The Decline and Fall of the Stroh Family Beer Business

Great wealth, like the seasons, is ephemeral.  One generation accumulates it.  While another burns through it.  The difference is dependent upon whether one has a short or long time horizon.

Do they save some seed corn for the next grow season?  Or do they munch it all down in a great big holiday feast?  Of course, the person who saves some seed corn ultimately grows wealthier…though some can’t get past their instant desires.

Others take undue risks with the family wealth.  Rather than preserving capital, they draw it down chasing foolish schemes to make more.  No doubt, these riches to rags stories are the most endearing.

The June 21 edition of Forbes Magazine tells the tale of the Stroh family’s methodical rise and swift disappearance from the beer brewing business.  “It took the Stroh family over a century to build the largest private beer fortune in America,” begins the print edition of the Forbes article titled, How to Blow $9 Billion.  “And it took just a few bad decisions to lose the entire thing.”

How could a family, whom the gods smiled sunshine upon for over a century, meet such a hapless demise?  That is the burden of today’s contemplations.

A Bright Idea

Mean reversion.  Sticking with what you know.  Not getting too big for your britches.  There’s much instruction to be garnered from the Stroh experience…  What follows is an attempt at some anecdotes and insights.

Bernhard Stroh landed in Detroit in 1850 with something much, much more than ingenuity and a dream.  For Bernhard brought with him from Germany the treasured Stroh family beer recipe.  What’s more, he knew how to sell it…and his sons did too.

“For its first century the Stroh beer business, based in Detroit, grew by following the basics: respect your customers; respect your employees.  The former meant catering to Midwest working-class tastes at working-class prices.  The latter meant treating every employee like an honorary member of the clan.”

What worked for Stroh was taking a long time horizon.  Wealth was built by incrementally acquiring and growing a loyal and devoted regional customer base.  Yet, for some reason no one will ever know, Peter Stroh, upon becoming CEO in 1980, had the bright idea not to continue with what worked…but, rather, to grow into a national brewer through acquisition.

Stroh bought Schaefer in 1981.  The following year they bought Schlitz.  On surface everything about these deals looked great.  “Forbes valued the company at $700 million in 1988, listing the Strohs with one of the largest family fortunes in the U.S. at the time, shared by 30 relatives.”  But, alas, these deals turned out to be the Family’s undoing.

The Decline and Fall of the Stroh Family Beer Business

The high water mark for the Stroh family was reached in the late 1980s.  The great shortcomings of the Schaefer and Schlitz acquisitions were the acquisitions themselves…they were financed with large amounts of debt rather than savings.  Peter Stroh had gotten too big for his britches.

With little marketing budget left over after servicing debt and operating costs, a valuable insight came to Peter early one morning.  Acquiring national customers is expensive.  Moreover, unlike regional customers, national customers are fickle.

Stroh Brewery Company couldn’t compete for advertising with big spending national marketers Anheuser-Busch and Miller.  Then, in 1989, the layoffs began…followed by a decade of desperate attempts to turn the business around.  However, with each attempt to right the sinking ship, the company took on more water.  In 1999 the 150 year old Stroh family beer business was sold off at fire sale prices.

Today, the Stroh family business or any collective financial entity doesn’t exist.  “While there was enough cash flowing for enough years that the fifth-generation Strohs still seem pretty comfortable, the family looks destined to go shirtsleeves-to-shirtsleeves in six.”  In other words, the Stroh family has reverted to the mean…

“Hard as it is to build a family business designed to last in perpetuity, it’s shockingly easy for any successor to tank it.”

This goes for nations too.

Sincerely,

MN Gordon
for Economic Prism

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