Banking & Capital Markets

Coors’s New Brew

Capital spending at the Colorado brewer lacked a key ingredient: financial discipline.
Stephen BarrMarch 1, 1998

In the first two business days of 1998, Timothy V. Wolf, senior vice president and CFO of Coors Brewing Co., gave five presentations to five different groups within his finance organization. He had a lot of good news to report. “We close the books faster, we don’t have nearly as many earnings surprises, we’re sitting on a quarter of a billion dollars in cash, our market cap has increased 70 to 80 percent, we’ve increased our dividend for the first time in 11 years, and we’ve started a stock buyback program,” said Wolf.

But the 44-year-old Wolf was equally enthusiastic about a certain nonfinancial measure. Last fall, he surveyed 40 executives and managers from all corners of the corporation, and what he discovered was rather simple: They like us, they really like us. The survey showed that others appreciated the changes Wolf had instituted in his three years at the company, and recognized the key role finance needed to play if the company was to remain successful. “Our vision of becoming really equal, solid business partners was feeling pretty good,” says Wolf.

That wasn’t always the case. Historically, finance was a bit player at the Golden, Colorado, brewer (1997 sales: $2.1 billion). No one seemed to mind when Coors was on a Rocky Mountain high, roaring out of obscurity in the 1970s and ’80s to become the number three brand in the beer market. The emphasis was on engineering and technology– adding capacity.

That attitude finally began to catch up with Coors. By the early 1990s, the company faced increasing pressure to keep pace with larger rivals Anheuser-Busch Cos. and Miller Brewing Co., in an industry growing at less than 1 percent annually. As a smaller player, Coors struggled to be consistently profitable in light of its higher cost infrastructure (its marketing costs, for example, are double per barrel what its largest competitor’s costs are) and dramatically lower margins.

But perhaps the most troubling financial indicator was what many saw as the frivolous use of capital. “[Capital expenditures were] high, and there was no evidence that they were getting returns on that heavy amount of spending,” recalls Jay Nelson, an analyst at Brown Brothers Harriman & Co. “I always felt a lot of it was gold-plating.”

“The process used to be that engineering led on capital needs,” says John Schallenkamp, a 26-year Coors veteran who currently serves as vice president of engineering and technical services. “The finance people participated in discussions, but having them take an active role was not part of the culture here.”


Enter Tim Wolf. Starting in 1980, Wolf had spent the better part of a decade in the finance organization at PepsiCo, where he was a key player on the team that drove the rapid expansion of the Taco Bell fast-food franchise. His next stops were The Walt Disney Co., where he was the finance point man on the 1992 launch of EuroDisney SCA, and Hyatt Hotels Corp.

In February 1995, Wolf was hired as Coors’s CFO by president Leo Kiely, a Pepsi veteran who was assembling a new senior management team. Shortly after Wolf joined the company, Coors reported a first-quarter loss of 2 cents per share, thanks largely to earnings surprises that reflected the absence of a reliable planning and forecasting process. Even more disconcerting to Wolf, however, were the company’s poor return on invested capital (about 4 percent) and its negative cash flow.

“In a slow-growth industry, using more cash than you create leaves the business exposed, threatens your ability to be investment grade, and threatens your credibility in the market,” he explains. “And it’s especially dangerous in a slow-growth industry where you’re number three, where your break-even is very high, and where you have two tough, well-funded competitors.”

Coors simply needed greater discipline in planning, capital use, and managing for cash flow. But Wolf realized that mixing financial controls in Coors’s cultural brew could easily backfire. “The notion of discipline in the Coors culture had the tone of second-guessing, critical, judgmental, constraining,” he explains. “I wanted the tone to be consistency, reliability, accountability.”


In his first year, Wolf spent a considerable amount of time teaching. He and a colleague, Darwin Niekerk, developed a three-day seminar called BEER (Business Executives Economic Retreat), and they schooled the top 200 executives at Coors. The course work covered basic financial concepts, drove home the importance of conserving cash and achieving higher capital returns, and presented case studies on how other companies competed as number three in their market. “People deep down knew that we needed to do things differently,” says Schallenkamp, “but that education reinforced the need to change.”

Wolf also started a planning department within finance, and gave the top finance person in each of Coors’s six business units dual accountability, reporting to the vice president of planning and the unit’s general manager. The goal was to promote the notion that finance could be more of a business partner and help the organization make better decisions.

At the same time, Wolf put in place more-restrictive capital-spending guidelines and a business-case development process that was far more rigorous than anyone at Coors was used to. “To my mind, what we put in place was basic, just plain vanilla compared to other well-run, world-class companies,” says Wolf. “But in the context of many of our operations people, it was a big change.”

Big change, indeed. Until Wolf came to Coors, Schallenkamp says he never saw a cost report on any capital project, and the company always went “the Cadillac route” when it came to deciding what kind of equipment to invest in. Sometimes these projects went forward even with unattractive ROI prospects; other times they were far down the road before they were scrapped.


In April 1996, Wolf’s new capital disciplines were put to the test, when Coors began to plan construction of a new bottle-wash facility. The facility, which washes and sanitizes returnable bottles for reuse, represented one of the largest capital outlays Coors would make in several years. There was no question of the need to replace the outdated equipment at the Golden brewery, but there was also a new willingness to step back and take a hard look at all the options for replacing this asset. “This was the first project to go through the gauntlet of financial rigor for justifying it,” says Steve Holick, senior packaging technical manager, who was part of the cross-functional team that assembled the business case.

With the input of the planning department Wolf had recently established, the project team looked at six different operating scenarios and ran a sensitivity analysis around each before determining that it made the most sense to construct a new facility in the Shenandoah Valley, in Virginia. It then became necessary to investigate the effect of this move on everything from transportation costs to waste-treatment costs, because fewer bottles would be washed in Golden and more in Shenandoah.

“The process promoted a lot of brainstorming,” says director of business analysis Mike Gannon. “Here was the opportunity to have lots of discussions with a lot of people and figure out how we could maximize our returns.” Eventually, every department that would be affected by the new facility signed agreements stating that the expected cost differences were realistic.

The same kind of dialogue also took place around the design and operational costs of the new facility. “It didn’t always feel like we were speaking the same language, but finance was accepted as a contributor whose job was to make the business case crystal clear,” Gannon says.

In mid-1996, once the viability of the business case was set, the project team made a presentation to Wolf. The CFO started asking questions–and kept doing so for the next six months. Not everyone appreciated his persistence. “I don’t think people in general have enjoyed answering as many questions as Tim asks,” says Glenda Western, plant controller of the new facility. “This was something new to a lot of people, and it took some getting used to.”

For the rest of 1996 and into 1997, Wolf kept pushing engineers and operations people, asking endless questions about the business case and the expected returns. Over the course of the relentless analysis, Coors was able to knock the investment cost down by 25 percent. And the final documents that Wolf took to the board for approval in February 1997 even included further savings that could be obtained as the project moved forward. Final price tag: $15 million.

“I think the extra time was time well spent,” says Wolf. “If you can reduce your capital costs, leverage the benefits, and get them faster, that’s the way you want to run your capital process. On a good day, I can persuade others of that.”


With the anticipated opening of the bottle-wash facility next month, Wolf’s efforts to discipline the capital spending process will be put on the firing line. But there’s good reason to believe the returns will be there.

Since 1995, Coors has cut its annual capital outlay by more than half, from a high that year of $145.8 million. Part of that drop reflects the new disciplines Wolf has developed, but he concedes that two factors beyond his control contributed to the decline. Expenditures had been particularly high in 1994 and 1995 because Coors had added two bottle lines of capacity at its Golden brewery, and spending had been kept in check in 1996 partly to give a newly hired operations executive a chance to formulate a new facilities strategy.

Nevertheless, Coors’s return on invested capital, its key measure for capital performance, has been creeping up, from 5.9 percent in 1995 to 6.2 percent in 1996 to 8.8 percent in the third quarter of 1997. That puts Coors within its interim target range of 8 to 12 percent, but Wolf insists that it must climb even higher to be competitive with Anheuser-Busch and Miller.

According to Wolf, about 40 percent of Coors’s cash flow improvement, from a negative $26 million in 1995 to a positive $138 million in 1997, can be attributed to the dramatic cut in capital spending and the new capital disciplines. Analysts point to the drop in capital spending and the increase in free cash flow as keys to the Coors turnaround. And that, in turn, has helped drive up the stock price from $19 per share at the beginning of 1997 to a 52-week high of $41 in October. Coors closed at $31.75 on January 30.

“From a financial perspective, there’s absolutely no question Coors is better positioned to deal with the difficulties of the beer industry than it was a few years back,” says Skip Carpenter, an analyst at Donaldson, Lufkin & Jenrette. Perhaps heartening to Wolf is that Carpenter also senses that finance is well-liked within Coors. “You no longer have finance separate from everybody else,” he says. “Tim has made everybody work together.”

Stephen Barr is a contributing editor of CFO.