Paulaner Brauerei GmbH & Co. KG

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Paulaner Brauerei GmbH & Co. KG

Hochstrasse 75
81541 Munich
Germany
Telephone: (089) 480 050
Fax: (089) 480 055 14
Web site: http://www.paulaner.com;
http://www.paulaner.de

Private Company
Founded: 1634
Employees: 1,177
Sales: DM 532.2 million ($258.58 million)(1998)
NAIC: 31212 Breweries

The Paulaner Brauerei GmbH & Co. KG is one of the oldest beer breweries in Bavaria and one of the richest in tradition. The Paulaner brewery is located in the heart of Munich, the beer capital of Germany, if not the world. The company brews a broad variety of beer types, including pilseners, light and dark lagers, alcohol-free and light beers, and special seasonal beers. Paulaner is the world’s second largest producer of Weissbier. The Paulaner Group includes a number of other German brands such as Hacker-Pschorr, AuerBräu, Thurn und Taxis, and Thomasbrau. The Paulaner brand name has come to be known the world over through its affiliate in the United States and its beer pubs in Singapore, Bangkok, Shanghai, Beijing, and Manilla.

17th Century Origins

The roots of the Paulaner Brauerei stretch back into the early 17th century. In 1627 Bavarian Elector Maximilian invited the brothers of the Italian Order of Saint Francis of Paola—the Paulaners—to establish a monastery in Au, a village near Munich. The strict rules of the order forbade the monks most any animal products, including meat, butter, and eggs. While in Italy the monks were able to supplement their meager diet with wine; in Bavaria special heavy beer assumed that role. The order inherited a brewery from widow of a Munich brewer in 1633, and the following year they received royal permission to begin brewing beer themselves.

One of their brews was a beer in celebration of the feast day of their order’s founder, St. Francis of Paola. The beer came to be known as Salvator, after a nearby church. Salvator was known as a Starkbier—that is, a strong beer—because of its high herb, spice, and alcohol content. The monks themselves referred to it as the “the holy oil of St. Francis” or “blessed father’s beer” and, beginning in 1751, they were officially permitted to invite the public each April 2, St. Francis Day, to the monastery for a glass of Salvator. The popularity of Salvator, soon renowned as “the strongest beer in Munich,” increased so quickly that the monks realized they could not continue to simply give it away. However, they sold it below the market price which enraged local brewers and innkeepers who complained of the unfair competition to the royal administration.

A Munich Tradition in the 19th Century

Despite such opposition, the festive celebration of Salvator’s first Ausschank—or pouring—became a Munich tradition in which all Munich social classes took part, one which has continued to the present day. So important an event is it that politicians and other figures of national prominence in Germany congregate in Paulaner’s Salvatorkeller every March for the first taste of the new batch of Starkbier. Salvator is said to have caused a minor revolution in Munich in 1844. When the price of the beer was increased not long before the March pouring, angry residents stormed the brewery in protest. Only when the old price was restored did the crowds return to their homes.

A wave of anti-clericism finally forced the Paulaner monks to give up of their monastery in 1799. For a short time the brewery was operated as a state enterprise. When it could not turn a profit, it was taken over by the Order of Malta. In 1806, brew master Franz Xavier Zacherl leased the brewery. In 1813, the year Zacherl obtained the business outright, he was also granted the right to sell Salvator at a price higher than the officially regulated rate for other beers. Zacherl’s extraordinary privilege again caused discontent among his competition. Finally in March 1837, after years of hearing bitter complaints, King Ludwig I gave his royal approval to the higher price by declaring Salvator a luxury good. Under Zacherl the brewery became a successful operation once again. His Bierkeller was considered the largest in the world and under the management of his wife it became a meeting place for artists, writers and actors. Zacherl was also interested in the most up-to-date brewing techniques and he sent his brew master to England to learn brewing using steam.

Zacherl committed suicide in 1849. Because he had no children of his own, the brewery passed into the hands of his nephews, the Schmederer Brothers. The brothers expanded the business, adding restaurants, increasing the volume of beer brewed annually, and establishing the enterprise on a solid business basis as well. In 1886 the company was organized as an Aktiengesellschaft, a joint share company, called Gebruder Schmederer Actienbrauerei in München. In 1894 the Salvator brand was trademarked. In 1899, the business was reorganized as the Actiengesellschaft Paulanerbrau (zum Salvatorkeller) in Miinchen. Their businesses, with the Paulaner Brewery at their core, made the Schmederer brothers and their families wealthy members of Munich society.

Rapid Growth in the 20th Century

The 1920s were a time of intense activity for Paulaner. In 1921 it purchased the Aktienbrauerei zum Ebert-Faber; two years later it set up joint ventures with three other Bavarian breweries, the Hofbrauhaus Coburg AG in Coburg, AuerBräu in Rosenheim, and Thomasbräu in Munich. The latter had taken the step to brew lighter beers, such as pilseners, a bold move in Bavaria where heavier beers were traditional, and northern German pilseners were looked down on. In 1928 the Thomasbrau brewery and Paulaner merged to form Paulaner-Salvator-Thomasbrau AG. The merger gave Paulaner two brewing facilities in Munich. Between 1925 and 1930, Paulaner acquired five other breweries and brewing related firms.

Paulaner continued to expand early during World War II, branching out into the production of mineral water in 1941, with the acquisition of Mineralwasser Buchsbaum & Co. and its absorption into Paulaner’s bottling division. However, by the end of the war, the Allied bombing raids on Germany had destroyed more than 70 percent of Paulaner’s production facilities. Afterwards, what was left of the Thomasbrau brewery was demolished and new housing built on the land. In the first years after the war, Paulaner’s annual beer production dropped to 109,000 hectoliters (2.8 million gallons). Paulaner concentrated on rebuilding its brewery in Munich. Reconstruction lasted from 1951 until about 1967. By then, the company’s annual beer production had climbed to over 730,000 h1 (19.3 million gallons). It topped one million hi (26.5 million gallons) in 1971.

The 1970s were a period of consolidation for the Bavarian brewing industry as a whole. Paulaner, however, expanded, acquiring various smaller breweries throughout the region. In 1979, Paulaner was itself acquired when Josef Schorghuber purchased more than 96 percent of the company’s stock for DM 100 million. Just months before, Schorghuber, an extremely successful airline, construction, and real estate tycoon and one of the most remarkable entrepreneurs in German history, had spent DM 80 million for another major Bavarian brewery, the Hacker-Pschorr brewery. The two acquisitions gave Schorghuber control of more than half of the total beer production in Munich. He continued to add new breweries to his beer empire, which was organized under the Paulaner name, through the 1980s: Rosenheimer AuerBrau, Kulmbacher Reichelbrau, and Monchshofsbrau in 1986, as well as SternquellBrau in 1990.

In the 1990s Schorghuber committed Paulaner to transforming itself from a regional beer, the bulk of whose sales were concentrated in Bavaria, to a brand with a strong market presence throughout Germany. The events that contributed to this decision were the unexpected opening of the borders with the German Democratic Republic (GDR) in late 1989, the monetary union of the Federal Republic of Germany and the GDR in July 1990, and the unification of Germany in October 1990. Suddenly opportunities were abounding: a huge market of new German consumers was open to West German companies, while the privatization of the East German economy made it possible to gain a foothold in eastern Germany by acquiring breweries that had previously been state-owned.

Paulaner entered the East German market aggressively. In 1990 it sold 177,000 h1 (4.6 million gallons) of its various brands of beer there, some 152,000 hi (4 million gallons) of which were the Paulaner brand. The company struck a short-lived operating agreement with Sachsenbrau, a brewery in Leipzig. Subsequently it founded a brand new company in the east, Leipzig Brau, which became part of the Paulaner group of breweries; during the same period Paulaner also opened 11 distribution points in eastern Germany. In all, Paulaner invested some DM 92 million in the states of the old GDR in 1990.

Company Perspectives:

Whoever considers himself good, has stopped getting better. For this reason Paulaner takes care to insure particularly high quality. While we use innovative technology and most up-to-date brewing facilities, at the same time we have remained faithful to the greatest extent possible to the ageold ways of brewing and the traditional old recipes. Our ingredients include select quality malt, Hallertauer aromahops, crystal clear water from our own 240 meter deep wells, and our very own fine yeast. All Paulaner beers are brewed according to the Bavarian Purity Law of 1516. For good reason. Because we know that in the future everyone will agree about one thing: Good, better, Paulaner.

The company later admitted that its jump into eastern Germany had been taken without enough careful planning. As a result, the company reported losses of DM 14 million in 1990. Losses would continue to plague Paulaner until 1995. Making matters worse, Paulaner sales in eastern German sales dropped significantly in 1991 and 1992 as the first blush of unification faded and harsher economic realities set in for the residents of the new German states. Paulaner’s 1991 acquisition and subsequent modernization of a brewery in the city of Dessau also contributed to the company’s losses. In 1991 Paulaner spent DM 15 million on the new subsidiary, renamed Brauhaus Dessau. It sank another DM 13 million in it in 1992, and DM 15 million in 1993, with the plan of developing the brand as a successful regional beer in the state of Sachsen-Anhalt. Despite the introduction of Dessator, Germany’s first Starkbier in a can, Brauhaus Dessau was unable to perform as hoped. In 1994 the Dessau brewery was closed down for good.

In the early 1990s, Paulaner took steps to make its production and products more environmentally friendly. The changes were a response to the enormous amounts of water being used by Munich breweries in the production of beer; in 1992 approximately three million cubic meters of water were used, nearly half of which was accounted for by Paulaner. The company invested DM 50 million, introducing state-of-the-art production technologies which reduced water consumption to six liters of water used for every liter of beer brewed. At the same time Paulaner stopped selling its 12-ounce bottles of beer in traditional six packs wrapped in cardboard packaging. Instead, it sold them in returnable plastic 12-packs, which the company hoped would encourage consumers to return the bottles for a deposit.

Schorghuber completely reorganized its brewing interests in May 1994. Paulaner-Salvator-Thomasbrau was split into two new organizations. Paulaner Brauerei comprised the beverage production and sales departments of the old company, including AuerBrau in Rosenheim, Hacker-Pschorr, and Bayerische Frischgetranke, a soft drink company. The other company, Paulaner-Salvator-Beteiligungs (PSB), was a holding company which took care of the old company’s properties and domestic shareholdings. The purpose of the reorganization was to bring greater efficiency to company operations and to make them more easily manageable. The reorganization affected the company’s stock. PSB continued to be publicly traded on the Munich stock exchange, while Paulaner Brauerei became that company’s fully-owned subsidiary. The announcement of the reorganization had an immediate impact on the price of the company’s stock: on consecutive days it jumped first DM 70, then DM 100 in value.

In May 1995 75-year old Josef Schorghuber died of a stroke. Control of Schorghuber GmbH—a holding company which in addition to the Paulaner breweries included Bayerische Hausbau, one of the large construction companies in Bavaria, the Arabella hotel chain, the Bavaria Flug airline, along with a number of foreign companies—passed into the hands of his son, Stefan. Stefan, who had previously run the Arabella Hotels, took a personal interest in the brewing companies. He eventually became the chairman of Paulaner’s Aufsichtsrat.

Late 1995 saw the conclusion of a court case in which Paulaner had been involved since 1982. That year a German watchdog group for investors, filed a complaint against Schorghuber’s holding company for withholding profits to which smaller stockholders were contractually entitled. At the time the complaint was first made, and Schorghuber offered a settlement of DM 1100 a share to Paulaner stockholders. In its 1995 ruling, the Bavarian court awarded the shareholders compensation plus interest amounting to DM 2,721. One German publication calculated that with approximately 30,000 shares outstanding, the total cost to Schorghuber would be DM 81.6 million. A spokesperson for Schorghuber, while not offering details out the financial implications of the ruling, said it would in no way cause financial difficulties for Schorghuber. In 1997 another court ruled that holders of Paulaner and Hacker-Pschorr stock were entitled to DM 228 and DM 185 respectively, for interest they had been denied by Schorghuber’s accounting methods.

Key Dates:

1627:: The Brothers of St. Francis of Paola establish a monastery in Au, a Bavarian village near Munich.
1634:: The Paulaners begin brewing beer.
1780:: The Paulaners are permitted to sell their beer publicly.
1799:: A wave of secularization forces the monks out of the monastery, and the brewery is taken over by the state.
1806:: Brewmaster Franz Xaver Zacherl leases the Paulaner brewery.
1813:: Zacherl purchases the brewery.
1848:: Zacherl dies and the brewery passes into the hands of his nephews, the Schmederer brothers.
1886:: Paulaner Brewery is organized as a joint stock company, Gebrüder Schmederer Actienbrauerei, in Munich.
1899:: Company reorganized as Paulanerbräu (zum Salvatorkeller) in Mtinchen.
1920s:: Paulaner Brewery acquires several Bavarian breweries.
1928:: Following a merger with Thomasbrau, company renamed Paulaner-Salvator-Thomasbrau AG.
1940s:: Paulaner breweries largely destroyed in bombing raids.
1979:: Josef Schorghuber acquires Hacker-Pschorr Brauerei for DM 80 million and Paulaner Brauerei for DM 100 million.
1986:: Rosenheimer AuerBrau, Kulmbacher Reichelbrau, and Monchshofbrau are added to the Paulaner group of breweries.
1990:: Paulaner enters newly-opened East German market and acquires Brauerei Dessau.
1994:: Company reorganized into Paulaner Brauerei AG and Paulaner-Salvator Beteiligungs (PSB).
1995:: Josef Schorghuber passes away, and his holdings, including Paulaner, are taken over by his son Stefan Schorghuber.
1998:: PSB is restructured as full owner of the Paulaner Brauerei Gruppe.
1999:: PSB becomes Bayerische BrauHolding AG.

The German beer industry as a whole experienced a 0.8 percent decline in sales in 1995, while Bavarian brewery sales fell by 4.5 percent. Paulaner, however, bucked the trend and was able finally to reverse its four-year downward spiral. The sales of the Paulaner brand went up by two percent while Hacker-Pschorr increased by 7.5 percent. Paulaner Weissbier became the second best seller in Germany, trailing only Erdinger. Ten percent of Paulaner’s revenues came from exports. Those improvements, while not turning a profit, enabled Paulaner to break even. In 1996, however, the company was able to report profits of nearly DM 4 million. Paulaner continued to expand its brewing business in the mid-1990s. In late 1995 it purchased the EKU brewery for an undisclosed price; in late 1996 it acquired the Thurn und Taxis brand.

In November 1998 the PSB was restructured as a strategic holding company for all the group’s beverage activities, which included its German breweries, a Chilean brewery (Cervecerias) and the Bavarian bottler Coca-Cola AG. The restructuring was accomplished by an exchange of stock between PSB and the Schorghuber holding company. PSB received a 14.4 percent share in the bottling company in exchange for its 20.9 percent share in Hacker-Pshorr, one of Schorghuber’s real estate holding companies, and DM 30 million in cash. Henceforth PSB held 100 percent of the Paulaner Brauerei Gruppe. PSB was reorganized only a year later as Bayerische BrauHolding AG.

In late November 1999, Paulaner’s famous Salvatorkeller, the beer hall where the presentation of the year’s first batch of Salvator Starkbier took place each March, burned to the ground. Some 400 firefighters fought the blaze from early morning until around noon, but were unable to save the structure. Arson was suspected; at least three times in the hours before sunrise, witnesses found signs that someone was trying to set a fire in the Salvatorkeller’s restaurant. No motive for arson could be adduced by the company or police and no suspect was arrested. When the Starkbier season arrived again in 2000, Paulaner held the tasting in a warehouse building on its brewery grounds.

Paulaner reported 1999 results that were better than the rest of the beer industry. The Paulaner group of breweries increased sales by 2.1 percent. The Paulaner brand increased its sales by 4.4 percent, solidifying its position as one of Germany’s top ten brewers. Its Weissbier sales jumped a remarkable 10.3 percent.

Principal Subsidiaries

Hacker-Pschorr Bräu GmbH; AuerBräu AG (97.6%); InterDrink GetränkeVertriebsgesellschaft mbH; Automaten Betriebs Gesellschaft Monaco für Spiel und Unterhaltung mbH; Fürsterliche Brauerei Thurn und Taxis Vertriebsgesellschaft mbH. (95%); Paulaner North America Corporation (United States); Thomasbräu GmbH.