A & W Brands, Inc.

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A & W Brands, Inc.

P.O. Box 869077
Piano, Texas 75086-9077
U.S.A.
(972) 527-7096
Fax: (972) 673-7171

Wholly Owned Division of Cadbury Schweppes PLC
Incorporated: 1950 as A&W Root Beer Company
Employees: 120
Sales: $65 million (1997 est.)
SICs: 8053 Beverages

A&W Brands, Inc. is best known for its famous A&W Root Beer beverage. Historically one of the most popular soft drinks in the United States, the A&W Brands, Inc. root beer concoction retains a leading share of the market in the late 1990s, despite strong competition from Barq’s, Dad’s, and Hires root beer products. Ownership of the well-known beverage, however, and the franchise restaurants that serve it, have undergone many changes since the 1960s. In 1993, Cadbury Schweppes PLC, a prominent beverage company in Great Britain, purchased A&W Brands, Inc. to strengthen its growing presence both in the United States and international beverage markets. Now independent from A&W Brands, Inc. are A&W Restaurants, which is in the business of licensing franchises not only in the United States but around the world, and A&W Food Services of Canada, managed by a group of businessmen who are building a beverage and restaurant empire across North America.

Early History

The driving force behind A&W Root Beer was Roy Allen, an ambitious entrepreneur who at the turn of the 20th century became widely known throughout the southwestern United States for buying, renovating, and selling older hotels and motels. Having become acquainted with a recipe for root beer that a pharmacist had given him at a soda fountain while he was arranging a hotel deal in Tucson, Arizona, Allen impetuously purchased the recipe and opened a hamburger and root beer stand in Lodi, California, in June 1919.

With an innate sense of what was popular among the people at the time, Allen knew that by playing on the name of “root beer” he could attract alcohol drinkers into his establishment, especially since he decorated it as an old, well-worn saloon, complete with bar and barstools. The Volstead Act of 1919 had prohibited the sale and consumption of alcoholic beverages, so soldiers returning from the World War I battlefields in France flocked to Allen’s root beer stand, finding the beverage a palatable substitute. By the summer of 1920, in order to meet the growing demand for his product, Allen opened a second root beer stand in Stockton, California.

With more and more people clamoring for his product, Allen formed a partnership with Frank Wright, one of his employees, in order to establish five more outlets in the Sacramento area. After formally naming their product “A&W Root Beer” (the name reflecting the initials of the two partners), more outlets were opened in Houston, Texas, in 1922. Capitalizing on the increasing mobility of the American public, and the fact that more people were purchasing automobiles, Allen came up with the idea of transforming the root beer stands into drive-in restaurants. As people headed downtown in their cars on steamy summer evenings, Allen attracted them to his root beer stand by providing “car hop” services. Modeled after the bell hops of exclusive hotels, “tray boys” were hired to deliver root beer to customers while they sat in the comfort of their automobiles.

By 1924, with the popularity of his soft drink and drive-in outlet assured, Allen decided to buy Wright’s share of the business. At the same time, Allen registered the name “A&W Root Beer” and the A&W logo with the United States Patent and Trademark office, and began a comprehensive strategy to expand his business throughout the western United States. His first move was to establish a franchise restaurant chain for A&W Root Beer Stands. Selling the rights to franchises in Oregon, California, Washington, Nevada, and Arizona to two businessmen, H.C. Bell and Lewis Reed, the outlets within these states were renamed “Reed & Bell Root Beer.”

Then Allen moved to Salt Lake City, Utah and restarted his business. By selling A&W franchises throughout the United States, except for the five states where he had sold the rights to Bell and Reed, Allen created the very first restaurant chain in America. Demanding and meticulous in his franchise agreements, Allen stipulated in each contractual arrangement the precise design and floorplan of each root beer drive-in restaurant, the design and weight of the mugs his root beer was to be served in, and the mixture of the brew that had established his reputation and had given him a fortune. By the end of the 1920s, the A&W Root Beer Drive-In was becoming a common sight to many Americans.

The Great Depression and World War II

The crash of the stock market in the autumn of 1929 had profound effects for the entire American economy and the population across the country. Depending on the area of the country, A&W Root Beer Drive-Ins either thrived or closed down. Due to the drought in the southern part of the country, and the dust bowls across the Plains States, many A&W Drive-Ins were forced to cease operations. In general, however, the franchise drive-ins continued to increase in number throughout the 1930s, and in 1933 Allen happily reported that there were over 170 A&W outlets in the United States.

By the end of 1941, when the United States entered World War II, more than 260 A&W outlets were in operation. Unfortunately, the advent of the war had a deleterious impact on A&W Root Beer Drive-Ins. Not only was there a shortage of employees, caused by young men going to the war and young women taking jobs to fuel the production of wartime materials, but the essential ingredients to make root beer were simply not available. Sugar and extract were scarce commodities, rationed carefully to the American public for consumption. Not a priority business for the success of the American war effort, A&W Root Beer Drive-Ins began closing at a rapid rate. When the war ended in 1945, nearly 80 of the A&W outlets across the country had been forced to close due to the shortages resulting from the war.

Growth and Prosperity in the Postwar Era

When Reed and Bell’s franchise agreement expired in 1945, the A&W rights reverted to Allen, along with all the outlets run by the two men. With soldiers returning from overseas, and the government’s offer of easy-to-obtain GI loans, hundreds of new A&W outlets opened across the United States. By 1950, over 450 A&W outlets were in operation. However, Allen suddenly decided to sell the business he had founded due to the illness of wife. A businessman from Nebraska, Gene Hurtz, became the new owner and immediately incorporated his holdings as the A&W Root Beer Company.

Hurtz’s management style allowed individual franchisees to run their business as they pleased, including marketing and public relations functions. In addition, Hurtz maintained an extremely small staff at his corporate headquarters, having no intention of providing extended support system for the franchisees he had contracted. Although franchisees grew more displeased with Hurtz’s management style as the 1950s progressed, the number of A&W outlets continued to grow. Perhaps Hurtz’s most important decision during his time as leader of the company was to allow the franchisees to serve food and develop their outlets as drive-in restaurants. By the end of the decade, there were more than 1,900 A&W restaurants through-out the United States, and the first outlet outside the country had opened in Canada.

Growing discontent among the franchisees led Hurtz to sell the company in 1963 to the J. Hungerford Smith Company, the firm which had been brewing the root beer extract and bottling it since 1919. Hungerford was acquired by the United Fruit Company just three years later, and in 1970 management at United Fruit Company decided to merge with AMK Corporation in order to form United Brands Company. During these years of changing ownership, the A&W Root Beer Company was changed to A&W International, to reflect the firm’s growing international operation, and a new marketing strategy was implemented which focused less on the root beer brand and more on the drive-in restaurant. Thus the promotion and success of the A&W outlet became more important than the promotion and sale of the root beer extract itself, a decision that would dramatically affect the viability of the company.

Growth and Transition in the 1970s–80s

United Brands management decided to bottle A&W Root Beer for distribution to retail stores during the early 1970s. Despite the somewhat altered flavor effected by the difference in packaging, the introduction of the beverage was successful and the company introduced Sugar Free A&W Root Beer in 1974. In conjunction with the development of these two products for the retail market, the company formed A&W Beverages, Inc., a wholly owned subsidiary with the purpose of selling the root beer to consumers apart from the restaurant chain. By 1976, A&W Root Beer had become the leading root beer sold in bottles and cans within the United States, surpassing long-time leader Hires. In 1978, company management at United Brands decided to form another wholly owned subsidiary, A&W Restaurants, Inc., to manage the growing number of restaurant franchises. The separation of the beverage from the restaurant chain, however, as distinctively administered entities and operations, gave rise to the prospect of each one becoming a takeover or acquisition target.

In 1982, in a move that surprised no one, United Brands Company sold A&W Restaurants, Inc. to a well-known and enterprising real estate developer, A. Alfred Taubman. The new owner of the A&W Restaurant chain immediately relocated company headquarters to Michigan and implemented a comprehensive reorganization strategy. One year later, management at United Brands sold A&W Beverages, Inc. to a consortium which was formed to create A&W Brands, Inc., a new company with the purpose of managing the production, marketing, and sale of the regular and sugar-free root beer beverages. In 1986, the management team at A&W Brands, with the assistance of an investment firm, bought the company from the consortium for approximately $74 million. Losing no time in consolidating its market position, A&W Brands introduced A&W Cream Soda and A&W Diet Cream Soda in 1986, reformulated Sugar Free A&W Root Beer in 1987 using NutraSweet and renamed it Diet A&W Root Beer, and purchased Squirtco, the producer of Squirt soft drink. One year later, A&W Brands acquired Vernors, Inc., the manufacturer of Vernors ginger ale.

Under management at A&W Brands, all of the company’s product line prospered enormously. Diet A&W Root Beer soon accounted for approximately one-third of the firm’s total sales volume. By 1989, the company’s cream soda had captured more than 40 percent of the total market share for that beverage. Without having to focus on the development of the restaurant business, management at A&W Brands was pleased to see profits rise dramatically. At the same time, A&W Restaurants, Inc. was experiencing a resurgence after its reorganization had been completed. Management at A&W Restaurants had standardized a menu for all franchisees to follow, and aggressively expanded its operations. In 1989, the company reached a major agreement with Carousel Snack Bars to redesign nearly 200 mall and food court outlets and convert them to “A&W Hot Dogs and More” over a period of two years.

The 1990s and Beyond

A&W Brands entered the 1990s in a comfortable position: all the its product lines—root beer and non-root beer beverages—were selling well, and prospects for future growth seemed assured. Then, in 1993, management received an offer from Cadbury Schweppes PLC and decided to sell the company, including all of its assets and operations, for $334 million. Cadbury Schweppes, created during 1969 out of the merger of two famous companies, had already established itself as one of the leaders in the food, beverage, and personal hygiene markets. During the early 1990s, Cadbury Schweppes decided to focus on and expand upon its two related core businesses, beverages and confectionery products, while selling off all the non-core business operations. Having already purchased Crush International, a carbonated soft drinks producer, in 1989, which significantly enhanced its hold on the market, in 1990 Cadbury Schweppes purchased Oasis soft drinks brand in France, and Aguas Minerales in Mexico, which gave the firm leading shares of the market in their respective segments in both France and Mexico. Moving into the United States market appeared to be the next natural step, and thus Cadbury Schweppes purchased A&W Brands, Inc. to immediately gain a prominent position in the soft drinks sector. In 1996, Cadbury Schweppes bought Dr. Pepper/Seven-Up, Inc., based in Piano, Texas, and merged it with A&W Brands, Inc., relocating A&W to Texas and thereby consolidating its leading position within the American soft drinks market.

In 1994, A&W Restaurants, Inc. was purchased by Sagittarius Acquisitions. The president of Sagittarius, Sidney Felten-stein, had formerly worked as a vice-president of marketing for Burger King Worldwide, and acquired A&W Restaurants in order to revitalize the company’s operations in the United States. Despite the separation of the beverage business from the restaurant chain, it is the tradition and legacy of the root beer beverage that most people are attracted to, and what people continue to drink through the myriad changes in ownership of the brand-name product. Under management at Cadbury Schweppes since 1993, all of the A&W Brand products have sold well, with A&W root beer competing directly with Coca-Cola, Seven-Up, Dr. Pepper, and Pepsi. Although it is unlikely that A&W root beer will ever increase its share of the soft drink market, the 30 percent share of the root beer market that it retains is more than enough to keep management at Cadbury Schweppes happy.