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The Brewing Company Anheuser-Busch. German-American Founding, Development of the Company, Corporate Image and Stock Performance

Diploma Thesis 2007 107 Pages

American Studies - Culture and Applied Geography

Excerpt

Content

II Abbreviations

1 Introduction
1.1 Intention
1.2 Structural Composition
1.3 References

2 The History of Anheuser-Busch in Consideration of Historical Events and Social Impacts
2.1 The Founders of Anheuser-Busch
2.2 1857-1920 - Time of Commencement - Barriers and Opportunities
2.2.1 The Introduction of Budweiser
2.2.2 Mechanical Refrigeration
2.2.3 Bottled Beer
2.2.4 Scientific Brewing
2.2.5 The Union Movement
2.2.6 Competition
2.2.7 Taxes
2.2.8 The Temperamence Movement
2.3 Anheuser-Busch since 1920
2.3.1 The Challenge of Prohibition
2.3.2 Home Brewing
2.3.3 The Call for Repeal
2.3.4 The New Beer Business
2.3.5 The Beer Can Revolution
2.3.6 Second World War
2.3.7 Lite, Dry, Ice and Non-Alcoholic - The Changing Taste for Beer
2.3.8 Towards the Twenty-First Century

3 Anheuser-Busch today
3.1 Brand Portfolio
3.2 The Beer Market
3.2.1 The Domestic Beer Market
3.1.2 The International Beer Market
3.3 Busch Entertainment Corporation
3.4 Strategic Overview
3.4.1 Pricing and Quality
3.4.2 Marketing
3.4.3 Mergers and Acquisitions
3.4.4 Exclusive Dealing Contracts
3.4.5 Distribution Strategies
3.4.6 Keeping up with the Changing Taste for Beer
3.4.7 Promoting Responsibility
3.4.7.1 Responsible Drinking
3.4.7.2 Environmental Commitment
3.4.7.3 Human Engagements
3.5 Corporate Governance
3.6 Common Stock Performance

4 Perspectives

5 Conclusion

IV Literature

Abbreviations

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1 Introduction

1.1 Intention

The brewing industry is an essential element of the U.S. economy, since beer sales represent 58% of alcohol consumption in the United States. In 2002, the brewing industry had employed more than 850,000 workers and paid $65 billion in taxes.1 Having obvious competitive advantages over its competitors, Anheuser-Busch is the world's largest and most successful brewer, followed by Miller and Coors.2

Since 1857, some extraordinary leaders have guided Anheuser-Busch through prosperous times and through challenges. Anheuser-Busch Companies witnessed the early innovations and inventions of the 19th century, such as mechanical refrigeration, pasteurization and the bottling of beer. Moreover, the company witnessed growing competition, the union movement, the temperamence movement, World War I and prohibition. Despite all those challenges, the company survived and started all over again after repeal, experiencing the new beer business, including more innovations, World War II and changing consumer tastes.

Today, Anheuser-Busch is the leading U.S. brewery, with about 50% shares of national beer sales. Worldwide, the company operates 27 breweries, selling beer in more than 80 countries. Twelve of the breweries are in the United States and fifteen overseas, with fourteen in China and one in Great Britain.3 In 2002, international beer sales increased by 29.3%4, and in 2005, international beer sales even grew by 50.8%.5 Besides its beer business, the company owns one of the country's largest manufacturer of aluminum cans and a number of theme parks; it is the world's largest recycler of aluminum beverage containers, and it has interests in malt production, rice milling, label printing, bottle production, transportation services and real estate. Additionally, Anheuser-Busch is engaged in responsibility matters, such as responsible drinking and conservation of the environment. Furthermore, the company is particularly famous for its humorous and rememberable advertisings.

1.2 Structural Composition

Anheuser-Busch made a remarkable development from a small brewery to the largest brewery of the United States, while its extraordinary leaders have guided its company through various challenges, in which many of its competitors decided to give up. This paper at hand will take a look at the history of the company and analyze certain aspects of the company's business. A brief outline of the methodological structure will follow to improve the comprehension of the paper. To secure clearness, the paper is divided into three parts.

The first part of the paper (2.1-2.3) will take a look at the company's history from its founding in 1857 until today in consideration of considerable historic events and social impacts. Particularly, the foundation of the company, its development through opportunities and challenges and its leaders will be highlighted. Part 2.1 introduces the founders of the company and the early developments, part 2.2 follows the company's developments through until prohibition, and part 2.3 focuses on the company's business development through prohibition until today. Since a complete processing of historical and political developments would go too far, this paper will focus on main events that were in particular of great importance fort he company.

The second part of the paper at hand (3.1-3.6) will give an overview of the company's business situation today, including Anheuser-Busch's brand portfolio, the domestic and international beer market, the company's business strategies, its corporate government and its stock performance. Part 3.1 outlines Anheuser-Busch's brand portfolio, part 3.2 summarizes the company's beer markets, part 3.3 makes a short excursion to Anheuser-Busch's entertainment segment, part 3.4 gives an overview of the company's business strategies, such as pricing, quality, marketing, mergers and acquisitions, exclusive dealing contracts, engagements, corporate governance and the company's stock performance.

Finally, the third and last part (4.) will detect future perspectives.

1.3 Resources

Basis fort his paper are scientific publications that give an overview of the history of the brewing industry and those that give economic data and analyses of the brewing industry. Moreover, this paper made use of publications that concentrated on the historical development of Anheuser-Busch. However, most of these references were published or ordered by the company itself and turned out to be rather subjective and advertising, as Roland Krebs and Percy J. Orthwein's Making Friends is our Business: 100 Years of Anheuser-Busch and At a Glance. A critical and objective point of view added several articles in magazines, primarily received from the internet and Peter Hernon and Terry Ganey's Under the Influence - the Unauthorized Story of the Anheuser-Busch Dynasty, a book that the company did not want published. The book is based on interviews with former presidents, employees and family members, and it reveals aspects which are not mentioned in the literature published by the company.

Primary sources for the third part, which gives an overview of the current situation of the company, are internet sources, due to the lack of recent publications. These online sources include articles of newspapers and magazines, as well as financial reports and other detailed information for the company's stakeholders, published by the company itself. Great importance was attached to the adequate choice of internet sources.

2 The History of Anheuser-Busch in Consideration of Historical Events and Social Impacts

2.1 The Founder of Anheuser-Busch

The roots of Anheuser-Busch Inc. can be traced back to a small St. Louis brewery near the Mississippi river. The brewery had underground caverns near by, which offered a great advantage in times of no artificial refrigeration. The small St. Louis brewery, which back then had a productive capacity of 3,000 barrels a year, was taken over by the attorneys Urban & Hammer, who named the brewery The Bavarian Brewery. The new owners managed to get production up to 8,000 barrels a year through an expansion program, which was possible through a $90,000 loan by Eberhard Anheuser. When The Bavarian Brewery failed in 1857, Eberhard Anheuser, who was the company's major creditor, decided to buy up the interests of the minor creditors, and so he became the exclusive owner of the brewery.6

Eberhard Anheuser was born on September 24 in 1805 in Bad Kreuznach, in the Rhine country. He emigrated to America in 1843 and first settled in Cincinnati. His wife and his daughter followed him. Two years later, the family moved to St. Louis, where Eberhard Anheuser became a successful manufacturer of soap.7 He took care of the management of his new company and continued to operate his soap business as well. However, he soon noticed that he was overstrained, handling both enterprises. Eberhard Anheuser was aware that his brewery needed imaginativeness and power, thus, he decided to hand over the management to a younger man. Eberhard Anheuser chose Adolphus Busch as his partner and turned the active management of the company over to him.8

Adolphus was the husband of Eberhard Anheuser's daughter Lilly. Adolphus Busch was born on July 19 in 1839 in Mainz, Germany. He came as a German immigrant to America in 1857 at the age of eighteen, following his three older brothers who had already emigrated and were living in St. Louis.9 He started working as a clerk on a Mississippi river steamboat and later he worked as a salesman of brewers' supplies, and in doing so he got acquainted with prosperity. He learned soon that if he made friends, business took care of itself. When the Civil War began, he enlisted in the United States Army, and after serving in the Missouri campaigns, he was discharged honorably as a corporal. After serving in the army, he returned to his brewers' supply business.10

When Adolphus Busch took over the small and not too profitable brewery in St. Louis after the war, he took advantages from what he had learned so far. He advertised and improved quality. Furthermore, he set new standards for the brewing industry with ideas and inventions such as refrigerated train cars and the pasteurization of beer.11 Moreover, the national population swelled from 39 million in 1870 to 76 million in 1900 due to immigration, which provided cheap labor and many new thirsty customers.12

Within five years, Adolphus Busch increased the brewery's sales volume from 8,000 barrels a year to 18,000 barrels. When production increased to 25,000 barrels in 1873, further expansion became necessary. The same year, Adolphus became the partner of Eberhard Anheuser and the company's name was changed into The Anheuser-Busch Brewing Association.13

At the age of 74, Eberhard Anheuser died in 1880 of cancer. By that time, he had seen some prosperous years of the company. By 1880, the company sold 141,163 barrels of beer annually.14

Adolphus believed that in order to make money, one has to spend money, and with this motto, he led his company. Adolphus Busch spent money lavishly, but with discretion.15 The fortune he made, he reinvested in hotels, real estates, ice-making, bottling plants, railroads, banks and diesel engines.16 He influenced the ways of thinking and the way of life of generations of men who supported him in his company. Setting new standards for the brewing industry, he started from the scratch and ended up as a successful businessman in the land of opportunities.17 However, he did not only live for his business. He spent the mornings and afternoons in his company, the rest of time he spent with his beloved wife and his children.18 Moreover, he had several beautiful residents, such as No.1 Busch Place, which had been built by Eberhard Anheuser, Ivy Wall, his winter home in Pasadena, California, and Villa Lilly, the family's summer home in Langenschwalbach, Germany.

August Anheuser Busch, Adolphus Busch's son and future successor of his father, was sent to Germany to learn the fundamentals of making fine lager beer when he was mature enough. When he returned, he was sent to a brewers' school in Chicago to get as well familiar with American facets of brewing.19 When Adolphus Busch died in 1913, the management of the company fell into the hands of his son, August Anheuser Busch. He took over the company just one year before World War I and the introduction of war-time prohibition.

2.2 1857-1920 - Time of Commencement - Barriers and Opportunities

The American brewing industry changed dramatically between 1865, at the end of the Civil War, and 1920, the beginning of the national prohibition of the manufacture, the distribution and the sale of alcoholic beverages. Brewing became a significant industry throughout this half century. In 1865, brewers manufactured 3.657.181 barrels, and the following decades witnessed a steady growth in volume, peaking at 66.189.473 barrels in 1914, afterwards prohibition laws had great impact on the production. In America, beer replaced distilled spirits as the principle source of alcoholic beverages in the American market during 1880. By 1900, the American brewing industry was the third largest in the entire world.20

The principle product changed from the traditional British beers produced by yeast fermenting at high temperatures to yeast introduced by German immigrants before the Civil War that could produce lager beers at low temperatures. Lager beer could be stored and served at cool temperatures; it was often pasteurized and bottled, and proved to be much more accepted than the traditional British ales, especially in the summer.21

Back in 1865, the manufacturing and distribution of beer were entirely local businesses and conducted by small firms. It was not until the end of the 19th century that so-called shipping brewers emerged. Shipping brewers were big businesses, marked by vertical integration and a complex distribution system that would not only stretch across the continent, but also abroad. Shipping brewers were a reaction to developing technological, business and market opportunities. While in 1865 the largest breweries produced a few thousand barrels of beer in one year, by 1877 the same breweries would already produce 100.000 barrels, and by 1895, they were producing up to 800.000 barrels of beer annually. Big, vertically integrated companies realized technological and scientific advantages, they acquired the capital needed to build a large enterprise, and combined the advantages within the production, storage and distribution of beer. They used the railroad networks as an advantage to link material supplies, manufacturing and distribution. And with the growth of population, the markets developed as well.22 Anheuser-Busch owes his early success to Adolphus Busch. He established the use of refrigerated rail cars in 1877, cultivated a new pasteurization process, and introduced new merchandising techniques.23 Access to cheap ice and deep caverns supplied Anheuser-Busch with cool temperatures needed for the production of lager beer. Its production capacities went beyond the size of its local market, and therefore the rest was shipped to distant locations.24 Thus, Anheuser-Busch became one of the largest breweries in the world and Adolphus one of the wealthiest men by the end of the nineteenth century. At the beginning of the twentieth century, Anheuser-Busch's brewery could brew 6.000 barrels of beer a day; the company had its own steam and electric plant, it even had its own railroad to connect to fright terminals and forty-two branch houses all over the nation to store and distribute beer to saloons and retailers.25

2.2.1 The Introduction of Budweiser

Adolphus and a St. Louis friend, Carl Conrad, collaborated on the new beer. Carl Conrad's restaurant in downtown St. Louis was to introduce and try the new beer on the public. Budweiser beer was brewed with premium-priced ingredients. Only larger barley was used for the brew, since smaller grains had too much husk and too little carbohydrates. Moreover, only European barley was used for brewing the new beer, since American barley contained more proteins in proportion to carbohydrates. The carbohydrates, which are necessary for the brewing process, were received from rice rather than corn grits, even though rice is far more expensive than corn grits. Rice was chosen before corn grits, because it includes less oil and contributes to the quality of the brew's brilliance, stability and foam. Furthermore, a blend of expensive Saazer hops and costly American hops was added to the brew.26 The public acceptance for Budweiser was great and constant. Sales grew enormously and did not decrease until prohibition.27

When Anheuser-Busch introduced its Budweiser beer in 1876, the company was producing sixteen brands of beer. Supposing that the many different brands which the company offered were in competition with each other and that with so many brands advertising and marketing efforts were too big, Adolphus Busch decided to gradually reduce the number of its beer brands.28

When it was introduced, a bottle of Budweiser appeared like a fine vintage wine, with an eye-appealing label, a wired down cork with the Anheuser-Busch name on it and metal foil wrapped around the bottle neck.29 Budweiser beer received high awards, as at the Philadelphia Centennial Exposition in 1876, at expositions in Paris in 1878, in Amsterdam in 1883, in New Orleans in 1884, in Vienna in 1898 and in St. Louis in 1904, just to name a few.30 Consequently, Adolphus Busch proudly printed 'America … Europe … Africa … Asia … Australia' on the Budweiser label, showing the world-wide acceptance of its beer.31 Adolphus Busch did everything that was necessary to make the world conscious of its beer. He traveled back and forth in the United States and in Europe, to perfect his sales organization, promote his product through verbal advertising and to find for the best wholesalers.

Adolphus Busch introduced the brand name Budweiser in 1876; he said that he found the name distinct and evocative and that it reminded him of his home country Germany. However, in the late 19th century, there was another brewery that introduced a beer under the same brand name. Budejovicky Budvar was a Czech brewery, which was founded in the town of Ceske Budejovice in 1895; the German name of the town is Budweis. When both companies began to export their products in the late nineteenth century, an international legal dispute about the right to use this trademark started. The result was a division of the market, however, the dispute still continues today.32 In 1911, Anheuser-Busch settled the matter by playing large payment to the Czech brewery. Moreover, the arrangement determined that Anheuser-Busch could use the brand name Budweiser only in the United States, European breweries could use it on beer sold in Europe and the beer for exportation into the United States should be labeled 'Imported Budweiser'. Furthermore, Anheuser-Busch was not allowed to sell its Budweiser in Europe. Legal disputes continued, as Anheuser-Busch tried to expand its international businesses. Anheuser-Busch found itself legally prohibited from selling Budweiser in most Europe.33

Even today, Budweiser, the so-called King of Beers, is Anheuser-Busch's primary brand and successful worldwide.

2.2.2 Mechanical Refrigeration

The ability to cool beer was significant for the brewing industry, especially for distribution. The availability of natural ice was always uncertain, besides, storing and handling ice was expensive and difficult. Thus, with the invention of mechanical refrigeration in the 1850s, brewers began to make use of it. In the 1880s and 1890s, the brewing industry made use of the technology of ammonia compression developed by John C. De La Vergne, until the introduction of the modern Freon-system in 1920.34 John De La Verne invented a refrigerating machine for breweries. The machine was ammonia-compressed and became popular and widely adopted in the 1880s and 1890s.35 Mechanical refrigeration was not only important for the storage of beer, but it was also an important innovation for distribution.

Adolphus Busch introduced the idea of refrigeration on wheels. His idea was quickly realized. Soon he began building ice manufacturing plants along the railroad, so that trains leaving St. Louis could be re-iced on their way.36 The establishment of ice supply depots along the railroad routes and regional storage and distribution centers, allowed Anheuser-Busch to distribute not only locally, but nationally.37 The ice supply plants and depots along the railroad did not only supply refrigerator cars with ice, they also sold ice to communities.38 In 1919, the brewery owned the world's largest ice manufacturing machine and its refrigeration facilities produced about 4,250 tons of ice a day.39

Development of refrigeration equipment was advantageous for the storage of beer. Moreover, the establishment of ice supply depots allowed AnheuserBusch to distribute nationally.

2.2.3 Bottled Beer

Another important innovation was the bottling of beer. Bottled beer enabled people to identify different brands. Moreover, bottled beer allowed the brewers to sell their beer outside saloons and thus, reach people besides the working-class in institutions such as hotels, drug stores and restaurants. In addition, markets which were formerly controlled by local brewers could be penetrated as well. By the beginning of the twentieth century, 20 percent of beer was bottled, and families preferred to buy bottled beer and keep it in cooled boxes, rather than rushing to the local saloon.40

However, besides the great advantages that went along with bottled beer, bottling beer also presented considerable problems for production and distribution processes. The bottles had to be locked, and brewers used corks and wires, before the invention of the modern crown bottle cap in 1892. Yet, great machines were necessary to cap the bottles; in addition, it was difficult to efficiently and completely clean the returned bottles for refilling.41

Anheuser-Busch, who focused on bottled beer, was leading in these new technologies. Busch developed the brand 'Budweiser' in 1876, a brand that would only come in bottles, and he was convinced that bottled beer was essential for expansion. In 1880, Anheuser-Busch invested in the most advanced bottle-washing machinery, and to ensure expansion he guaranteed a steady, reliable supply of new bottles by buying a nearby glass company and investing in a bottle factory in St. Louis.42 The glass factory was named Anheuser-Busch Glass Manufacturing Company, and by 1901 it had become one of the country's largest manufacturers of bottles, with plants in ST. Louis and Illinois.43

Adolphus Busch introduced the pasteurization of bottled beer in St Louis in 1873. Before pasteurization was discovered and applied, bottled beer had to be stored at low temperatures.44 Bottled beer enabled the identification of different brands of beer, it allowed brewers to sell their beer outside saloons and reach people in institutions such as hotels, drug stores and restaurants.

2.2.4 Scientific Brewing

The growth of scientific knowledge provoked scientific brewing. Curious investigators explored the chemical processes that occurred during brewing, Louis Pasteur, for example, learned about yeast, and other scientists developed mechanical refrigeration. All this gained knowledge provided opportunities to improve and expand brewery operations and distribution, enabling the brewers to sell beer in a wider area and to maintain the quality of the product for a longer amount of time. The American industry even developed institutions that would develop and publicize scientific brewing.45 Adolphus Busch, who headed Anheuser-Busch till his death in 1913, maintained close ties to Germany. He spent considerable time traveling in order to ensure the transfer of the latest technologies and he was quick to bring knew insights and developments to his company.46

Adolphus Busch frequently visited Europe and studied the advancements of the brewers there. This is how he learned about Louis Pasteur, a French scientist who was ordered by his government to find ways to keep German imports from winning revenues to French vintners and brewers. Pasteur found out that it was a lack of cleanness that made French beer inferior to German imports. Pasteur knew that Germans had been cleaning their equipments with boiling water for decades, thus he discovered the existence of micro-organisms and developed a method to kill them: pasteurization, the killing of micro-organisms in beverages and food. Consequently, Adolphus Busch ordered his technical staff to perfect a method for pasteurizing bottled beer, which was finally accomplished in 1873. Pasteurization of bottled beer meant a great step for Anheuser-Busch, but also for its competitors, who copied the technique.47 Through pasteurization, big production and shipping became possible. Before pasteurization was discovered and applied, bottled beer had to be stored at low temperatures.48

The USBA, the United States Brewer's Association, was founded to summarize problems linked with the production and distribution of beer, as well as to promote scientific solutions. Problems in the brewing business were solved step by step. Larger brewers hired chemists who had earned doctorates, to understand and solve problems in the breweries, so that already by the end of the 19th century, scientific brewing was well advanced. The brewers were able to control the quality of the grains that went into the brew, the exact temperatures needed for the production processes, and to control the qualities of water in the different production processes. Moreover, American scientists had learned about the use of other grains and corn in addition to barley and about its effects. Anheuser Busch's popular 'Budweiser' was made with rice supplementing the starch of barley, while other large breweries used corn by 1900.49

With the introduction of instruments such as thermometers and hydrometers, the control of quality was possible; moreover, pasteurization of beer secured a better quality and the longer life of products.

2.2.5 The Union Movement

During the time of rapid expansion, one of the problems the brewing industry had to face was the success of the union movement. Working conditions in the breweries led to the growth of union movement among the brewery workers. Brewery workers had to work long hours and under unpleasant conditions. The machines were noisy and dangerous to handle, the steam and heat in the breweries especially in summer even lead to death, and with explosions in the bottle shops some men even lost their sight.50

Eventually, many long, bitter strikes marked the end of the nineteenth century. Most of these strikes were unanswered. Watching the growth of unions among the brewery workers, the United States Brewers' Association planned to defeat the unions in the late 1880s. More strikes followed, but in general, the concentrated action among the brewers in 1888 weakened the unions. However, the union movement led to substantial improvements in working conditions. In Milwaukee, for example, workers used to work fourteen hours a day for up to $50 per month; after unionization and strikes, they were working a ten hour day, having Sunday off, for up to $60 per month.51

At the Anheuser-Busch Brewing Company, the situation was similar. Poorly paid German immigrants were working fourteen-hour days, six days a week with six to eight hours on Sundays. The immigrants were working long hours of hard work in bad working conditions. Brewery workers which worked in the cold cellars suffered from rheumatism, and frequently lifting heavy barrels caused hernias. In the summer of 1888, ten St. Louis brewery workers died of heat stroke. The same year, a four-month boycott of four national breweries including Anheuser-Busch, finally brought the recognition of Brewers and Maltsters Union Local 6 in St- Louis. In 1889, the union won what it called for: twelve-hour days, six days a week, a wage of $14 a week and free beer on the job.52

Conversely, the union movement soon learned to take advantages of boycotts and competitive rivalry among the brewing firms, especially between Pabst and Anheuser-Busch. The new American Federation of Labor in collaboration with the workers, planned boycotts of specific companies, ordering people not to buy beer from that specific company. Busch signed a collective bargaining contracts with the local union; but his rival Pabst pushed another boycott against his beer; immense conflicts between the two largest breweries of the nation arose. Within a decade, the workers won contracts with all significant breweries.53

Many long, bitter strikes, organized by unions, helped workers to achieve better working conditions, earn more money and work fewer hours.

2.2.6 Competition

Competition had a great impact on beer-prices. Prices fell, sometimes even to unprofitable levels. While in 1873 Midwestern brewers could still get $10 per barrel, prices went down to $6 per barrel in 1893. As a consequence, brewers applied vertical integration, and tried to take advantages of bottling beer to compensate the losses. Anheuser-Busch is an example for those who succeeded in this strategy; the company earned a profit of $750.000 in 1892.54

The majority of brewers, however, were not integrated and sold only on local markets. Thus, they called for some kind of control. In American law, control through cartels was illegal, yet, there were some attempts to form similar businesses. Particularly in the 1880s and 1890s, there were some market-sharing and price-regulating conformities, one of the longer lasting examples is the Cincinnati Brewers' Protective Association, which was founded right after a price war. Nonetheless, those cartel-like measures failed; attempts to form syndicates, hoping that combining breweries would end competition also would not work out, since hardly any profitable company was willing to sell to a syndicate. Also Busch and Pabst were tempted by some offers, but would not sell, since profits were increasing.55

In 1889, Adolphus Busch inquired the Pabst Brewing Company, one of Anheuser-Busch's strongest competitors, to fix prices. Anheuser-Busch suggested that the four largest breweries of the United States should fix beer prices, since fighting each other, the four breweries were running everybody's profits down. The four largest breweries at that time were Anheuser-Busch, the Pabst Brewing Company, Schlitz and Lemp.56

Competition was also visible at the saloons. Beer was sold at 5 cents per glass, and it typically came in large barrels. Unsurprisingly saloon keepers stored only one brand. Hence, breweries' salesmen visited one saloon after the other, promoting the breweries brand and offering incentives for selling it. As competition rose, prices for wholesalers dropped. Additionally, brewers financed mortgages for saloons, equipped saloon keepers with signs, decorations and cooling machinery, in exchange for an exclusive sale of that specific brand. This forward integration was a typical measure of competition.57 Moreover, saloon owners made use of the competition. They were playing the brewers off against another, making false statements about what other brewers were charging, trying to attempt the lowest possible price per barrel.58

2.2.7 Taxes

Besides competition and union movement, the brewing industry also had to face government restrictions and policies. Taxes on beverage alcohol meant a great source of income for the government. During the Civil War the government imposed a tax of $1 per barrel of beer. This immense source of tax income of the manufacturers was favorable, since it contributed to the economic welfare of the state.59

The brewers did not intend to pay additional taxes. The United States Brewers' Association became their most important trade organization; it elected a committee which was supposed to guard the brewers against the imposition of any increased burdens. To a large extend, the committee was successful; in 1898, however, when the United States declared war against Spain, they could not stop the increase of the tax up to $2 a barrel. Brewers complained that the increase of tax was unfair, and argued that they were forced to pay the costs of the war. Finally, in 1903, the brewers were successful in changing the tax back to $1 a barrel.60

In 1919, during the temperamence movement, taxes were raised to $3, and after the repeal of prohibition in 1933, taxes were fixed at $5 per barrel and then gradually increased until 1951, where tax was set at $9 per barrel.61

2.2.8 The Temperamence Movement

At the end of the nineteenth century, the brewing industry came under increasing attack from the temperamence movement, which blamed the consumption of alcoholic beverages for every social evil. Temperamence victories were noticeable in restricted opening hours and numbers of retail outlets. As a result, the brewers advertised their product as a healthful beverage and argued that it was only little intoxicating. Moreover, beer was often compared with bread, arguing that the production of bread and beer was quite similar, and that the only difference lay in the quantity of grain and water used in the production processes."62

This anti-alcohol sentiment was especially strong in the churches. The reformers believed that "brewers and saloon keepers […] would corrupt society by encouraging alcohol consumption and the social and individual diseases which so often accompanied it"63 ; and that they tried to convince more people to drink and drinkers to drink even more. With an abolishment of the business, reformers believed, alcohol consumption would decrease, people would spend their income more productively, and church could persuade people of leading a sober life.64

The first wave of the movement emerged from the women's crusade of 1873-74, a social movement in which women tried to convince saloon keepers to engage in other businesses and to redirect their capital. The reformers soon realized that they would not be successful without political action. The Women's Christian Temperamence Union, which was founded at the end of the women's crusade, worked to encourage prohibition laws. They arranged some ballots in the 1880s in which voters could amend their state constitution to outlaw the liquor traffic. However, prohibition legislation of that time was not successful, in 1900, only three states were dry, Maine, Kansas and North Dakota; and violations of the laws were prevalent.65

In 1896, the Anti-Saloon League was founded. In contrast to the WCTU, the Anti-Saloon league concentrated on the legal prohibition of alcoholic beverages, printing and distributing anti-drinking brochures.

Under the leadership of the Anti-Saloon League and the Women's Christian Temperamence Union, prohibition movement gained strength after 1900. Prohibition was blamed for many social causes; Women were concerned about alcohol's link to child abuse and wife beating, and industrialists as Henry Ford were concerned about the impact of alcohol consumption on labor productivity.66 Within only a few years, the 'drys' engineered prohibition laws through most of the south and tried to win the House of Representatives, in order to allow reform measures to be seriously considered. In 1913, the Anti-Saloon League broadcasted its campaign to add a prohibition amendment to the constitution. At the end of 1914, they only won the majority, but not the necessary two-thirds margin.67

Although prohibition-movement gained momentum, many would not realize the threats it posed to their interests, since sales were rising through much of this period, given that the brewers' largest markets weren't affected. "Prohibition seemed to be a phenomenon of the village and countryside, places where it was difficult to distribute beer profitably in any event."68

Not all brewers shared this opinion; especially shipping brewers noted that prohibition laws decreased sales volumes, since their market was not local, but national. Adolphus Busch was particularly enthusiastic in his appeals to get together with competitors, distillers, merchants and brewery workers in order to raise funds for the public and political battles that were to come. Busch, Pabst and other large breweries supplied the United States Brewers' Association and other organizations with the raised funds, hoping they could countervail the 'drys'. Brewers tried to counteract prohibition campaigns, united with others of the same interests to publish literature supporting the legality of liquor production. In doing so, they turned out to be an influential political force; they found friends in high offices, kept prohibition legislation from entering the constitution, and helped to win elections. However, brewers did not have a consistent strategy.69

Adolphus Busch kept writing letters to presidents and others in high government positions and had articles published that favored the brewing industry, promoting the positive economic effects of the brewing industry such as tax revenues, and trying to disprove dry arguments.70

Ohio brewers, alarmed by the spreading anti-alcohol movement, hired a capable publicist and diplomat named Percy Andreae in 1907. Andreae engineered a self-reform movement, cutting the number of saloons down to one per 500 persons and employing private detectives to fight abuses of saloon regulations. Moreover, in 1912, the Ohio brewers managed to elect a 'wet' governor and secure the right to make and sell alcoholic beverages, in the state constitution. Temporarily, the United States Brewers' Association also changed its rather tolerant and passive strategy to regulatory laws and self-reforms. Seeking to bring the Ohio brewers' success to national level, brewers founded and funded the National Association of Commerce and Labor with Percy Andreae as its head. However, after a short period of hopefulness, beer sales began to drop after 1914 and the NACL lost revenue. Moreover, the fraction that believed that prohibition legislation would not be applied to beer grew within the USBA, despite warnings from Anheuser-Busch and other industry leaders. Consequently, Busch even quit the USBA in 1916.71

At last, with the elections of 1916, the 'drys' won two-thirds majority in both houses of Congress. In 1916, already nineteen states outlawed the manufacture and sale of alcoholic beverages. With a two-third majority in both houses, the 'drys' introduced war-time prohibition in 1917 to conserve grain for the war, and thus they rigorously limited the businesses of brewers.72 War-time prohibition limited beer to 2.75 per cent alcohol content and production accounted for 70 percent of the previous year's production. In September, wartime production of beer was totally banned. This war-time measure was justified with the argument that grain should be made into bread for fighting men and not for liquor. Besides war-time prohibition, brewers were restrained by anti-German sentiment. The drys portrayed the brewing industry as foreign-controlled, pointing out that many breweries were owned by German Americans. Anti-Saloon League lobbyist Wayne Wheeler, for example, recommended the federal government to investigate some breweries throughout the country, which were owned by "enemies".73

August A. Busch's mother Lilly had just spent three years in their villa in Germany at that time. This provoked suspicion that the family was pro-German. But anti-German sentiment had been noticeable before.74 Already in 1914, Australians and Canadians started a boycott of Budweiser for its German name and label. Consequently, Anheuser-Busch's sales volumes fell down to $14.8 million in 1914, compared to $17.4 million in 1913.75

Noticing the nations growing engagement against alcohol, August A. Busch wanted to be prepared for the worst. He ordered his technical staff to manufacture a nonalcoholic beverage that tasted like beer. The result was a brew made from barley malt, rice, hops and yeast and named 'Bevo', which derives from the Bohemian word for beer. The new brew, which was introduced in 1916, contained only a slight amount of alcohol. Bevo was right away successful. The year it was produced, 2,250,000 containers of Bevo were sold, and in 1918, there were already five million containers of Bevo sold. Furthermore, in 1919, Anheuser-Busch started to export the brand worldwide.76 In addition, the company took stock of itself to avoid a crash. The company's plants, barrels, bottles, bonds and other possessions added up to a net value of $30,800,000, which, if liquidated, would only realize one fifth of the value.77

Anheuser-Busch and other shipping brewers soon noticed from their sales figures, that prohibition laws, even laws on the local level and laws before the Eighteenth Amendment, proved to be very effective against the brewing industry. A general growth in sales in the brewing industry through 1914 obscured the effects of prohibition legislation and gave reason to deny reality. Starting 1920, brewers had to use their capital for other business purposes.78 War-time prohibition of 1917 initiated the Eighteenth Amendment to the Constitution, with which prohibition became a constitutional law in January 1920.

2.3 Anheuser-Busch since 1920

The Eighteenth Amendment to the Constitution introduced prohibition as a constitutional law in January 1920. Prohibition lasted from 1920 until 1933. Brewers opposed the march of temperamence, arguing that the workers should be supplied with beer, and that regular, moderate consumption of beer was harmless and finally, in 1933, the Twenty-First Amendment to the Constitution abolished prohibition. The new beer business brought new opportunities and challenges.

2.3.1 The Challenge of Prohibition

Decades of temperance movement finally achieved its' goal. Local legislation and war-time purposes of saving grain slowly converted into a permanent banner of beer. The Eighteenth Amendment to the constitution, which was added in January 1920, finally made prohibition a constitutional law.

The Eighteenth Amendment outlawed "the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction"79 Yet, it failed to define the term liquor. The enforcing legislation of the Eighteenth Amendment, the Volstead Act, set the demarcation point to define 'alcoholic beverages' to 0,5 per cent of alcohol by volume. Some states passed laws allowing beer with a higher percentage. New York set a 2.7 mark, Maryland allowed 3.5 per cent beer, and Wisconsin had a similar 2.5 per cent law; however, the Supreme Court decided over a precedent that no state could override the Volstead Act.80

At first a few brewers were licensed to produce higher alcohol beers for medicinal purposes but the dry forces moved quickly to stop this with the Willis-Campbell bill, which was passed in November 1921. The Willis-Campbell Bill outlawed beer as a prescription drug, and extended Prohibition to Hawaii and the Virgin Islands. In fact, Anheuser-Busch lobbied for this bill, since federal brewers could have gained advantages without it.81

The federal government had about 2,500 agents to enforce the law; advocates did not believe a greater administrative apparatus was necessary. Some states supported the law with additional measures. Indiana, for example, banned the sale of cocktail shakers and hip flasks, and Vermont obliged drunks to identify the source of alcohol.82 As legislation became stricter, however, violations increased. Many Americans enjoyed alcoholic beverages and were willing to break the law to acquire them. Consequently, smuggling, home brewing and illegal bars became increasingly popular; in 1921, 200 of the 500 near-beer producing breweries were reported for violations.83 Moreover, prohibition encouraged corruption and disrespect for law and law enforcement.84

Barley farmers and hop growers needed to find alternative markets, and brewers had to find other products to manufacture to use their facilities, machinery and workers. Overall, "prohibition caused an estimated $300.000.000 loss in property value alone for the brewers."85 Brewers started to brew beer-like beverages. This so-called 'near-beer' had almost no alcohol, but it was intended to attract beer-drinkers. However, in order to survive, brewers had to look for profits in other businesses besides the production of near-beer. Anheuser-Busch produced 'Bevo' and another near-beer under its famous label Budweiser. However, its near-beer failed to achieve success.86

Anheuser-Busch tried to survive prohibition through the manufacture of some carbonated soft drinks. Those soft drinks came in flavors such as chocolate, coffee and tee and carried names as Carcho, Kaffo and Grape Buquet, and were supported by extensive advertising. However, they failed, since the American market offered plenty of different soft drinks.87

[...]


1 Trembley, J. Victor and Carol Harton Trembley The US Brewing Industry: Data and Economic Analysis (Cambridge: MIT Press, 2005), 10

2 Ibid, 14

3 www.anheuser-busch.com

4 http://www.anheuser-busch.com/press%5Froom/2006/AtaGlance03.pdf, 1-4

5 www.anheuser-busch.com

6 Krebs, Roland and Percy J. Orthwein. Making Friends is our Business: 100 Years of AnheuserBusch (St. Louis: Cuneo Press, 1953), 17-18

7 Hernon, Peter and Terry Ganey Under the Influence - the Unauthorized Story of the AnheuserBusch Dynasty (New York: Avon Books, 1992), 25

8 Krebs. Making Friends is our Business, 18-19

9 Hernon, The Unauthorized Story of the Anheuser- Busch Dynasty, 22

10 Krebs. Making Friends is our Business, 19

11 Ibid, 3

12 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 40

13 Krebs. Making Friends is our Business, 20

14 Ibid, 8

15 Ibid, 27

16 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 15

17 Krebs. Making Friends is our Business, 2

18 Krebs. Making Friends is our Business, 6

19 Ibid, 6

20 Kerr, K. Austin. The American Brewing Industry, 1865-1920. In Wilson, R.G. and T. R. Gourvish The Dynamics of the International Brewing Industry since 1800 (London: Routledge, 1998), 176

21 Ibid, 176

22 Ibid, 176-177

23 Trembley, The US Brewing Industry, 73

24 Ibid, 137

25 Kerr, The American Brewing Industry 1865-1920, 180

26 Krebs. Making Friends is our Business, 30

27 Ibid, 33

28 Krebs. Making Friends is our Business, 28

29 Ibid, 36

30 Ibid, 34

31 Ibid, 36

32 http://www.american.edu/ted/budweis.htm

33 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 38

34 Kerr, The American Brewing Industry 1865-1920, 179

35 Downard, W. L. Dictionary of the history of the American Brewing and Distilling Industries (Westport: Greenwood Press, 1980), 59

36 Krebs. Making Friends is our Business, 3

37 Kerr, The American Brewing Industry 1865-1920,, 179

38 Krebs. Making Friends is our Business, 29

39 Ibid, 26

40 Kerr, The American Brewing Industry 1865-1920, 179-180

41 Ibid, 1865-1920, 180

42 Ibid, 180

43 Krebs. Making Friends is our Business, 42

44 Kerr, The American Brewing Industry 1865-1920, 180

45 Ibid, 177-178

46 Ibid, 178

47 Krebs. Making Friends is our Business, 31-32

48 Kerr, The American Brewing Industry 1865-1920,, 180

49 Ibid, 178

50 Ibid, 181

51 Kerr, The American Brewing Industry 1865-1920, 182

52 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 43

53 Kerr, The American Brewing Industry 1865-1920, 182

54 Kerr, The American Brewing Industry 1865-1920, 184

55 Ibid, 184-185

56 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 39

57 Kerr, The American Brewing Industry 1865-1920, 185-186

58 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 39

59 Kerr, The American Brewing Industry 1865-1920, 186

60 Ibid, 187

61 Downard, Dictionary of the American Brewing and Distilling Industries, 190-191

62 Kerr, The American Brewing Industry 1865-1920, 184

63 Ibid, 187

64 Ibid, 187

65 Ibid, 188

66 http://www.digitalhistory.uh.edu/database/article_display.cfm?HHID=441

67 Kerr, The American Brewing Industry 1865-1920, 188

68 Ibid, 189

69 Ibid, 189

70 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 72-77

71 Kerr, The American Brewing Industry 1865-1920, 190-191

72 Ibid, 188

73 http://www.digitalhistory.uh.edu/database/article_display.cfm?HHID=441

74 Krebs. Making Friends is our Business, 95-96

75 Hernon, The Unauthorized Story of the Anheuser-Busch Dynasty, 91

76 Krebs. Making Friends is our Business, 96-98

77 Ibid, 106-107

78 Kerr, The American Brewing Industry 1865-1920, 191

79 http://www.historicaldocuments.com/18thAmendment.htm

80 Ronnenberg, Herman W. The American Brewing Industry since 1920. In Wilson, R.G. and T. R. Gourvish The Dynamics of the International Brewing Industry since 1800 (London: Routledge, 1998), 193

81 Ronnenberg, The American Brewing Industry since 1920, 194

82 http://www.historicaldocuments.com/18thAmendment.htm

83 Ronnenberg, The American Brewing Industry since 1920, 194

84 http://www.historicaldocuments.com/18thAmendment.htm

85 Ronnenberg, The American Brewing Industry since 1920, 194

86 Ibid 194

87 Krebs. Making Friends is our Business, 104-105

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Pages
107
Year
2007
ISBN (eBook)
9783668098459
File size
1.2 MB
Language
English
Catalog Number
v113868
Institution / College
Martin Luther University
Grade
2,2
Tags
Anheuser-Busch German-American Founding Development Company Corporate Image Stock Performance

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Title: The Brewing Company Anheuser-Busch. German-American Founding, Development of the Company, Corporate Image and Stock Performance