The Gambrinus Company

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The Gambrinus Company

14800 San Pedro Avenue
San Antonio, Texas 78232-3733
U.S.A.
Telephone: (210) 490-9128
Fax: (210) 490-9984

Private Company
Incorporated: 1986
Employees: 300
Sales: $425 million (1999 est.)
NAIC: 42281 Beer and Ale Wholesalers; 31212 Breweries

Based in San Antonio, Texas, The Gambrinus Company imports, brews, and distributes beers on a regional and national basis. The company is owned by its chief executive officer, Carlos Alvarez, who was instrumental in introducing the Mexican beer Corona Extra to the United States. It is now America’s top imported beer, after surpassing Heineken in 1997. Gambrinus is licensed to distribute Corona in Texas and the states east of the Mississippi River. Canada’s Moosehead beer became the company’s first nationally distributed import. Gambrinus expanded beyond the distribution side of the business in 1989 when it began to purchase small specialty breweries. The company owns America’s number two craft brewer, Pete’s Brewing Company, maker of Pete’s Wicked Ale.

Beginning of Gambrinus Company: 1986

The founder and owner of The Gambrinus Company, Carlos Alvarez, grew up in Acapulco, Mexico. He went to work for the Modelo brewery, located in Mexico City, starting out in the sales department. By the late-1970s he had risen to become the company’s export director. He convinced Modelo to sell its Corona Extra beer outside of Mexico. First imported to the United States in 1981, Corona caught on mostly with a younger demographic and soon enjoyed explosive growth. By 1985 sales reached five million cases. A year later 13 million cases of Corona were sold in the United States.

It was in 1986 that Alvarez left Modelo to distribute Corona on his own, creating The Gambrinus Company, named after the mythic Flemish king known for his love of beer. Alvarez was granted Corona distribution rights in Texas and 24 eastern states. Barton Brands Ltd. of Chicago controlled the rest of the country. Corona continued its extraordinary growth during 1987, reaching 20 million cases sold, with Barton distributing the beer throughout its 25-state territory and Gambrinus only selling in Texas and five eastern states. The beer was so popular that in many instances it had to be rationed to bars, restaurants, and stores. Corona eclipsed Canada’s Molson as America’s number two imported beer and appeared poised to pass the Netherlands’ Heineken, which according to the beverage industry publication Impact had been the top selling import since the repeal of Prohibition in 1933.

Corona, however, would become a victim of its own success. Lacking market data, Gambrinus and Barton did not really know who was buying Corona and why. Its growth was a flash explosion, rather than something sustainable. Drinking Corona had become a fad, as a number of consumers simply tried the beer then returned to their usual domestic brand. To make matters worse, Corona became the subject of unfounded rumors. In the eastern distribution territories, the word was that Corona was heavy on calories, a charge that Gambrinus answered with full-page ads to set the record straight. The problem in Barton’s territory was more troubling and difficult to address: the story churning through the rumor mill was that either ABC’s 20/20 or CBS’s 60 Minutes reported that Corona beer was contaminated by urine. Sales dropped in markets as the rumor spread. Despite the danger of simply spreading the rumor further by fighting it, Barton aggressively went after rival distributors that it accused of starting the rumor, demanding letters of retraction and threatening to sue any other distributors that could be linked to the rumor. It also publicized the results of a beer-testing company, which found Corona free of contaminants.

Although the rumors were dispelled, Corona sales plummeted in 1989. The importers stayed the course with the beer’s “vacation in a bottle” message and simply waited for the fad drinkers to leave the market and allow the brand to build on it base of loyal customers in a sensible manner. Gambrinus had an additional problem in its eastern states by charging the same price as Heineken. Market research indicated that consumers believed a Mexican beer should be priced cheaper than a beer imported from Europe. When in late 1990 and early 1991, a federal excise tax was increased, Gambrinus recognized a chance to make a price adjustment. The distributor convinced Modelo, as well as wholesalers and retailers, to absorb the tax increase, which amounted roughly to 50 cents per six-pack. Barton did not follow suit, but later in the year it decided to absorb a California statewide tax hike. Aided by an increased marketing budget, Corona was then able to renew its pattern of growth, which many in the beverage industry had thought to be highly unlikely.

Acquisition of Spoetzl Brewery: 1989

In addition to Corona, Gambrinus distributed several other Modelo beers and in 1989 entered the brewery business itself with the purchase of the Spoetzl Brewery, maker of Shiner Beer, located in the small town of Shiner, Texas. Alvarez became aware of Spoetzl’s signature beer, Shiner Bock, when using Austin as a test market for Corona. Shiner had something of a cult following among the city’s young adults and was making inroads in Houston and Dallas. Alvarez began negotiations to buy the brewery from the Great Texas Brewing Company, created by a group of Houston investors who had purchased Spoetzl in 1984 and were now looking to sell. One of the partners, who was devoted to the brewery almost to the point of obsession, however, refused to sell and went to court to block the Gambrinus deal. Eventually Alvarez would have to pay $3.5 million for an operation that, based on its annual revenues, was worth around $1 million. In the end, he paid the price because he liked the beer.

The town of Shiner, Texas, was established in 1888 when Henry B. Shiner donated land for a railroad right of way and a town site in Lavaca County. The rich farming area attracted German and Czech immigrants. A group of local investors created the Shiner Brewing Association in 1909 in order to satisfy the immigrants’ taste for Old World beer, but the brewery failed to produce a suitable product. In 1914 the Association brought in Kosmos Spoetzl, a Bavarian brewmaster with his own family recipe, and leased the facilities to him. A year later he purchased the brewery that would then bear his name.

Spoetzl was hardly aggressive in marketing Shiner beer, mostly driving around in his truck, accompanied by his dog, giving away samples to farmers as they worked, or at community gathering places. Selling in a 75-mile range of Shiner, Spoetzl was starting to succeed with his beer when Prohibition went into effect. Until repeal the brewery managed to survive by making ice and producing “near beer,” which contained an allowable 0.5 percent of alcohol. Local legend maintained that Spoetzl would occasionally forget to boil off the alcohol in select batches. When regular beer production resumed in 1933, Spoetzl became prosperous enough to replace the original wood and tin building with a stone structure. With her father’s death in 1950, Spoetzl’s daughter Cecelie ran the brewery until 1966 when the business passed out of family hands and a succession of owners then struggled to keep the operation profitable.

Although Alvarez had no intention of tampering with the brewing process, he made other changes as soon as Gambrinus took over the Spoetzl Brewery. He canceled all of the contracts to brew other companies’ brands, even though the work amounted to one-quarter of the brewery’s annual revenues. Alvarez anticipated that he would need all of his production capacity to support the projected demand in Shiner beers. He also canceled all out-of-state agreements for Shiner beers, which had been sold to anyone willing to buy a shipment, even as far away as Arizona and Ohio. Alvarez wanted to make sure that the product was handled properly, and so for the sake of quality control and long-term growth he contracted the sales territory. Finally, and to some observers the most surprising move, he immediately raised the price of Shiner beer, which under the previous owners had cost less than Budweiser and now cost 75 percent more. Alvarez wanted to position the product in the premium category, and although Shiner beer had a loyal following that might be disenfranchised, it was small, and Gambrinus stood to gain considerably by establishing the higher price with customers unfamiliar with the brand.

Gambrinus also invested millions to upgrade the facilities. It added new fermentation tanks, created the brewery’s first testing laboratory for quality control, and built a new warehouse. The changes made by new ownership soon began to show results. The brewery produced 35,000 barrels in 1990, but by 1995 the number had increased to 138,000, as Shiner Bock became America’s best-selling bock beer. Spoetzl was now the largest specialty brewery in the Southwest and the seventh largest in the country.

Addition of Bridgeport Brewery: 1995

With the rising popularity of specialty beers, the three major industry giants—Anheuser-Busch, Miller, and Coors—looked to create their own internal specialty product lines or to simply buy up the microbreweries. Gambrinus, with its Spoetzl operation in sound shape, became involved in this consolidation of the craft brewer segment by purchasing the BridgePort Brewing Company in 1995. BridgePort was the oldest operating microbrewery in Oregon, an area which had become a hotbed for craft brewing.

Key Dates:

1981:: Corona Extra is introduced in U.S. market.
1986:: Gambrinus Company is started.
1989:: Spoetzl Brewery is acquired.
1995:: Bridgeport Brewing Company is acquired.
1997:: Moosehead becomes company ’ s first nationally distributed import.
1998:: Pete’s Brewing Company is acquired.

BridgePort was established in Portland, Oregon, in 1984 as the Columbia River Brewery by wine-makers Dick and Nancy Ponzi. They hired Karl Ockert, a University of California, Davis Brewing graduate, to build and run the brewery. His recipe for BridgePort Ale proved popular and fueled the brewery’s growth. In 1986 the company changed its name to BridgePort Brewing Company and opened the BridgePort BrewPub to the public. It introduced a number of craft beers, which it began to bottle in 1989 and distribute to retail stores in Oregon and Washington. Other area microbreweries, however, expanded more rapidly through public offerings of their stock. They surpassed privately funded BridgePort, which never devoted money to promotions or marketing. The Ponzis knew they either had to curtail expansion plans, step up their commitment, or sell out to a company with deeper pockets and better sales and marketing capabilities. In the end, they chose to sell the business to Gambrinus.

Gambrinus, as it had done with Spoetzl, instituted a number of immediate changes. It brought back Ockert, who had left BridgePort in 1990, to run the brewery; it invested $3.8 million in equipment, including a new bottling line and a quality control laboratory; it pulled BridgePort from weaker markets, then redesigned the packaging and paid to create a new proprietary bottle; and it instituted the first-ever advertising campaign for BridgePort beers.

In 1997 Gambrinus gained its first national distribution deal for an imported beer when it acquired the distribution and marketing rights for Canada’s Moosehead beer from the Guinness Import Corporation. Despite industry insiders who discounted the possibility of reversing the trend of declining sales with Moosehead, Gambrinus looked to apply some of the lessons it had learned with Corona beer.

In the meantime, Corona sales were so strong that Modelo decided to renew import rights with Barton and Gambrinus for an additional ten years, despite the fact that Anheuser-Busch now owned a major stake in the Mexican brewer and was itself interested in acquiring the distribution rights to Corona. Modelo had good reason to be pleased with its American partners. In 1997 Corona passed Heineken to become the largest-selling imported beer in the United States. Building on its U.S. success, Corona was now sold in more than 140 countries and had become the top-selling Mexican beer in the world and the fifth largest overall.

Gambrinus added to its brewery businesses in 1998, purchasing Pete’s Brewing Company for $69 million. Although a strong second to microbrewer Boston Beer, makers of the Sam Adams line of beers, Pete’s struggled in an environment in which the craft segment of the beer industry suffered a sharp drop in growth. Sales declined in late 1997 and early 1998, forcing Pete’s to look for a buyer.

Pete’s Brewing Company was founded in 1986 by a former engineer named Pete Slosberg and a group of investors. With its Pete’s Wicked Ale and savvy advertising strategy, the company was an early success story in the rising microbrewery business. Sales jumped from $130,000 in 1988 to $5.5 million in 1992. The company made an initial public offering of stock in 1995, debuting at $18 a share and reaching a high of $26.50. Then the bubble for the microbrewers burst. As Gambrinus had discovered in the early days of distributing Corona, growth resulting from the white-hot enthusiasm of a fad was impossible to sustain. Faced with a dizzying array of specialty beers in the cooler that included seasonal and commemorative brews in addition to year-round offerings, many consumers opted for old standby s like Corona. Even venerable Guinness enjoyed a newfound popularity with younger beer drinkers. Pete’s lost $6 million in 1997 and its stock plummeted. Under terms of the acquisition, Gambrinus paid $6.375 per share.

As Gambrinus worked to grow Pete’s and its other specialty breweries and to revitalize Moosehead sales, its future continued to be very much tied to the success of Corona. Because it was deliberate about expanding distribution in its eastern territory, Gambrinus had more of an upside than Barton in generating greater sales. The major brewers were also aggressively promoting competing products, such as Anheuser-Busch’s Tequiza, making the future less certain for Gambrinus. While sticking to their basic marketing program, Modelo, Gambrinus, and Barton also took measured steps to maintain Corona’s position as the top imported beer. Although the beer was known for its distinctive bottle, the partners decided in June 2000, after years of development, to introduce Corona in cans. The new package was intended to fill a gap, providing customers with Corona in places that prohibited bottles, such as airplanes, stadiums, and golf courses. To accommodate a lime wedge, so often associated with the beer, the can was designed with a wide mouth opening. The Corona partners also looked to sell more to the Latin community, targeting individual Hispanic groups, rather than lumping them together. As a privately held company, Gambrinus was less susceptible to shareholder pressure and was thus able to follow a conservative and steady game plan that had served it well since its creation.