MBC Holding Company

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MBC Holding Company

882 West Seventh Street
St. Paul, Minnesota 55102
U.S.A.
Telephone: (651) 228-9173
Fax: (651) 290-8211
Web site: http://www.grainbelt.com

Public Company
Incorporated: 1991 as Minnesota Brewing Company
Employees: 150
Sales: $19.2 Million (1999)
Stock Exchanges: NASDAQ small cap
Ticker Symbol: MBRW
NAIC: 42281 Beer and Ale Wholesalers

MBC Holding Company is a corporation whose subsidiaries include Minnesota Brewing Company, Gopher State Ethanol, and MG-C02. The companies are involved in the production of beer and ale, ethanol, and carbon dioxide gas for industrial uses. Chairman Bruce Hendry owns 52 percent of MBC Holding Company. MBC’s flagship operation, Minnesota Brewing Company, produces beer and beer related products under the Premium and Grainbelt, Pig’s Eye, Brewer’s Cave, and Yellow Belly logos. The Brewing Company is currently the 12th largest brewer in the nation and, in addition to producing its proprietary brands, MBC performs contract production for third parties, bottling and packaging both beer and sparkling water.

A Minnesota Tradition: 1855–1991

The state of Minnesota had long been associated with the production of beer. German immigrants settled in Minnesota and began brewing beer as early as the mid-1800s. By the late 19th century Minnesota had 112 breweries operating within its borders. MBC Holding Company resulted from the joining of the old Seventh Street brewery site in St. Paul, and the Grainbelt product line of Minneapolis Brewing.

The brewing facility on Seventh Street, now known as the Minnesota Brewing Company, began its history in 1855 as the Cave Brewery. The Cave Brewery established itself early as one of the principle brewing operations in the state. Throughout its years the brewery changed ownership and produced beer and other related products under many labels. Despite its frequent change of ownership the brewery remained in the same location for its 146 years. The location was chosen for its underground caverns along the banks of the Mississippi River in St. Paul.

Caverns or underground vaults were essential elements to the brewing and winemaking process in an age that predated modern refrigeration. Brewers relied on cold storage to provide a constant temperature range for their beer making, particularly the fine German lagers and ales that were in demand in Minnesota at the time. A Bavarian immigrant and brewery by trade, brewer Christopher Stahlmann went in search of caves and clean springfed water along the Mississippi until finding the brewery’s ideal location in St. Paul.

Soon the brewery became Minnesota’s largest beer producer and the caves were further excavated. The expanded facility allowed for brewing operations on three separate levels, and extended the production space well over a mile. A natural spring provided the water to the brewery throughout its history and has been measured to be over 1,100 feet deep. The Brewing Company claimed the water to be“diamond clear and regarded as some of the best water in the world.”

Minnesota’s early brewing operations were also aided by climate and topography. Abundant farmland allowed the breweries to purchase local barley and the Mississippi River trade brought quality hops and malt, essential ingredients for beer production.

Many of the settlers in the Midwest, particularly the Germans and the Irish, had rich brewing traditions in their native countries and created a demand for the local product. Despite the Cave Brewery’s success, shortly after its founding the Stahlmann family sold the operation to the St. Paul Brewing Company. In 1900 the business was sold again and renamed The Jacob Schmidt Brewery.

Meanwhile in Minneapolis, another brewery was thriving. Minneapolis Brewing Company had produced a very successful product in its Golden Grain Belt beer. First introduced in 1893, the beer was enjoying wide success regionally. Minneapolis Brewing also produced beers under the brand names Zumwalt, Gilt, and Minnehaha Ale and gained attention for its technological advances. The brewery was one of the first partially automated facilities in the city, relying on labor saving devices for much of its production process.

The political and social climate regarding alcohol took a dramatic turn in the 1920s. The prohibition of the manufacture and distribution of alcoholic beverages in January 1920 threatened to destroy the brewing operations in the state. Fortunately, the two breweries, Jacob Schmidt in St. Paul and what was now referred to as Grain Belt Brewery in Minneapolis, were able to stay in business by producing legal beverages such as soft drinks and non-alcoholic beers.

When the 18th amendment was repealed by the 21st constitutional amendment in 1933, and the distribution of alcohol was once again legalized, Grain Belt and Schmidt beer products were reintroduced.

The Grain Belt label was promoted through an innovative marketing plan as the company pushed to gain back its market share after the industry upheaval of Prohibition. Grain Belt was dubbed“The Friendly Beer” in an advertising campaign that lasted through the 1930s.

In the 1940s, the company set out to distinguish itself as a producer of a high-quality product. Grain Belt Premium, bottled in 1947, was the result. A large neon billboard erected on Nicollet Island in downtown Minneapolis helped to link clear name recognition with the association of a quality premium beer. The outcome was a winning combination for Grain Belt. The brewery worked on presenting its Premium beer in packaging that was unique. The company used a distinctive clear glass, long-necked bottle. Grain Belt Premium captured the notion of superiority in its packaging with the slogan, “The beer of exceptional quality.”

Throughout the 1950s and 1960s both breweries continued to produce beer and ale, though the St. Paul brewery changed owners several times. Despite its place among the top 20 breweries in the country, in the early 1970s Grain Belt was suffering from financial difficulties. In 1972 G. Heileman Brewing Company of La Crosse, Wisconsin, purchased the struggling plant. Heileman at the time also owned and operated the Jacob Schmidt Brewery in St. Paul. The combination of a big brewing facility in St. Paul and a strong brand name product from Grain Belt made Heileman a potentially formidable regional contender in the beer market.

The 1970s were an era when national brands were impacting the formerly regional beer market. National brands would undercut costs and had significant advertising budgets that eventually overturned local customer loyalty. In 1976 Heileman moved Grain Belt production out of Minneapolis to the St. Paul plant. Grain Belt sales were on a decline, though Grain Belt Premium still had a sound reputation in the industry and a small but committed following. Production in St. Paul continued through the 1980s.

In 1989 Heileman was bought by an Australian firm and it decided to consolidate all of the company’s operations. Heileman’s plans to close the St. Paul facility and move all operations to La Crosse met with a lot of opposition from the people of St. Paul. A campaign was mounted to get Heileman to reconsider the pullout or at least to sell the business to other investors, but the campaign met with little success and the brewery remained closed for two years.

Rising from the Ash Heap—Minnesota Brewing Company: 1991-96

In 1991 Heileman relented and signed an agreement with newly formed Minnesota Brewing Company to take control of the St. Paul Brewery. As part of the negotiation, Minnesota Brewing secured the Grain Belt and Premium brand names and logos.

In the early 1990s, the contract brewing market for beer and sparkling water was increasing. At the same time, original domestic beers sales were down, though exports had increased.

Beer production in the 1990s was a changing field; microbreweries were on the rise and there was an international interest in beers of regional character. The Minnesota Brewing Company took Grain Belt Premium and returned to its original recipe in an attempt to recapture the success it had in its early days.

The Pig’s Eye Pilsner line of beer was also introduced in the spring of 1992. Pig’s Eye paid homage to the first white settler of St. Paul, Pig’s Eye Parrant. The Pig’s Eye brand included: Pig’s Eye Pilsner, Pig’s Eye Lean, Pig’s Eye Ice, Pig’s Eye Red Amber, and Pig’s Eye N.A. Pig’s Eye Ice won a silver medal at the Great American Beer Festival for Minnesota Brewing in 1994 and Pig’s Eye Red Amber won a bronze the following year at the same event. Pig’s Eye N.A., Minnesota Brewing’s non-alcoholic beer, won numerous awards since its introduction, including a gold medal in the non-alcoholic beer category. With the success of Premium, and the introduction of the Pig’s Eye line of beers, Minnesota Brewing saw sales increase 28 percent in 1992 and another 27 percent in 1993.

Company Perspectives:

MBC Holding Company operates a full-scale brewery in St. Paul, Minnesota. Today the brewery employs over 150 people and produces various proprietary brands of beer as well as a number of private label and contract brands of beer and water. The product line includes regular beer, light, non-alcoholic, malt liquor, and micro-style-brews.

Minnesota Brewing Company made the decision to go public in October 1993. The company did a lot of marketing to promote its proprietary brands in the wake of its IPO. Minnesota Brewing reported increasing its advertising budget some $300,000 in an effort to expand its market share. By 1994 Grain Belt Premium was entered in the Great American Beer Festival in Denver. Premium took top honors in the American Lager Division. The 1994 gold medal combined with the marketing campaign of 1993 led to a significant increase in domestic sales in 1995.

Unfortunately for Minnesota Brewing, earnings did not stay strong for long. In 1995 Pete’s Brewing Company, a contract partner with the Minnesota Brewing Company for beer production, packaging and distribution, decided to move its production to another facility. In the wake of this decision Minnesota Brewing quickly took action to find other parties to replace its lost contractual work.

Later that year, Minnesota Brewing negotiated agreements with two other parties. It signed a contract to produce powdered malt liquids for home brewing (an emerging interest among beer enthusiasts), and another party contracted with Minnesota Brewing to create a base product that could be used in wine coolers.

Minnesota Brewing Company was faced with another set of problems when Winterbrook Inc., owner of LaCroix water, declared bankruptcy. Minnesota Brewing had been a contract packer for Winterbrook, providing bottling, packaging, and distribution. The two companies worked out an agreement to keep the business with Minnesota Brewing while Winterbrook remained under bankruptcy protection.

Having lost much of its contract work, Minnesota Brewing was eager to branch out into new enterprises. In 1996 the company signed a licensing agreement to distribute Yellow Belly, a new lemon flavored malt beverage. The brewery was optimistic that a contract with Southern Wine and Spirits of Cerritos, California, to be its wholesaler would lead to promising sales. The company now ranked 5th in regional beer sales and had won six medals for its products at the annual beer festival, but it was still struggling to increase profits.

New Ventures: 1997–2001

Minnesota Brewing brought Jack Lee on board as president and CEO in 1997. The brewery continued to pursue new products, trying to recapture some of the contract sales figures it had lost with the conclusion of the Pete’s Brewing business. Minnesota Brewing signed an agreement with Basix Foods of Hollywood, Florida, to begin producing and bottling a“new age” energy drink by the name of Blue Jeans Power Drink. The drink had seen remarkable success in European markets and the company had hoped it would find a share of the U.S. sports drink market as well. Later that year Minnesota Brewing also signed a contract to produce and distribute Rhino Chasers beer and ales.

The company had been given a $2.5 million line of credit from Minnesota Brewing Limited Partnership and when the line expired in early 1999 the company found itself in default. In the end, Minnesota Brewing Limited Partnership agreed to accept preferred stock holdings in lieu of the outstanding debt.

Perhaps the brewery’s most controversial move began in January 1998 when Minnesota Brewing filed an application with the Minnesota Pollution Control Agency to begin exploring the commercial production of ethanol at the downtown brewery. Minnesota Brewing converted and retooled a portion of the downtown brewery to produce and market ethanol. The company wanted to diversify its interests and ethanol production seemed a good fit for the brewery. Minnesota Brewing also signed an agreement to partner with MG Industries of Malvern, Pennsylvania, to produce commercial grade carbon dioxide. Carbon dioxide was a natural byproduct of ethanol production.

In 2000, Minnesota Brewing Company changed its name to MBC Holding Company. With interests in beer production, ethanol, and commercial carbon dioxide, the new company name reflected its broader industrial base. In a press release the company explained the change by saying, “The company had proposed the name change because it felt the name Minnesota Brewing no longer accurately reflected all of the company’s operations and interests. The board believes the new name will benefit the company in its efforts to diversify its operations through the formation of subsidiaries and participation in joint ventures while preserving the name Minnesota Brewing for its brewing operations.”

Key Dates:

1855:: Cave Brewery is founded in St. Paul by Christopher Stahlmann.
1893:: Minneapolis Brewing Company begins selling Grain Belt.
1897:: Stahlmann family sells Cave Brewery to St. Paul Brewing Company.
1900:: Business is again sold and renamed Jacob Schmidt Brewing.
1920s:: Companies produce non-alcoholic beer during Prohibition.
1950s:: Both the Minneapolis and St. Paul breweries remain active, though the latter changes hands several times.
1972:: G. Heileman purchases the Grain Belt operations; Heileman also now owns and operates the Schmidt brewery.
1987:: Acquisition of Heileman by Australian company leads to closing of St. Paul brewery location.
1991:: Brewery is sold to Minnesota Brewing Company; business reopens for Octoberfest.
1992:: Pig’s Eye brands debut; Pig’s Eye Ice wins silver medal at beer festival.
1993:: Company completes initial public offering; Pig’s Eye Red Amber wins bronze medal at beer festival.
2000:: Minnesota Brewing changes its name to MBC Holding Company and Minnesota Brewing Company becomes a wholly owned subsidiary.

The year 2000 saw sales for the company rising, and the diversification into other industries seemed to be working. Soon, however, another byproduct of MBC s ethanol production had neighbors of the plant protesting. Odor and noise related to the conversion of thousands of tons of corn into ethanol was causing a backlash in the community around the St. Paul plant. Eventually the matter was taken from protests in the streets and letters to the editor to the St. Paul City Council chambers. The City Council agreed to file a nuisance action against the ethanol plant, earmarking $100,000 to investigate the possible health impact to the neighborhood. Lee, president of both Minnesota Brewing and Gopher State Ethanol, promised to try to work with the city to remedy the problems.

At the dawn of a new century, the company began producing several specialty beers to celebrate the heritage of the brewery. Known as Brewer’s Cave beers, they included Amber Wheat Ale, Golden Caramel Lager, and Roasted Black Barley Ale. The company also promoted tours at the St. Paul plant and operated an historic Rathskellar for visiting groups.

MBC Holding Company and its wholly owned subsidiaries, Minnesota Brewing Company, Gopher State Ethanol, and MG-C02, were attempting to build and grow a business by diversifying and utilizing connected industries. The brewing facility, while historic, had struggled throughout its years. The Minnesota Brewing Company’s products, while doing well in competitions, had yet to reach remarkable sales levels. Whether the company could establish itself as a premiere brewing operation remained to be seen. MBC Holding Company, in its attempt to use the plant and its resources to its fullest potential, had made controversial choices that could possibly affect how the public perceived the company for years to come.