NOVEMBER 1983 - VOLUME 4 - NUMBER 11
Merchants of Firewater
Flooding the World With Boozeby John Cabanahg and Frederick Clairmonte
The following article includes the first excerpts from a World Health Organization study of the global alcohol industry to appear in print. Commissioned more than two years ago, the report's publication in book form was suddenly cancelled last spring in a highly political-and controversial-decision. Since then, WHO has refused to disseminate the study and has not yet granted the authors permission to publish the complete report outside the agency.
The manuscript was made available to Multinational Monitor in September and is excerpted here in the interests of public health and increasing our reader's understanding of the links between alcohol consumption and the practices of multinational corporations.
The complete report, titled "Alcohol Beverages: Dimensions of Corporate Power," takes a detailed and critical look at the worldwide alcohol industry, examining the corporate structure of the beer, wine, and liquor sectors and their marketing and advertising strategies throughout the world.
While the full range of issues and evidence covered in the 223-page report could not be included here, the excerpts give an idea of the scope and thrust of the work-and why it offended certain interests.
Public health is inseparable from the political, economic, and social framework in which people live, work, and die. The central focus of this work is public health as it is influenced by a specific range of addictive commodities-alcoholic beverages -whose output, marketing, and distribution is increasingly dominated by largescale transnational corporations. Problems generated by alcohol consumption cannot be grasped without farreaching analyses of this roughly $170 billion global alcohol market.
At the onset of the 20th century, alcoholic beverage output, as with many other industries, was largely under the control of small firms whose distributional reach was local, and in limited cases, regional. Over the following decades, this industrial structure was to undergo a dramatic metamorphosis through accelerated capital accumulation within alcoholic beverage firms, characterized by waves of mergers and acquisitions. This paved the way for large corporate units which vastly extended their output and distribution networks nationally. This concentration was most conspicuous in beer and distilled spirits sectors, where already by the mid-sixties a handful of giant corporations had achieved market dominance in most countries. Most wine sectors lagged behind. In many countries, concentration led to a prodigious increase in the availability and diversity of commercial alcoholic beverage,. that penetrated even the remotest rural areas.
What were the constellation of forces that propelled alcoholic beverages beyond national frontiers`' Under the impetus of the post-World War II economic boom and the concomitant upsurge in incomes, consumption of alcoholic beverages in many developed countries grew rapidly over the 1950s and 1960s. With the economic slowdown of the 1970s, however, there were signs of decelerating consumption in mans of these markets, compelling the larger corporate producers to seek markets elsewhere. This economic movement coincided with rapid technological strides in transportation and telecommunications, which facilitated the globalization of marketing and managerial decision making.
Parallel developments also contributed to pull alcohol towards countries where consumption was traditionally low. Paramount among these factors in postindependence developing countries was the unprecedented migration from rural areas to urban aggregations. This was accompanied in many developing countries by a vast increase in the number of elites with high purchasing power and Westernized consumption patterns. Related to these changes in several newly independent countries was the implementation of industrialization policies that spurred the setting up of domestic breweries.
This global configuration of factors' catalyzed big firms in the beer and distilled spirits sectors to extend their operations overseas into both developed and developing countries. Among the pioneers in the transnationalization of the beer sector were the quasi-monopolies Heineken (Netherlands), United Breweries (Denmark), and Guinness (United Kingdom/Ireland), each controlling over threefifths of their national markets by the 1960s. Overseas penetration by distilled spirit firms was spearheaded by the highly oligopolistic whiskey sectors in the United Kingdom and North America, and the giant cognac houses of France. More recently, the increasingly concentrated champagne sector in France and wine sectors in a few other countries have also extended operations considerably on global markets.
Historically, an initial phase in conglomeration is often marked by corporate overspill into more than one alcoholic beverage sector, most notably distilled spirits companies entering the wine sector.
A second and no less important phase is an expansionary drive beyond the borders of alcohol into other products. Of the 27 alcoholic beverage producing corporations which recorded total sales of over $1 billion (1980), almost all had extensive output and marketing operations outside the realm of alcohol. Noteworthy is that these comprise such massive producers of alcoholic beverages as R.J. Reynolds (through its subsidiary Heublein), CocaCola (through its subsidiary Wine Spectrum), and Lonrho (through its subsidiary John Holt), whose alcohol sales nonetheless represent but a minor share of their total operations.
Conglomerate extensions, often substantially underpinned by large transnational banks, bear directly on consumption and health via two mechanisms. In the first place, they create the conditions whereby a firm can shift gains from profitable segments of its operations to subsidize losses in others. A pioneer in the adaptation of this technique for alcohol expansion was Philip Morris, which bought a minor regional U.S. brewer (Miller) in 1969, and propelled it into the world's second biggest brewer by 1980. Funneling profits from another addictive product line - tobacco - it underpriced competitors in. new markets and thus stimulated the overall level of beer consumption.
Secondly, conglomerate acquisitions of alcoholic beverage corporations, in many cases are by corporations with extensive international networks for other consumer products. Alcohol therefore becomes merely one more commodity adapted to a shared distribution network, thereby effectively reaching more consumers. Conglomeration is conspicuous in the extensive link-ups between four of the seven transnational tobacco conglomerates that dominate world cigarette markets and alcohol corporations in recent years: Philip Morris and Miller; R.J. Reynolds and Heublein; the Imperial Group and Courage; and the Rembrandt/Rothmans Group and its extensive wine interests.
At the core of alcohol marketing lies $2 billion in global advertising (1981) - a figure which is underestimated as it excludes a plethora -of other promotional devices. Large transnational advertising complexes are by no means restricted to industrial countries but are deployed by global firms in the Third World where rural consumers and new urban migrants are far more vulnerable to their allurements. Such a massive advertising barrage becomes the launching pad for new alcohol categories and brands, thereby generating new tastes, opening up new markets, and assisting alcohol transnationals to compete much more effectively for the consumers' disposable income. Taking advantage of consumer heterogeneity according to sex, age, ethnicity, income, and geographically groups, transnationals expand and annex markets by differentiating their alcohol brands to appeal to these various groups. Two demographic segments have proven particularly vulnerable to these techniques have been women and youth.
The increasing importance of transnational-produced commercial beverages as opposed to traditional ones is evident in industrial countries. Japanese data indicates that over the past decade output of sake, the major traditional beverage, has stagnated while beer and whiskey have surged ahead. Between 1971 and 1981, sake's share of domestic alcoholic beverage output fell from 31 to 22 percent, while that of beer rose from 60 to 67, and that of whiskey from 3 to 5. These shifting patterns indicate a trend seen also in several developing countries: continued consumption of traditional beverages in the countryside coupled with a marked growth of transnationalproduced beverages in urban areas.
Consumption patterns, when translated into their drain on disposable income, indicate the magnitude of expenditures incurred in alcohol use abuse. According to the U.S. Department of Agriculture, inhabitants of certain countries spend up to 13 percent of disposable income on alcohol, with Ireland (12.6 percent), Hungary (11.6), and Poland (11.5) at the top of the list. In the United Kingdom, there is a marked variation in alcohol expenditure between lower and higher income groups: in a breakdown of 16 income groups, the poorest four spent under 3.2 percent of their income on alcohol, while the richest three all spent 5.4 percent. Lower and middle income groups are also recorded as spending around twice as much on beer as wine and spirits, whereas wealthier groups spent only a little more on beer.
Expressed in money terms, alcohol consumption levels can attain staggering dimensions. By 1979, the average Japanese spent the equivalent of $222 yearly on alcoholic beverages, slightly trailing the $249 of his United States counterpart.
By 1980, there were 27 global corporations that produced alcoholic beverages with sales exceeding $1 billion, all based in eight industrial countries. All are conglomerates, almost all produce at least two beverage categories, and most derive an important segment of their revenues abroad. For example, the number two U.S. brewer is linked to the number one South African wine producer, which is hooked up to the number three Canadian brewer. Significant in the constellation of corporate power is that four of the big 27 rank among the world's top 20 food companies, and five are part of larger tobaccobased conglomerates.
In 1969, one of the world's leading tobacco corporations, Philip Morris, acquired a 53 percent stake in the number seven brewer Miller; a purchase consolidated a year later by the appropriation of the remaining stocks. Philip Morris's corporate profile was, in all respects, different from previous entrants to the alcohol industry: already in 1970 its total sales scaled $1 billion; it was a leader in tobacco, trailing only R.J. Reynolds; and it produced over 100 cigarette brands in over 100 countries through a highly honed national and international distribution network.
Philip Morris's marketing prowess owed much to its skillful transferral of techniques that catapulted it from number six to number two in the U.S. tobacco industry, pithily summarized by Business Week in the mid-seventies: "The approach calls for dividing up the U.S. beer market into demand segments, producing new products and packages specifically for those segments, and then spending with abandon to promote them."
Such spending "with abandon" led to Philip Morris's beer advertising outlays leaping by 387 percent (1971-1978) compared to 236, 160, and 175 percent for its three major competitors. While the Miller subsidiary's advertising budget soared from $1 million to $75 million between 1972 and 1979, its market share shot up from 4 to over 22 percent.
Already by the mid-seventies, the payoff had commenced when, in 1976, Miller's net income wiped out all of the company's earlier losses on beer. This triumph led the chairman of Philip Morris' beer subsidiary to declare: "Although we can be proud, we are not content. We did not come into the beer business to become number four. We have one simple objective - to be number one. That's what we are after, and that's what we'll do..."
Global alcoholic beverage advertising hit almost $2 billion in 1981, an estimated 1.6 percent of global advertising. An estimated half of this two billion sum was spent in the United States, which placed the brunt of the alcohol advertising onslaught on the American consumer. A strong U.S. movement towards deregulating government codes and restrictions on corporate practices in the early eighties can be expected to accentuate further the avalanche of consumer advertising.
One of the major factors inhibiting new corporate entrants into the alcohol industry has been the prohibitive cost incurred by the leading transnationals on promoting major brands. Over $2o million was spent on each of the five leading beer brands and the leading wine brand in 1980, and over $10 million each on another twelve alcoholic beverage brands. A major contributory factor in these drives was the incursions of the conglomerates Philip Morris and Coca-Cola into the U.S. beer and wine markets. Even wine market leader Gallo has been surpassed in 1981 by Coca-Cola's $30 million advertising avalanche, which compelled all their major competitors to escalate sharply their advertising outlays. Seven of the top 100 advertisers in the U.S. are major alcoholic beverage producers, with combined measured advertising outlays (excluding their substantial international outlays) outstripping $1.1 billion.
As women swelled the ranks of the labor forces in industrial countries in the J 1960s and 1970s, paralleled by powerful' social movements calling for greater female emancipation and participation, corporate power moved to cash in on this socio-economic upsurge. One specific form this assumed was the corporate targeting of women as a rising consumer group worthy of special attention. This has involved two kinds of corporate strategy applicable to all forms of market segmentation: generating new brands and re-targeting older ones. Seagram's £1.75 million promotional campaign for a new brand in 1980 was explained as follows: "Crocodillo is the first completely new drink to be developed out of consumer research specifically for young women during the last decade."
Retargeting is exemplified by BrownForman's push to reposition their leading whiskey brand, Jack Daniels, towards women. "As the brand has gotten bigger," notes an executive from BrownForman's advertising agency, "we have kept looking for places to find new drinkers. .. Vodka has done all right with women, but women are a big, untapped category for whiskey. We felt there was potential, especially with upscale working women, and particularly with working women who make their own brand decisions." Consequently, Jack Daniels became one of the first distilled spirits brands to run advertisements in leading women's magazines. Seen in a wider context, it is not only the alcohol corporations that are pushing their advertisements on women's magazines, but the magazines themselves, due to escalating costs and their dependence on advertising revenues, which are also blatantly soliciting the alcohol companies.
While women's importance as a consuming segment is unparalleled in size, the youth market assumes paramount importance for yet another reason. Due to legal prescriptions against alcohol sales to adolescents in most industrial countries, alcohol advertising transnationals can hone in on the entry level age group to recruit consumers at a formative age. To make further deep forays into this segment, multinationals often strive to reshape certain existing brands so as to enhance their youth appeal. By recourse to commercials depicting the attractiveness of dangerous and exciting occupations, Philip Morris has moved in on this market.
As with a staggering array of firms producing consumer durables and nondurables, alcohol transnationals often create brands corresponding to the disposable income of specific social classes. This comprises "popular brands priced to attract lower income groups; "premium" brands aimed at higher income groups; and "super-premium" brands directed towards the summit of the income pyramid. Such brand differentiation can be misleading in as much as it often involves little more than affixing different labels on bottles of essentially the same product. As alcohol corporations switch their marketing acumen to developing countries, particularly in distilled spirits, they invariably place less emphasis on popular brands due to low income levels of the vast majority.
Faced with various impediments (e.g. advertising bans), the alcohol transnational, like water confronting a rock, merely flows around it, deploying its prodigious resources by other techniques. Some of the salient interrelated techniques of the alcohol companies' constantly evolving marketing apparatus are depicted below.
Nigeria presents a case study of a country drawn into the alcoholic beverage corporate web through joint ventures and subsidiaries on a scale of unprecedented magnitude in both developing and developed countries. Since Nigeria's 1978 ban on alcoholic beverage imports, several of the world's biggest brewers have set upjoint ventures. There are two major inferences that can be drawn from this relationship between transnational corporations and one of the world's largest developing countries. In almost every case, the transnational's stock ownership is under 50 percent - 25 percent for Guinness, and 15 percent for BSN Gervais Danone. No less disproportionate is the technological component of these ventures, with almost all machinery, equipment, and expertise of transnational corporate origin. Replicated on perhaps a smaller scale in many other developing countries, this relationship is designed to perpetuate a state of dependency.