City Brewing Company LLC

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City Brewing Company LLC

925 South Third Street
La Crosse, Wisconsin 54601
U.S.A.
Telephone: (608) 785-4200
Fax: (608) 785-4300
Web site: http://www.citybrewery.com

Private Company
Incorporated: 1858
Employees: 220
NAIC: 312120 Breweries

City Brewing Company LLC is one of the leading small regional beer breweries in the United States. The company was formerly the G. Heileman Brewing Company, which was a powerful midwestern beer manufacturer for much of its long history. Heileman rose to become one of the nation's largest beer companies by the 1980s, but then suffered through two bankruptcies and several changes of ownership, until its brands were sold off in 1999. City Brewery was then resurrected out of the remaining Heileman physical plant in La Crosse, Wisconsin. City Brewery produces several of its own beer brands, including City Lager and La Crosse Lager, and the company also brews and bottles for other beverage makers through its Midwest Beverage Packers division. Contract brewing and beverage packaging is actually by far the greater part of City Brewery's business, with only 2 to 3 percent of the company's capacity going to its own brands. City Brewery's own brands are sold principally in Wisconsin, Minnesota, Iowa, and northern Illinois.

From the 1850s Through Prohibition

Two German immigrants founded City Brewery in 1858 in La Crosse, Wisconsin. John Gund bought a small brewery in La Crosse in 1854 after leaving a brewery business in Galena, Illinois. Then in 1858 he formed a partnership with Gottlieb Heileman to build a new brewery in La Crosse, on the corner of Third and Mississippi Streets. This business was called City Brewery until 1872, when Gund sold Heileman his share and founded another La Crosse brewery, Empire Brewery. City Brewery then continued under the name G. Heileman Brewing Co. Gottlieb Heileman died in 1878, and his widow Johanna carried on the business. By 1880 G. Heileman was the third largest brewery in La Crosse, producing some 2,500 barrels of beer a year. In 1902 the company copyrighted its Old Style lager, which went on to become one of its most popular products. The company was run by R.A. Albrecht from 1911 until 1933. Johanna Heileman died in 1917.

The United States enacted Prohibition in 1919, and from January 1920 until the Prohibition amendment was repealed in 1933, the manufacture and sale of beer and other alcoholic beverages was banned nationwide. Many breweries went under during this time, but Heileman survived by manufacturing a nonalcoholic drink called "near beer." Heileman was able to continue to brew throughout Prohibition and to keep its physical plant in fine shape by switching to near beer, and as a result, when Prohibition was repealed, the company had no difficulty going back to regular beer. The company was reorganized as a public company on the New York Stock Exchange in 1933, and Harry Dahl became president. By 1934, G. Heileman had doubled the output of its best years before Prohibition. The company extended its business outside the Upper Midwest, shipping as far west as Montana. The company began selling some beer in cans in 1935, instead of only in oak barrels or glass bottles.

Becoming a National Player: 1950s–80s

G. Heileman named a new president in 1936, Albert J. Bates. Bates led the company through World War II. Bates moved the brewery into producing beers with broader consumer appeal and lower price. This apparently did not go well with G. Heileman's longtime customers, and sales fell. A new president, Ralph Johansen, took over from Bates in 1951. He was replaced by Roy F. Kumm in 1956. Kumm and his son-in-law Russell Cleary were credited with moving G. Heileman from a regional brewer to a big national company with a large stable of brands and subsidiaries in all corners of the country.

In 1960, G. Heileman relied on only two beer brands, Special Export and Old Style. Heileman's sales were concentrated in Wisconsin, Iowa, Minnesota, and Illinois. At that time, the beer industry was highly fragmented, with many small regional breweries selling in their local markets, while five big companies among them controlled a third of the total beer market nationwide. Faced with this market picture, Heileman decided that its best strategy was to grow big enough to compete nationally. The company bought a Kentucky brewer, Wiedemann, in 1967 and then bought a large but ailing Milwaukee brewer, Blatz, in 1969. In 1971, Roy Kumm died, and he was succeeded by Cleary in the presidency. By that year, the company was selling ten different beer brands, and it had extended its market through the Midwest into Indiana, Ohio, and Michigan, and was selling in the South, too, at least as far as Kentucky, Tennessee, and West Virginia.

Cleary had been trained as a lawyer and served as Heileman's general counsel while his father-in-law was president. Apparently, many in the beer industry regarded him as an outsider who had only made it to the top of the company through his family connections. Yet Cleary seemed to have a better grasp of beer industry dynamics than many ostensibly more qualified executives, and G. Heileman did extraordinarily well throughout the 1970s. Its sales volume increased on average 11 percent a year through the decade, and the company made more acquisitions and achieved more market share, while some of the country's leading brewers were beginning to have trouble. The company made a total of 13 acquisitions between 1960 and 1980, and the company was the sixth largest brewer in the United States by 1979. As Heileman acquired other brewers, it was able to bring its raw materials costs down by buying on a larger scale. The company spent relatively little on advertising, concentrating its money on only a few brands in a few major markets. Its Old Style beer moved up from controlling 10 percent of the Chicago market in 1973 to more than 30 percent by 1979. This venerable brand accounted for 40 percent of Heileman's sales volume by the late 1970s. Heileman had 34 total beer brands by the end of the 1970s, including Colt 45 malt liquor, Black Label, Schmidt, Rainier, Blatz, and Sterling. A few of these brands, including Old Style, Special Export, Rainier, and Schmidt, were regarded as premium beers, and they sold in large quantities. Some of the remaining Heileman brands were small regional or seasonal sellers, yet these brands were often nicely profitable. By the late 1970s, Heileman seemed poised to overtake Coors and become the fifth largest U.S. brewer. It was still gaining in sales at a time when three of the top five largest brewing companies lost sales and saw declines in profits. G. Heileman's sales had risen from about $100 million in 1970 to $330 million in 1978.

Between the late 1970s and the early 1980s the company did even better. Earnings grew on average 35 percent annually between 1976 and 1983 as the company continued to make acquisitions. By 1985, G. Heileman had sales of $1.2 billion, and it had become the nation's fourth largest brewery. Yet by the mid-1980s, the beer market had started to slump, with beer drinking on the decline and the top five brewers locked in an apparent stalemate over the 85 percent of the market they jointly controlled. Heileman remained a powerhouse in the Midwest, where half the nation's beer was consumed, but it had difficulties pressing into the growing Sunbelt states. The company's plants ran at only 75 percent capacity in 1985, as it could not sell all the beer it could make. The company diversified, moving into snack food manufacturing and then into the production of precision metal parts for vehicle engines. Heileman's nonbrewing division accounted for about 15 percent of sales. The company continued to have strong cash flow and relatively little debt, but there was no doubt that the beer market had become stagnant by the late 1980s.

A Takeover and Two Bankruptcies in the Late 1980s and 1990s

Despite clear competitive difficulties, G. Heileman continued to grow in 1986, with an earnings gain of more than 11 percent over the year previous, even as other big brewers sold their beer below production cost to sustain market share. The company had a strong cash flow, and Heileman responded to the dwindling beer market with new products such as mineral water and nonalcoholic beers. Then in 1987 G. Heileman was taken private in a leveraged buyout by Bond Corporation Holdings, an Australian company run by entrepreneur Alan Bond. Bond paid $1.3 billion for Heileman, and was successful in its bid even after the Wisconsin legislature took action to prevent the brewery falling into foreign hands. Bond owned a string of Australian breweries, and G. Heileman became the crown of the company's U.S. holdings. But in a saga that was repeated often in the 1980s, the leveraged buyout, in which the acquired company's cash flow is used to service the debt incurred by the acquisition, almost instantly put Heileman under an overwhelming burden. The amount of debt Heileman took on when it was acquired by Bond was first said to be $850 million, but by 1990 that figure had been revised upward, to more than $1 billion. In 1988, Heileman lost $5 million, and in 1990, with sales of slightly less than $800 million, the company was in the red by $126.7 million. Bond Corp. Holdings had its own difficulties, as Alan Bond was forced to resign in mid-1990 and the company sold its Australian brewing assets. Bond Corp. lost a spectacular $740.7 million that year, the largest loss in Australian history. In January 1991 G. Heileman filed for bankruptcy, listing debts of $1.4 billion and assets of $1.24 billion.

Company Perspectives:

To be the leader in co-packing excellence for the beer and beverage industry.

Heileman continued operating while bankrupt, though its market share sank and its president resigned. Its creditors owned 67 percent of the company after the bankruptcy reorganization. Then in 1993 a Texas firm known for its leveraged buyouts bought the company for $390 million. Hicks, Muse & Co. paid what amounted to a fire sale price for the company that had gone for $1.3 billion six years earlier. Hicks, Muse intended to bring Heileman back into viability, and it placed at the top a man who had turned around other ailing Hicks, Muse purchases. When Bill Turner became CEO, he instituted a number of strategies aiming to bring back market share. Turner launched a slew of brand extensions, such as "Ice," "Light," and "Genuine Draft" versions of existing Heileman labels. Heileman also came up with many new brands, in a bid to compete with the growing presence of small microbreweries. Between 1993 and 1995 when he resigned, Turner had proposed as many as 150 product and packaging changes. Some of these new products were disastrous, such as a menthol-flavored Colt 45 malt liquor, which was allegedly so nasty that "… alcoholics on the sidewalk are turning it down," according to a beer wholesaler quoted in a Brandweek (February 6, 1995) profile of Heileman. Aside from the slew of new products, Turner also brought in several new top executives, including former president Russ Cleary, who had retired. None of these men lasted long, and in 1995 Heileman was led by Lou Lowenkron, who had formerly run the soft drink manufacturer A&W.

Despite creative attempts to revive the company, Heileman was still beset by dwindling market share and high debt. In late 1995, Heileman announced that it would not be able to meet next quarter's interest payments, and it planned to either sell assets or merge with another company. In 1996 the company filed bankruptcy for the second time, and it was then acquired by the nation's fourth largest beer maker, The Stroh Brewery Company.

Stroh obviously knew how to manage a beer company, having prevailed when rivals such as Pabst and Heileman struggled. Stroh used Heileman's huge La Crosse plant to brew several non-Heileman brands under contract, while it closed some unprofitable Heileman facilities in the West and South. The national beer market remained stagnant in the mid-1990s, and even small specialty brewers such as Boston Beer Co., maker of the Samuel Adams brand, began to report slower growth. Small brewers including Boston Beer and Pete's Brewing Co. had seen lively growth while the biggest makers held steady or contracted, but even the specialty beer segment slowed somewhat in the middle to late 1990s. In 1999, Stroh Brewery Company announced that it would stop making beer, and sell its brands and some of its plants to competitors. Miller Brewing Co. and Pabst Brewing Co. between them split up the Heileman brands, and it seemed like Heileman's flagship La Crosse brewery would close.

New Life As City Brewery in the 2000s

Heileman's La Crosse plant had operated at Third and Mississippi streets since 1858. On August 8, 1999, the brewery closed, leaving some 500 employees without jobs. But the brewery reopened a few months later, now as City Brewery. A New York-based investment firm, Platinum Holdings, had raised $10.5 million to acquire the facilities. Platinum was fronted by James Strupp and a native of the La Crosse area, John Mazzuto. The new company started small, hiring back 52 former Heileman employees, and hoped to have several hundred La Crosse residents back at work within six months. The company launched four new beer brands, two so-called premium brands, City Lager and City Light, and two so-called super-premium brands, La Crosse Lager and La Crosse Lager Light. The initial market area was to be the city of La Crosse itself, followed by western Wisconsin, and then the Upper Midwest. This was a business on a far smaller scale than the old Heileman.

Unfortunately, the new owners quickly ran into trouble. The investors had borrowed about $900,000 from the city of La Crosse, which naturally was very interested in keeping a large local employer afloat. Platinum also had borrowed $4.5 million from a Chicago bank. Already in March 2000, City Brewery fell into default on the loans from La Crosse, and a few months later, the Chicago bank foreclosed. By July, the plant was unable to pay its bills, buy supplies, or give its workers their paychecks. Mazzuto and Strupp hoped to raise more cash to put into the business, but meanwhile, production at the plant stopped.

Key Dates:

1858:: Gund and Heileman found City Brewery in La Crosse.
1872:: Heileman buys out Gund; the company is renamed G. Heileman.
1902:: The Old Style brand is copyrighted.
1933:: The company goes public under new ownership as Prohibition ends.
1956:: Heileman begins national expansion under President Roy Kumm.
1971:: Kumm's son-in-law Cleary becomes president, continues expansion.
1987:: Heileman is taken private by Australian company Bond Corp. Holdings.
1991:: Overloaded with debt, Heileman declares bankruptcy.
1993:: Heileman is bought by Texas investment company Hicks, Muse.
1996:: Heileman declares bankruptcy for the second time and is bought by Stroh.
1999:: Stroh sells the Heileman brands; Platinum Holdings buys the La Crosse plant and changes the name back to City Brewery.
2000:: Struggling City Brewery is bought from Platinum by La Crosse investors.
2004:: Company is a leading "third tier" brewer in the United States.

In November 2000, City Brewery President Randy Smith and 11 other investors put together $9 million to buy out Platinum Holdings. With the help of loans from the city and county, the new investment group got the company back on its feet. The former Heileman plant was producing six brands of beer by mid-2001, employing 185 people. The company also had eight contracts with other beverage makers to manufacture and bottle their products on contract. A year later, City Brewery had close to 300 employees and was producing at least 1.2 million barrels of beverage annually. Only 2 to 3 percent of the brewery's production was its own brands, meaning it did the bulk of its business contracting its plant to other makers. Its contract work included making Arizona Iced Tea for the New York company Ferolito, Vultaggio & Sons, and making some beer brands for Pabst. One of the brands City Brewery made for Pabst was the former major Heileman brand Special Export. By 2003, the company seemed to be doing well. It was by that time the second biggest brewer in Wisconsin, and it had paid off all its loans from the city of La Crosse and from the county and state governments. City Brewery was very interested in pursuing contracts for nonalcoholic products such as energy drinks and tea, since that niche was seeing growth within the beverage sector. By 2004 the company had become one of the leading brewers in what brewery analysts called the "third tier" of U.S. breweries. Competitors included the maker of the Samuel Adams brand, Boston Beer Co., and the owner of Pete's Wicked Ale and other brands, the Gambrinus Co. By the mid-2000s, the company was closer in aspect to what it had been in the 1850s than to Heileman in its heyday in the early 1980s. It was essentially a craft brewer, making a small number of brands that were sold in Wisconsin and surrounding states. But it was also a prominent contract brewer, able to produce a wide variety of beverages for companies across North America. The many changes in ownership after 1987 had marked hard times for the company, yet it seemed to have a solid formula for success in its new guise as City Brewery in the 2000s.