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The Small Matter of 17 Peanuts

Business Day (Johannesburg)

October 29, 2003

Tim Cohen, Chief Reporter, Johannesburg

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Now beer is being caught up in the worldwide weight obsession

ASK SABMiller CE Graham Mackay whether the company plans to launch a new brand to take advantage of the new American fetish with low-carbohydrate beers and he does not say yes.

But then he doesn't say no either.

The choice is a tricky one for SABMiller, which is just beginning a long slog to turn around its huge US acquisition's fortunes.

It is also symbolic, since Miller really made its mark in the US when it launched its Miller Lite brand, opening up a new market segment and cementing its position as the secondlargest brewer in the world's largest beer market.

The question now before the company is whether the "low-carb" beverage is a new market segment, or whether it is simply a sub-section of "lite" beers in general.

The problem too is that arch-rival Anheuser-Busch launched Michelob Ultra last October as the lowest carbohydrate major brand in the US. It has proved to be one of the company's most successful launches.

According to an industry journal, The Tap, the company plans to sell 2million barrels of Michelob Ultra over the next year.

This is not insignificant for a company that ships 27,5-million barrels a quarter. It was also one of the reasons the company was able to grow revenue per barrel by 3,5% from the third quarter last year.

SABMiller should be so lucky.

Since SAB formally acquired Miller in July last year, the company's volumes have been falling, and the company has warned that profits will "trend lower" for some time.

So a successful launch of a new brand would be just the ticket, and to focus on "low carb" must be a tempting prospect because of the huge carbohydrate fad that is currently taking grip in the US.

International food group Unilever has put out a profit warning because of the effect of diets that focus on lowcarbohydrate intake. The Tap notes that "the low-carbohydrate lifestyle has gone mainstream".

"Food industry observers have estimated that 25-million to 30-million people are now on some form of a carbohydrate-controlled diet," the journal has reported.

"Food giant HJ Heinz just announced that it is expanding its Smart Ones frozen meals to include a number of low-carb entrées."

SABMiller is also very focused on the issue.

Obesity is now the No1 health issue in the US, says Mackay.

SABMiller has been fighting Michelob Ultra by emphasising the lowcarb nature of Miller Lite compared not to the new entrant, but against the Bud Light. Advertising proclaims that Miller Lite has half the carbohydrates of Bud Light.

Miller Lite has 3,2g of carbohydrates per 100ml compared to the 6,6g found in Bud Light, and the 2,9g of Michelob Ultra.

The extraordinary aspect of the whole debate is the tiny quantities involved. The difference in carbohydrate level between Miller Lite and Michelob Ultra is the equivalent of just one-and-a-half peanuts. That makes the difference between Miller Lite and Bud Light about 17 peanuts.

However, the huge focus on the issue in the US has provided SAB Miller with a poser.

Mackay notes, with apparent approval, that outside research indicates that the company's strategy of focusing on the "low-carb" nature of its products is the least-risk approach. Launching a new beer is of course an expensive issue, and to do so in the middle of turning around what Mackay calls a "supertanker" makes things even more tricky.

Low-carbohydrate diets have after all been around before, and they have proved successful. But occasionally there were also harmful side-effects.

It is not impossible that this fad will fade as the side-effects become more obvious.