AS WITH MANY OF AMERICA’S GREAT FORTUNES, the Stroh family’s story starts with an immigrant: Bernhard Stroh, who arrived in Detroit from Germany in 1850 with $150 and a coveted family recipe for beer. He sold his brews door-to-door in a wheelbarrow. By 1890 his sons, Julius and Bernhard Jr., were shipping beer around the Great Lakes. Julius got the family through Prohibition by switching the brewery to ice cream and malt syrup production. And in the 1980s Stroh’s surged, emerging as one of America’s fastest-growing companies and the country’s third-largest brewing empire, behind only public behemoths Anheuser-Busch and Miller. The Stroh family owned it all, a fortune that FORBES then calculated was worth at least $700 million. Just by matching the S&P 500, the family would currently be worth about $9 billion.
Yet today the Strohs, as a family business or even a collective financial entity, have essentially ceased to exist. The company has been sold for parts. The Stroh Companies has doled out its last dividends to shareholders. The last remaining family entity owns a half-empty office building in Detroit. 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.
“We made the decision to go national without having the budget,” sighs Greg Stroh, a fifth generation family member and former Stroh Brewery employee. “It was like going to a gunfight with a knife. We didn’t have a chance.” His analysis comes tinged with inevitability. It wasn’t. A handful of family-owned regional brewers such as Yuengling and Schell’s continue to thrive, while others, like Olympia and Hamm’s, sold out. And the Strohs’ largest rivals during the 1980s and 1990s, the Coors, who also aspired to turn their no-frills, regional suds into a national powerhouse, remain in the top 100 on the FORBES America’s Richest Families list.
The Strohs chose a different path, a saga that serves as a powerful reminder: Hard as it is to build a family business designed to last in perpetuity, it’s shockingly easy for any successor to tank it.
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 family watered down Bernhard Stroh’s precious recipe, after hops and wheat shortages in World War II left Americans accustomed to weaker brews). The latter by treating every employee like an honorary member of the clan. John Stroh, who oversaw a dramatic sales surge in the Eisenhower years, “was known for walking the brewery and knew everyone’s first name,” his grandnephew Greg remembers. “Employees would run through walls for the family.” As if to connect the customers and the business, the Stroh signature was emblazoned on every bottle, topped by a family crest with a lion. Sales surged in lockstep with postwar Detroit, from 500,000 barrels in 1950 to 2.7 million barrels in 1956.
The mammoth changes came in the early 1980s. John Stroh had moved into the chairman’s role in 1967 and handed control of the brewery to his nephew, Peter, who became CEO in 1980. Like John, he had a plan to grow, but not incrementally: He would do it by acquisition. In 1981 Stroh bought New York-based brewer F&M Schaefer, which, like Stroh, was founded by a German immigrant in the mid-1800s and also offered low-priced suds to its regional fans (famous marketing line: “The one beer to have when you’re having more than one”). The next year, in what family members describe as “the minnow swallowing the whale,” Peter Stroh bet the family business, borrowing $500 million (the book value of the Stroh business was $100 million at the time) to buy Joseph Schlitz Brewing of Milwaukee.
Suddenly Stroh was the third-largest brewer in the U.S., with seven plants and a national footprint. On paper there was synergy. 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 Peter Stroh’s grand vision of a thriving U.S.-wide brewer failed to materialize. It largely missed the boat on the biggest industry trend in a generation: light beer. And Stroh’s core product–cheap, watery, full-calorie beer–was a commodity. But saddled with debt, Stroh couldn’t afford to match the ad spending of its bigger rivals, Anheuser-Busch and Miller. Unable to spur demand through marketing, Stroh turned to price, introducing a 15-pack for the price of 12 cans and a 30-pack for the price of a case of 24. While the latter had legs, it wasn’t enough to outrun the shrinking margins.
Meanwhile, an ambitious family from Colorado began moving into the Stroh markets. “It became a competition between Stroh and Coors,” says Scott Rozek, a former director-level employee who spent 12 years at Stroh. “At that time there were four big breweries in a three-brewery industry–there was really only room for three.” By the end of the 1980s Coors overtook Stroh as the country’s third-largest brewer.
In August 1989 the Stroh Brewery Co. was in retreat. The company that had treated employees like family laid off 300 people, one-fifth of its white-collar workforce. “I had to let go four of the five people in the marketing research department. It was heartbreaking,” remembers Ed Benfield, former director of market research at Stroh.
The next month Peter Stroh, who died in 2002, agreed to sell the family business to Coors for $425 million. But Coors got cold feet and pulled out of the deal a few months later. “It had something to do with due diligence, and Bill Coors,” says Benjamin Steinman, longtime editor of newsletter Beer Marketer’s Insights. “There were lots of stories.”
Desperate, Peter Stroh brought in renowned adman Hal Riney to give the Stroh’s brand a more upscale look and position. The cherished Stroh signature gave way to block print, prices were raised, and the 15- and 30-packs were nixed. It could not have been a worse decision. But since the product hadn’t changed, customers could do the math: Sales of Stroh’s-brand beer fell more than 40% in one year, “the biggest drop in sales in the history of beer,” says Benfield.
Market share for Stroh’s, as well as for its acquired brands like Schaefer, Schlitz and Old Milwaukee, fell from 13% in 1983 to 7.6% in 1991. Even CEO Peter Stroh admitted the troubles. “We’ve been through a very difficult period,” he told FORBES in 1992. “We tried to do too much.”
And yet it tried to do more. In 1996 Stroh repeated his mistake, borrowing yet more money for the $300 million acquisition of struggling brewer G. Heileman. The purchase fell flat. Heileman had breweries in cities like Seattle and Portland, where Stroh didn’t, but it lacked a big stable of strong brands. One industry analyst remembers the deal described as “two sick chickens–they were both declining.”
It got worse. Peter Stroh had tried to diversify the business, with investments in biotech and Detroit real estate. Both were far from the family’s core competencies and lost them millions more. By 1998 cousin John Stroh III had taken charge at Stroh Cos., the brewery parent. And while the company had turned to contract brewing for others, including Sam Adams, as a way to make up for plummeting sales, Stroh took a mortal hit in 1998 when it lost a contract with Pabst.
By 1999 there was internal concern about whether they could even make their interest payments on the debt incurred, says one former executive. And so Bernhard Stroh’s legacy was sold for scraps: Miller Brewing, owned at the time by Philip Morris, bought Stroh’s Henry Weinhard’s and Mickeys brands, while Pabst bought the rest of the brands owned by Stroh’s as well as its brewery near Allentown, Pa., for a price several sources peg at around $350 million–about $250 million of which was used to pay down debt incurred with the Heileman purchase. Some of the remaining $100 million or so was transferred to a fund to pay employee pension liabilities, which Stroh had retained in the sale. The rest went into a fund for the family that dribbled out checks until 2008, when it was completely tapped.
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