Bubbling Battle of the Brewers

Superficially, everything would seem to be heading up for the beer business. Per capita consumption of the golden brew in the U.S. last year reached an all-time high, currently equaling about a six-pack a week for every American 18 and over. Beer sales for the past several years have been going up 4% to 5% annually; so far, the rise in 1975 is running around 2%--not bad for a recession year.

The near-term future looks even more yeasty. The number of people in the prime beer-drinking age (21 to 35) will keep increasing into the 1980s. More women are drinking beer, a trend brewers are encouraging by bringing out low-calorie beers and 7-oz. bottles. Beer consumption is rising in the South, traditionally the land of bourbon and Dr Pepper. Even some competitors seem to be unwittingly helping the brewers: soft-drink makers have posted such huge price increases that in California and some other areas, it now costs little more to pick up a six-pack of a popular beer than to buy a six-pack of name-brand soda.

Strangely though, the industry is in about as much ferment as the bubbling wort in a brewer's tank. Small and some not so small regional brewers are constantly going under or at best being bought out by healthier competitors. Main reason: they cannot stand the competition of the Big Five: Anheuser-Busch, Jos. Schlitz, Pabst, Coors and Miller. The rivalry keeps industry prices and profit margins so low (3.8% of sales for Anheuser-Busch) that only the best-managed companies can survive. As a result, the five have increased their share of total barrelage from 55.5% in 1972 to 63.6% last year. But life is not altogether placid for them either; they are locked in a fierce battle for sales and profit supremacy that has some mercurial ups and downs.

High Attrition. By one measure, the beer industry for decades has been shrinking faster than it has been growing. About 700 companies began brewing beer legally when Prohibition ended in 1933; today there are only 54, operating some 100 breweries. The attrition rate is still high, and it is even beginning to include some of beer's biggest names. Falstaff Brewing of St. Louis, for instance, had raised itself to fifth place in 1972 by swallowing, over a period of years, brewers of such popular regional beers as Rhode Island's Narragansett and New Jersey's Ballantine. The expansion cost dearly: Falstaff lost a total of $11.9 million in 1972 and 1973 alone. This spring Paul Kalmanovitz, owner of San Francisco's General Brewing Co., bought control of Falstaff for $10 million. Other 1975 brewery turnovers: Theodore Hamm Co. of St. Paul, once tenth in the industry, bought out by Washington's expanding Olympia Brewing Co.; and C. Schmidt & Sons of Philadelphia, currently being taken over by G. Heileman Brewing Co. of Wisconsin, which also brews Blatz and some 30 other brands.

Many insiders predict that many more consolidations will take place, unless the trust busters become much stricter than they have been. "Brewing takes a lot of money," observes one Milwaukee supplier to the industry. "It's a big man's game." So big, in fact, that Wall Street Analyst Joseph C. Frazzano predicts that the top five will have more than 95% of the market by 1985.* Others disagree. Says Schlitz President and Chairman Robert Uihlein Jr.: "Smaller companies can do very well if they are well run, if they make a good product and have good public relations."

Accent on Taste. Strategies for the struggle show dramatic differences even among the Big Five. Top-ranking Anheuser-Busch, which commanded 23% of the market last year, almost religiously hews to its traditional brewing methods, including use of expensive ingredients, such as all-natural hops, and time-consuming secondary fermentation to carbonate the beer naturally, a process long abandoned by many U.S. brewers. Some critics complain that the methods cost too much: profit on stockholders' equity has been, for the past several years, lower than that of runner-up Schlitz. But August A. Busch III, 38, president and new chief executive officer, insists that the methods guarantee good taste, "and ultimately, the beer drinker will choose taste." One result, he says, is apparent in the company's gains in the first half of 1975: sales up 22%, profits 33%. Michelob is selling so fast in some areas that dealers cannot keep it on the shelves.

Schlitz, on the other hand, has aggressively pursued efficiency through a broad modernization program, including the use of high-temperature brewing, which cuts production time and heavily automated plants that have earned the name "beer factories." Schlitz plans to spend at least $180 million on improvements this year, but profits for the first half of 1975 were more than 50% below a year earlier. Reasons: higher costs for packaging and brewing materials and a strike at five Schlitz breweries this spring that severely reduced shipments.

Meanwhile, says Peter Stroh, president of Detroit's Stroh Brewery Co., other contenders are striving to "make sure they are around after the industry shakes out." Pabst had a sensational first half of 1975--sales up 27%, profits 46%--as it expanded into a more national market. Miller, a subsidiary of Philip Morris, is pushing a $250 million expansion program that ultimately will double its capacity and is having a foaming success with a new brand, Miller Lite (96 calories per can, v. the standard 151). Dealers in the West, Southeast and Midwest report they cannot keep enough of it in stock to satisfy demand.

As for the current chic favorite, Coors, the company's production increased an average of 14% annually from 1970 to 1974; in the past decade, it has moved from twelfth to fourth place in the industry. Last week the firm made a different sort of news when former Vice President Spiro Agnew showed up at the Coors Brewery in Golden, Colo., with Golfer Doug Sanders. The two had come to apply for a Coors distributorship in Texas, where Sanders lives. Whether they will get one is in doubt, but apparently Agnew is still a man to jump on a bandwagon.

* While imports have almost doubled in the past decade, they account for less than 1% of the beer drunk in the U.S.

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