Beer Brawl Part II: How Gusto Lost Its Mojo
(This is Part II. To read Part I, click Beer Brawl: The Birth Of The Brands. )
At the conclusion of Part I, Budweiser and Schlitz had spent some seven decades battling for the title of America’s bestselling beer. Bud took the title in the 1960s, but the 1970s brought unexpected challenges and change.
The baby boomers lack of enthusiasm for hard liquor was a boon to America’s beer makers. But while both the Joseph Schlitz and Anheuser-Busch brewing companies were hugely successful, neither was outrageously profitable. Brewing is an expensive process that requires a unique combination of high quality ingredients and time. Shortchanging either is risky business.
As the supercharged economy of the 1960s sputtered into the slumping ’70s, the cost of the grains used to make beer rose dramatically–while President Nixon’s wage-and-price controls prevented brewers from hiking their own prices. Exasperated executives at the best-known brands pored over the numbers and searched for ways to shore up sagging margins.
Schlitz Chairman Richard Uihlein Junior decided that he had the answer. Unlike the Uihleins of old, Richard Jr. messed with the recipe. Uihlein decreed that cheap corn syrup could stand in for a high percentage of pricy malted barley. He demanded that low-cost, processed “hop pellets” replace hops on the ingredient-shopping list. And he dramatically shortened the brewing schedule of his flagship product. Uihlein was warned that the taste and quality of Schlitz would suffer, but he was having none of it. This was a man who prided himself on his Harvard degree and his polo playing abilities. As far as he was concerned, the average beer drinker wasn’t sophisticated enough to tell the difference between old Schlitz and new. Besides, the changes would be made incrementally, ensuring the public would never catch on. Executives who dared to disagree were quickly canned in one of the chairman’s endless re-orgs.
For the briefest of moments, it appeared that Uihlein was right. Output exploded. Profitability skyrocketed. The share price soared. Wall Street hailed Schlitz as a model of efficiency and innovation. Anheuser-Bush was dismissed as a tradition-bound dinosaur. But who cared about boxing with Budweiser for market share with fat new margins like these? Incredibly, the suits didn’t see that they were punch-drunk with self-delusion.
It only took beer drinkers a few sips to realize that Schlitz suddenly tasted funny and spoiled quickly. And they let Milwaukee know it. Uihlein dug in his heels. Refusing to return to the old recipe, the company tried to solve the new brew’s issues with a series of unappetizing chemistry tricks. Each had more disastrous consequences than the last. By the time new and improved Schlitz included unexpected extras like snotty mystery strands and creepy floating flakes, it was too late.
Sales tanked. Market share evaporated. The stock price went down the drain. Tens of millions in profits became tens of millions in losses. Quality sank so low that even Uihlein could no longer deny it. Word leaked out that the brewery was secretly destroying millions of bottles of defective product. Betrayed by their beloved brand, heartbroken Schlitz drinkers found other beers to call their own.
Then, while he was in the midst of shipwrecking his family’s business, the downside of tragedy doubled-down on Richard Uihlein Junior. Doctors discovered he had leukemia. Days later, he was dead. Astonished industry watchers shook their heads and wondered how soon they would be reading the obituary of the Joseph Schlitz Brewing Company as well.
(This concludes Part II. Click now to read Beer Brawl III: Drink It Or Else.)
Posted by Bill | 4 comments