Altria Group: Joint Ventures 2005 Thesis

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Although Altria is a large corporate conglomerate, within its alcoholic subsidiaries it cannot sell at volume like Anheuser-Busch, to maximize value, cut costs, and to keep the beverage's price point low for commercial beer drinkers (the target market). Altria's division SABMiller and Canadian brewer Molson- Coors thus combined their U.S. brewing operations into a joint venture called MillerCoors in 2007. "The joint venture will be 58% owned by SABMiller and 42% owned by Molson-Coors with each having an equal voting interest in an all-out effort to cut costs to better compete against the dominance of Anheuser-Busch (NYSE:BUD) and the solid Budweiser brands" ("Altria: The hidden SABMiller & Molson Coors winner," 2007, 247 Wall Street.).

The aim of this joint venture was a price-based strategy -- cut costs though consolidation of resources and thus become more competitive against Anheuser-Busch. Lowering prices would be more feasible to draw in new cost-conscious commercial beer consumers with consolidation of resources. Changing the product to establish a market niche was not used as the niche was fairly well established for commercial beer, nor was seeking out a new market, as was the case in the diversification strategy deployed by Altria with its agreement with the China National Tobacco Company.

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Thus Altria is willing, depending upon the circumstances, to deploy both diversification and low-cost pricing, depending on the market and the nature of the market segment of the demographic it is targeting. Without such an alliance, Anheuser-Busch possesses both the name brand and volume advantage. Miller and Coors remain both relatively undifferentiated products without clear images other than the fact that Miller proclaims the delights of 'Miller time," and Coors that of the 'Right beer now' but they will benefit from merging their two destinies together by increasing their own production volume, making use of one another's distribution chains, and being able to produce at greater scale with existing resources.

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