Ambitious Brew: The Story of American Beer (40 page)

Humbug, replied Robert S. Weinberg, one of the industry’s most respected analysts, in a rare misjudgment: “The whole light beer thing is a fraud. It’s people rationalizing. The beer tastes awful.” Joe Ortleib wasn’t buying it either—except as a way to sell his own lager. Ortleib, who owned Henry F. Ortleib Brewing, a tiny outfit in Philadelphia, ran a TV campaign called “Drink Joe’s Beer.” The shots featured Joe, a bottle of Ortleib, a half-full glass of beer, and a pitcher of water. “This is how we make light beer,” he announced, and then poured water into the glass. “Now that’s why we don’t make it.”

August Busch III, recently named president of Anheuser Busch, was not convinced either. Augie, as some called him, was, at thirty-six, already seasoned in the ways of both brewing and war. He was an odd mixture of the Busch trio who preceded him: He possessed great-grandfather Adolphus’s attention to detail but none of his flamboyance. From grandfather August A., he inherited a steely resistance to an overbearing father. And he shared his father’s impatience with incompetence, but whereas Gus laughed off his explosive fits of temper, Augie froze his victims with an icy glare, reserving his warmth for those who earned it.

Augie studied brewing at the Siebel Institute in Chicago, the first Busch since his great-grandfather to earn a reputation as a fine brewmaster. By the early 1970s he was vice-president and general manager of the largest brewery in the world, but one that was struggling to maintain its footing at a time of economic upheaval. The OPEC oil embargo fueled inflation that ran as high as 10 percent. In 1973, corn prices rose 40 percent and barley 30. Can prices went up 35 percent. Federally imposed price ceilings exacerbated the misery. Many brewers switched to cheaper extracts and syrups—anything to cut costs.

Gus Busch, still in control and loath to compromise method or recipe, stayed with rice even as the price rose 78 percent in 1973, stuck with a forty-day brewing cycle, and dumped real hops rather than cheaper extracts into the brewvats. “I could cut production costs by 50%, but where quality is concerned, the subject is
verboten”
sighed Russell Ackoff, a Wharton professor who conducted A-B’s computer-based research, planning, and forecasting.

Earnings and profits tumbled, and the company’s stock performed a rare nosedive. Richard Meyer, the company’s president (the first non-Busch to hold the position), resigned over what he regarded as inept and inappropriate management. Augie succeeded him and turned his cold gaze to the fray. In five years, he told a reporter, “You can be sure that we will still be No. 1.” To another he said, “Tell Miller to come right along, but tell them to bring lots of money.”

No worries on that last point. Philip Morris inhaled and exhaled money. Buckets and barrels and vats of money; more than anyone had ever seen in brewing. Pre-Philip Morris, brewers spent, on average, about one dollar a barrel for advertising. PM spent four. Between 1969 and late 1977, the company poured $600 million into plant expansion, more than tripling Miller’s capacity.

Other brewers could not match PM’s bottomless pockets, but they could see the lite. By mid-1977, Americans could choose from at least twenty light beers. Piel’s, Pearl, or Peter Hand. Gibbon’s, Gablinger’s, or Goebel. Joe Pickett, owner of tiny Joseph S. Pickett and Sons Brewing in Dubuque, Iowa, scoffed at the idea. “This light stuff is strictly Madison Avenue,” he grumbled. “It’s the pizza you eat with it that makes you fat.” But when a fellow brewer went bankrupt, Pickett snapped up the man’s light brand and reintroduced it as his own.

Eventually even Augie Busch jumped on board. Light beer “has exceeded our expectations,” he announced in June 1977 in a masterpiece of understatement. An Anheuser-Busch version would be available soon. An anonymous brewery official was a bit more blunt. “We didn’t really want to make it,” he told a St. Louis reporter, “but were forced into it. The light beers, especially Miller’s, were taking away some of our business. We are just trying to get it back.”

But this was Anheuser-Busch, and so this was no ordinary light beer, but “Natural Light.” “It’s an entirely organic product,” enthused one distributor. “In fact, it’s the only beer that truly could be sold in a health store.” A-B light, said Augie, “exemplifies the company’s dedication to completely natural ingredients. In view of customer concern about artificial ingredients and additives in food products, we think this will be an increasing asset for all of our products.”

Perhaps, but more to the point, Natural Light represented Round One in an Anheuser-Busch campaign to demolish Murphy and Miller. Round Two began a few months later, when A-B filed a complaint with the Federal Trade Commission against Miller’s advertising for its ersatz import, Löwenbräu. Like most brewing executives, the suits at Miller wanted a slice of the expanding import segment. They had purchased the American rights to the German Löwenbräu name and label, then brewed their own version of the beer itself, packaging it in a green bottle whose label and foil-wrapped neck mimicked its German counterpart. Only the fine print revealed its Milwaukee birthplace.

Anheuser-Busch charged that Miller was duping consumers by passing off a domestic beer as an import. Real German lagers, the complaint explained, consisted of water, hops, yeast, and malt, but Miller Löwenbräu contained corn grits and two “non-natural additives.”

“We find it incredulous [
sic
],” responded Miller, “that the world’s largest brewer would ask the FTC to protect them.” Not so incredulous, mind you, that Miller minded filing its own complaint, accusing its foe of running its own misleading advertising. Natural Light, argued Miller, contained a mishmash of its own brew of chemical additives and other unnatural ingredients.

Natural. Unnatural. In the end, all that mattered was the money. F. X. Matt from West End Brewing calculated that five years after Lite’s debut, Miller’s perpetual money machine had cost brewing and related industries ten thousand jobs; owners and stockholders of failed breweries had lost $250 million. Shielded by armor fashioned from Philip Morris money, he argued, “Miller people . . . believe they are so big, so powerful . . . that no one can stop them.” Only Anheuser-Busch could afford to keep pace with Miller and its deep-pocketed parent.

No one lost more than the Uihleins and Schlitz. The company began the decade in good condition because Bob Uihlein unloaded the bad investments of the 1960s—the fishing fleets and most of the foreign breweries. But he still fretted over the company’s dependence on its aging flagship brand, Schlitz, which provided 80 percent of sales. Uihlein, an accountant at heart, told Fred Haviland to develop a new plan for diversification. Haviland dispatched a flock of newly hired MBAs on scouting expeditions for solid but related investments: wine perhaps, or an import with a solid base. The Schlitz troops pursued Löwenbräu, but Miller beat them to the punch. They negotiated with the French wine distributor Nicolas, and with Paul Masson, but those deals fell through when Uihlein saw the price tag.

He turned to the Boston Consulting Group for advice. BCG’s people persuaded Uihlein and his vice-presidents that the path to profit lay in cost-cutting. But how to do that? New breweries, Uihlein decided. But not just any breweries—breweries that were four times larger than any that had ever been built. Ultramechanized, ultra-efficient, and ultra-expensive: about $150 million apiece. The aging Milwaukee plant required twenty-four men per shift; the new ones would need but two. Sure, there would be expenses up-front, but the new facilities would slash operating costs by as much as $2 a barrel. Lower costs. Higher profits. “We are the company with the momentum now,” Uihlein announced in early 1973.

There was just one catch, or rather, 460 of them: the rest of the Uihleins. They refused to sacrifice shares or dividends for future profit. “[T]hat board,” a company executive said later, “wanted nothing less than an immediate return . . . It’s not a small matter to cut the dividend of a guy who has 6,000,000 shares and counts on that money for his entire income.” If Bob Uihlein wanted new plants, he would have to go into debt to get them. Lots of debt. More than the company had ever shouldered. A dangerous move when 80 percent of the company’s portfolio rested on one brand of beer.

It was too dangerous for Roy Satchell, who was named company president in February 1973 and resigned six weeks later. For reasons no one understood, but for which many would pay dearly, Bob Uihlein chose not to replace Satchell. Nor did he resume the post. Over the next eighteen months, his great-great-uncle’s brewery resembled a captainless ship adrift in a vast ocean of inflation and recession.

And so began the fall. Like company founder August Krug in 1855, Schlitz Brewing tumbled and never recovered. The production department proceeded with the next phase of the great cost-cutting scheme: “accelerated-batch fermentation”—adding air to stimulate the yeast’s growth, a process that reduced fermentation from twelve days to less than four and allowed the brewmaster to cut the brewing cycle from twenty-five days to two weeks. Corn syrup replaced corn grits; hop extract replaced hop pellets. The finance department, unaware of the “new” beer coming out of the brewhouse, raised prices, a misguided attempt to reposition Schlitz as a premium beer at a moment when inflation was wreaking havoc with consumer spending.

Sales slipped and so did the stock price, but Fred Haviland and his marketing people forged on, determined to give wholesalers and retailers encouragement in the form of good advertising. The wholesalers, who loved Haviland, gave him a rousing ovation when he spoke at a sales meeting in early 1974. Bob Uihlein was there, too, but won only polite bordering on tepid applause from an audience less interested in a Harvard-schooled polo player than in Fred Haviland, the man with the plan.

Several weeks later at a company cocktail party, Bob Uihlein’s wife Lorraine marched up to Haviland, jabbed him in the chest with her finger—its nail perhaps painted red and trimmed to a sharp point?—and said, “When we want you to become president, we’ll let you know.” In August, the board of directors named the vice-president of finance, an accountant to the core, as the new general manager. Marketing and sales, wholesaling and distribution were foreign territories that the new guy had no desire to explore. Ten days later, Haviland cleaned out his office, the victim of a forced “early retirement.”

Then the Food and Drug Administration announced that it was considering mandatory ingredient labels for beer, and Schlitz executives ordered company brewmasters to replace silica gel with Chill-garde. Both additives stabilized the beer and improved shelf life, but Chill-garde dissipated during the brewing process, so could not be considered an ingredient and need not appear on labels. Unbeknownst to the powers-that-be, however, Chill-garde interfered with the beer’s foam stabilizer. The chemical reaction spawned a flake-laden haze—nothing dangerous but ugly to look at, and unnerving to anyone drinking the beer.

One vigilant plant manager noticed the problem right away and alerted Milwaukee headquarters. The response was to ignore the matter in the hope that it would go away. Six months passed before the honchos ordered brewmasters to stop using the stabilizer. Another mistake: Thanks to years of cost-cutting measures, Schlitz beer contained little barley. Tip a can’s unstabilized contents into a glass and the brew looked “flat as apple cider.”

Customers fled. Stock drifted downward. Two grand juries and the Securities and Exchange Commission opened investigations into illegal marketing practices. The Internal Revenue Service accused Schlitz of tax fraud. That was in the summer of 1976. In late October, Bob Uihlein was diagnosed with leukemia. He died a few weeks later. The board of directors replaced him with a triumvirate, none of whom had any sales or marketing experience. “Here were three guys running the second largest beer company in the world,” sighed an employee, “and not one of them had ever sold a case of beer in their lives. It was amateur night at the zoo.”

In early 1977, the SEC charged Schlitz with making more than $3 million in illegal payments to vendors and retailers. Grand juries in Milwaukee and Hawaii indicted the company on seven hundred charges of violating the Federal Alcohol Administration Act. Schlitz faced the possibility of losing its license to operate in more than a dozen states. The company’s stock, once the darling of Wall Street at a share price of $60 or more, sold for as little as $12. The board of directors—Uihleins trying to protect their income—began looking for a buyer.

Across town, Pabst’s management—marketing men and accountants—floundered, too. None of them could figure out what kind of image would make their beer sell. The recession of the early 1970s hit hard, and a decision was made to “position,” as the marketers called it, Pabst Blue Ribbon as a low-price bargain beer for the blue-collar set. It was too late. For decades, old Frederick’s pride had been sold only as what it once was: a high-quality, high-priced premium brew. Beer bargain hunters had long since settled on other brands; they weren’t interested in what Pabst had to offer. The stock price dropped. The parade of rotating executives continued. The company would never recover.

A
S
B
IG
B
REWING
fumbled, stumbled, and rumbled, John A. “Jack” McAuliffe looked toward a different brewing future. In October 1976, the same month that Larry McCavitt incorporated the Committee for Real Ale, McAuliffe and his business partners, Suzy Stern and Jane Zimmerman, filed papers for their venture, New Albion Brewing Company. The following July, they heated the water in their forty-five-gallon vat and brewed the inaugural batch of ale at what was the most important failed brewery in the industry’s history.

McAuliffe’s road to that time and place stretched back more than a decade. He’d joined the navy in 1964 at age eighteen. After a stint in electronics school, he shipped out to the submarine base at Holy Loch in southwestern Scotland and his assignment with the USS
Simon Lake,
whose crew provided maintenance for Polaris submarines. McAuliffe rented a small house in Dunoon and settled in to his post at the ship’s antenna repair shop.