, is because distribution improves, our space improves, the assortment improves, and the retailer actually wins. It's a fairly good story.
So when you think about what we've done in chains since the JV, there's a lot things. We cover 11 channels. We have 11 different teams. We have regional, we have national. But we've been successful in a few areas. So our focus brands have grown share across the channel, prices up across the channel. Coors Light has gained share in every single channel. We’ve doubled Blue Moon share position in every channel. Our feature activity, which is a key component of actually getting promotional activity in the displays that you see in the stores, up 7 points on Miller Lite and up over double digits for Coors Light. And our strategic place we want to play is in chain, and the subset of the chain is that our focus brands are up in chain and our premium light brands have been up in share and chains since the JV.
So it's a good start. It's a long journey. But we're making progress. And recognition is also another piece of awareness. So it's something I'm proud of. I mean, this is what our retailers tell us that MillerCoors is best in class. This is just a few of them. For instance, Buffalo Wild Wings, which is the #1 on premise chain account in America, we're going for one for the thumb this year. For 4 years, we've been the lead supplier. Target -- then you see the list on the screen.
And then finally, retailers see it as we progress against the MillerCoors advantage. So we have a strategy, we wanted to make sure that every year we vet ourselves on the strategy to ensure that it's actually resonating the way we want it to. So I think we interview close to 100 customers every year against the 5 planks in MillerCoors advantage. So that's our brands, innovation, our people, business-building ideas and our network.
And you can see -- I like to see them in the 4s yet, but we're not there yet. But you can see progress made in every area, right? And this is the third time that we've done it. We call it discovery, right? And then by the way, we ask our retailers -- I mean, our distributors, our key distributors, and we asked our GMs, because they are the guys that are actually quarterback in the markets. So 3 years into the journey, we're making lots of progress. We surely aren't there yet, not where we want because we set very high standards and goals, we've made the investment. And we have not -- we actually have not versioned [ph] at all, one inch from our strategy and we're driving the hell out of the capabilities. So we're on our way. It's an important place for us to win. It's competitive. And you got to stay one step ahead of the rest of the guys. And so we are. And -- so I'll leave it at that and then I think Ed and I will take some questions as it relates to sales and anything you want to do with chain.
So Ed, can you talk about how much opportunity you think there is going forward to close your points of distribution gap versus your main competitor in the marketplace? And also put that in perspective versus what you've been able to achieve over the last few years here?
Yes, sure. Thank you. It's a really good question. As I said, distribution is a big rock for us again this next year. We're going through the process of trying to be really critical about rolling up the brands and packs that we think are most important for us to go get. I'd be very surprised if in total, we didn't come up with a target that it was again north of 200,000 new points of distribution, delivering somewhere in the neighborhood of 3 million incremental cases for us next year. And that's a function of things like we're going to -- relaunch Miller Lite alum -- or the Coors Light aluminum pint, we got a bunch of new distribution on that, Miller 64 is an example of a launch that we have coming our way. We'll gain distribution on Miller 64 next year. We still have significant single-serve opportunity. Blue Moon, on premise, wrapped in seasonals broadly should be worth literally tens of thousands of new points of distribution. Leinenkugel Summer Shandy is an item that was a terrific hit for us this last year. But I'd think it's safe to say that our footprint was less than national, and so I'd say north of 200,000 in points next year. Does that get at it?
Sure. And how does that compare with the last few years and the average [indiscernible].
Probably a little bit less. We’ve probably been averaging in the neighborhood of 250,000 new points of distribution. At some point you run out of -- because we track net number, by the way. And so at some point you run out of runway, but I think one of the things you'll see as I indicated talking about our experience in the Southeast, even if we don't pick up new distribution, we'll pick up more productive distribution than what we have today. In the Southeast, we've demonstrated that we could take unproductive SKUs. Replace them with packs that have got more pulling power and outstrip the balance of our portfolio by 10 points. So it's a combination of both because both retailers and distributors while they're interested in new items that are going to drive their category, they're more interested -- they're as interested in, how do you drive velocity within the existing space which you have without bringing new things in.
My question's regarding the pricing ladder. You talked about the opportunity that you're capitalizing on between below premiums and premiums. I'm just curious next wave of where there’s gaps that you think there's the opportunity to be had. And then also, secondly, I know beer companies, historically, have talked about the affordability of beer. But now we're talking about gaining value share and with unemployment rates the way they are, just curious how you think about how the consumer's behaving. Do you think you could take this type of pricing in this type of market environment without losing some of your customers?
Sure. Thank you. As you know, we're really careful about forward guidance on pricing. I think it's fair to say that beer’s continued at least even in this year to lag broad food inflation rates. So we continue to believe that beer continues to be a very, very good value. As I indicated, we literally track our pricing one market at a time, one brand at a time against substitutes of competitors. On the below premium side, I think you saw the below-premium brands on a national level have come up in a little bit faster rate than premium lights, so narrowing the gap a little bit. We feel pretty good about our gaps in most markets. I will say that there are half a dozen market in which we are watching our gaps very closely, particularly against below premium kind of budget brands. Some of the new entrants that are driving down total pricing. So there's 6 or 7 markets where we are watching them very carefully and we're evaluating that whole portfolio of below premium, near premium brands that we have to come up with the optimal mix of brands to compete against them. And then we watch. I think it's fair to say that the next evolution is to watch very carefully our gaps against imports and against craft brands above us. Because the truth is, it's a really competitive business. Premium lights are competing for share of stomach, not just below them, but above them. And so we are monitoring our gaps very carefully, particularly against some of the light drinking import brands. Does that get it?
Well, as I said, we've done a couple of things. One is, we've just indexed ourselves against broadly food CPI and we've tracked below food inflation, which is one measure. The other thing, as I said, we just commissioned a Nielsen study to get a sense of the affordability of beer and why any segment shrinking, and as I said, much of what we've got to do is work on a pack strategy so that we can, for consumers, come up with the times of the month, right price points that hit an affordability index for beer shoppers and that's one of things we're working really hard on. But as I said, right now, we continue to think beer continues to be very affordable. And we don't see that -- we don't see our pricing as any kind of a limiter on, particularly on our premium light brands.
I was wondering if the anecdote that you gave on the chocolate milk strategy, if that doesn't actually argue for more craft spacing not less. And if that's not the case, just maybe kind of explain the thought process of what goes on in retailer? So it's sort of leave them to just so sustainably misallocate space, which is the only resource they have and how -- it's amazing to me that they would just do it so poorly.
Yes, because we've always done it the same way, which is the rack and stack. So the best way to explain it is, so how many IPAs you can we actually have? And if you add another –- if I came out with an IPA and I added it, would actually take from another IPA, would it actually give you incremental, right? Given how valuable that space actually is. So in the scenarios like why would you have one brand that's priced a $1 higher and have a copy-cat brand come in and sit right next to you at a $1 a 6-pack higher -- I mean, less, and get the same total volume between the 2, right? So there's 100% incremental shifting, right? And so, it's a new strategy for retailers to actually look at. By the way, it's not new. I mean, the guy that actually worked on this came from Heinz and this is what Heinz did for years. And so how many Miller Lite packages can you actually put in? Do you need 10? Or 12? And each market is a little bit different. So we take due diligence, very due diligence when we say we're going to add something in the mix. And we try to make the right choices. It doesn't mean it have to be the bigger, right? And it can be small. And surely crafts are exciting and they're doing very, very well. And by the way, we recommend, highly recommend that they play hard in the growing category. But I put it this way, find the right balance, right? And then by the way, cold space is more important than warm space and is more valuable. So I believe that brands need to earn their way into the cold box. We have strategies to help retailers do that, and have a really terrific assortment. But making sure at the end of the day, and I wish you're going to put the slide up there, there is a very straight -- there's a straight-line correlation in the industry that a premium light grows as a category, the category grow. If it doesn't, the category won't grow. It restricts.
If we can, let's just move on to the...
We have one more [indiscernible]
I have just a quick question on the -- with your discussion with the big retailers when private label or retailer own brand comes up. I mean, is that something that you just say, go around the corner and find the capacity or because there is increasing capacity for it?
Well, we'd tell the retailers that we're in the brand business, right? And by the way, the history of below premium private label has not worked because you'll get trial, right? The question is, will you have sustaining power in the marketplace? Our data says that almost anybody who's tried below premium private label has not been successful although Walgreens has had more staying power than others at this point in time with their brand.
What would you do above premium craft for one of your big retail chains, wanting to grow the brand, you get the expertise here.
No, we're in the brand business I would say. We have lots of brands to be able to position to them.
All right. Good afternoon, everybody. I'm Gavin Hattersley, CFO of MillerCoors. And thanks very much for joining us today. Many of you have heard me deliver remarks for our quarterly earnings calls and as well as our New York and London investor seminars, so I'm really glad to have you on our home turf here in Chicago for a change. Today, I'm going to be taking you very briefly through our strategic plank of fueling growth. And as we've discussed many times over several quarters, we continue to face significant macroeconomic and industry headwinds. And as a result, we constantly need to look for new ways to fuel growth, which for us means getting even better at our resource at occasions so that we can fund big bits some of which you heard about earlier. And secondly delivering dramatically improved capabilities in the business information systems area that supports growth. And finally, driving topline growth with a very focus-driven new management, which you heard Ed talk about right now.
We've often made the point that we are a company that continually focuses on driving efficiencies in our business. It's quite simply a way of life for us. And obviously, it's one of the key drivers of growth. And we've set a target for ourselves of decreasing our breakeven level or the point at which our costs and expenses and revenue are equal by at least 1% per year. And obviously, lowering the breakeven level, lowers the volume of beer that we need to sell before we start making a profit. And Fernando Palacios, our new Head of Integrated Supply Chain, will play a major role. Fernando, as he leads his team through a fresh assessment of our entire supply chain to identify efficiencies and cost-savings that we can reallocate to reinvest in our sales and marketing effort, some of which you saw earlier today from Andy, Ed and Kevin.
And beyond this, we will also continue our very detailed and long-standing annual budgeting process, which includes a line by line review of operating budgets for every function across the enterprise. In which we use to identify opportunities for trade-offs between functions to ensure that we're putting maximum investment pressure on the front end of our business.
The second strategy in our objective to fuel growth is to deliver improved capabilities by transforming and unifying our business processes and simplifying the supporting information systems. And as we've discussed previously, we've got a very complex systems environment here. And we're going to continue to invest in that environment to make it better fit for purpose. And Karen Alber, who joined us earlier this year -- Karen's over there, as our new Chief Information Officer who's leading this work and making strong progress in her early days at MillerCoors.
Just to give you a flavor of the major projects, which are underway in our Business Information Systems group, we have drive, which is a single integrated demand-driven ordering tool that would greatly improve our interface with our distributors, and the last, to better manage order fulfillment across our entire brewery footprint. RIO, which is our new retail sales and distributor inventory and outlet connection system, which will replace 3 legacy sales data collection systems with a single MillerCoors solution, to improve data quality and drive cost savings, not only for ourselves, but must importantly also for our distributors.
DEM, which is our new MillerCoors' data exchange model. It’s going to drive better decision-making, it's going to reduce costs, and it's going to better enable retail execution and disproportionate growth in our chain environment. And finally, IPM, which is our new integrated pricing management system, which will allow us to better manage our revenues through a retail-based pricing methodology that we expect to significantly improve our price realization over the next 3 years.
In addition to these critical improvements in our business information systems, we recently launched a business transformation program to establish a seamless set of integrated processes to run our business end-to-end. The idea is to streamline the way we do things to better enable growth. Business transformation is going to be a multiyear effort to analyze core processes across the enterprise. It's going to create standard approaches to key tasks and ensure that we have the right business processes and systems in place to support those efforts for the long haul. This effort will be led by Neil Kiely, our former regional Vice President for the Northeast, who was recently appointed as our Chief Business Transformation Officer. I saw Neil earlier, but I'm not -- there you are. Over there, Neil is over there. Now we've asked Neil to lead our business transformation efforts because we believe it's critical to have a seasoned commercial operator on point as we redesign our business processes to fuel growth. And I want to be clear here that while we do expect to save money, and improve our information systems as a result of our business transformation program, it's not the key and main focus of the project. Instead, we're going to define success as establishing simple repeatable ways of working at MillerCoors that support our focus of innovating our brands and earning customer preference. I'm confident that Neil and his new team will deliver against that ambitious goal.
And finally, we'll fuel top line growth through effective revenue management. Ed has already discussed our pricing strategy in detail, so I would just reinforce that a key part of our revenue management strategy is continuing with our successful price gap management plan and of promoting trade up conditions for the premium light segment by narrowing the gap between below premium and premium brands while widening the gap between premium and above premium. And we're also increasing our focus, as Ed said, on singles, pricing and price promotion effectiveness as well.
So let me close my brief remarks of giving you an outlook on our medium-term value drivers. In terms of volume, we continue to see annual declines of 1% to 2% per year while unemployment levels in the United States are at current high levels, particularly amongst our core consumers. And thereafter, we would expect to see a return to modest levels of growth consistent with past historical trends. From a revenue perspective, we expect that we can maintain our pricing strategy and deliver in the range of 2% to 3% per year increases in revenue per hectoliter, which includes positive net price, as well as sales mix. And finally, we expect to deliver continued increases in our EBITDA margin of between 25 and 50 basis points per year depending on our volume trends. And then with that, I'll be happy to take a few questions.
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Gavin, just in terms of your medium-term EBITDA margin target, just relative to, I guess, your London meeting, you're targeting 100 basis points of growth over the next 3 years per year. So obviously that's come down. Can you talk about what's changed there? And then you say it's dependent on recent volume trends, so is it the decline of 1% to 2%, that's enough to allow you to have this sort of margin growth targets?
Right, for me, I’ll answer your second question first. Yes, the 2 are linked. So they're down 1% to 2% of industry volume growth, is directly linked to the 25 to 50 basis points. So if that's where it falls, then that's where I expect the margin to fall. The big drop between the forecast we gave a year ago and now, it is obviously volumes continues to decline. This 2011 will be the second year in a row where we will get around the 2% industry volume decline, which frankly, wasn't what we were expecting at this time last year. So the big driver for us is volume. And fundamentally, in terms of our cost structure, in terms of expectation around cost, that hasn't changed.
You mentioned that your cost outlook hasn't changed, but certainly the whole discussion around the IT side, the creation of these various new systems, the replacement of old legacy systems and I suppose, with Tenth and Blake increasing the complexity of your business with new brands, smaller batch runs and the like. I mean, surely that has been element as well that the business has actually changed significantly versus what you thought it would've been 3 years ago, not just from a volume perspective, but from a complexity. It feels like the IT is also an incremental higher spend.
Right, because I mean, my comments around cost structure hasn't changed. The outlook, it was really related to a year ago. In terms of the work that we're doing around systems, a lot of that is capital-based and our capital is running the sort of $350 million range last year. I think I've said before that we expect it to be a similar number this year, and I would expect it to be a similar number in the short- to medium-term going forward. So a lot of the IT work that we're doing will be capital-based. In terms of our IT costs this year, I think I've said several times on the calls that our IT cost this year are disproportionately higher, as we migrated to one infrastructure service provider. Whereas before, we were with 2, and at some points in this year, Karen will attest to the fact that we ran 3 infrastructure environments as we ran the systems next to each other. So there was a disproportion of high information systems cost this year. And we recently finished that program with just the roll out of our new PCs to come.
It's been my experience of being touched apparently [ph] on this but I've seen it so many times. On that whole IT point -- I mean, [indiscernible] I've seen so many times not just on the beer industries, but industries that I've worked in, and a multitude of other industries where you have a period of above IT investment and there's always this hope that it will drop away at some point. But it's normally, just becomes embedded cost in the business. And once you got those IT people on board, there's always more projects to put them onto and you get scope creep. Is it realistic to expect that cost to ever drop away?
Well, certainly, my expectation is that our IT costs for next year will be lower than they were this year. Particularly seeing as we've got only one infrastructure environment that we're going to be dealing with, with next year. So that's my expectation and that is certainly Karen's budget.
Notwithstanding Gavin's question for that very hard close and that is her budget, I think that is absolutely right what happens in IT. And our experience, our collective experience bears that out. I think what is required in that situation is a very high involvement in your IT strategy by executive management. Meaning that executive management determines what the value of information is, how we will use it, and has the collective power to say no. IT unmanaged drives that cost. And I think that we have enough collective experience in those cost overruns that we'll hope that it's not repeated. And Gavin will ensure it.
Could you just -- I don't know who's best to answer this question between you, Ed and Kevin, but it seems like a lot of things that you talked about have to do with managing more things centrally and spending very large amounts of money to put together a centralized systems whether it's pricing or any of the other things you mentioned. And a lot of the talk from the previous presentation was about local management, managing pricing individually by channel, by location, talking about specific markets where you're watching the price gaps. Could you just talk about the interplay there and what the advantages are from your point of view of your plan in the face of a lot of this local, sounds like higher costs selling system that you're trying to put in place?
Maybe I can just make a brief comment and then Ed can add to that in the success of the local market strategy end [ph] strategy. The tools that we are making centrally are being designed to make life easier for our general managers in the marketplace and make their work of managing at a local level that much easier, which is exactly what the integrated processing management tool is going to do. Every single one of these tools is being built with significant input from our sales and marketing and local level. We're not operating and building these systems projects here in corporate at all. Karen will tell you that our integrated pricing management team has got local GMs representation on it to make sure we're building the tools that work for them. But Ed, do you want to add anything to that?
No, Gavin. That's an adequate short answer. We've got -- as indicated, we've got tools and systems that we run centrally that equip our folks in the field with the kind of information that they need so we don't have 30 local people all running the same analysis. The value of having people close to the ground is they can interface directly with retailers and with distributors in the moment and understand the nuance and then communicate back with the folks here in Chicago, so that we get the right outputs. The other point I'd make is as we've invested in local resources, the other thing we've done is we've eliminated what I'll call top management infrastructure. A year ago, we had 8 regions in place. Today, we have 5. And the reason for that is we don't need that superstructure in place because we have people close to the market running our business.
Yes, Gavin, can I just be absolutely clear on the medium-term guidance. When we talk about the margin, the 25 to 50 bps, is that dependent on volume growth or even with negative volumes can you fall within that type of EBITDA -- EBIT margin growth?
To be very clear, the first forecast was an industry volume of down 1 to 2. And up that the numbers of which I've used to arrive at a 25 to 50 basis points assumes and that is what the industry will do.
So even with negative volumes to the industry, we should still fall in that margin range?
Yes, that's what I was trying to say.
And just a follow-up. You talked about efficiency gains about 1%, and it seemed to be mainly fixed on supply chain. I just wondered how dependent that was on for the wholesaler consolidation to deliver that type of growth?
No, not. And remember that you lower your break even in 2 ways. You lower your break even by reducing fixed costs and you lower your break even by increasing your margin of your products. So the fact that we will and continue to seek to grow a positive sales mix, will also serve to reduce our breakeven levels. But to answer your question directly, no. It doesn't rely on distributor consolidation at all.
Just to follow-up on the theme of this distributor [ph] consolidation, and it's done it’s a very sensitive subject, but when you compare yourselves versus the rest of the industry, do you find that you're more efficient and I mean, in terms of the percentage of the revenue pull that your distribution chain takes versus competitors. And then number two, given that it's difficult to increase margins in this environment of lower volumes, is there a room for better efficiencies or more efficiencies on distribution side? I don't think we've heard enough about in terms of...
Do you want to take the first question, Ed?
Sure. Yes. One more time, I have first question.
With distributor consolidation, just...
What was the nature of the question?
Well, I mean, the argument is just -- when I compare, for example, the data from, say, Australia with the U.S. I went to your monitor in Australia brewer at the factory level, gets about $350 per hectoliter. In the U.S., it's about $150. I understand there's a number of structural reasons why that's so different. But is there room for this industry to be more efficient on the third-party distribution? Which is mandatory, of course. But is there -- I understand you're not going to talk about how you are going to consolidate your distributors, but is that an opportunity? But related to that, when you compare your distribution system efficiency versus AAB, are there big differences?
Well, thank you. To the first point, are there opportunities to drive more efficiency in our system? Absolutely. And it requires us to partner with our distributors to come up with mutual solutions and with retailers to find places where we have waste and to drive that out. And we have a number of big, sophisticated wholesalers that we have product supply tests in place with right now aimed at finding ways of driving better efficiency, splitting those savings between us, so we can both invest back against our brands. So it's absolutely an opportunity. In terms of the relative efficiency of our distributors against, say, substitute distributors, that's a tough one for me to get my arms around because I don't have their -- the exact financials in front of me. I will say this -- I will say that one of the advantages that our network brings to us is they have high-margin powerful brands compared to substitutes. So when you think about the value that our distributors are bringing to big retail customers, the good news for us is, between volume and the margins they make on those brands, they are in a position where they can reinvest back against the kind of service that our retailers are expecting. And I see that as one of the advantages of our system. We think about the whole portfolio of brands that our distributors carry relative to their local counterpart. Our distributors bring a big powerful mix on the profitable brands that are important to those retailers.
Sure. There's nothing in our strategy that says we will take margin away from our distributor value chain.
Tom, do you want to come up and take us through our last 2 strategic planks?
All right. The way home is near. And then we'll adjourn up to Fred and Adolf’s for a couple of beers. Let me just say thanks, Gavin, and thank you, Andy, Tom, Ed, Kevin, for your presentations. We appreciate that. I'm going to cover 2 final planks of our strategy. It is important, even for you, financial folks, to understand our social strategy and our people strategy. Because if you actually look for the disruption in these industries, they usually come from these places. Government intervention, unexpected government intervention, people shocks. And so we want to talk about that and why it's important. But before I get into these, for those of you on the line, I want to make sure that the people in the room that work for MillerCoors are quickly introduced. They'll be -- I hope you'll be upstairs at Fred and Adolf's and I encourage you to speak to these folks. They are very tightly scripted. Probably not so much as we, but they have lots of insight in the industry and I'm sure you'll enjoy speaking with them too. So on my right, Fernando Palacio, our Executive Vice President, in charge of supply chain; Karen Alber whom Kevin -- Gavin referenced, is our Chief Information Officer; Mr. Chris Kozina, beside Karen, is our Chief People Officer and Talent Officer. My sight is failing that it looks like -- is that Mike Kenik?
Would you please stand, gentleman, because I cannot see if you don't go that far. And then we've got...
Bill Berg [ph].
Bill Berg [ph], thank you very much. Behind us is Jonathan Stern.
Neil Kiely is beside him, and Neil was referenced before. You've spoken to Cardella. I see Jim Ondorfer [ph]. If you’ll raise your hand, Jim. Thank you very much. And then Karina Diehl. Karina is in charge of Investor Relations and Multicultural Communications. Moving to the right, who we got over here?
Neil Horton whom I believe almost all of you know. Neil is our -- in charge, heads the Strategy Department, as well as Public Affairs and Investor Relations and Government Affairs. And are there more? Yes, but of course you know Andy, who's moved. He is very elusive as Chief Marketing Officer. He moves quickly from place to place. Okay. So let's get on with this. Our strategy in terms of embracing responsibility. It is very specific and our initiatives are designed to grow as the economy permits. And we do this and responsibility is very important to us because we find that people remember what we do in this space for a very long time, both in the government relations area and in our community. So we follow a detailed strategic plan for preventing drunk driving, reducing underage access to alcohol and addressing college campus issues. We believe deeply in the strict adherence to marketing standards. And we build employee and distributor education programs in this arena that demonstrate that we take the privilege of selling alcohol quite seriously.
Now we certainly expect to save a lots of money in every area, and we've talked a lot about efficiency. But there's one place that we don't expect to save money and that’s in this area. We are working very hard with college communities, sports advertising, with distributors, concessionaires, and venue owners to ensure that we drive responsible marketing of our products. And so we're going to implement programs this year, such as our free rides program, that provides safe ride homes during major holidays across the country, that we invest in respect 21, which provides training to the service industry on not serving our products to anyone under 21. And I believe this is working because even I, as long in the tooth as I am have been carded several times in the last couple of weeks and I'm absolutely delighted.
I took it as a compliment. We also believe that we lead with sustainable solutions to preserve our resources for years to come. And so sustainability is extremely important to us. We set 2015 targets for all of our sustainability goals, water, energy, packaging, waste and supply chain. And you're probably wondering why do we do this. I know many of you, I came from the Packaged Goods industry, say that this is a peripheral issue. At bottom consumers about -- care about the quality price, image and your sustainability record. Well, that's way down the list. It's not true in beer. Young people, and millennials, legal drinking age, consumers care about the brands they wear, beer is an ingested product. It is a badge brand and they care about who's behind the beer and what the people that make the beer care about. And so we believe that this makes a statement. And it is increasingly being built into the brand ethos of our core brands like Leinenkugel's Canoes for a cause program of water stewardship, and our Coors Light and Coca-Cola partnership in NASCAR recycling. More and more, we believe that sustainability marketing is a tangible demonstration of the beliefs about your beer. And Lighthouse Brands and belief brands have to show what they care about.
So we're going to focus also on employee volunteerism and that brings our sustainability strategy to life. We believe that engaging our people requires us to make statements about what we believe in too. Our employees want to work for a company that cares about their community. Most of the employees that we hire have lots of choices. They can work for entrepreneurs. They can work for companies like yours or they can work for company like ours. And when we tell them that they can make more community impact and make a bigger impact for good by working for our company and then one of the other companies, we tend to do a better job at recruiting them. So we care about this. So we build local relevance and relationships in key markets through partnerships with community-based groups that focus on education and workforce readiness. Programs like the MillerCoors' Lideres program, which recognizes and rewards Latina leaders across the company. With our urban entrepreneurs series, the business plan competition that brings entrepreneurs in, they present their presentation to us, we give them much-needed funds to bootstrap those companies and build successful community businesses. As you might expect, we have strong partnerships with the United Way, the Red Cross, the Adelante Education Leadership Fund and the HBCUs, that’s historically black colleges and universities. And we're a founding member of the Thurgood Marshall College Fund.
So we also believe that engaging people is important. Engaged employees go above and beyond what is required in their jobs and so, we're working hard on 3 main strategies: developing and attracting a diverse workforce, focusing people and capability development to prioritize growth and anchoring an inclusive, flexible and safe working environment. Let me talk about diversity for just a moment.
Diversity and consumer relevant ideas that connect with consumers are only possible when we implement strategies developed by a diverse workforce. It is so important, I think as you know, we can count on, as Peter Drucker used to say, death and taxes. But we can also count on demographics. And we know that the demographic footprint of the United States is going to become more diverse. And therefore, the sensibilities of our employees on this dimension are critically important. And so we are developing a much more diverse workforce focusing on leadership, talent and relationship. At our foundation, we're building leadership and influence, financial and business acumen and diversity and inclusion capabilities across the entire company. And as you can see here, there are a number of commercial capabilities that we want to build out over the next 3 years.
We're implementing sales academies, marketing seminars, sales skills innovation and manufacturing seminars. Because when you demonstrate to people that you are building their careers and giving them opportunities to invest and grow, you retain your employees and you retain your best talent. And as you all know, losing talent cost lots and lots of money. And in our integrated supply-chain, we are focused on continuing to build world-class manufacturing skills. Embedding a safety culture. And developing capabilities to support our new distributor ordering tools and our craft brewing capabilities. But you can't expect people to be engaged in bringing their best to work if they don't feel safe. And if they don't feel included and if their work is not flexible to some of the needs of their personal lives.
And finally, we'll anchor an inclusive, flexible and safe-working environment through continued implementation of our diversity and inclusion strategy, reinforcement of our safety-driven cultural norms and this flexible work environment.
As I said earlier, the U.S. beer industry is facing financial pressure and volume challenges like we've never seen before. So we've evolved our strategy to better focus on our consumers by focusing on the 5 stretch strategic planks that we call Winning In Beer. Our 3-year plan to drive share growth, top line revenue growth, EBITDA growth in a period of unprecedented economic decline. I think it will position us for future growth and deliver on our promise to create America's best beer company. So thank you. Let's take a few more questions then wrap it up.
Tom, in terms of motivating employees, ownership is quite an important part of that. Can you remind me how, within the MillerCoors joint venture, you create a culture of ownership -- equity-ownership for employees rather than just being salaried?
Yes, thank you. We do have short-term incentive programs, and for the top 400, 500 people, we have long-term incentive programs as well. And those are based on phantom share, which is quite a complex formula as you might imagine. But I could take you through it offline. It is a simply a proxy for the value that we create through our own company rather than a parent company stock incentive program.
Tom, so you started the presentation with a comment about really needing to evolve and be much quicker, nimbler in this environment. And I'm just curious as you think about your financial targets here, what are some of the things in 2012 that we really should look for as it relates to what you're doing differently that gives us confidence that you are actually evolving and adapting to the environment? And then just on Miller Lite, because obviously, that's a key brand for you guys, give us an update just in terms of the brand equity scores. I know in the past you've talked about the metrics that you're looking at, it sounds like you had some issue with the marketing campaign in this year. So how are you tweaking that? And as you think about 2012, can you actually see better performance from the brand?
Yes. Thank you. I think 3 key areas. You'll certainly see significantly more brand innovation from MillerCoors. You'll see it not only in the craft space, but you'll also see it in our core business. So that's the first thing you should look for. I call this durable brands and disposable products. And so all the line extensions that we use should add equity to the core brands and bring more news value into our core brands, and innovation first. Secondly, I expect to see significantly, and I believe you will see, you'll see stronger advertising. Advertising is important in beer. Advertising in marketing works. We're grateful to be in an industry where marketing works. And we know that it works. We know the top line advertising works. We know that our sponsorships work. And I believe the marketing team has brought some strong partnerships evolving those to better execution, but I do believe you'll see significantly more powerful advertising. Those are 2 of the ways.
Pardon me. Miller Lite was a conundrum. I think we had great success on Miller Lite as we were bringing it's -- what I'd call the rented volume out of the brand for the first couple of years. And we had progress through April of this year. The brand kind of fell off the wagon, or fell off the ledge after April. And I think it was related to the advertising. And I believe the consumers are expecting more from Miller Lite and I think we'll get it. We continue to believe deeply in Miller Lite. We are working hard to maximize its value proposition. We've been asked questions from the investor community about taking price. The reality is we can do so much with -- by managing our promotional discounts on Miller Lite that we can move up or down the net realized price of Miller Lite, much more efficiently than by lowering it to a different price tier. And we have no thought of doing that at this point simply because it will be value-destroying for the company.
This question actually may be for you, Ed. You talked about packages and moving, I guess, on Coors Light from 30- and 24-packs into 15s and 18s.
If I recall correctly, there was a move in the other direction that was Coors Light had made a move into 30-pack, especially a few years ago. If you could talk about, for Coors Light, where that mix is today? What percentage of your volume is in 24s and 30s? And kind of where you think that's going to evolve to. I mean -- and also just -- is it the same thing with Miller Lite? Do you see doing the same thing on Miller Lite as well?
Yes. Thank you. So our pack mix on brand on a brand like Coors Light is 30-pack will be our largest individual pack out there. And I can't give you the exact number, but it's largely 30 packs, a feature strategy. What we've learned -- the conventional wisdom was this idea of loading up consumers, so that you can free load and have lots of beer available for them. The conventional wisdom was that drove more consumption for your brands and for the category. And what we've learned is that we get more total consumption by bringing people back to the store more frequently and premium light shoppers were actually really terrific shoppers because they are very loyal, and they like to shop frequently. They shop much more frequently than –- make many more trips to the grocery store, than say a craft drinker. And so particularly in this environment where consumers are sensitive about price, we've got a hypothesis that says we can actually sell more beer by promoting smaller packs more frequently and also, the idea of tying in to kind of the rhythms of the economy today and ensuring that your pack strategy matches up when people have cash in their pocket. So a 30-pack ad at the beginning of the month is a much better idea than the 30-pack ad at the end of the month. It’s really important. Does that help?
Just trying to get a sense for the -- what the change in direction could be. I mean, or do you...
Yes, I think what you'll see from us is more focus on 24 packs and 18 packs from a promotional standpoint than say 30s and 36 packs. Because we think -- we believe we can demonstrate to both retailers and distributors that when it's all said and done, we'll sell more beer with that strategy than a strategy that would see us load with 30s and 36s.
The expectation is more purchase occasions.
Judy E. Hong - Goldman Sachs Group Inc., Research Division
Beer companies have said that they don't -- not only want to sell beer, but sometimes look at becoming beverage companies. Looking at energy drinks, maybe spirits, things like that, it sounds like you have a lot on your plate here, but curious, how do you think the industry is changing, and consolidating some respects, how do you think about your portfolio? And does it expand beyond beer?
Yes, we look carefully at adjacencies and we have a number of people in the room from other industries whether they be spirits or soft drinks or others. So there's a great deal of expertise in those areas in this building. We prefer to participate in malt beverages and to focus there. But it's not -- there are many sectors of the business that are not far away from malts, that we could participate in. And as we see growth opportunities there, we'll certainly pursue them. I wouldn't rule that out. In fact Tenth and Blake will participate in some areas probably that are adjacent. So I would see that coming forward in our strategy, but I wouldn't be more specific than that. Close-in is better than faraway.
So you've touched on your distributor strategy earlier and I was wondering if you could clarify that. I mean, how active a role do you take in their business processes and making more efficiency there? Is that an active priority of yours? Or is it that kind of more of their deal or you kind of deal at a higher level?
Yes, I mean, just very generally to that, as our distributors, as we once had thousands of them and they were mom and pops. They relied very heavily on us for lots and lots of education. As many of these companies are half a billion-dollar or multibillion-dollar companies, they require much less of that. And so we have core programs that drive the entire base up to a base level of competence. But in many ways, our distributors are on logistics are more sophisticated than we. And we are actually learning from them. As you think about our cost structure, I think it will be fair to say that as our distributors consolidate and become more sophisticated, that you would find relatively less need for that in our P&L. But we are not moving away from it in anyway. We will put more into category management and customer service and some of the sharp end and evolving ends of using, for instance, sophisticated technology rather than a more basic kind of programs.
And can I do a one quick follow-up?
If so, you have no debt and I was wondering if there's any conversation at the board level to take on debt and dividends with the parent, because -- I mean, it's relatively under leveraged or stable?
The way the joint venture is being structured is that we are debt free and if there were any requirements for us to take on debt that will be taken on at a shareholder level.
Yes, when they need cash, they get it directly from the parent company.
It actually works the other way around, we give out cash.
We often have that dialogue between parent and MillerCoors, who gives the cash. Good. Shall we conclude it now? Yes. Let's wrap it up and go upstairs, with that will be to the 16th floor all the way to the top. So Fred and Adolf's for a beer. Thank you very much, ladies and gentlemen. For those of you on the line, thank you for joining us. And this concludes the show.