Molson Coors Brewing Company Business Information, Profile, and History

311 Tenth Street
Golden
Colorado
80401-0030
U.S.A.

Company Perspectives

The time is right. The global beer business is rapidly consolidating, becoming more competitive every day. More than ever, scale is crucial for any brewer to excel. That's why it's the right time for Molson Coors. For two successful players in the world's most profitable beer markets, it's a perfect fit. Together we're financially stronger and more efficient. By dramatically increasing our size overnight, the merger enhances our ability to support aggressive marketing campaigns, innovative product introductions and strategic geographic expansion. Pour it on.

History of Molson Coors Brewing Company

Molson Coors Brewing Company, the product of the February 2005 merger of the Colorado-based Adolph Coors Company and the Canadian brewer Molson Inc., ranks as the fifth largest brewing company in the world. It holds the number one position in Canada, the number two rank in the United Kingdom, and the number three slot in the United States. Coors Light, the firm's biggest-seller, is the fourth best-selling beer in the United States; Molson Canadian is the best seller in English-speaking Canada; and Carling ranks as the best-selling lager in the United Kingdom. Other key brands include Molson Ice, Molson Golden, Coors, George Killian's Irish Red, Rickard's Red, Zima, Blue Moon, and Keystone. Although the 2005 amalgamation was billed as a "merger of equals" and Molson Coors maintains twin headquarters in Golden, Colorado, and Montreal, Canada, the company is officially a U.S. firm. The merger brought together two companies with deep roots--Molson Inc., established in 1786, the oldest brewery in North America; and Adolph Coors, established in 1873--both of which were still under control of their respective founding families. Following the merger, the Coors and Molson families jointly controlled Molson Coors, each holding one-third of the voting power.

Origins of Molson in Montreal Brewery

The history of Molson brewing began soon after 18-year-old John Molson emigrated from Lincolnshire, England, during the late 18th century. He arrived in Canada in 1782 and became a partner in a small brewing company outside Montreal's city walls on the St. Lawrence River a year later. In 1785 he became the sole proprietor of the brewery, closed it temporarily, and sailed to England to settle his estate and buy brewing equipment. Upon his return in 1786, with a book titled Theoretical Hints on an Improved Practice of Brewing in hand, the novice started brewing according to his own formula. By the close of the year, Molson had produced 80 hogsheads (4,300 gallons) of beer. In 1787 Molson remarked, "My beer has been almost universally well liked beyond my most sanguine expectations." His statement in part reflects the quality of the brew, but it also indicates that Molson had excellent timing; he faced little competition in the pioneer community.

Before electrical refrigeration became available, Molson was confined to a 20-week operating season because the company had to rely on ice from the St. Lawrence River. Nevertheless, production grew throughout the 1800s as the Montreal brewery steadily added more land and equipment. Population growth and increasingly sophisticated bottling and packaging techniques also contributed to Molson's profitability in the early days.

It was not long before Molson became an established entrepreneur in Montreal, providing services in the fledgling community that contributed to its growth into a major Canadian city. Molson first diversified in 1797 with a lumberyard on the brewery property. A decade later he launched the Accommodation, Canada's first steamboat, and soon thereafter he formed the St. Lawrence Steamboat Company, also known as the Molson Line. The steam line led to Molson's operation of small-scale financial services between Montreal and Quebec City; eventually the services became Molson's Bank, chartered in 1855.

In 1816 John Molson signed a partnership agreement with his three sons--John, Jr., William, and Thomas--ensuring that the brewery would remain under family control. He was elected the same year to represent Montreal East in the legislature of Lower Canada and opened the Mansion House, a large hotel in Montreal that housed the public library, post office, and Montreal's first theater.

The Molsons established the first industrial-scale distillery in Montreal in 1820. Three years later, the youngest brother, Thomas, left the organization after a severe disagreement with his family. In 1824 he moved to Kingston, Ontario, where he established an independent brewing and distilling operation.

The elder John Molson left the company in 1828, leaving John, Jr., and William as active partners. He served as president of the Bank of Montreal from 1826 to 1830, and in 1832 he was nominated to the Legislative Council of Lower Canada. Possibly his most fortuitous venture was his contribution of one quarter of the cost of building Canada's first railway, the Champlain and St. Lawrence. He died in January 1836 at age 72.

Thomas Molson returned to Montreal in 1834 and was readmitted to the family enterprise. Over the next 80 years new partnerships formed among various members of the Molson family, prompting several more reorganizations. The first in the third generation to enter the family business was John H. R. Molson, who joined the partnership in 1848. He became an increasingly important figure in the company as William and John, Jr., devoted more of their time to the operation of Molson's Bank.

In 1844 the Molson brewery, now called Thos. & Wm. Molson & Company, introduced beer in bottles that were corked and labeled by hand. Beer production grew faster than bottle production, though, necessitating the company's purchase of a separate barrel factory at Port Hope, Ontario, in 1851. In 1859 Molson started to advertise in Montreal newspapers, while also setting up a retail sales network and introducing pint bottles.

The company became John H.R. Molson & Bros. in 1861 following the establishment of a new partnership with William Markland Molson and John Thomas Molson. In 1866 the Molsons closed their distillery, citing poor sales, and in 1868 they sold their property in Port Hope.

By 1866, the brewery's hundredth year in Molson hands, its production volume had multiplied 175 times but profit cleared on each gallon remained the same: 26¢. In the early years of the 20th century, the company incorporated pasteurization and electric refrigeration into its methods. In addition, electricity replaced steam power, and mechanized packaging devices sped the bottling process. In 1911 the company became Molson's Brewery Ltd. following its reorganization as a private, limited joint-share company. The Molson family would continue to hold a major stake in the company right through the 2005 merger with Coors. The family's direct interest in banking ended in 1925 when Molson's Bank merged with the Bank of Montreal.

The first half of the 20th century was a period of rapid growth for Molson. Production at the Montreal brewery rose from three million gallons in 1920, to 15 million in 1930, to 25 million in 1949. Molson adopted modern marketing and advertising methods to enhance market penetration and in 1930 began producing its first promotional items, despite founder John Molson's contention that "An honest brew makes its own friends." In 1945 shares in the company became available to the public for the first time as Molson's Brewery Limited became a public joint-stock company.

Additional Breweries Built and Acquired Starting in 1955

In the mid-1950s Molson management recognized a need to expand operations significantly. By concentrating their resources, other Canadian breweries had finally begun to compete successfully against perennial leader Molson. Molson decided that the appropriate strategy was to have a brewery operating in each province, as distribution from its base in Quebec to other provinces was subject to strict government regulations. With operations in the other provinces, Molson could further build its market throughout Canada. This large-scale expansion began when Molson announced a second brewery would be built on a ten-acre site in Toronto. Modernizations at the Montreal facility had, it was felt, fully maximized output there. The new Toronto installation opened in 1955 and became the home of Molson's first lager, Crown and Anchor. In the next few years Molson acquired three breweries: Sick's Brewery, bought in 1958; Fort Garry Brewery in Winnipeg, 1959; and Newfoundland Brewery, 1962. This period also saw the introduction of Molson Golden beer, first brewed in 1954, as well as the flagship Molson Canadian, which debuted in 1959. In 1962 the company name was changed to Molson Breweries Limited, reflecting the firm's expansion into multi-brewery operation.

The expansion effort resulted in good returns for Molson investors; between 1950 and 1965 earnings more than doubled. Even so, Molson leaders recognized that expansion potential within the mature brewing industry was limited, and further, that growth rates in the industry would always be slow. It was clear that even the most successful brewing operation soon would reach the limits of its profitability. Thus Molson began an accelerated diversification program in the mid-1960s that heralded in Canada the era of the corporate takeover.

Diversification Beginning in 1968

In 1968 Molson made its first major nonbrewing acquisition in more than a century. Ontario-based Anthes Imperial Ltd. was a public company specializing in steel materials, office furniture and supplies, construction equipment rentals, and public warehousing. The Anthes executive staff was known to be highly talented in acquisitions and strategic management, two areas in which Molson needed expert help to pursue its goal of diversification. However, because the various Anthes companies required different management and marketing strategies, the acquisition did not benefit Molson as much as its directors had hoped. Soon Molson sold off most of the Anthes component companies. The company had learned that future acquisitions should be of firms that were more compatible with Molson's longstanding strengths in marketing consumer products and services. In the meantime, the company in 1968 had changed its name to Molson Industries Limited, a reflection of its diversification; the beer-making operations were renamed Molson Breweries of Canada Ltd.

Molson did retain one important component of Anthes: its president. As Molson's chairman, Donald "Bud" Willmot directed a series of successful acquisitions in the early 1970s. Management felt that the ideal candidate must be a Canadian-based firm and must be involved in above-average growth. The do-it-yourself material supplies market appeared to be the ideal candidate: there seemed to be a new trend, consumers doing their own home improvements, and Molson recognized the potential for rapid growth of this market in urban areas, which at that time had few or no lumberyards or similar outlets. Molson began acquiring small hardware, lumber, and home furnishings companies. In 1972 it spent $50 million buying more than 90 percent of the shares of Beaver Lumber Company Limited, a large Canadian company. During the remainder of the decade Beaver acquired several smaller hardware and lumber operations. Molson's service center division grew to encompass 162 retail stores, most of them franchises, selling everything from paint to home-building supplies. In the mid-1980s Beaver began importing competitively priced merchandise from Asian countries. Meanwhile, in July 1973, the company's name was changed yet again, to The Molson Companies Limited. The brewery operations were bolstered one year later through the acquisition of Formosa Spring Brewery, based in Barrie, Ontario.

Although Beaver's sales climbed steadily throughout the 1970s, rapidly making it a leader in its industry, profits lagged behind what Molson had anticipated, and initially the company considered the Beaver purchase only a modest success. Struggling at first to integrate the brewing and home improvement divisions, Molson eventually learned that the two industries, and marketing therein, are very different. The beer industry operates in a controlled market; governments regulate sale and manufacture of alcoholic products. The hardware industry, on the other hand, operates in a relatively free market. Furthermore, in brewing, manufacturing efficiency is the key to a profitable enterprise, but the success of a home improvement retail operation hinges on the ability to provide a broad variety of products at competitive prices.

The challenge of integrating two companies operating in such different markets led Molson to a careful reassessment of its diversification criteria; in the future, the company would concentrate on marketing specific product brands. W. J. Gluck, vice-president of corporate development, wrote: "We only wanted to go into a business related to our experience--a business in which marketing, not manufacturing, is the important thing." The search for another acquisition began.

Expansion into Chemicals, Sports, and Entertainment: 1978

In 1978 Molson offered $28 per share of stock in Diversey Corporation, a manufacturer and marketer of institutional chemical cleansers and sanitizers based in Northbrook, Illinois. Contending that their company, which boasted $730 million in annual sales, was worth more, Diversey stockholders contested the sale, but eventually accepted Molson's original $55 million offer. Diversey was Molson's first large acquisition in the United States, though most of its clients and manufacturing plants were in fact located outside the United States in Europe, Latin America, and the Pacific basin. Molson also bought into sports and entertainment in 1978, buying a share in the Club de Hockey Canadien Inc. (the Montreal Canadiens) and the Montreal Forum, as well as hosting Molson Hockey Night in Canada and other television shows through its production company, Ohlmeyer Communications.

Molson opened the 1980s with the $25 million purchase of BASF Wyandotte Corporation, a U.S. manufacturer of chemical specialties products related to foodservices and commercial laundries. The subsequent merger of BASF and Diversey made Molson's chemical products division its second largest earnings contributor. Prior to the merger, Diversey was a weak competitor in the U.S. sanitation supplies market. BASF Wyandotte, however, was a leader in the U.S. kitchen services market. Thus the marriage was a sound move for Diversey, which had found a relatively inexpensive way to increase its share of its market in the United States.

Having concentrated on diversification, Molson found that it had missed the globalization of the brewing industry that had begun in the 1970s. While other major competitors had expanded internationally through acquisition, Molson had not completed a single foreign acquisition. Although the conglomerate remained profitable throughout the 1980s, it became clear to the board of directors, led by eighth-generation heir Eric Molson, that the company would need to make some international connections to remain a major, independent participant in the beer market.

1989 Merger of Molson Breweries and Carling O'Keefe

In 1988 the board hired Marshall "Mickey" Cohen as president and CEO. A career civil servant who had entered the private sector in 1985, Cohen was brought into Molson with one objective: to raise the 202-year-old company's sagging returns. His first move was to revive ailing merger talks between Molson and Elders IXL Ltd., Australia's largest publicly traded conglomerate. Elders (subsequently renamed for its beer-making subsidiary, Foster's Brewing Group Ltd.) had recently capped off a five-year amalgamation of global brewing companies with the purchase of Canada's number three brewery, Carling O'Keefe. The proposed merger of number two Molson with Carling was called "the biggest and most audacious deal in Canadian brewing history" in a 1989 Globe & Mail story, but it required Molson to share control of the resulting company (50-50 between Molson and Foster's). Whereas it had been difficult for Cohen's predecessors to agree to relinquish more than two centuries of control, Cohen had no such compunctions.

The resulting union, consummated in 1989, gave Molson access to Foster's 80-country reach, while Foster's bought entrée into the lucrative U.S. market, where Molson was the second largest importer after Heineken N.V. The merger also helped lower both participants' production costs: the combined operations were pared from 16 Canadian breweries down to nine, and employment was correspondingly cut by 1,400 workers. As a concession to its larger premerger size-Molson's brewery assets were valued at $1 billion, whereas Carling's amounted to only about $600 million--Cohen also managed to wring $600 million cash for Molson Companies out of the deal.

Some analysts surmised that the CEO would use the funds to further supplement the multinational beer business, but he surprised many with the $284 million acquisition of DuBois Chemicals Inc., the United States' second largest distributor of cleaning chemicals, in 1991. The addition boosted Diversey's annual sales by 25 percent to $1.2 billion and augmented operations in the United States, Japan, and Europe. Unfortunately, the merger proved more troublesome than expected, and a subsequent decline in service alienated customers. While Diversey's sales increased to $1.4 billion in 1994 (ended March 1994), its profits declined to $72.6 million and the subsidiary's president jumped ship. Cohen took the helm and began to formulate a turnaround plan.

Hoping to boost the Molson brand's less than 1 percent share of the U.S. beer market, Molson and Foster's each agreed to sell an equal part of their stake in Molson Breweries to Miller Brewing Company, a leader in the U.S. market. Miller's $349 million bought it a 20 percent share of Molson Breweries and effectively shifted control of Canada's leading brewer to foreigners in 1993 (Molson's stake in Molson Breweries having been reduced to 40 percent). Cohen expected the brand to retain its distinctly Canadian character (the beer would continue to be manufactured exclusively in Canada), but hoped that it would benefit from Miller's marketing clout.

Molson's financial results were mediocre at best in the early 1990s. Sales rose from $2.55 billion in 1990 to $3.09 billion in 1993, but earnings vacillated from $117.9 million in 1990 to a net loss of $38.67 million the following year, rebounding to $164.69 million in 1993. The company blamed its difficulties on Diversey's money-losing U.S. operations, which faced strong competition from industry leader Ecolab Inc. The following year's sales and earnings slipped to $2.97 billion and $125.67 million, respectively, as Diversey continued to lose money in the United States.

Nevertheless, Cohen remained determined to turn Diversey's operations around. Late in 1994 he announced a decision to divest Molson's retail home improvement businesses to focus on the brewing and chemicals operations. By this time Molson's retail sector included Beaver Lumber, a 45.1 percent interest in the Quebec-based Réno-Dépôt Inc. chain, and a 25 percent stake in Home Depot Canada. The last of these was rooted in Molson's 1971 purchase of the Ontario-based Aikenhead's Home Improvement Warehouse chain. In 1994 Home Depot Inc. purchased a 75 percent stake in Aikenhead's, whose stores were then converted to Home Depots.

Refocusing on Brewing in the Mid- to Late 1990s

The exit from retailing proved to be a slow one, however, and Molson dramatically shifted course in 1996 when it sold Diversey, jettisoning its troubled chemicals operations. Most of Diversey was sold to Unilever PLC, with the entire chemical unit bringing about $1.1 billion to Molson. Nonetheless, charges related to the sale and for restructuring both Molson Breweries and Beaver Lumber resulted in a net loss of CAD 305.5 million ($225 million) for 1996. Management shakeups led to Cohen's exit from Molson in September 1996 and to Cohen's replacement, former company executive Norman Seagram, lasting only until May 1997, when James Arnett took over as president and CEO. Arnett, a corporate lawyer based in Toronto, had been a director of Molson. Meanwhile, the historic Montreal Forum was replaced in 1996 as the home of the Montreal Canadiens by the newly built Molson Centre, a 21,400-seat state-of-the-art arena, which was wholly owned by the Molson Companies.

Under Arnett's leadership, it quickly became apparent that brewing was once again number one at Molson. The company finally began to unload its retail interests, starting with the March 1997 sale of its interest in Réno-Dépôt. In April 1998 Molson's stake in Home Depot Canada was sold to Home Depot Inc. for CAD 370 million ($260 million). Two months later Molson announced that it would sell Beaver Lumber as well, and it placed Beaver within its area of discontinued operations.

The long neglected Molson Breweries had suffered from steadily declining market share, falling from 52.2 percent of the Canadian market in 1989 to 45.8 percent in mid-1997. John Barnett had been named president of Molson Breweries in November 1995, and he used his 25-plus years of brewing experience to aggressively attempt to reverse the decline. He decentralized the unit's operations (which included seven Canadian breweries) and began niche marketing, targeting particular brands at specific Canadian regions.

While Barnett moved to shore up Molson Breweries, Arnett acted quickly to regain full control of the unit. In December 1997, Molson Companies, Foster's, and Miller Brewing reached an agreement that restructured their relationships. Molson and Foster's repurchased Miller's 20 percent stake in Molson Breweries, returning each to 50 percent shares in the unit. The deal also had Molson and Foster's purchasing a 24.95 percent stake in Molson USA, with Miller retaining a 50.1 percent interest. Molson USA was charged with distributing Molson and Foster's brands in the United States. The new relationship also called for Molson Breweries to continue to manage the Miller brands in Canada.

Then in June 1998 Molson regained full ownership of Molson Breweries by paying CAD 1 billion ($679.4 million) in cash to Foster's. Through the deal, Molson also gained Foster's stake in Coors Canada, Inc., manager of Coors brands in Canada. Molson's interest in Coors Canada was thus increased to 49.9 percent.

With the Canadian beer market in an extended flat period and with competitor Labatt's share of the market nearly equal to that of Molson's, Arnett was counting on Canadians preferring 100 percent Canadian-owned Molson brands to those of Labatt, which had been purchased by Belgium's Interbrew S.A. in 1995. Molson's return to a focus on brewing was symbolized the following year by yet another name change, this time to simply Molson Inc. Also in 1999, Molson finally sold off Beaver Lumber, and it hired Daniel O'Neill to take over leadership of the brewery operations after Barnett left the company late in 1998. O'Neill, a former executive at Campbell Soup Company and H.J. Heinz Company, led a restructuring of the brewery operations aiming to cut CAD 100 million in annual costs. In September 1999 nearly 300 of Molson's 1,500 salaried workers were laid off, with CAD 36 million in one-time charges incurred as a result. One month later the company announced that it would shut down its brewery in Barrie, Ontario, and consolidate its Ontario beer-making operations at its plant in Toronto. The Barrie brewery was shuttered in August 2000, putting more than 400 people out of work, and Molson took a CAD 188 million charge to cover the costs of the restructuring. The charges led to a net loss of CAD 44 million for the fiscal year ending in March 2000. Revenue that year totaled CAD 2.5 billion, up from the previous year's CAD 2.1 billion.

A Global Strategy in the Early 2000s

In June 2000 Arnett stepped down as president and CEO, and O'Neill was named to succeed him. O'Neill would lead Molson through the few tumultuous years leading up to the merger with Coors. One of his first moves came in October 2000 when Molson paid Miller and Foster's $133 million to regain 100 percent ownership and control of the Molson brands in the United States. Molson officials felt that Miller and Foster's were not doing enough to promote Molson products in the huge U.S. market. The following January, Molson entered into a partnership with Coors in which the Canadian company retained a 50.1 percent interest and full ownership of the brands themselves. Coors agreed to import, promote, and sell Molson beer brands in the United States. With the Canadian beer market in stagnation, Molson was targeting the U.S. market as a main growth vehicle, but the firm needed to reverse its fortunes there; over the previous two years, Molson had lost about half of its U.S. market share, falling from third to seventh place among import beers. Molson increased its U.S. marketing spending by more than 20 percent, and it decided to concentrate its U.S. efforts on its three top sellers, Molson Golden, Molson Canadian, and Molson Ice. As a second leg of its international growth strategy, Molson entered into its first brewing venture outside North America, purchasing Brazil's number four beer brand, Bavaria, and five breweries from Companhia de Bebidas das Américas (AmBev) for CAD 98 million.

Back home, O'Neill continued to focus on streamlining and improving profitability. In early 2002 Molson shut down another brewery, the small one in Regina, which had been deemed superfluous. O'Neill also unsentimentally closed the final chapter on Molson's days of diversification by selling both the Montreal Canadiens and the Molson Centre (later renamed the Bell Centre) in 2001 to Colorado ski magnate George Gillett. In addition, in a move to cut costs and simplify marketing efforts, Molson slashed its Canadian product line from 77 beers to just eight along with a few regional brews. These moves were largely responsible for Molson's operating profits doubling by 2003, to CAD 512 million.

In March 2002 Molson took an even greater leap into the Brazilian market, the fourth largest beer market in the world, when it acquired Cervejaria Kaiser for $765 million. Molson subsequently merged Bavaria into Kaiser, which ranked as the number two beer maker in Brazil, with a market share of approximately 18 percent, a far cry, however, from the dominating 70 percent controlled by AmBev. Molson, which became the 13th largest brewer in the world, sold a 20 percent in Kaiser to Heineken for about $220 million, and it also extended an agreement to produce and distribute Heineken beer in Brazil and to distribute Heineken in Canada.

Unfortunately, soon after the acquisition of Kaiser, Brazil's economy, currency, and beer consumption took a nosedive, and Kaiser suffered from additional problems in its product lineup, promotion, and distribution. By 2004 Molson's Brazilian adventure was widely seen as a costly mistake. At the same time, while Molson had arrested the decline of its import business in the United States, its flagship brands in Canada were in decline, suffering from intense competition from imports, discount and value-price brewers such as Lakeport Brewing, and premium craft brewers such as Sleeman Breweries Ltd. and Moosehead Breweries Limited. One of the few bright spots for the company was the growing popularity of Coors Light, which it was selling as part of its partnership with Coors and which by 2004 was generating about 20 percent of Molson's operating profit in Canada. On a global level, however, Molson had fallen well behind its peers in the late 20th and early 21st centuries when the beer industry went through an unprecedented wave of global consolidation. For example, in the late 1970s, Molson was about the same size as Heineken, but by 2004 the Dutch firm was five times the size of Molson. It was from this position of weakness, then, that Molson pursued the marriage with Coors that was completed in February 2005.

The Foundation of the Coors Brewery

Adolph Herman Joseph Coors emigrated from Germany to the United States in 1868 at the age of 21. After purchasing a Denver bottling company in 1872, Coors formed a partnership with Jacob Schueler in 1873. Although Schueler invested the lion's share of the $20,000 necessary to purchase and convert an old tannery in nearby Golden into a brewery, Coors was able to buy out his partner in 1880. His acquisition inaugurated more than a century of Coors family control.

The fledgling brewery's sales increased steadily in the ensuing decades. In 1887 the brewery sold 7,049 barrels of beer (31 gallons per barrel). Three years later that figure more than doubled, reaching 17,600 barrels. Over the years Adolph Coors slowly expanded his market. By the time he officially incorporated his brewery in 1913 as Adolph Coors Brewing and Manufacturing Company, Coors beer was being distributed throughout Colorado.

Even at this early point in the company's history, the distinctive Coors philosophy was emerging. The main tenets of this philosophy adhered to by four successive generations of Coors beermakers, each generation further refining the knowledge inherited from the preceding generation, were the following: Adolph Coors believed in sparing no effort or expense in producing the best beer possible. To this end, he believed that only Colorado spring water was good enough for his beer. He also commissioned farmers to grow the barley and hops that he needed for his brewing process. The second tenet of the philosophy was that his family always came first, without exception; the Coors family brewery remained a tight-knit, protective, almost secretive enterprise. The last tenet was that "a good beer sells itself." Until 1980 Coors spent substantially less on advertising than any other brewer.

Prohibition came early to Colorado. In 1916 the state's legislature passed a law banning the production and consumption of alcoholic beverages within the state. Obviously, Prohibition was detrimental to Adolph Coors's brewery; some business historians assert, however, that the legislation strengthened the burgeoning company. The obvious changes in product offerings--Coors manufactured "near beer" and malted milk during this period--were reflected in a name change, in 1920, to Adolph Coors Company. Adolph Coors and his son, Adolph, Jr., also used the opportunity to diversify their company, creating what was eventually to become a small-scale vertical monopoly: Coors acquired all that it needed to produce its beer, from the oil wells that created the energy necessary to run the brewery to the farms that grew the ingredients, and from the bottling plant that made the containers to the trucks used for distribution. This expansion was financed entirely with family money.

Astounding Post-Prohibition Growth

The repeal of Prohibition in 1933 did not result in as dramatic a sales increase for Coors as it did for many other producers of alcoholic beverages. Instead, the Adolph Coors Company, under the direction of Adolph, Jr., and his two brothers, expanded its market slowly in the 1930s. Their insistence on the use of all natural ingredients and no preservatives, in accordance with the brewery's founding tenets, made wider distribution prohibitively expensive. The beer had to be brewed, transported, and stored under refrigeration, and its shelf life was limited to one month. But if Coors's growth and development in the decades following the repeal of Prohibition was less dramatic than that of brewing powerhouses such as Anheuser-Busch and Miller, it was no less amazing. For while other regional breweries were squeezed out of the market--the number of independents shrank from 450 in 1947 to 120 in 1967--Coors grew steadily into one of the nation's leading beer brands. Coors's production increased 20-fold, from 123,000 barrels in 1930 to 3.5 million barrels in 1960, as the brewer expanded its reach into 11 western states. Coors's ranking among the nation's beer companies advanced accordingly, from 14th in 1959 to fourth by 1969.

How did Coors grow 1,500 percent between 1947 and 1967, with only one product, made in a single brewery, and sold in only ten states? A quality product was certainly one reason for Coors's success. The company's technological innovations, including the development of both the first cold-filtered beer and the first aluminum can in 1959, also placed it in the vanguard of the beer industry. Another reason was a unique marketing ploy that Coors perfected during the 1960s. When Coors entered a new market, it would lead with draft beer only. The company would sell kegs to taverns and bars at a price under that of its lowest competition. Then Coors would encourage the barkeepers to sell the beer at a premium price. Once Coors's premium image was established, the company would then introduce the beer in retail stores. Since Coors spent so little on advertising, the company was able to offer a better profit margin to its wholesalers. These profit incentives to both wholesalers and retailers worked well. Through the 1970s Coors was the leading beer in nine of the 11 western states in which it was sold. In California, the second largest beer market in the country (New York was first), Coors at one time held an astonishing 43 percent of the market.

1970s Through Mid-1980s: Cult Status, Controversies, and Declining Fortunes

Marketing, innovation, and product quality, however, could not account for what was later considered one of the strangest phenomena in U.S. business history. Beginning in the late 1960s and culminating in the mid-1970s Coors developed, without any effort by the company, an unusual reputation as a "cult" beer. Limited availability created intense demand on the East Coast. Westerners, keen to flaunt their perceived superiority to Easterners, got caught up in a "we have what you want" syndrome and unwittingly became the company's unpaid advertisers. As a result, Coors virtually eliminated its competition in nine western states. Those nine states provided Coors with all the market it needed to become the fourth largest brewery in the nation.

But all was not well with the company and its enigmatic founding family. The 1960 kidnapping and murder of Adolph III had intensified the clan's already strong tendency toward secrecy. Their cautious, elusive nature produced circumspect hiring practices, including polygraphs and sworn statements of loyalty. Outsiders saw these practices as both unfair and as a means of enforcing racial discrimination: the limited numbers of African Americans and Hispanics employed by the company seemed to support this view. Lawsuits were filed alleging discrimination and, more important, a coalition of minority and labor groups organized a boycott, which intensified the negative publicity surrounding the company. The boycott and lawsuits provoked more public scrutiny of the Coors dynasty. A series of articles appeared in the Washington Post in May 1975 documenting Joe Coors's ultraconservative political philosophy. Not only did these revelations exacerbate the boycott, they also influenced the average consumer and generally undermined Coors's market position.

At first, the Coors family's response was retrenchment and litigation. But when sales dropped 10 percent in California in 1975 (at the time that state accounted for 49 percent of total sales), the family changed its tactics. They settled the lawsuits, agreed to a minority hiring plan, and launched advertising campaigns aimed at showing the company's "good side." Television advertisements showed that minorities were happily employed in the brewery. Bill Coors took the initiative on environmental issues and proclaimed that the company was well ahead of the industry and the government in keeping the environment clean. The replacement of pull-tabs with "pop-down" tabs and the first aluminum recycling program were cited as proof of Coors's commitment.

After a decrease in sales through the late 1970s, the company appeared to revive in 1980. Sales volume dropped by one million barrels between 1976 and 1978, bottoming out at 12.5 million barrels before rebounding in 1980 to 13.7 million. Bill and Joe Coors, the third generation of the family to take charge, concluded that their sales problem emanated from their image problem and that they had successfully solved both.

Two separate situations, one in 1975 and the other in 1976, should have signaled that the company's problems went beyond that of image. In 1975 the Coors family was forced for the first time to offer shares to the public to raise $50 million to pay inheritance tax for a family member. The original offering was successful, raising more than $130 million. The stock sold was of a nonvoting class, so the family did not relinquish any control over the company. Analysts suggested, however, that the reluctance with which the company undertook the offering disclosed a disdain for modern methods of capitalization. The second situation involved a Federal Trade Commission ruling, later upheld by the U.S. Supreme Court, striking down Coors's strong-arm distribution tactics. Coors refused to sell its product to distributors that the company regarded as unable to handle the beer properly. Once again, many industry analysts remarked that the company exhibited a disdain for mass marketing techniques.

Indeed, Coors remained committed to its founder's decidedly outdated idea that "a good beer sells itself." In 1975 William Coors claimed, "We don't need marketing. We know we make the best beer in the world." Throughout its entire history, Coors had spent far less than its competitors on advertising. In the 1970s, Coors's ad budget amounted to about $.65 per barrel, compared with the $3.50 per barrel promoting the leading beers. Anheuser-Busch and Miller spent billions on promotion in a market that they continually expanded with new products. Coors, on the other hand, only reluctantly joined the light beer movement, introducing Coors Light in 1978, and grudgingly increased its meager marketing outlay. As a result, Coors's 1982 sales volume declined to less than 12 million barrels for the first time in ten years, and the company relinquished its third-place ranking to Stroh Brewing Company. This decline came in spite of the expansion of Coors's distribution area across the Mississippi for the first time in 1981, when the company began selling its beer in Louisiana, Mississippi, and Tennessee.

Although Coors's sales increased from $1.1 billion in 1983 to $1.8 billion in 1989, profits declined from $89 million to $13 million, and the company's return on sales dropped from 8 percent to less than 1 percent. Some observers blamed the brewery's entrenched family management, which they characterized as reactionary. But larger industrywide trends also contributed to the low earnings. The beer market's customer base began to stagnate in the mid-1980s, forcing brewers to use margin-lowering tactics to build volume and share. These included brand segmentation, increased advertising, international expansion, and heavy discounting.

Late 1980s into the 21st Century: Changing Times Under Peter Coors

Under the direction of Peter Coors, the brewery eagerly sought to catch up with its larger rivals. In 1987 Peter Coors, a great-grandson of the founder, was named vice-chairman, president, and CEO of Coors Brewing Company, a new beer-focused subsidiary of Adolph Coors Company (Bill Coors remained chairman of the parent company). The new leader was a driving force behind Coors's groundswell of change and continued on that course in the late 1980s into the early 1990s. Under his direction, the brewery completely reversed its advertising course: by the early 1990s, Coors began to spend more, in terms of advertising per barrel of beer sold, than its bigger rivals. Coors Light became the company's best-selling beer, the third-ranking light beer in the United States, and the number one light beer in Canada. The company embraced the concept of brand segmentation and discounting, introducing the "economy" or "popularly priced" Keystone and Keystone Light in 1989. Ostensibly offering "bottled-beer taste in a can," these beers boosted sales volume, raising overall Coors sales to 10 percent of the beer market and winning back the number three spot. But at the same time, such new products took market share away from other Coors brands, including the family's original label, which lost one-third of its sales volume from the mid-1980s to the mid-1990s.

While Keystone appealed to the budget-minded beer drinker, other new beverages targeted the higher-margin "specialty" and "boutique" markets. The domestic company craftily entered the fast-growing import market with the introduction of "George Killian's Irish Red," a defunct Irish brand licensed by Coors and produced in the United States. Even without the support of television advertising, the faux import was able to compete with the Boston Beer Company, Inc.'s domestically microbrewed Samuel Adams brand for leadership of the specialty beer segment.

In 1992 Coors launched Zima, one of the beer industry's most creative new beverages. The clear, foam-free malted brew created a whole new beverage category. The drink's novelty won it instant popularity that fizzled even before Coors could introduce its first derivative, Zima Gold, in 1995. Analysts noted the telling fact that neither Anheuser-Busch nor Miller, both savvy marketers, followed Coors's lead into the clearmalt category. Zima Gold was pulled from the market after six weeks of disappointing sales.

Peter Coors was not afraid to buck decades of family tradition, chalking up several firsts that had previously been renounced. With Coors running up against its lone brewery's 20-million-barrel annual capacity, Peter floated the company's first long-term debt offering in 1990. Later in 1990, he tried to negotiate a $425 million acquisition of Stroh Brewing, but ended up buying its three-million-barrel-capacity Memphis, Tennessee, brewery for about $50 million. If, as Peter Coors hinted to a reporter in a March 1991 Forbes article, the company wanted to mount a challenge to second-ranking Miller Brewing, it would still need to double its U.S. brewing capacity. Meanwhile, in 1991, the company's distribution area covered all 50 states for the first time.

In 1992 Coors spun off the company's nonbeer assets, including the high-tech ceramics division, as well as the aluminum and packaging businesses, as ACX Technologies, Inc. Coors shareholders received one share of ACX for every three shares of the brewing company. The divestment was considered successful: ACX's sales increased from $544 million in 1991 to $732 million in 1994, and profits multiplied from $1.3 million to $20 million over the same period.

In 1993 Peter Coors broke with 121 years of history by hiring the first nonfamily member for the presidency of the brewing business. His choice, W. Leo Kiely, reflected Coors's new emphasis on marketing. Kiely had been a top marketing executive with Frito-Lay Company, a division of PepsiCo, Inc. The new president was given a straightforward, but arduous mandate: increase Coors's return on investment from less than 5 percent to 10 percent by 1997. A significant cost-cutting move came in the form of a 1993 workforce reduction of 700, which was accompanied by a $70 million charge that led to the company's first full-year loss in ten years.

With the Zima brand faltering, Coors looked for growth from overseas markets and from a new specialty brewing venture. In 1994 the company purchased the El Aquila brewery in Zaragoza, Spain, to manufacture Coors Gold for the Spanish market and Coors Extra Gold and Coors Light for several markets in Europe. That same year Jinro-Coors brewery in Cheong-Won, South Korea, one-third owned by Coors, began operation. Coors's partner in the venture, Jinro Limited, ran into financial difficulties later in the decade, leading to the sale of the brewery to another company and ending Coors's involvement. In 1995 Coors entered the microbrewery market with the opening of the SandLot Brewery located at Coors Field in Denver, the home of Major League Baseball's Colorado Rockies. Specialty beers under the Blue Moon label began to be crafted at this 4,000-barrel-capacity facility. In 1997 the company entered into a partnership with Foster's Brewing Group Limited of Australia and the Molson Companies Limited of Canada for the distribution of Coors brands in Canada. The following year Molson gained Foster's stake, giving Molson a 49.9 percent stake and Coors a 50.1 percent stake.

From 1988 to 1997 Coors increased its share of the U.S. market from 8.8 percent to 10.7 percent. Production increased over the same period from 16.5 million barrels to 20.4 million. Coors remained a distant third to Anheuser-Busch and Miller, but it had made strides in improving profitability, in part from an overhaul of what had been a convoluted U.S. distribution system. In 1997 the company reported net income of $82.3 million on sales of $1.82 billion, which translated into a net profit margin of 4.5 percent, a significant increase over the previous year's figure of 2.5 percent.

By 1999 sales had surpassed the $2 billion mark for the first time, and net income reached $92.3 million. Return on average shareholders' equity reached 11.4 percent, a vast improvement over the low single-digit figures of the early 1990s. That year Coors sold 23 million barrels of malt beverages. Surprisingly, a comeback by Zima was a driving force behind the improving results. Zima was repositioning as a refreshing alcoholic beverage, and as an alternative to beer, and its taste was altered to make it less sweet and more tangy. Consequently, sales began rising in 1998 and 1999, although they failed to reattain the peak level of 1994. In 1999 Zima Citrus was introduced, offering a blend of natural citrus flavors. Among other late 1990s new product introductions was Coors Non-Alcoholic, a premium brew with less than 0.5 percent alcohol by volume. In May 2000, on the heels of the record 1999 performance, Peter Coors was named chairman of Coors Brewing Company and president and CEO of Adolph Coors Company, with Bill Coors remaining chairman of the parent company. Kiely was promoted to president and CEO of Coors Brewing.

In the early 2000s Peter Coors and Kiely sought new ways for Coors to compete in a rapidly consolidating global beer industry increasingly dominated by huge multinational players. One of the few growth areas in the U.S. market was import beers, and Coors filled that gap in its lineup by entering into a new partnership with Molson in early 2001. Coors paid Molson $65 million for a 49.9 percent stake in the new venture, through which it began importing, promoting, and selling three key Molson brands--Molson Canadian, Molson Golden, and Molson Ice--in the United States.

Coors also had little presence on the international scene; only 2 percent of revenues were derived outside the United States. This changed dramatically in February 2002 when the company shelled out $1.7 billion for the U.K. beer maker Carling Brewers, thereby gaining one of Britain's leading beer brands, Carling, as well as the number two position in the U.K. market, Europe's second largest beer market, with an 18 percent share. In addition to Carling, several other British brands were part of the deal, including Worthington's, Caffrey's, and Grolsch, the latter via a joint venture with Grolsch N.V. Under Coors, Carling was transformed into a U.K. subsidiary called Coors Brewers Limited, which by 2004 achieved net sales of $1.82 billion, or 42 percent of overall Adolph Coors Co. sales. This total was aided by the successful introduction of Coors Fine Light Beer into the U.K. market in 2003.

The Carling deal, however, failed to reverse one of Coors's main weaknesses: its overreliance on Coors Light, which accounted for 75 percent of U.S. sales and 40 percent of global profits. The brand was in fact losing market share at a time when sales of premium light beers in the United States were rising by 4 to 5 percent per year, and in 2004 it fell from third to fourth place in the U.S. market, surpassed by a resurgent Miller Lite. In addition to gaining additional scale to better compete against the ever growing global beer giants, another key rationale behind a merger with Molson was that the union would significantly reduce the importance of this one brand to total profits.

Creation of Molson Coors in 2005

In late July 2004, then, two midsized players in the worldwide beer sector, both still controlled by their respective founding families and already cooperating through joint ventures in Canada and the United States, announced plans for a merger. The deal, however, soon ran into trouble from disgruntled Molson shareholders, who felt the terms undervalued Molson's more profitable brewery operations. By January 2005 the Molson shareholders had been placated by the inclusion of a special cash dividend totaling $532 million, and the transaction finally closed in early February. Although billed as a "merger of equals," the $3.5 billion deal centered on Coors buying Molson and then renaming itself Molson Coors Brewing Company. Molson Coors was thus a U.S. company, but it maintained dual headquarters in Golden, Colorado, and Montreal, and its stock was listed on both the New York and Toronto Stock Exchanges. The founding families continued to control the company, albeit in joint fashion, with each holding one-third of the voting rights. Kiely remained in charge of day-to-day operations as president and CEO, while Eric Molson was named chairman and Peter Coors was now simply a director. O'Neill initially served as vice-chairman in charge of synergies and integration, but he left the company just a few months later after apparently clashing with Kiely.

Molson Coors began its existence as the fifth largest brewing company in the world, with combined revenues of about $6 billion and annual output of 51 million barrels of beer a year. It ranked number one in the Canadian beer market, number two in the United Kingdom, and number three in the United States. The company aimed to achieve $175 million in annual savings within three years through various synergies, including streamlining its brewery networks, making procurement more efficient, and consolidating administrative functions. Almost immediately after the merger was consummated, Molson Coors announced the first step in its cost-cutting plan, the closure of its brewery in Memphis, Tennessee, scheduled for early 2007. In addition, the company soon put its troubled Brazilian unit up for sale. In January 2006 the company announced it had sold a 68 percent stake in Kaiser to FEMSA Cerveza S.A. de C.V. for just $68 million. Molson Coors retained a 15 percent stake in Kaiser and one seat on its board. In Canada, meanwhile, Molson Coors sought to cash in on the growing popularity of microbrews by acquiring Creemore Springs Brewing Co., an Ontario-based microbrewery turning out what connoisseurs considered one of Canada's best beers. This deal closed in 2005, the same year that Molson Coors ventured into Russia for the first time, introducing Coors Fine Light Beer into that market.

Principal Subsidiaries

Coors Brewing Company; Coors Brewers Limited (U.K.); Molson Inc. (Canada).

Principal Competitors

Anheuser-Busch Companies, Inc.; SABMiller plc; Pabst Brewing Company; Heineken N.V.; InBev NV/SA.

Chronology

• Key Dates
• 1786 John Molson founds a brewery in Montreal.
• 1816 Molson signs partnership agreement with his three sons, ensuring continued family control.
• 1844 Company begins operating as Thos. & Wm. Molson & Company.
• 1861 Under new partnership arrangement, company becomes John H.R. Molson & Bros.
• 1873 Adolph Herman Joseph Coors forms a partnership with Jacob Schueler to convert a tannery in Golden, Colorado, into a brewery.
• 1880 Coors buys out Schueler.
• 1911 Molson is reorganized as a private, limited joint-share company and renamed Molson's Brewery Ltd.
• 1913 Coors's firm is incorporated as Adolph Coors Brewing and Manufacturing Company.
• 1920 During Prohibition era, Coors changes its name to Adolph Coors Company.
• 1945 Molson's Brewery Limited becomes a public joint-stock company.
• 1959 The flagship Molson Canadian beer makes its debut; Coors develops the first aluminum can.
• 1968 In a reflection of a diversification, Molson changes its name to Molson Industries Limited.
• 1972 Molson acquires Beaver Lumber.
• 1973 Molson changes its name again, to The Molson Companies Limited.
• 1975 Coors goes public, offering only nonvoting shares.
• 1978 Coors Light is introduced; Molson acquires Diversey Corporation and the Montreal Canadiens hockey team.
• 1981 Coors's distribution area expands across the Mississippi for the first time.
• 1989 Molson merges its brewery operations with those of Carling O'Keefe, with the resulting company 50-50 owned by Molson Companies and Foster's Brewing Group; Coors's Keystone and Keystone Light brands make their debut.
• 1991 Coors beer is now available in all 50 states.
• 1992 Coors introduces Zima, a clear, foam-free malted brew.
• 1993 For the first time, a nonfamily member, W. Leo Kiely, is selected as president of the Coors brewing business.
• 1996 Molson sells Diversey.
• 1997 Coors forms partnership with Molson and Foster's to manage distribution of its brands in Canada.
• 1998 Molson regains full control of its brewery operations, and also takes over Foster's stake in the partnership formed with Coors the previous year.
• 1999 The Molson Companies divests Beaver Lumber and renames itself Molson Inc.
• 2001 Molson and Coors enter into partnership whereby Coors begins importing, promoting, and selling Molson brands in the United States; Molson sells the Montreal Canadiens.
• 2002 Coors acquires U.K. beer maker Carling; Molson acquires Cervejaria Kaiser of Brazil.
• 2005 Coors and Molson merge, creating Molson Coors Brewing Company.
• 2006 Company divests Kaiser.