Subscribe to Inc. magazine
BUSINESS PLANS

America's Oldest Brewery

For almost two centuries, tiny, family-owned Yuengling survived by refusing to grow. So how'd it get to be America's fifth-largest brewery?
Advertisement

D.G. Yuengling & Son is Norman Rockwell's kind of brewery, a slice of Americana where plaid flannel is business casual and workers spend hour after hour on the rickety assembly line, filling bottles, packing boxes, crafting what they still call "the local beer." It may not be an American creation, but beer has certainly been embraced by the masses, and the Yuengling family has been quenching thirsts here longer than anyone.

A six-generation family business founded in 1829, Yuengling is the oldest brewery in the United States. The red-brick complex in Pottsville, Pa., built just two years after the original factory burned down, is an aging labyrinth. The paint is chipping, the pipes are rusting, and the plant's chambers are linked by a series of steep metal staircases. Below the hulking structure is a maze of earthen caves and tunnels, where the beer was stored in the 1800s because the temperature remains about 50 degrees year-round. It's a place where the rank and file once began every workday at the crack of dawn with a heaping stein. The halls echo with history, and the federal government agrees -- Yuengling was declared a national historic site in 1976.

But for all its charm, the old brew house at Fifth and Mahantongo, in the heart of this former coal-mining town about 100 miles northwest of Philadelphia, has emerged as an unlikely player in today's beer industry. A remnant of a time when hundreds of tiny local breweries dotted the American landscape, Yuengling now somehow finds itself the nation's fifth-largest brewer, churning out 1.3 million barrels last year and bringing in more than $100 million in annual revenue. All this as it celebrates its 175th anniversary, a milestone very few family businesses ever reach. Virtually unknown and unpronounceable in much of the country, Yuengling (it's YING-ling) has developed almost Kleenex-like brand identity in certain East Coast hot spots. Walk into a watering hole in Philadelphia, ask the barkeep for a lager, and expect a pint of Yuengling to slide your way. "I'm sure a lot of the other lagers out there, it's gotta tick them off," says John Ferry, the longtime owner of Moriarty's, a Philly ale house. "I don't think the best strategists from Wharton could tell you how to do this."

It certainly didn't happen by design. From its very first keg, Yuengling has mitigated risk wherever possible and avoided out-of-control growth at all costs. In fact, for the better part of its two centuries, the brewery avoided growth of any kind, a strategy that allowed it to outlast almost all of its peers. Since taking over the company two decades ago, however, fifth-generation owner Dick Yuengling Jr. has pushed the brand from its stronghold in the Keystone State into nine others along the East Coast. Sales are up 225% since 1996. And in an industry where consumption is flat, America's oldest brewery boosted output 11% last year, 18% the year before. By crafting smooth inexpensive brews and saturating one local market at a time, Yuengling has doubled its national market share in the past five years, making it responsible for .6% of all the beer sold in the U.S. If that doesn't sound like a lot, here's a little beer math: There are 12 ounces in each bottle, 24 bottles in each case, and the equivalent of 13.777 cases in each barrel of beer, the industry's standard unit of measure. Yuengling shipped 1.3 million barrels last year. That's 429,842,400 bottles of beer on the wall. And keep in mind that the beer is sold in just one-fifth of the country.

Of course, with growth comes risk. It may never threaten Anheuser-Busch, Miller, or Coors, but on the heels of a costly expansion spree that has more than tripled capacity, Yuengling finds itself at an interesting crossroads: Can a company that has been making beer since the presidency of Andrew Jackson compete with the big boys in the age of Britney Spears? Can a product that's thrived on scarcity and mystique maintain its cultlike following when it's widely available? Does it make sense for a company that's survived for 175 years by avoiding growth to suddenly embrace it? And how far should it go? With demand that shows few signs of letting up, the Yuengling family must answer a question that many fast-growing companies face, be they five or 175: Just how big is big enough?

The roots of yuengling's current successes can be traced to a dilemma it faced in 1996. Quite simply, the company couldn't make enough beer to satisfy its commitments. "People say, 'What a great problem to have," says David Casinelli, the company's executive vice president. "But it was still a problem. There was a sense of urgency."

The company had reached out to markets in New England, New York, and western Pennsylvania -- and then had to beat a hasty retreat when it couldn't keep up with demand. Built to produce maybe 250,000 barrels a year, the old brewery was pushing 500,000. To say the pullback offended customers and distributors would be putting it mildly. "People were on the verge of a riot," concedes Yuengling. Concluding that the shortages weren't going away and that the company was positioned to pursue a growth strategy, Yuengling decided to assess his options. To meet the demand he knew was going begging, he figured he could continue to pour money into the existing plant, he could outsource some of his production, he could buy an existing plant, or he could build a brand-new facility.

During a key strategy session in 1996, Casinelli, Yuengling's right-hand man, began sketching a portrait of where the potential moves might lead. Each idea was spelled out on a chalkboard. The concern with continuing to upgrade the existing plant was that it would merely be a Band-Aid solution. Outsourcing, which Yuengling had tried for a couple of years as a stopgap, could lead to the perception of inconsistent taste -- a potential death knell. As for buying a brewery, there simply weren't many on the market, and those that fit the company's needs were likely to require substantial upgrades.

At the bottom of the chalkboard list were two words: "Do nothing." "Some of us involved in the planning said to Dick, 'You know, this is a valid option," Casinelli recalls. "We were operating very profitably, we had low overhead, we were very efficient. Dick could've made a lot of money without a lot of risk involved." But the fifth-generation torchbearer, a maverick from the day he began lugging empty kegs as a kid, was ready to break with tradition. "That idea," Casinelli says, "was taken off the board pretty quickly."

They deliberated for more than a year, ultimately choosing to build a new brewery in Pottsville. Price tag: $50 million. While Yuengling's choice was the riskiest and would involve the most debt (two low-interest loans he expects to pay off next year), it would bring an additional 1.2 million barrels of capacity -- enough not only to meet current demand but also to resume the expansion into neighboring markets. Traditionally, family leaders had kept their wallets deep in their pockets, and Dick Jr. professes to be no exception. "I'm a cheap son of a gun," he says. "But after 165 years, I didn't do this on a whim. I was confident in our ability to grow."

The only problem was that construction would take close to three years. But then, right after breaking ground, Yuengling learned of a former Stroh's plant in Tampa that had become available. With its staff still intact and a capacity of 1.5 million barrels, the facility would alleviate the brewery's short-term crisis while the new brewery was completed. Perhaps more importantly, it would afford Yuengling the opportunity to open up the Southeast, a market that he had long eyed from afar. Moving production outside of Pottsville carried obvious risks, but he was willing to take them. Because technology has made brewing more science than art, the concern over inconsistent taste when a beer is brewed at more than one location is more one of perception than reality. Yuengling was confident his brand would stand up.

In April 1999, Yuengling bought the Stroh brewery for $13 million (and later spent $5 million in upgrades) -- a fraction of what it would have cost to build a similar facility from scratch. Years of fiscal restraint and low overhead provided Yuengling with the cash to pay out of pocket. Within three months, the plant was filling its first Yuengling bottles, bringing some much-needed breathing room. Just two years later in July 2001, the new state-of-the-art facility opened in Pottsville, making Yuengling America's "newest" brewery.

Yuengling capped his string of capital improvements in the summer of 2003 by spending $30 million on a new filling system, including 250,000 new and improved kegs. When all was said and done, the "cheap son of a gun" had committed $98 million toward upgrading the company.

Brewing is a lot easier than it used to be, but someone still has to keep an eye on the stove. At the old plant, that person is Jim Buehler, whose office is tucked away in a quiet corner near the museum, behind a frosted-glass door that identifies him simply as "Brewmaster." He began stacking cases in the bottle shop more than 30 years ago, and he remains a true believer. "Beer," he says without a hint of irony, "is good food. I'd rather drink beer than eat."

That beer first started flowing in 1829, when a German immigrant named David Yuengling opened the doors of his Eagle Brewery on Centre Street in Pottsville. Two years later, the building was destroyed by fire and replaced with what would become America's oldest brewery. Yuengling carved his second facility into the side of Sharp Mountain, using its underground caves to aid fermentation. With horse-drawn carts shuttling the beer in and around Schuylkill County, the company began to establish itself. For many years, though, it wasn't even the biggest brewery in Pottsville.

The first generational transfer of power at Yuengling began in 1873, less than a decade after the Civil War, when David's son Frederick joined him as partner, and the company became D.G. Yuengling and Son. Frederick took full control soon after and added the bottling line, but he passed away at 51, leaving his only son, Frank, at the helm. Barely in his early 20s when he took over, Frank would go on to inherit the biggest challenge in the brewery's history.

"I'm a cheap son of a gun. But after 165 years, I didn't do this on a whim. I was confident in our ability to grow."

All businesses face obstacles, but few face one as great as having the federal government ban its product. The 18th Amendment was ratified in 1919, and over the next 13 years, Yuengling barely survived Prohibition by making ice cream and "near beer," a nonalcoholic alternative the family hoped would maintain its brand recognition. When America's dry spell ended, many regional breweries were dead, but Yuengling unveiled its "Winner Beer," a jab at the temperance movement. Frank promptly sent a truckload to President Roosevelt at the White House.

When Frank's 64-year run ended in 1963, sons Richard Sr. and F. Dohrman took charge. Under Dick Sr. (Dohrman died in 1972), the brewery, like many family businesses, existed primarily to sustain the family. It often lost money, and expanding -- or even upgrading the plant -- was not on Dick Sr.'s agenda. He was mostly hoping to get by.

Dick Jr. began working at the family brewery in 1957, stacking crates as a teenager. From the beginning, he was outspoken about the flaws in the operation that he tended to notice. "I'd force my way into other areas of the business," he says. "I'd try to implement changes at 18, and, of course, I'd get overruled."

Disagreements with Senior led Junior to quit the business in 1973 to start his own distributorship. Naturally, he sold Yuengling (as well as other brands), and as a result, he routinely found himself back at the brewery, filling up his truck. His father was diagnosed with Alzheimer's in 1983, and Dick Jr. took charge not long after. "Hell, I always wanted to do this," he says. "I wasn't selling Pabst and Rolling Rock because I wanted to. I couldn't get along with my dad."

The wholesale contacts Dick Jr. had made as a distributor proved handy now that he was a manufacturer. A little bit of luck, it turns out, also helped. In the '80s and into the '90s, craft beers began rising to prominence, and even though Yuengling has always considered itself a workingman's beer and has priced it accordingly, its relative obscurity allowed it to ride the wave of the booming craft category. Yuengling's 200,000 barrels grew to 300,000 as the company began spreading across the Northeast.

As demand grew and Yuengling sensed that he might have something big on his hands, he began to think about the future. In 1993, while on vacation in Florida, he sat his four daughters down and asked them point-blank whether they might one day be interested in taking the reins. Above all, he wanted to know whether the money he was investing in the company was going to benefit his kin. Three daughters agreed (and the fourth hasn't ruled it out), and they began working at the brewery soon after. Jennifer is a plant coordinator, Debbie works in finance and accounting, and Sheryl helps manage distribution. Though the brewery has always been part of their lives, they are the first women to help manage it. "It is a source of pride," says Sheryl, "that we're women and we're going to be taking this over."

"There are plenty of guys that have put breweries out of business," Dick jokes. "I don't know of a woman who has."

Still, the 61-year-old, chain-smoking Yuengling acknowledges that his daughters would not be ready to take over any time soon. There is no clear leader in the group thus far, although Jennifer, the eldest, comes closest. For starters, she's gone to brewing school and can explain precisely how Yuengling Porter makes its way into your bottle. She also has a graduate degree in psychology, which can't hurt in a family business. Perhaps most importantly, she takes the same hands-on approach that has become her father's signature. At the brewery before dawn, she says the boss is still her best resource. "He's certainly not a scholar and he doesn't have a college degree," she says. "He's just dedicated his life to the brewing industry, and he's magical with it. And the best way to learn is through our interaction with him."

Assuming they do take over, they will purchase the company from their father, just as he did from his father, and his father before him. Such a succession path has become tradition because, as Yuengling puts it, the next generation is bound to feel a stronger connection to the brewery with its own money invested. "It's like a kid's first car," Yuengling says. "If they buy a $700 wreck, they take care of it, wash it, polish it. You give them a $20,000 new car, it's just not the same." Exactly how he will appraise a brewery that barely resembles the one he purchased just a generation ago, Yuengling says, remains to be decided.

While he jokes that retirement is "indefinitely on hold," he also admits that his management style has a limited shelf life. "I'm good at running a small business," he says, "but we're not a small business anymore."

America's oldest brewery may no longer be a small business, but its transition is far from complete. "There are times you can call the brewery and ask for Dick Yuengling," says Chris Caffey, who is president and CEO of I.H. Caffey Distributing Co., a North Carolina distributor that handles Yuengling, "and the voice on the phone says, 'Speaking."

The company now has excess capacity, two modern plants, and a 160-employee, multistate operation. What it lacks is the additional layer of management needed to run such an operation. Dick Jr. boasts that his relatively flat, informal management structure prevents the company from getting too bureaucratic or corporate. But the result, as with many family businesses, is a top-heavy company that is often too reliant on one person, Dick Yuengling. "It's a fine line trying to maintain the laid-back, flexible attitude and yet still not become corporate America," concedes Jennifer. "It's hard. We don't have a board of directors. We don't have managerial meetings every week. There's basically one guy here that controls the whole operation. And that's something that, as we do expand, we're going to have to sit down and discuss."

That lesson was driven home with the 1999 move into Florida. Because the brand had always relied heavily on barroom buzz -- and very little on actual marketing -- it had always grown through baby steps, expanding into contiguous states and cultivating word of mouth. But Yuengling suddenly had a brewery in the Sunshine State, and it suddenly had to sell beer to people who -- far from clamoring for Yuengling -- had never even heard of it. "Florida put a kink in the whole thing," Casinelli says. "It was counterculture to what we were used to doing."

Although Florida is the nation's third-biggest beer state, Yuengling kept staff levels low and didn't throw a lot of money into marketing. The brand flailed initially. "We became a small fish in a big pond," Casinelli says. "We had to figure out where our place was." More recently, with the building frenzy behind them, Yuengling and Casinelli have been able to devote more time and resources to Florida, going region to region. Sales are up more than 40% in the past year, and Yuengling is now selling 5% of its beer there.

North Carolina proved easier. Rather than expand north from Florida, the brewery kept moving south from its core markets in the Northeast and entered North Carolina in 2002, with brand awareness already building. "Prior to the launch, I would have people ask me, 'Do you know where we can get Yuengling? When is it coming?" says Caffey, the Greensboro distributor. "The old clichZ, 'It took off like a rocket,' is true." The brewery has captured a 3% market share in the Tar Heel State, selling as much beer there -- some 65,000 barrels -- as it does in Florida.

And for the first time in its history, Yuengling is looking to add middle management. The primary mover has been Casinelli, the outsider who came onboard in 1990. Eight months ago, he started looking at where the brewery could add new departments and the bodies to fill them. In March, consultants first set foot in the house that David Yuengling built, helping to draft a set of recommendations for his great-great-grandson. Among the ideas on the table: splitting the operation into two, with one focusing on Pennsylvania and Yuengling's other core markets, the other on expansion. Moving deliberately, as always, Dick Jr. has agreed to start searching for operations managers. "I don't think you can grow to the point we've grown and still be totally hands on," he says. "You can't call Microsoft and talk to Bill Gates. You've got to get people in the proper place. And sometimes as an owner, it's hard to do it. I at least recognize it."

"We don't have a board of directors. We don't have managerial meetings. There's one guy who controls the operation."

"Dick does recognize this," Casinelli says, "but I'm not sure if he's embraced it yet."

It is important for a company like Yuengling, says UCLA management professor Eric Flamholtz, who advised Starbucks on its rise from coffeehouse to coffee conglomerate, to maintain its unique culture -- but not in lieu of meeting the demands that come with rapid growth: formal long-term planning and a management team to carry out those plans. The "tipping point," says Flamholtz, usually comes at either the $100 million-revenue or 500-employee mark, and failure to address the infrastructure needs can sink a company. "I liked being a teenager," Flamholtz says. "But you can't be one forever."

Depending on which expert you ask, roughly 70% of family businesses never reach a second generation. Perhaps 10% make it to a third. With its sixth-generation management on board, Yuengling is bucking some pretty big odds. There are few people in the industry who would question Yuengling's ability to survive, but as the current expansion continues, the challenges also mount.

The struggle to gain acceptance in Florida has served as a cautionary tale of sorts, and the brewery plans to keep overall growth in the 5% to 12% range. Despite calls from distributors begging for the right to sell the beer, Ohio and West Virginia are among the states the brewery has shied away from entering. "There's not a day that goes by when we're not enticed by other markets," Casinelli says. "But I'm not going to put our brands in a market if we don't have the manpower."

With more than 3 million barrels of capacity now at his disposal, Dick Jr. could double his current output and still have room to grow. He sees the extra capacity as flexibility, allowing the brewery to continue growing at its own pace along the East Coast -- but only along the East Coast. Yuengling says he has no intention of ever buying or building another brewery in his lifetime.

Last year, the company posted gains in every state where its beer is for sale except one. The lone exception? Pennsylvania, of all places, where two-thirds of its beer is still sold. Yuengling retains a strong 10% share in its home state, but the brewery is taking the slip seriously. Casinelli says that the brand is "above the radar screen now" and its ever-rising popularity and prominence on the East Coast could, oddly enough, hurt at home. "We can't take for granted that our brand won't become passZ among our core drinkers," Casinelli says. "We've always enjoyed a lot of brand loyalty, but to take your products on more of a national level, you have to market them a little differently."

Dick Yuengling, for one, has little doubt that his brewery can continue to grow and still maintain the Yuengling mystique. "Hey, we fought through Prohibition," he says, "so we'll fight through anything."

Sidebar: A tale of two breweries

Jim Koch still has a few signs lying around his office that proclaim Boston Beer Co. the oldest brewery in America. These days, however, Dick Yuengling lays claim to those bragging rights -- and has no intention of relinquishing them.

Yuengling was founded in 1829 and is legally considered the oldest continually operating brewery in the nation. Boston Beer Co. started brewing a year earlier, in 1828, but took a brief hiatus in the 1970s before Koch purchased it in 1984. But the two men at the helms of these storied brew houses -- the only independent breweries that shipped more than a million barrels last year -- have a lot more in common than that.

Yuengling took over for his father, Richard Sr., in 1985 and has transformed the once tiny Pottsville, Pa., brewery into an expanding, multistate operation. Koch (pronounced Cook) purchased then-dormant Boston Beer a year earlier, in 1984, and over the past two decades has made Samuel Adams a household name. Both men come from long brewing pedigrees. Yuengling is a fifth-generation owner; Koch is the first in his family to run Boston Beer, but five generations of Kochs before him have been brewers. In addition, both Yuengling's and Boston Beer's staple brews are flavorful lagers. While Yuengling shipped 1.3 million barrels last year, Boston Beer shipped 1.2 million.

With similar styles and similar pasts, Yuengling and Koch have forged a friendship over the years, and the two share a mutual admiration not often found between competing CEOs. Despite the bond and the similarities, the breweries find themselves on different paths as they approach their third centuries. Yuengling has more than doubled in size over the past decade and surpassed Boston Beer's production for the first time last year, making it the nation's fifth-largest brewery. In contrast, publicly traded Boston Beer, considered a pioneer for launching the nation's first mainstream craft beer in the 1980s, has declined slightly, facing younger drinkers who now see Sam as somewhat stodgy. Most significantly, Boston Beer chose to go national, supported by a prominent advertising campaign, while Yuengling has stuck primarily with its market-by-market, word-of-mouth strategy. "I would rather be deep than thin," Harry Schuhmacher, publisher of Beer Business Daily, an online industry report, says of Yuengling's approach. "If you have a higher share in a smaller part of the country, that means you've got pretty good brand loyalty."

Rod Kurtz is a staff reporter.




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: