Battling Brewer

Heileman takes over Schlitz

After two days of grueling strategy sessions last month, the year's "top gunner" received a violin case containing a Thompson submachine gun. A meeting of Mafia dons? No, it was just the annual sales convention of the G. Heileman Brewing Co. in La Crosse, Wis. The violin case was given to dramatize Chairman Russell G. Cleary's philosophy: "The beer business is a war."

Casualties from that conflict are many. In the past 30 years, the number of U.S. breweries has shrunk from 380 to 42. But Heileman (1980 sales: $722 million), once only a small Midwest brewer, has become one of the leaders of the American beer industry. During the past five years, Heileman's annual production has jumped from 4.5 million bbl. to 13.3 million bbl. The company last week scored another major coup, by taking over Jos. Schlitz Brewing Co. of Milwaukee, the fourth largest brewer in the U.S. If the deal is approved by Schlitz stockholders, Heileman will become America's No. 3 brewer by fall, behind Anheuser-Busch (1980 sales: $3.3 billion) and Miller Brewing Co ($2.5 billion).

As recently as 1976, Schlitz was the second biggest brewer (following Anheuser-Busch). But its sales started sinking after 1976, in part because the company switched to a cheaper brewing process for its beer, substituting corn syrup for some barley malt. Many traditional Schlitz drinkers complained that the new beer tasted poor and switched to other brands. Though the company has since restored the slower, more careful method of brewing, sales in barrels in 1980 were still about 40% below the 1976 peak. The ultimate indignity came last week, when Schlitz announced that it is permanently closing its Milwaukee brewery because of excess production capacity. "The beer that made Milwaukee famous" will no longer be brewed there.

While Anheuser-Busch, Miller and other leading brewers have been using expensive national campaigns to reach the whole U.S. market, Heileman has gone countertrend and built up a network of regional breweries. Among its 30 labels: Old Style and Blatz in the Midwest; Rainier in the Pacific Northwest; and Carling Black Label and National Bohemian in the East. In addition to being favorites of beer-can collectors, the brews attract a large and loyal audience of people who prefer to drink a local product.

Heileman's brands also sell at competitive prices, even when the national labels engage in cutthroat discounting. The company keeps costs low in part by holding down its advertising budgets. Unlike its bigger rivals, Heileman's ads do no feature entertainers or sports stars. Say; Cleary: "We make the beer the hero." Heileman ads emphasize the quality of the beer and sometimes include taste tests with famous brands.

Cleary, a Wisconsin native and a lawyer by training, enjoys his role as the little guy in a battle with giants. He set on his strategy of buying up local breweries when he became president in 1971, not long after Philip Morris Inc. bought Miller Brewing and began an aggressive assault on Anheuser-Busch. Cleary concluded that regional beer firms, like Heileman, had to grow quickly or be wiped out by the two major companies. Says he: "The problem is that you can get locked into one piece of geography, and if the big guys get into a fight, they're going to spill all the blood on your ground."

Cleary started first in the Midwest, buying Grain Belt beer in Minnesota, and Sterling and Drewrys beers in Indiana. In 1977 he moved across the Rockies to acquire Rainier in Washington State. Then in 1979 he picked up Carling National, a leading East Coast brewer. Since Schlitz has a wide following in the South and in California, Heileman has now established a nationwide chain of regional brands.

Moreover, Cleary has shown that his beers are able to hold their own in the war against giants Anheuser-Busch and Miller. In 1973 Schlitz and Anheuser-Busch's Budweiser each had 20% of the prime Chicago market, while Heileman's Old Style captured only 10% of sales. Old Style in 1980 outsold Budweiser, Schlitz, Pabst Blue Ribbon and Miller High Life combined.

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