The Stroh Brewery Company

views updated

The Stroh Brewery Company

100 River Place
Detroit, Michigan 48207-4291
U.S.A.
(313) 446-2000
Fax: (313) 446-2206

Private Company
Incorporated: 1909
Employees: 4,000
Sales: $1 billion (1995 est.)
SICs: 2082 Malt Beverages

The Stroh family began brewing beer in a family-owned inn during the 18th century in Germany. In 1848, during the German Revolution, Bernhard Stroh, who had learned the brewing trade from his father, emigrated to the United States. In 1850 he founded a brewery which has been owned and operated by the family for more than 145 years. While the company has expanded considerably in recent decades, it is still directed by a Stroh, and all of its stock shares are in the hands of Stroh family members.

Founded as Lion’s Head Brewery in 1850

Bernhard Stroh established his brewery in Detroit in 1850 when he was 28 and immediately started producing Bohemian-style beer, which had been developed at the municipal brewery of Pilsen, Bohemia, in 1840. In 1865 he purchased additional land and expanded his business. He adopted the Lion’s Crest from the Kyrburg Castle in Germany and named his operation the Lion’s Head Brewery. The company still uses the crest in its advertising.

Bernhard Stroh Jr. took charge of the brewery on the death of his father, the founder. He changed the brewery’s name to the B. Stroh Brewing Company. With the introduction of pasteurization and refrigerated rail cars, Stroh was able to ship some of his beer to Florida and Massachusetts. In 1893 Stroh Bohemian Beer won a blue ribbon at the Columbian Exposition. The company’s name was changed to The Stroh Brewery Company in 1902. In 1908 Bernhard Stroh’s brother Julius took over the brewery. After a tour of famous European breweries, he introduced the European fire-brewing method in the Stroh brewery. Today Stroh’s is the only fire-brewed beer on the American market. Common in Europe before World War I, the fire-brewing process uses a direct flame rather than steam to heat beer-filled copper kettles. The company claims that the resulting higher temperatures bring out more of the beer’s flavor.

During Prohibition Julius Stroh operated the business under the name The Stroh Products Company, producing near beer (beer with its alcohol extracted), birch beer, soft drinks, malt products, ice cream, and ice. Though production of most of these items ceased when Prohibition ended in 1933, a special unit of the brewery still makes Stroh Ice Cream. The product is sold in retail groceries and independent ice-cream parlors in Michigan.

Upon Julius Stroh’s death in 1939, his son Gari assumed the presidency. Gari’s brother John succeeded him in 1950 and became Stroh’s chairman in 1967. Gari’s son Peter, who had joined the company following his graduation from Princeton in 1951, became president in 1968. He is now chairman of the board.

Expanded Market Area Significantly in the 1960s and 1970s

In 1964 the company made its first move toward expansion from its traditional position as a small but successful producer of one brand of beer and ice cream when it bought the Goebel Brewing Company across the street, adding about 200,000 barrels of volume. At the same time, Peter Stroh directed the company into a period of large-scale changes motivated principally by two causes: the 1958 Michigan beer strike, and the emergence of the Anheuser-Busch and Miller brewing companies as corporate leaders in the beer industry.

In 1956 Stroh sold 2.7 million barrels of beer. A long statewide beer strike two years later enabled out-of-state beers to capture larger shares of the Michigan market, and while Stroh remained the largest brewer in the state in 1968, it still had not fully recovered the ground lost in the strike. Sales were low in Michigan that year and far behind the sales of 12 years earlier. Recognizing that half the company’s production was sold outside Michigan, Peter Stroh ended a 40-year relationship with Stroh’s advertising agency to search for a large national agency that would help develop the company’s growing business on a national scale.

By 1971 the Stroh Brewery Company had moved from 15th to 13th place in the national beer market. In 1972 it entered the top ten for the first time and had a market area of nine states. A year later it was the eighth-largest brewery in the United States, selling four million barrels of beer per year in 17 states.

At the same time Miller and Anheuser-Busch entered into intense competition; Anheuser wanted to maintain its position as America’s dominant brewer, while Miller attempted to rise from its seventh-place rank to overtake Anheuser’s position. The large advertising budgets, wide distribution areas, and efficient production methods used by the two breweries through the 1970s proved impossible for many regional breweries to match. Peter Stroh’s willingness to depart from years of tradition enabled Stroh to survive, though his family’s pride in the brewery’s heritage made many of his revolutionary changes difficult to implement. It was not surprising that Peter’s decisions would have seemed radical to many in a company that had produced only one brand for nearly 130 years. Stroh himself had previously seen his role as “more a braumeister than a promoter,” but the soft-spoken man now remarked that “as the industry changed I’ve had to become more marketing oriented. Deep in my heart I know it’s either grow or go.”

Peter Stroh broke the company’s old-world management tradition by recruiting outside experts from such companies as Pepsico and Procter & Gamble to manage the brewery’s affairs. He also expanded the product line by introducing Stroh’s second brand, Stroh Light, in 1978 (changed to Stroh’s Light in 1989). Adamant in the conviction that his brewery should not sacrifice its product’s taste, however, Stroh insisted that the light version be held to 115 calories rather than being cut to the 96 calories of most other light beers. At 115, Stroh Light was 25 percent lower in calories than Stroh’s regular beer.

The 1973 increase of market area to 17 states had caused the brewery nearly to outgrow its production capacity by 1978, when it produced 6.4 million barrels of beer. The Detroit facility was 66 years old and had a capacity of seven million barrels annually. As it became difficult to make efficient shipments to new markets in the East, the company recognized that it required a new brewery.

Acquired Schaefer and Schlitz in the Early 1980s

A solution presented itself in the form of New York’s F&M Schaefer Brewing Corporation, one of the regional breweries that had been a victim of Miller’s growing market share. Stroh, planning to purchase all of Schaefer’s stock to gain control of the brewery, paid an initial $800,000 for 8.5 percent of the total shares. After the takeover was complete in 1981, the combined breweries ranked seventh in beer sales. Under the terms of the deal, Stroh gained access to Schaefer’s Allentown, Pennsylvania, brewery. With its capacity of a million gallons, the Allen-town brewery was one of the industry’s most efficient U.S. operations. In addition, Stroh was able to take advantage of Schaefer’s distributors in the northeastern part of the country. The acquisition also brought Stroh three new brands: Schaefer and Piels beers, and Schaefer’s Cream Ale. The company now had a volume of over 40 million barrels and 400 distributors in 28 states, Washington, D.C., Puerto Rico, and other Caribbean islands. The Stroh Brewery Company began to take the form of a smaller version of the industry leaders.

Early in 1982 Peter Stroh made a bid on 67 percent of the Schlitz Brewing Company, the first step in acquiring the third-largest brewery in the United States. By April of that year, Stroh had purchased the entire company for $17 a share. Schlitz became a wholly owned subsidiary of the Stroh Brewing Company, making Stroh the third-largest brewery in the United States. The acquisition was by no means simple. Schlitz resisted the takeover by taking Stroh to court. Schlitz finally accepted the takeover when Stroh raised its offer from an initial $16 per share to $17, and the U.S. Justice Department approved the acquisition once Stroh agreed to sell either Schlitz’s Memphis or Winston-Salem breweries.

Along with the expansion of Stroh’s brewery came a departure from the company’s traditional marketing approach. Stroh had always been marketed as a popularly priced “blue-collar” beer, with a six-pack selling at 25ø less than national premium brands. Commercials noted the fire-brewed flavor of the beer. A large part of Stroh’s national market, however, began to find it difficult to reconcile the brew’s low price with its advertised quality. The new premium beers recently introduced by Miller and Anheuser became more popular with the working class that had previously purchased Stroh beer. In order to revive blue-collar sales, Stroh reduced the price of Schlitz to below the premium level.

Stroh divested itself of the Schlitz-run Geyser Peak Winery in order to concentrate on beer products. Despite the success of its light beer, Stroh initially moved with typical caution in introducing new products. Because of its two major acquisitions the company now marketed regular and light versions of Schlitz, Stroh, and Old Milwaukee, as well as Goebel, Piels, and Schlitz Malt Liquor. Even so, it was not until four years after the introduction of Stroh Light that the company introduced another new product of its own. In 1982, Stroh entered the premium market with the introduction of its super-premium brand, Signature, after a two-year R&D process involving 100 recipe tests.

Company Perspectives:

As a company, The Stroh Brewery Company faces formidable competition in a world and industry that are ever-changing, yet one fact is for certain. Stroh is a dedicated family brewing company who’s quest is to continue the fine art of quality craft brewing.

The move from a regional market into the national arena was especially challenging for Stroh’s advertising and promotional efforts. As mentioned above, the company did away with the emphasis on its fire-brewing process when consumers seemed unable to reconcile Stroh’s reputed high quality with its relatively low price. Ad campaigns became more upbeat, first using an “Alex the Dog” commercial where Alex would fetch, buy, or pour beer for his owner. The company then turned to the “From One Beer Lover to Another” campaign that had science fiction and phantasmagorical themes. The brewery won two awards for its “Beer Lover” ads. In 1985 Stroh moved to the good times-good friends-good beer theme popular in the beer industry. Its slogan was “Stroh’s Is Spoken Here.” The company felt the theme was more relevant to the all-American beer drinker and showed more confidence in the beer, rather than being merely entertaining.

In the 1980s the company also turned to corporate sponsorship to gain needed national publicity. In 1982 Stroh was a sponsor of the World’s Fair in Knoxville, Tennessee, an event that strengthened Stroh’s new national standing considerably. For many years Stroh had received little television exposure because of an agreement between the major networks and Anheuser and Miller which allowed the two top brewers exclusive advertising rights. Stroh fought the agreement and in 1983 was allotted advertising time on ABC’s Monday Night Baseball, on two NBC boxing events, and on other popular U.S. television sports shows. Confronted with nearly prohibitive network costs, the company began “The Stroh Circle of Sports” on cable television and independent stations. The program featured live events with reporting and analysis. For increased publicity opportunities, Stroh also turned to such sports as hockey—which had been overlooked by Anheuser and Miller—and sponsored broadcasts of National Hockey League games on the USA cable network. The company also sponsored the Formula One stock car race with Valvoline Motor Oil, an event considered an important boost for Stroh’s international name recognition. “High Rollers,” a contest for amateur bowlers, was also developed and sponsored by the company. Stroh’s most popular nonsports promotion during this period was the “Schlitz Rocks America” concert series.

Declining Fortunes in the Late 1980s

In 1985, Stroh claimed 12 percent of the U.S. beer market and maintained its third place position behind Anheuser-Busch and Miller. By 1990, Stroh’s market share would be cut nearly in half and it would fall into fourth place; it would in fact barely escape the 1980s as an independent company.

The roots of these difficulties lay in the heavy debt load—$500 million—the brewer took on to finance its acquisition of Schlitz. The debt weakened the company’s financial position just as the U.S. beer market was reaching a plateau. With sales stagnating industrywide, competition increased. Stroh spent heavily in an attempt to transform the Stroh brand into a premium national brand, but the deeper pockets of Anheuser-Busch and Miller prevailed and the effort failed. Stroh had already lost $100 million when it waited too long to close its aging Detroit brewery—finally shuttered in 1985. Later in the decade Stroh was hurt by rising raw material costs, forcing the company to cut its advertising and promotion. This angered wholesalers who switched to rival brands.

In 1989 the beleaguered brewer appeared to be on the verge of selling out to rival Adolph Coors, but the two companies failed to reach an agreement. Later that same year, Stroh sought to bolster its position by purchasing the then number five U.S. brewer, G. Heileman Brewing Company, but again no agreement could be reached. Meanwhile, Stroh’s attempts in the mid- and late 1980s to diversify into other beverages—such as White Mountain Cooler, a fruit-flavored drink with 5 percent alcohol, and Sundance sparkling-water fruit drinks—met with little success.

Turnaround in the Early 1990s

In 1990 Coors moved past Stroh into third place among U.S. brewers. After the Coors and Heileman deals failed to materialize, Stroh had to sell assets to reduce its debt load simply to survive. In 1989 Sundance was sold to a partnership, of which Stroh held a partial interest. Three years later, Stroh sold this partial interest as well. Stroh also gradually jettisoned its packaging business, selling its last packaging plant in 1993. It was in 1991, however, that Stroh was able to retire its Schlitz debt when it sold its 31.6 percent interest in the Spanish brewer Cruzcampo to Guinness for $335 million. That same year, William L. Henry was appointed president and COO, after having set up the company’s first financial planning department and then serving as vice-president of marketing planning.

Henry and Stroh chairman and CEO Peter Stroh then implemented a three-pronged strategy to revitalize the company—developing new products, brewing beer under contract for other brewers, and expanding overseas. The new product area was critical because the explosion in beer brand and types of beer in the 1990s undermined the market share for all established brands. Stroh’s strategy when seeking to enter the market for a new type of beer was to extend one or more of its existing brands. In the increasingly popular non-alcoholic beer segment, for example, Old Milwaukee NA was introduced in 1991, while Stroh’s Non Alcoholic debuted in 1993. Old Milwaukee NA quickly became one of the top three selling non-alcoholic brews. In the ice beer category, Stroh launched Old Milwaukee Ice, Schlitz Ice, Schlitz Ice Light, Bull Ice, and Schaefer Ice, all in 1994. Another hot category in the early and mid-1990s was the packaged draft beer; Stroh made its presence felt in this category as well with Stroh’s Draft Light, Old Milwaukee Genuine Draft, and Schlitz Genuine Draft.

Another important new product area was specialty beer, the hottest beer category of the 1990s and led by the hundreds of microbreweries that arose to craft them, not by the industry leaders. Stroh and the other leaders, however, were not shut out of this category; in some cases they purchased all or part of microbreweries, in others they formed units to produce specialty beers. Stroh did both. It purchased the Augsburger brand in 1989 and over the next several years developed and introduced both specialty and seasonal brews under the Augsburger name. The company also purchased Ontario’s Sleeman Brewing & Malting and a second, undisclosed, small brewer. In 1994 Stroh launched Red River Valley Select Red Lager, a regional premium specialty beer produced by a division of the company’s St. Paul, Minnesota, brewery called Northern Plains Brewing Company. Two years later, Red River Honey Brown Ale was introduced.

The international market provided growth opportunities for Stroh that were very limited in the stagnant, hypercompetitive U.S. market. In 1986 Stroh International, Inc. was created to begin to tap into these markets. Canada, India, Japan, Mexico, and Russia were the main targets of Stroh’s overseas push. From 1992 through 1995, Stroh’s international sales grew each year at rates exceeding 50 percent. In 1994, the company entered into a licensing agreement with Rajastan Breweries, Ltd. (located outside Delhi) to produce, distribute, and market Stroh’s and Stroh’s Super Strong beers in India. The following year, an agreement was reached with Sapporo Breweries Ltd. of Tokyo whereby Sapporo began distributing Stroh’s beer nationwide in Japan. By 1995, exports comprised more than 10 percent of overall Stroh sales.

The explosion in microbreweries provided Stroh (and the top three U.S. brewers) with another growth opportunity, contract brewing, whereby a microbrewery used one of Stroh’s breweries to produce their beer using their own brewmaster and their own recipes. In return, Stroh received a percentage of the resulting revenue. Contract brewing thus provided another revenue source for Stroh as well as keeping its breweries running at higher utilization rates. By 1995, about 30 percent of Stroh’s total output was for contract production for such stellar micro brands as Samuel Adams for the Boston Brewing Company and Pete’s Wicked Ale for Pete’s Brewing Company, as well as several brands for Portland Brewing Company.

In early 1995 Henry assumed Peter Stroh’s CEO position to become the first non-Stroh family member to hold that position for the company. The following year Stroh finally landed a long-sought-after target when it acquired Heileman for about $290 million. Over the preceding decade, Heileman had been bought by the Bond Corp. of Australia for $1.3 billion (in 1987), then purchased out of bankruptcy court by the Dallas buyout firm Hicks Muse Tate & Furst Co. for $390 million (in 1993). The Heileman purchase brought more than 30 brands to the Stroh family, many of which Heileman had itself acquired since its founding in LaCrosse, Wisconsin, in 1858. Among the more important brands were Colt 45, which when combined with Schlitz Malt Liquor, gave Stroh more than half of the malt liquor market, and Henry Weinhard’s, a regional specialty brand whose market Stroh hoped to expand. Other Heileman brands included Special Export, Old Style, Rainier, Schmidt’s, Lone Star, Champale, and Mickey’s.

Heileman also brought Stroh greater capacity for its contract brewing through its five breweries (one of these—the San Antonio brewery—was closed following the acquisition because of its proximity to Stroh’s Longview, Texas, facility). Thanks to Heileman’s West Coast breweries—in Portland and Seattle—Stroh had a much better geographic spread of facilities. The company viewed this as aiding not only U.S. distribution but also exports, especially in the Far East; for example, beer previously made in Texas for the Japanese market could now be made in Seattle with resulting transportation savings and fresher product.

Stroh neared the turn of the century in a much stronger position than it had entered the 1990s. The company held a 9.6 percent share of the U.S. beer market following the Heileman acquisition, still in fourth place but closing in on Coors. The possibility of a further acquisition or two was quite real, with Pabst—the new fifth place brewer—the most likely target (in 1996 Pabst was Stroh’s largest contract customer, after Stroh had assumed Heileman’s contract with Pabst). In mid-1995, the European market became much more attractive to Stroh and other U.S. brewers when the 24 percent European tariff on imported beer was eliminated in an agreement between the United States and the European Community. In addition to increasing exports, Stroh was also seeking to add to its nonbeer revenues, as evidenced by the 1996 agreement with the Joseph Cerniglia Winery of Vermont to establish Green Mountain Cidery, which would produce and distribute draft cider products. All of these developments added up to a bright future for The Stroh Brewery Company.