The Fallen Stroh Family demonstrates how to blow $9 billion
Stroh’s beer : THE STROH FAMILY’S STORY BEGINS WITH AN IMMIGRANT, AS WITH SO MANY OF AMERICA’S GREAT FORTUNES: Bernhard Stroh, who arrived in Detroit from Germany in 1850 with $150 and a prized family beer recipe.
In a wheelbarrow, he peddled his beers door to door. Julius and Bernhard Jr., his sons, were shipping beer around the Great Lakes by 1890.
By transitioning the brewery to ice cream and malt syrup manufacture, Julius was able to get the family through Prohibition.
Stroh’s grew rapidly in the 1980s, becoming one of America’s fastest-growing firms and the country’s third-largest brewing empire, trailing only Anheuser-Busch and Miller.
The Stroh family owned it all, a fortune FORBES estimated to be worth at least $700 million at the time.
The family’s present net worth would be $9 billion if it matched the S&P 500.
Yet, as a family business or even a collective financial entity, the Strohs have essentially vanished today.
The business was sold for parts. The Stroh Companies have distributed their final dividends to shareholders.
A half-empty office building in Detroit is owned by the sole remaining family entity.
While there was enough money flowing for the fifth generation Strohs to be comfortable for a while, the family appears to be on the verge of going from shirtsleeves to shirtsleeves in the next six years.
Greg Stroh, a fifth generation family member and former Stroh Brewery employee, laments, “We took the decision to go national without having the budget.”
“It was like bringing a knife to a gunfight. We weren’t going to stand a chance.”
His assessment is tinted with foreboding. It wasn’t the case. A few family-owned regional brewers, such as Yuengling and Schell’s, are still thriving, while others, such as Olympia and Hamm’s, have closed their doors.
The Coors, who intended to make their no-frills, regional suds into a national powerhouse like the Strohs did in the 1980s and 1990s, remain in the top 100 on the FORBES America’s Richest Families list.
The Strohs took a different road, and their storey serves as a poignant reminder: As difficult as it is to develop a family business that will exist forever, it’s astonishingly easy for any successor to ruin it.
THE STROH BEER COMPANY, located in Detroit, GROWED FOR THE FIRST CENTURY BY FOLLOWING THE BASIC RULES: RESPECT YOUR CUSTOMERS; RESPECT YOUR EMPLOYEES. The former means appealing to Midwest working-class tastes at working-class rates (the family diluted Bernhard Stroh’s prized formula after World War II hop and wheat shortages forced Americans to accept weaker brews).
The latter is accomplished by treating each employee as an honorary member of the family.
“He was known for strolling the brewery and knew everyone’s first name,” his grandnephew Greg recalls of John Stroh, who supervised a major sales increase during the Eisenhower years. “Employees would break through barriers for the family.”
The Stroh signature was engraved on every bottle, topped by a family crest with a lion, as if to connect the customers and the firm.
From 500,000 barrels in 1950 to 2.7 million barrels in 1956, sales increased in lockstep with postwar Detroit.
The massive transformations occurred in the early 1980s. In 1967, John Stroh became chairman, and in 1980, he passed management of the brewery to his nephew, Peter, who became CEO.
He, like John, had a strategy to expand, but he wasn’t going to accomplish it gradually: he was going to achieve it through acquisitions.
Stroh purchased New York-based brewer F&M Schaefer in 1981, which, like Stroh, was started in the mid-1800s by a German immigrant and sold low-cost suds to its regional fans (famous marketing line: “The one beer to have when you’re having more than one”).
The next year, in a move described by family members as “the minnow devouring the whale,” Peter Stroh gambled the family firm, borrowing $500 million (the Stroh business’s book value at the time was $100 million) to buy Milwaukee’s Joseph Schlitz Brewing.
Stroh became the third-largest brewer in the United States, with seven factories and a nationwide presence. There was synergy on paper.
The company was valued at $700 million by FORBES in 1988, making the Strohs one of the wealthiest families in the United States at the time, with 30 relatives.
The America’s Wealthiest Families is a comprehensive list of the country’s wealthiest families.
However, Peter Stroh’s lofty goal of a prosperous American brewer never came to fruition.
Light beer was the largest industry movement in a generation, and it mostly missed the boat.
Stroh’s main offering—cheap, weak, high-calorie beer—was a commodity.
Stroh couldn’t afford to match the ad spending of its larger competitors, Anheuser-Busch and Miller, because it was in debt.
Stroh turned to pricing after failing to generate demand through marketing, launching a 15-pack for the price of 12 cans and a 30-pack for the price of a case of 24 cans.
Even if the latter had legs, it wasn’t enough to keep up with the shrinking margins.
Meanwhile, an enterprising Colorado family began to invest in the Stroh markets.
“It became a fight between Stroh and Coors,” recalls Scott Rozek, a former Stroh director who worked for the company for 12 years.
“There were four huge breweries in a three-brewery business at the time, and there was really only capacity for three.
” Coors had surpassed Stroh as the country’s third-largest brewer by the end of the 1980s.
The Stroh Brewery Company was on the decline in August 1989. One-fifth of the white-collar workforce was laid off by the corporation that had treated employees like family.
“Four of the five individuals in the marketing research department had to be let go.
It was a painful experience “Ed Benfield, former director of market research at Stroh, recalls this.
Peter Stroh, who died in 2002, agreed to sell the family business to Coors for $425 million the following month.
Coors, on the other hand, had cold feet and backed out of the contract a few months later.
“It had something to do with due diligence and Bill Coors,” says Benjamin Steinman, editor of the Beer Marketer’s Insights newsletter for almost a decade. “There were numerous tales.”
Peter Stroh hired renowned adman Hal Riney out of desperation to give the Stroh’s brand a more upmarket look and position.
Block print replaced the beloved Stroh signature, prices were hiked, and the 15- and 30-packs were dropped. It could not have been a more disastrous choice.
Customers could perform the math because the product had not changed: According to Benfield, sales of Stroh’s-brand beer dropped by more than 40% in a year, “the largest loss in sales in the history of beer.”
Stroh’s market share, as well as that of its purchased brands including Schaefer, Schlitz, and Old Milwaukee, dropped from 13% in 1983 to 7.6% in 1991.
Even CEO Peter Stroh acknowledged the difficulties. In 1992, he told FORBES, “We’ve been through a pretty terrible era.” “We attempted to do too much,” says the narrator.
Despite this, it attempted to accomplish more. Stroh made the same error again in 1996, borrowing even more money to buy faltering brewer G. Heileman for $300 million.
The acquisition was a dud. Heileman had breweries in locations where Stroh didn’t, such as Seattle and Portland, but it lacked a large stable of good brands.
The deal was described by one industry observer as “two sick chickens—they were both declining.”
It got a lot worse. With investments in biotech and Detroit real estate, Peter Stroh attempted to diversify the business.
Both were outside of the family’s main strengths, and they cost them millions of dollars.
Stroh Cos., the brewery’s parent company, had been taken over by cousin John Stroh III by 1998.
While Stroh had moved to contract brewing for others, including as Sam Adams, to compensate for declining sales, the company faced a fatal blow in 1998 when it lost a contract with Pabst.
According to one former executive, by 1999, there was internal anxiety about whether they would be able to meet their interest payments on the debt accrued.
So Bernhard Stroh’s legacy was sold for scraps: Miller Brewing, which was owned by Philip Morris at the time, bought Stroh’s Henry Weinhard’s and Mickeys brands, while Pabst bought the rest of Stroh’s brands, as well as its brewery near Allentown, Pa.,
for a price that several sources estimate to be around $350 million—about $250 million of which was used to pay down debt incurred with the Heileman purchase.
The remaining $100 million or more was put into a fund to settle employee pension liabilities, which Stroh had kept from the sale.
The balance was put into a family fund that dribbled out payments until 2008, when it was depleted.
GROWING UP IN STROH MEANT LIVING IN CONVENIENCE FOR GENERATIONS. ”
It felt like I was living in a gilded bubble with my father,” says Frances Stroh, whose father, Eric, left the company in 1985 after a battle with his brother Peter.
Eric, an artist at heart, spent millions of dollars purchasing hundreds of antiques, including firearms, cameras, and guitars, to furnish the large mansion where Frances grew up.
Frances claims that saving was not a priority.
Why would it have been when the checks began to arrive? In the 1980s, the fourth generation’s seven members were paid $400,000 a year.
(An further 20 or so shareholders from the third and fifth generations received varying sums as well.)
A handful of Stroh families were able to live in majestic homes on gated Provencal Road in the posh Detroit neighbourhood of Grosse Pointe Farms, complete with maids, cooks, country club memberships, boarding school tuition, and no need for 9-to-5 work.
Greg Stroh, now 47, recalls, “A lot of folks were living off the family company.”
He is not one of them, having co-founded three businesses, one of which being Izze Soda.
