G. Heileman Brewing Company, Inc.

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G. Heileman Brewing Company, Inc.

100 Harborview Plaza
La Crosse, Wisconsin 54601
U.S.A.
(608) 785-1000

Wholly-owned subsidiary of Bond Corporation Holdings
Ltd.
Incorporated: April 3, 1918
Employees: 7,000
Sales: $1.169 billion

G. Heileman Brewing Company is America’s fastest growing brewer of premium beer, “near beer,” malt liquor, and low-calorie beer. Krausening, or “double brewing,” in 12 breweries across the nation under 34 different brand names distinguishes Heileman’s beer from that of its competitors. Heileman manages the largest number of wholesalers in the brewery business, which ensures each brand’s distribution across the United States. In fact, high quality and wide distribution are primary elements of Heileman’s success.

In 1853 Gottlieb Heileman, a recent German immigrant to the United States, and his partner John Gund, the proprietor of a La Crosse, Wisconsin brewery, founded the City Brewery on Third and Mississippi Streets in La Crosse. The City Brewery competed locally only with Schaefer and Leinenkugel until 1858. However, growth of the large Milwaukee breweries engendered competition for local breweries. Gund wanted to invest in a larger brewery in order to compete effectively against Milwaukee, so he and Heileman dissolved their partnership in 1872 and Gund founded the Empire Brewery, later known as the John Gund Brewing Company. It soon became the largest brewery in La Crosse, but it went bankrupt during the Prohibition in the 1920’s.

The City Brewery became the Heileman Brewing Company when Gund left. It was managed by Gottlieb Heileman until his death in 1878. His widow, Johanna, ran the brewery until she died in 1917.

In the 1850’s the growing number of German immigrants in Wisconsin and the rest of the country generated a sudden increase in the number of breweries. The Wisconsin state legislature instructed the state Commission of Immigration in 1852 to distribute pamphlets describing Wisconsin’s advantages to prospective immigrants from Europe, especially Germans. Great numbers of Europeans responded, and consequently a large number of breweries were founded in Wisconsin to satisfy the tastes of the growing German population. However, outside Milwaukee there were few sources of the supplies needed for brewing.

Later in the decade the spreading network of railroads brought the needed resources within reach for brewers outside Milwaukee. The state’s wheat growers could now transport their wheat in bulk to La Crosse, for instance. Local brewers already had access to barley, another important beer ingredient.

Two historical events helped boost Heileman’s sales in the 1860’s and 1870’s. With the outbreak of the Civil War in 1861 the federal government instituted war taxes. Hard liquor was taxed at a rate of $1 per gallon, while beer was taxed at $1 per barrel. Beer thus became less expensive than other alcohol, so Americans began to consume it in greater quantities. Secondly the Chicago fire of 1871 ruined many breweries in that city. Wisconsin brewers seized the opportunity to extend their market into a major metropolitan area.

In 1900 Wisconsin was fourth nationally in the output of malt liquors, after New York, Pennsylvania, and Illinois, but Heileman had remained a comparatively small brewery by expanding its facilities slowly and increasing production marginally. Slow expansion and attention to beer quality distinguished Heileman from other local brewers of the period. While its competitors hastened production for maximum profits, Heileman maintained that “We don’t aim to make the most beer, only the best.” The brewery’s location in a cool climate (with plentiful natural ice, an important commodity in the time before electric refrigeration) aided production of good beer. Moreover, labor and cooperage were inexpensive in La Crosse. Free from the high production costs of larger breweries, Heileman was able to invest additional money in making better quality beer.

Johanna Heileman copyrighted Heileman’s most popular beer, Old Style, in 1902. Old Style is still produced using Heileman’s unique krausening method, in which the beer supplies its own malt because natural carbonation absorbs carbon dioxide and locks it into the beer. The beer is then stored for several months before being put on sale.

Before World War I Old Style had become a regionally popular beer due to railroad distribution to various mid-western states. During the war Heileman and other brewers benefited from lenient war taxes on beer. Heileman’s sales grew after the war as a new wave of German immigrants entered America.

Though a state-wide referendum in 1851 determined that the majority of Wisconsin residents wanted a prohibition law, by the time the national prohibition amendment was passed in 1918 the “wets” outnumbered the “drys.” Even so, President Wilson signed a bill instituting it. The impact on breweries was devastating.

Under the Volstead Act of Prohibition, only beverages below 0.5% alcohol were legal. This led Heileman to produce “near beer,” which contained a lower than legal amount of alcohol. The production of “near beer” also gave rise to another area of Prohibition-era revenue: the retail sale of malt to those who wished to brew beer privately. R. A. Albrecht, manager of the brewery after Johanna Heileman’s death, supervised the “near beer” and malt sales which rescued Heileman from the economic ruin that shut down many of the nation’s breweries.

Thousands of unemployed brewery workers exerted pressure on the government to legalize beer; finally, on “New Beer’s Eve,” April 6, 1933, the Volstead Act was repealed.

Harry Dahl became president of Heileman as the company reorganized and made post-Prohibition plans. His first act was to raise the price of malt syrup used in home brews in order to discourage consumers from brewing their own beer. This measure alone was not enough to restore Heileman’s former prosperity, however, because competition among the nation’s 700 brewers mounted after the repeal of Prohibition. Dahl understood that there were many different tastes to cater to, and under his direction Heileman began to assume the role of a local brewery producing beer for varying tastes in specific regions.

With the advent of World War II in 1941 the company instituted some major changes—none of which the public liked. Under President Albert D. Bates, Heileman introduced new beer can labels, changed its advertising approach, and revised its beer recipe. Promotions had previously stressed the beer’s unique qualities, but now emphasized price and general consumer appeal. Most damaging however, was Bates’s decision to alter the recipe to produce a richer flavor; by the end of World War II sales were lower than they had been in twenty years.

Ralph T. Johansen accepted the Heileman presidency in 1951 and spent five years trying to revive the company’s sales, but to no avail. The turnaround began when company treasurer Roy E. Kumm took over the presidency in 1956.

Kumm revived the brewery’s image as one that, first and foremost, cared about quality. In Kumm’s first year as president Heileman ranked 39th in the industry; by 1960 it had moved up to the 31st position. But the company still remained a local rather than a national brewery. Kumm decided to change this state of affairs by instituting an aggressive acquisition policy.

From 1959 to 1980 Heileman bought 13 breweries, thereby increasing sales and profits considerably and adding regional name brands to those Heileman already produced. And since the purchase of small, regional breweries proved much less expensive than building new breweries, Heileman was able to extend its sales area in the most economical way. Between 1956 and 1966 sales rocketed from $15 million to $31.9 million, and shares climbed from $1.36 to $3.54. Through careful acquisitions Heileman had become a major producer of regional brands of beer.

Jet, Heileman’s “near beer” brand originated during Prohibition, had remained popular in its relatively small market until 1965. At that time, concerned citizens protested distributions of “near beer” because of the common belief that it primed youths for alcoholic beer. Kumm’s response was that Jet was meant for adults with medical problems, for dieters and for people living where alcoholic beer was unavailable; he also remarked that Jet was better for a person’s teeth than sugary soda. Nevertheless, Jet sales suffered because Oklahoma, Alabama, and Michigan banned the sale of any beverage with less than 0.5% alcohol which resembled an alcoholic drink.

Heileman’s growth continued through the second half of the 1960’s. In 1966 the company produced 972,000 barrels of beer and outperformed the larger breweries on the rate of return on stockholders’ equity (15.6% as compared to 10.9% at the four largest brewers).

By the end of 1967 Heileman had risen to 22nd in the industry. Its higher-priced premium lines such as Special Export, Old Style, Heidelbran Pilsner, Fox Head De Luxe, Weber Special Premium, and Wisconsin Premium had become the most profitable; nevertheless Kumm was dissatisfied, noting that the United States’ top five brewers still controlled a third of the total beer market. The company thus became even more aggressive. With the purchase of Wiedemann Brewing Company in Kentucky in 1967, Heileman’s total production capacity rose to two million barrels of beer. By 1968 Heileman had further improved its rank in the industry to 18th.

Kumm, concerned that Heileman still retained its regional image, purchased the nationally known Blatz Breweries in 1969. Blatz’s sales had been declining since 1964 and Kumm seized the opportunity to acquire it at well below market value.

Kumm’s son-in-law, Russell Cleary, who had joined the company in 1960, took over as president in 1971 and continued the policy of making inexpensive acquisitions of ailing breweries. Between 1971 and 1980, five more breweries, including Rainier and Carling, were purchased and Heileman’s midwest and east coast presence was considerably enhanced.

As part of Cleary’s plan to broaden the product line, he introduced a line of light beers in the 1970’s. Miller, the first brewery to use the term “light” beer, wanted exclusive rights to the description and sued Heileman. However, the court denied Miller’s claim. Anheuser-Busch filed a similar suit against Heileman for using the term “LA” on low-alcohol beer. In this case, too, the court found in favor of Heileman. As competition increased among the top brewers, law suits such as this became more prevalent and characterized the rivalry among breweries during the decade.

In 1973 one of Heileman’s many brewery purchases resulted in an antitrust action. The Justice Department ruled that Heileman could retain the three breweries it had bought from Associated Brewing Company if it divested itself of several brands. A later antitrust agreement prohibited Heileman from buying breweries in eight midwestern states for ten years.

Beer sales began to rise in the second half of the 1970’s as the standard of living increased and social drinking became more popular; at the same time there was an unprecedented expansion of the number of people in the 21-to-34 age group (from 13.4 million to 46.5 million in a decade). Heileman, like most American brewers, augmented its marketing program to attract the new consumers. Additionally, local competition decreased as the larger brewers, Heileman included, dominated the new market. In 1933 there had been 700 brewing companies in the United States; in 1975 there were 54.

Other factors helped increase Heileman’s sales during the 1970’s. First, Schlitz’s sales dropped in Minnesota and Heileman’s Grain Belt beer became number one in that region. In 1976 Anheuser-Busch suffered severe economic losses after a long strike and Heileman stepped into the breach, further expanding its markets. And the company greatly increased the size of its bakery division in 1976 by purchasing the Trausch Baking Company of Iowa.

While other brewers suffered a series of financial misfortunes in the late 1970’s, Heileman saw significant growth. Schlitz, Pabst and Coors all experienced a decrease in sales in 1978, but Heileman shipped 7.1 million barrels that year, up 14% from 1977 and second only to Miller. But despite Heileman’s many acquisitions 90% of its sales in the late 1970’s were in a 15-state region from western Pennsylvania to the Dakotas and south to Missouri. However in terms of consumption, these states, which have large Scandinavian and German populations, accounted for 50% of the nation’s beer. In several areas Heileman’s brands were ranked first in 1977, including Old Style in Chicago. By this time the company had become the seventh largest brewer in the country.

In 1980 Heileman was merchandising 34 brands of beer, many of which held the top rank in specific regions; and between 1976 and 1981, equity rose 30.2%. Despite record results, Cleary was still concerned that Heileman did not have a truly national identity. He therefore proposed a merger with Pabst which ultimately led to the purchase of Pabst in 1983. Stroh and Schmidt brewers filed an antitrust suit against Heileman claiming that sales in the upper midwest would be monopolized by the combined company; but a year later the court ruled in favor of Heileman. At this time the company acquired the Lone Star Brewing Company, thus expanding sales in Texas and other southern states.

In the summer of 1987 Heileman itself became an acquisition target. Bond Corporation Holdings Ltd., a large brewing conglomerate based in Perth, Australia, offered $38 per share ($1.01 billion) for the company, but the Heileman board dismissed the amount as inadequate. The Wisconsin state legislature enacted special laws to prevent the takeover until certain economic guarantees could be secured. A subsequent offer from Bond valuing shares at $40.75 ($1.22 billion) was accepted in September, with guarantees that Bond would not move the company out of Wisconsin or attempt to change any current business or labor agreements. Heileman was expected to benefit greatly from the managerial expertise of the Bond Corporation.

The company is now competing for a larger share of the southeastern United States market; it has lowered its prices there and increased its promotion in the region. However, industry analysts believe that Heileman will have to glamorize its image across the country if it is finally to achieve a national identity and challenge the likes of Miller and Anheuser-Busch.