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Wall Street History
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12/08/2000
Budweiser, Part II
Just to refresh your taste buds, Budweiser was launched in 1876
and through the advent of the railroad, new methods of
refrigeration, and pasteurization, sales of Budweiser, and all
other brews nationwide for that matter, helped make America''s
brewers among the fastest growing and most profitable
companies in the nation. By 1900, brewing had become
America''s fifth largest industry, with revenues of $280 million.
Adolphus Busch was still running Anheuser-Busch, marketing
the beer as only he knew how and adding a premium brand,
Michelob, in 1896. Adolphus died in 1913, leaving the company
- and few problems - to his son August Busch Sr.
During World War I, the family''s relationships with Kaiser
Wilhelm brought charges of collaborating with the enemy.
While the claims were false, the public boycotted the beer and
the government impounded some family property, but after the
war things returned to normal. Except, then Prohibition hit.
From 1919-33, the manufacture, sale and transportation of
alcoholic drinks was prohibited by dint of the 18th Amendment.
Anheuser-Busch came out with a non-alcoholic drink, Bevo,
which was successful. And then the 21st Amendment repealed
the temperance movement.
In the 1940s, August Busch Jr., or Gussie, grandson of Adolphus,
took the reigns. Gussie was an irascible sort, shrewd and
flamboyant. And he relied largely on an instinct which seldom
failed him over the coming decades.
Anheuser-Busch, first and foremost, was concerned with
maintaining the integrity of its beers, giving this a far higher
priority than some of its main competitors. By 1948, A-B was
the 4th largest brewery, behind Schlitz, Ballantine, and Pabst (the
last sold mostly in the New York area).
Gussie Busch was looking to expand the Anheuser-Busch
operation as it couldn''t keep up with demand. The St. Louis
brewery was still its only one. But, once Busch decided he could
still maintain control over the quality, he decided to break ground
(1950) on a new operation in Newark, New Jersey, right next to
Newark Airport and with easy access both to New York as well
as the ports, which made it easier to distribute the product
nationwide.
Then in 1953, Gussie made a stellar move in purchasing the St.
Louis Cardinals baseball team when it appeared the Cardinals
would be sold to a Milwaukee investor group. The Cardinals
would stay in St. Louis.
Falstaff was actually the leading brewery in town back in those
days, but the locals were so appreciative of Gussie and
Anheuser-Busch saving their baseball team that they quickly
made Budweiser #1. And, strategically, the acquisition of the
Cardinals was brilliant because St. Louis was the major league
city that was farthest south and west, so the team was followed
on radio by fans in these parts.and many of them became Bud
fans.
Gussie Busch had other ideas by the late 1950s. He thought
combining beer and entertainment to create theme parks would
work and so in 1959, Busch Gardens in Tampa was opened on a
tract close to the company''s brewery.
But by 1965, Anheuser-Busch''s brewing facilities weren''t as
efficient as those of its rivals, particularly Schlitz. A-B''s
capacity was 11.6 million barrels, but 7.3 million was from the
antiquated St. Louis facility. And due to the fact that Gussie
insisted on sticking to the old ways, as well as maintaining the
high level of product quality, the labor costs were 3-5 times
higher than their competitors.
For its part, Schlitz kept skimping on quality, pumping the
profits into more efficient plants in order to meet demand. For
example, A-B produced 80% of its own malt, to maintain quality
control, while Schlitz only produced one third. A-B used rice as
a grain adjunct (rice gives the brew that clean, crisp,
finish.mused the editor), while Schlitz gravitated towards less
expensive corn syrup.
Gussie Busch would rail against the "inferior beers" on the
market. And an important scientific study in the 1960s showed
that "Today''s Schlitz isn''t the same product as yesterday''s,"
implying that Budweiser was.
Anheuser-Busch had taken over the #1 slot by this time but
Schlitz was still a big force, increasing its sales by 13% annually,
from 1968-1973. A-B controlled 21% of the market, Schlitz
15%. And A-B''s new breweries were far more expensive than
Schlitz''s (for example, $35 million vs. $20 million for
comparable facilities in Texas).
But then Schlitz made some fatal moves in their efforts to pump
up profits even further. They screwed around with their formula
and skimped on quality. And in 1976, when the FDA obliged
brewers to list all ingredients (a boon to Anheuser-Busch),
Schlitz tried to sneak in a new ingredient called Chill-garde,
which aided in increasing shelf life. Chill-garde didn''t have to
actually be on the label but Schlitz''s chemists failed to recognize
that the ingredient reacted adversely with another one and the
complaints began to trickle in. While the taste wasn''t affected in
any big way, the composition of the product was. Schlitz then
compounded the mistake by trying to conceal a massive recall. It
failed and, needless to say, the wholesalers were none too happy.
Later, in the fall of 1976, long-time Schlitz chairman Robert
Uihlein announced he had leukemia. Two weeks later he was
dead. Schlitz never recovered and its sales declined 10% in
1977.
Meanwhile, as we wrap up our story, Gussie Busch had been
replaced in a palace coup by son August III in 1975, as Augie
won a majority of the board to support a challenge. Augie
proved just as capable as Dad, both from a marketing as well as
product standards viewpoint. Quality was not to be
compromised.
"You have to have the best. Sooner or later the customer will
recognize quality."
Today, Anheuser-Busch controls a massive 48% of the American
beer market. [Miller is 2nd at 21%, Coors 3rd with 11%, and
imports garner 10%.] Schlitz was purchased in the 1980s by
Stroh''s, and the Stroh''s brands lag. A-B has some 30 beers and
has ownership in some key imports, such as their 50% stake in
Mexico''s Grupo Modelo, brewer of Corona.
Anheuser-Busch has always been quick to adapt, with one of the
bigger examples being the experiment with Lite beer. Miller was
the first, but, unsure of the eventual market, decided to leave the
Miller name off the label. Budweiser followed and was proud to
say, "Bud Lite." When sales took off, thanks to the health
conscious buying public, guess whose brew was better
"branded?"
[Budweiser is also quick to dump a loser, witness Bud Dry.]
You know, personally, I''m not a Bud drinker. But after
researching this story, one has to have the ultimate respect for
Anheuser-Busch''s recognition that quality is king. It''s a
marketing lesson for the ages.
Sources:
"The Pursuit of Wealth," Robert Sobel
"When Giants Stumble," Robert Sobel [Prolific guy, he was.]
"The Complete Guide to Beer," Brian Glover
Barron''s article by Lawrence Strauss
Brian Trumbore
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