USA: Moosehead Breweries Ltd., Canada's fourth-largest beer maker, has launched a marketing and pricing offensive

Moosehead Breweries Ltd., Canada's fourth-largest beer maker, has launched a marketing and pricing offensive to drive growth in the United States, where its cult status among discerning drinkers has been diluted by an influx of competitors.

Moosehead's U.S. sales grew last year for the first time in several years, as the Saint John-based brewer changed importers and launched a new marketing campaign, chief executive officer Derek Oland said.

Moosehead has also cut everyday prices on its premium lager beer, to close the gap with the plethora of sale prices on offer in U.S. retail markets, said Mr. Oland, who is also Moosehead chairman. "Our growth was slowed and we changed importers, but we are growing again and very happy," said Mr. Oland, whose company blazed a path in the U.S. import market 20 years ago.

It still does close to 40 %of its business in the United States.

The U.S. moves are among Moosehead's responses to a challenging global market where the privately owned brewer must adapt to U.S.-import competitors from Mexico, Europe and Canada, price wars and corporate consolidation.

Mr. Oland, whose family has been brewing beer in the Maritimes for 140 years, must now contend with Molson Coors Brewing Co., the product of a blockbuster merger of another Canadian icon, Molson Inc., with a U.S. giant.

Smarting from some disappointing financial results, the merged company will want to restore its bellwether national brands, such as Molson Canadian, to former glory.

"Their challenge will be leadership and making realistic decisions," Mr. Oland said. "Sometimes, big companies don't make smart decisions."

Moosehead president Bruce McCubbin added that "when you're dealing with a company that is 10 times your size and they become 100 times your size, it doesn't make much difference really."

Still, Molson Coors is posing an immediate challenge with a new Maritimes regional brewery scheduled to open in 2007 in Moncton. The new brewery will make life more difficult for Moosehead in its home market, analyst William Chisholm of Dundee Securities said.

The $35-million brewery is backed by $6-million in provincial forgivable loans and grants -- a bitter pill for Mr. Oland, who complains that New Brunswick tax dollars are being used to support an out-of-province rival. It will also mean the loss of Moosehead's contract to produce Molson Canadian in the Maritimes.

Mr. Oland's protest has yielded some results. The province has agreed to provide equivalent incentives for Moosehead's capital expenditures, he said. "It's quite an investment for this province to support Molson this way, and we just want our share," he said.

Moosehead occupies a unique position in the Canadian brewing industry. International sales, largely in the United States, take 40 per cent of annual volume of about 1.25 million hectolitres. The Maritimes make up 36 per cent, while the rest of Canada accounts for only 24 per cent.

While Labatt Brewing Co. Ltd. and Molson Coors tussle for market leadership in Canada, privately held Moosehead vies with Sleeman Breweries Ltd. for the No. 3 spot. Sleeman last year brewed 1,375,000 hectolitres, just ahead of Moosehead's volumes.

Mr. Oland, who is 65, said Moosehead has annual brand revenues of $120-million to $125-million. It also has a strong contract business, reported as a "contribution" on its income statement. The combination of the two numbers, he said, is equivalent to sales of $200-million.

Moosehead has a contract with Diageo PLC to brew Harp lager and Guinness stout for the U.S. market. It makes and markets several Carlsberg beers in Canada, in addition to the now-vulnerable Molson Canadian contract for the Maritimes.

Mr. Chisholm noted that Moosehead has been relatively quiet in Ontario, reflecting its status as a premium beer in a market where all the noise is about price. However, Moosehead has introduced a new less expensive beer, called James Ready, listed at just under $30 a case -- still several dollars above the discount category.

Moosehead believes the price wars are not sustainable.

"We have to ride out the storm when the big boys start playing ball down there in the dirt," Mr. McCubbin said.

In Quebec, Derek Oland's son Andrew is president of Moosehead's regional operations. Andrew, 38, is one of two sixth-generation Olands in the business -- brother Patrick, 36, is on leave to train to be a chartered accountant. Andrew will work closely with La Brasserie McAuslan Brewing Inc. of Montreal, of which Moosehead owns 46.4 per cent.

The purchase of the McAuslan stake in 2002 allowed Moosehead to produce beer in Quebec, thus avoiding a tariff of $8.56 a case on imports from New Brunswick.

New Brunswick is urging Quebec to drop the tariff, which would further ease Moosehead's pain from the incentives accorded Molson Coors.

Moosehead vies with Sleeman Breweries Ltd. for the No. 3 spot in Canada. Newly merged Molson Coors is challenging Moosehead on its own turf with the construction of a regional brewery in Moncton, scheduled to open in 2007.

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