Ashes to Ashes (80 page)

None of these satellite ventures involved a large enough potential market to make a major difference in the financial fortunes of the parent company, yet they occupied an inordinate amount of top management’s time and energy. In the view of Wallace McDowell, who in two decades with Philip Morris rose to executive vice president for operations, ‘There was reluctance to commit the cash and talents needed to make a go of these small businesses. There was no singleminded effort to do what was necessary, considering how they started behind the leaders in their field.” Chairman Joseph Cullman would suggest in retrospect that “it was hard to pay enough attention” to the diversification program when his cigarette brands were now running so well, but neglect was no excuse for the simple truth, which with time Cullman readily admitted: “We failed.”

With the TV advertising ban imminent and at least a part of the funds that had gone into the broadcast media available for new ventures outside the tobacco business, Philip Morris turned its efforts toward a product with a potential market large enough and a sales apparatus close enough to its basic business to justify finally a serious jump into diversification. Beer, like cigarettes, was an agriculturally based product, manufactured on high-speed equipment, consumed often, inexpensive and largely recession-proof as a low-cost pleasure, and dependent on advertising since there was little intrinsic difference between brands. Equally important, with the U.S. population growing and the demographics of beer drinking favorable, here was a field with a real upside opportunity if Philip Morris put serious money and talent into it.

In the wake of its recent setback in trying to take over British cigarette maker Gallaher, Philip Morris moved more stealthily in trying to buy up control of Canadian Breweries, featuring the Carling label, and bring its quality reputation into the U.S. market. But it was foiled by Rothmans International, which already held a piece of the company, and so Joe Cullman cocked a receptive ear when his. phone rang at home one Sunday afternoon in early 1969 with an invitation from shipping baron Peter Grace to unburden him of his
controlling interest in Miller Brewing, seventh-ranked of the four dozen U.S. beer makers with national distribution. Grace, who held 53 percent of Miller stock—the balance was owned by a foundation devoted to funding Catholic clerical orders—already had an offer of $120 million from PepsiCo, but he did not much like the payout terms and thus invited a last-minute counterbid by Philip Morris. Cullman asked how much time he had to respond. “Tomorrow,” said Grace.

Philip Morris planners had done enough homework to know what Miller was and wasn’t. Though light-years behind industry leaders Anheuser-Busch, Schlitz, and Pabst in profits and marketing prowess, lethargic Miller retained a reputation for selling a quality product, due in part to the slogan for its chief brand, Miller High Life: “The champagne of bottled beers.” But those very words helped to explain what was wrong with the company’s understanding of the suds-quaffing multitudes—beer drinkers thought champagne was something that swells drank out of glass slippers—and why Miller was operating at not much over half of its production capacity. Here was an old-line family enterprise now under a caretaker management and the perfect turnaround candidate for a Philip Morris that had learned from its past mistakes when wandering off the tobacco plantation. It paid Grace $127 million for his control of Miller and an additional $100 million to clear out the minority position of the charitable foundation. Then Cullman reached into his tobacco-executive ranks for a top-flight manager to sweep away the cobwebs from the sleepy Milwaukee brewery.

Told that his new assignment, in a gritty industrial town, was a reward for his high-speed, high-profile, globetrotting work as No. 2 man at PMI, big John Murphy protested at first that he didn’t know a hop from a hoop, but the chance to run his own show was tantalizing. And besides, he recounted, “I was an Olympic-class beer drinker.” He was also smart, versatile, and tested and had a presence that could be physically and verbally overwhelming—just the ticket to shake up the
Brauhaus
.

Among Murphy’s first discoveries was that High Life had a far lower per-customer take-away than the leaders and a higher proportion of female customers, partly because it was the only big brand sold in a clear bottle, not brown or green like its competitors, and thus had a reputation as a lighter brew with a visible effervescence, in keeping with its champagne image. In fact, Murphy soon found, Miller was heavier than most other beers because it used so much barley, was more bitter due to overhopping, and worst of all, “We had a country full of stale beer.” Beer begins to lose its sparkle immediately upon leaving the brewery, and within a dozen days of its manufacture, the oxidation process takes a toll on taste detectable by true beer lovers; a lot of High Life was sitting on store shelves six months or longer.

The moribund management Murphy inherited might have passed for quaint
if it had not been so hopeless. Marketing costs were sky-high, the advertising was awful (one commercial featured a player piano), the president devoted inordinate time to deciding which magazines the office should subscribe to and on which walls paintings should hang, and by 11:45 a.m. the brass in their sport jackets paraded en masse to the Wisconsin Club for lunch, “taking the same seats they’d taken for the past thirty-eight years,” Murphy recounted, “with the same waitress asking, ‘What’ll you boys have today?’”

Soon heads began to roll. While the restaffing went on, Murphy addressed the root problem of fixing the product. He ordered a dating code to be printed on every label with a rigidly enforced “pull date” so that stale High Life would no longer clog retailers’ shelves, and vendors who failed to cooperate were denied their supply of Miller. Next he sat down with Miller’s brewmaster, Clement Meyn, who educated the company president about what hops are—namely, little pine-colored plants that grow on vines thirty to forty feet high and have buds that when boiled in giant brewing vats release a bitter acid that flavors the beer. They had no mysterious connection to the fermentation process but were “purely pepper,” as Murphy put it, and he ordered the strong flavorant reduced, along with the barley content, to be replaced by corn in order to lighten Miller’s taste. By 1972, “we had the brand turned,” Murphy recalled, and now the trick was how to sell it.

One of Murphy’s first packaging innovations stemmed from the discovery that not every buyer wanted to guzzle twelve ounces of beer—the standard fill—every time he uncapped a bottle. Instead of putting out High Life in six-packs of twelve ounces each, why not an eight-pack of seven ounces each? Such rank heresy produced a reaction natural to a manufacturing department unused to toeing anyone else’s mark. “We can’t pack ’em for you,” Murphy was told. “Can’t” was not a word in Murphy’s colorful vocabulary; the production people were told to hire however many people were needed to hand-pack the new eight-unit configuration until the automatic equipment could be refitted. A lot of other equipment adjustments and replacements were also ordered, including new canning and glass works, hop-extracting facilities, and the basic breweries, at a cost that soon mounted into the tens of millions. By then Murphy had turned to the New York advertising agency of McCann-Erickson to reposition the lighter, fresher drink. Out went the old, faintly elitist sell of High Life as the proletariat’s champagne; now it was to be a reward for all the regular folks who labored hard and played hard, working up an honest sweat and a powerful thirst. “If you’ve got the time,” chimed the slick new commercials, “we’ve got the beer,” and in place of the old “happy hour,” they coined a new designation for the perfect end-of-the-day, wet-your-whistle interlude: “Miller Time”. It was not notably clever, but there was a certain zippy, joyful earnestness to the pitch, and it worked, like the new seven-ounce botties.
After the first two years of Philip Morris ownership, when Miller sales actually slipped below 4 percent in market share as Murphy regrouped, volume began edging upward. The big boss, whom everyone called by his first name, was all over the place, and his lash, if selectively wielded, stung nevertheless.

To build up a real head of steam, Miller could not remain solely dependent on High Life. It tried Miller Malt, Miller Ale, and budget-priced Milwaukee Extra, but none of them caught on outside the company’s home region. Murphy then turned to exploiting an asset that had come with a small Chicago brewery, Meisterbrau, he had bought—the name “Lite” in trademarked script lettering. A diluted beer, Lite had test-marketed surprisingly well in the blue-collar town of Anderson, Indiana, after its calorie content was cut from a standard 140 per bottle to 96. Such acceptance suggested to Murphy that a lot of “tonnage” drinkers really worried about their beer bellies but would never admit it, so that a less fattening brew might score well if not too big a fuss was made over its healthful attribute; the name alone would tell all. Such a product, in keeping with the trend to “light” cigarettes, less fatty milk, and “decaffeinated” coffee, might also appeal to beer buyers concerned about their weight.

Murphy knew full well, though, what had happened not long before when New York’s Rheingold brewery had tried to market Gablinger’s as a reduced-calorie beer. The thinned brew turned out to be so deficient in taste that the brand went nowhere. But Murphy had learned there were two ways to turn out a lighter product: just plain water it down or keep it in brewing vats longer to burn out more of the fermentable (and weight-adding) sugars. To produce a beer with reduced caloric content but not a readily detectable loss of taste, Murphy opted for the latter, if more costly, method.

In blind taste tests run for two years beginning in 1973, experimental Miller Lite outdid upscale Coors, its chief target. All the attention then shifted to how to make a splash with the new product in a way that got both the pleasure and the health message across. The problem was similar to the one in marketing Marlboro Lights, but the medical community, of course, had not charged beer with lethal effects unless chugged by the keg. McCann-Erickson’s solution was the one that had worked so well for Benson & Hedges 100s when that brand still had television as its prime ad medium—humor. But the best-known precedent for the idea was not encouraging. Madison Avenue had been ecstatic over the hilarious deadpan wit of the campaign begun two decades earlier featuring broadcast zanies Bob Elliott and Ray Goulding as Bert and Harry Piel, the Active brothers who ran the real-life Piels brewery. The public, too, loved the commercials but forgot to buy the beer.

McCann-Erickson’s approach was broader and less cerebral, even gritty
with a locker-room brand of joshing at barside among famous and not-so-famous athletes, ex-athletes, and their buddies, all quintessential beer drinkers. The subject of their zesty horseplay was nothing racier than the merits of new Lite, of which it was said once and only once during the commercial, “One third less calories.” Instead of further hammering about the brand’s healthful or dietary virtues, there was the telegraphic message “Tastes great—less filling,” and the more inspired line, “Everything you want in a beer—and less.” The playful but pointed vignettes caught on at once, and soon Miller was pumping in the ad dollars furiously as Philip Morris had never done with its earlier non-tobacco products; its outlays reached three dollars a barrel, twice the industry’s average.

Suddenly, Murphy had a runaway success on his hands in Miller Lite. The brewery’s profits, which had been just $6 million in 1974, rose to $29 million in 1975, as Miller overtook Coors for the No. 4 spot in the industry with a market share of nearly 9 percent. The next year, Miller passed Pabst, and by 1979, when it had also passed Schlitz to take second place in the beer business, Miller netted $181 million, returning a solid 8 percent on sales and accounting for 15 percent of Philip Morris’s consolidated earnings—or about two-thirds of the entire international tobacco unit’s bottom-line contribution. And by 1981, a decade after the Miller makeover had begun in earnest, its output hit 40 million barrels, an eightfold increase for the period after an investment for purchase and plant of about a billion dollars.

Murphy was of course buoyant over this success story. He had caught the competition napping with Miller Lite, and when Schlitz tried to answer with a light version of its own, it proved a listless entry. Industry behemoth Anheuser-Busch, not unlike Reynolds in the tobacco universe, had grown complacent and for years was unworried by Miller’s gains until labor strife hurt the big St. Louis brewer; by the time it began to react at the end of the 1970s, Miller had grabbed off 60 percent of the reduced-calorie market. Murphy, meanwhile, was having the time of his life and attracting a lot of attention from the press. Unfortunately, he also began to attract the attention of August Busch, the head of Anheuser, who heard the same stories of Murphy’s bravado that reached the Miller boss’s superiors back in New York. Every time Miller gained a point of market share, the reports had it, Murphy would clang a ship’s bell in his office to celebrate, then wipe his shoes on a floor mat beneath his desk that bore Anheuser’s Budweiser logo. When these accounts of unseemly gloating reached “Gussie” Busch, the slumbering giant in St. Louis awoke and began to respond furiously.

VI

AS JOSEPH CULLMAN
entered his sixties and his company enjoyed growing stature as a moneymaker—and he himself ever more renown as a masterful manager—he seemed to undergo a revitalization of his energies. Throughout the 1970s, he was generally acknowledged as his industry’s foremost spokesman. His peers in the corporate world displayed their admiration by inviting him onto their boards of directors (Ford Motor Company, Bankers Trust, and Levi Strauss).
Business Week
put him on its cover in 1974, noting how Philip Morris was running rings around its competition, and
Financial World
named him U.S. executive of the year for 1977.

Within Philip Morris itself, Cullman had taken on a more complex persona. “He was a pistol,” summed up one younger executive in the personnel section at corporate headquarters, where he was greatly admired for his vigor but less so for an ego that had expanded in proportion to his achievements and a temperament tending to fray more often now with the burden accompanying his company’s steadily weightier net worth. The chief executive’s lifestyle was a source of fascination and endless speculation among his underlings, for he continued to play as hard as he worked, excelling at tennis, squash, golf, hunting big game, trout-fishing in Canada, ever on the go as he kept up with the trade and toured the outposts of his growing global empire. And as he aged, he remained very much a ladies’ man. There was regret but no great surprise, therefore, when he announced to his board in 1974, at the age of sixty-two, that he was ending his thirty-nine-year marriage to Susan Lehman Cullman and would shortly we’d a longtime acquaintance, the former Joan Straus Paley. A year after his second marriage, Cullman announced his intention to shed Joan and remarry Susan. But he didn’t; instead, he enjoyed a somewhat unorthodox marriage to the second Mrs. Cullman, more or less living with her in New York but also apart from her in a suite at the Carlyle Hotel, meanwhile squiring other women, prominently including the first Mrs. Cullman, who continued in residence at Joe’s former home in Westchester. He showed up at Philip Morris functions with one wife or the other and no explanations or advance advisory, necessitating the preparation of alternate “Mrs. Cullman” name tags—just in case. Cullman-watchers believed the chairman simply could not decide which wife he wanted, if not both—or neither. He finally divorced Joan in 1979, but remarried her in 1988.