Brew family: Yuengling, the next generation

 

Now that Yuengling is the biggest-selling beer brand in Pennsylvania, Florida, Ohio, and five smaller states, and fifth-generation owner Richard "Dick" Yuengling is on Forbes' list of billionaires, it's getting harder to remember that in the mid-1980s his was still a small-town brewery in the fabled but faded ex-coal-and-iron center of Pottsville, selling a few hundred kegs a day.

 

"I was told, when I was 19 or 20, that the brewery would fail and I should go somewhere else," Yuengling recalled, smiling. That's what most Pennsylvania breweries had done by then, crushed by national competition and Super Bowl marketing budgets.

 

 

 "But we had a good brewmaster, good products, and I was never afraid to work and put the hours in," Yuengling says. "If you have that going for you and you believe in your company, and yourself, and what you're doing, and a lot of luck, you can make it work." 

 

Only it wasn't quite that linear: Yuengling, now 73, left the company at age 30 after his father declined to update the works fast enough to suit him. He bought a beer distributorship, and cultivated the agents who convinced Pennsylvania college students to drink rival brands -- Pabst, or Rolling Rock. 

 

In the early 1980s, when his father was old and sick, and "nobody else in the family wanted it," he finally stepped back in, Dick Yuengling told the crowd at St. Joseph's University's annual family-business seminar last week. "I bought it from his estate in 1985."

 

Three years later he convinced a Pittsburgh distributor to take on Yuengling lager and Black and Tan half-porter: "Before that, nobody wanted us." But now it was time: "Craft beers were just starting." 

 

Soon, Yuengling had a problem the reverse of his dad's. "He came to all of us and said, 'We're really oversold. We can't meet the demand for our products. Are any of you interested in coming back to work in the family business?' " recalls daughter Jennifer.

 

If he was going to invest in a new plant, Dick Yuengling wanted to be sure there was going to be a next generation to hand the brewery to.

 

Jennifer says she jumped at the chance. She packed off to a beermaking course in Chicago, spent the next year back in Pottsville learning beer from fermentation to invoicing, and has been running Yuengling operations ever since.

 

Her sister Wendy took a longer road, a little more like Dick's own. "I wish I'd known how monumental that conversation would be," she told the crowd, laughing.

 

A sophomore in college when her father sounded her and her sisters, Wendy finished college and headed for a marketing and advertising career in New Jersey, then in Baltimore -- until the day her boss slapped an Inc. Magazine article on her desk, about how her dad was trying to figure out how to transition Yuengling to the next generation.

 

"So I joined the company in 2004," as an outside sales agent, she says. She now oversees HR, IT, finance, and stays close to sales and marketing, back in Pottsville. "We're a very small company. Anyone who is part of a family, business, you wear all hats, and touch everything."

 

Accountant Bill Jones vouched for that. Another Pottsville native, he says his father advised him "to be overqualified" if he intended to work in depressed Schuylkill County. He got his MBA and his CPA, took over his family advisory firm's Yuengling account and was on hand to be Dick Yuengling's counselor and sounding board through the growth years.

 

The big decision, Dick says, was to build that second Pottsville brewery -- and then turn around a former Stroh's plant in Tampa to expand Southern sales.

The Yuenglings don't pretend to be a small-batch brewer. "They have a new flavor every month," Wendy marveled. But with Pennsylvania easing rules that once made 12-packs, for example, hard to market, Yuengling's has joined the trend to seasonal brews: "We tried a bock beer. An Oktoberfest. A summer beer. Most recently an India Pale Lager," she said, supplementing the seven steady year-round brands. "We like to keep it simple and efficient."

 

Why keep innovating; why not cash out? "We've been approached by companies that would love to have us in their portfolio," Dick said. "But with respect to the four generations before me and the rest of my family that made the commitment to keep it running when I'm gone, we're not for sale. It's a family business.

 

"Everything isn't about money. It's not like we're corporate America and have to be listed on the New York stock exchange and have to make a profit the next quarter. Our game is all about longevity. Not to make a number on the stock market."

 

"It wouldn't be fair to the previous generations that worked so hard, to just so easily or frivolously sell out," Jennifer said. "Our name is on the label. That's what we come to work each day for. It's our name that's out there."

 

"The best time to do transition is while the value is still doing well," said Jones. "Recapitalize, [issue)]some non-voting [ownership] shares, and get them down into the hands" of the next generation.

 

Dick says Yuengling has done that through his tenure, adding that the family sees inheritance taxes (and promises by some Democratic politicians to raise them) as an existential threat: "The transition of a family business [to a next generation] is hard enough without the government fighting you."  

 

Dick said close advisers such as Jones had been vital as neutral parties able to keep family members negotiating through changes in responsibility and control. "It's not always easy to figure that with a parent," Wendy said.

 

"Have one or two people you can balance key ideas off," said Jennifer. "Confidants you can be trustful with, to bounce ideas off."

 

"I agree," Wendy said. "We've put a lot of resources over the last couple of years into building out the organization. Like my Dad said, you have to be passionate about what you are doing.

 

"As far as fear of risks or failure, you have to know you're going to be pushing yourself outside your comfort zone just about every week. You can't be afraid of failing. 'Because you won't know unless you try it."

 

"Hire people smarter than you," suggested Jones. "That can help you with your business view."

 

Dick called it "a joy" that four of his daughters eventually joined the company at least part-time.  

 

Being female, instead of making it tougher, was an asset early on, Wendy said: "When you are trying to sell beer to retailers, you can get a lot accomplished as a female."  

 

More women, these days, are brewery owners and brewers. "It's great to see. But you go in and do your job every day without regard to being a female or a male," Wendy added. "To me it's neutral," Jennifer said.

 

Mary Nicoletti, the St. Joseph's family-business program coordinator, asked how the Yuenglings prepare younger family members. 

 

"We kind of wing it," Dick said. "I'm not a good director. I let them find their owner way. 'Where is the company lacking?' They work it out. Rather than directing somebody to something they might not like doing."

 

A big step was inviting the sisters to all key meetings, Jones added, instead of "just feeding them tidbits."

 

But the Yuengling daughters said they are working with professionals to develop a welcome-to-the-company system for their children. "We're trying to find that balance between exposing them to the family business and pressuring them," Jennifer said. "When you have nine potential heirs you need to map out a plan.

"Twenty years ago it was a totally different company. Now we have three plants and [sales in] 20 states. We figured it out. But there are definitely challenges with that. Our children will enter the business a little differently, in terms of giving them a path," she added.

 

"There's such a sense of pride to carrying this family business to the seventh generation that I'm sure somebody will step up," Wendy said. 

 

There aren't any Yuengling in-laws in the business, so far, Dick said. "I'd be glad" if he found one with the "talent and interests."

 

How old should the next wave be? asked Joe Procacci, the Tomato King of Philadelphia, one of the many family-business owners on hand for the St. Joseph's event. "In our family -- we've been farmers for 500 years, starting in Italy -- we have farms in several states and Mexico, about 8,000 employees, we're just starting to transfer our businesses to the next generation," he noted.

 

"Two of ours are 14 and 15, and they think they're ready," cracked Dick.

 

Did Yuengling benefit from Pennsylvania's restrictive alcohol laws? asked Nicoletti.

 

Dick noted the longstanding Pennsylvania beer sales law, which had the effect of decentralizing the market to 1,200 local distributors, helped shelter Yuengling from out-of-state competition by making it easier to find local outlets in targeted towns. "The distributors couldn't all be controlled by Miller or Coors. That gave us the chance to build and stay in business."

 

But now, "with pressure from the consumer, and rightfully so, the consumer wants easier access," he added. "So you're  seeing beer sold in grocery stores, in convenience stores," through single big buyers -- and that "will hurt" small producers and small brands. 

 

The global brewers "sell so much beer they can get any product they sell onto the shelf. We don't have the horses to do it. We [local producers] were favored [by the state's old distribution system]. We lost that favor. It's more convenient to the consumer. Those breweries that were protected, mostly they're all gone now. We stand alone."

 

Businesses survive when they "stay focused," Jones said. "I've seen a lot of small businesses that are successful and get a little capital, move into other areas. They think they can become real estate developers. And they lose their butts."

 

"If you're going to do something else, get into a venture with someone who knows that business," he advised. Owners who are good at one business think they must be good at all business. That's an expensive illusion.

  

Addressing a question by Parkway Corp. owner Robert Zuritsky -- whose family has expanded from parking into Center City Philadelphia real estate development -- Dick said he's concerned federal and state agencies have inadvertently made life tougher for family businesses, as Donald Trump has said in his campaign. (Last year the company agreed to install $8 million worth of water treatment equipment in Pottsville after paying fines fine for running brewery waste water through the city sewage system.)

 

"For us, another challenge is the competition," Jennifer said. "The U.S. beer industry has been going through a second wave of craft brewing," with as many as 5,000 brewers trying to slake drinkers' thirst, at a time when "beer consumption is gradually declining. We're facing a challenge."

 

"The challenge is to communicate our message -- we're America's Oldest Brewery -- push the boundaries of the brand but stay true to our roots and what we've been doing well for 187 years," Wendy added.

 

"The labor force" is a big challenge, said Jones. Today, "getting people who are trained properly" is harder than it used to be, Jones said. St. Joseph's trains students to run family businesses, "and that's wonderful. But the people at the lower levels, that have to do the technology," are becoming harder to find. Big breweries are trying to restrict their staff from going to work at smaller firms.

 

"It's very tough to find competent people," Jones added. "The younger people are not as focused. Their attention span is a gnat's." (Which is also why it's tough to get young people to learn to play golf,  he added. "It takes four hours. After half an hour, young people get bored.")

 

Added Dick Yuengling: "When I started, guys were making a dollar an hour, 95 cents an hour, pay was horrible. Guys worked very hard. Now there are guys making $70,000, $80,000, $90,000 if they can get a lot of overtime. It's my responsibility to pay them well, provide them with good hospitalization and a pension."

 

Yuengling has faced a Teamsters-led consumer boycott since workers voted to decertify the union in 2007.  Like other old-time Pennsylvania business owners, Yuengling has supported "right-to-work" legislation making it tougher for labor unions to operate.

 

Yet he also says, as a business owner, he is obligated to pay fair wages and benefits, and to support the local community: "We do a lot of charitable work, quietly. Scholarships. It's more important than a lot of other things we do. We help some kid go to school that normally wouldn't be able to go. We don't have a triple-A plus grading card. We let him get 2.5, 2.7, and give him a chance. We do a lot of community work as well as take care of our employees."

 

"We try to take very good care of our backyard," Wendy said. "We have a very dedicated community. We have families that work for us through generations, just like we do. I think that speaks volumes to my father's dedication to the city."

 

Why a brewery in Tampa? It was the right size. "We we were totally sold out in the little brewery in Pottsville," Dick said. "A 250,000 barrels [annual] capacity. We expanded it [with the new plant] to 450,000, [or] 500,000. Before that project was complete we were just out of beer all the time. We were at risk of eliminating all the opportunities we had to grow.

 

"In 1998 we decided to build another brewery. We had a guy able to do it. Billy [Jones] got a program together with a couple banks."

 

Around that time "the Stroh family decided they didn't want to be in the brewery business. They had bought Schmidt's and Ortlieb's," the last two Philadelphia brewers of the older era. "They had 12 or 13 breweries for sale. The one in Tampa was a size I thought we could grow into,"1.5 million barrels a year. If that sounds like a lot, it's just one-fifth of Stroh's largest breweries, or one-tenth the size of Budweiser's flagship St. Louis beerhouse.  But a big step for Yuengling.

 

"I didn't have delusions of grandeur we are going to grow to 8 million barrels every night. So we bought Tampa" and began trucking beer north, while building the second Pottsville brewery." The Southeast became "a huge market for us."

 

It was a squeeze financing both projects at once, recalled Jones. "We had negotiated the loan to build the plant in Pottsville. We were in construction, drawing down funds. And he comes up with, 'Can you come up with a bunch of money to buy a pant in Tampa?' "

 

The Pottsville loan ended up helping fund Tampa, too, thanks to careful spending: "The guy building the brewery did a magnificent job buying stainless steel for 10 and 20 cents on the dollar. The bank found out through the newspaper that we had purchased a brewery. That phone call was not pleasant." He laughed.

 

"We went from 137,000 barrels to 2.7 million barrels in 30 years. It's such a blur," Dick said. "We're doing as much as we can make, most of the time. 

 

"I don't worry about the numbers. That's part of being a family business. You don't have to worry about the numbers." At least not lining up the quarterly numbers with outside analysts' view of what profits ought to be.

 

The crazy growth "has slowed. We're taking a breath of fresh air and seeing where we want to go. We're opening new markets. We opened Mississippi. And Louisiana. As far as we can go from Tampa. And we can go north, into New England."

 

And there's more beer to sell in and near Pennsylvania. "We don't think we're there yet," Dick said. 

 

"We were growing at a 20 percent [annual] rate for a while," Jones said. "Once we go numbers up, the decision was made to keep growth in the 8 to 12 percent growth yet. Stroh's grew so fast. You run out of cash flow."

 

Addressing a question by Taylor Fernley of Fernley and Fernley, fourth-generation association managers, Dick told more about the Pennsylvania beer wars: "When I started [in the 1960s] there were coal region breweries up through Scranton. There were beers in Allentown and Philadelphia. With the consolidation, the big guys were all that's left. Miller and Coors and Bud control 75 percent of the U.S. beer market.  

 

"[Budweiser owner] August Busch was a smart owner. He was good for the beer business. He didn't like us going into his beer distributors, but he didn't stop us." He's concerned that the new combination of SABMiller with InBev and Anheuser-Busch will try to stop competing beers.

"MillerCoors is good. Pete Coors I know. But their operations aren't on the scale of Anheuser Busch. That worries me. What happens when they want to divest themselves [of smaller beer distribution groups]? The Department of Justice should definitely take a look at it."

 

Megan Juday, fourth-generation owner of electrical-supply toolmaker Ideal Industries, got back on the topic of helping young people decide on the family business. "In my opinion, in no way should he be brought in if he's not ready to," Jennifer said. "It needs to be an individual decision. The conversations should be starting around the teenage years." 

 

Asked by Jimmy Duran of the Greater Philadelphia Hispanic Chamber of Commerce how Yuengling markets to Spanish-speaking U.S. residents, Dick said he'd "hired Hispanics in the Miami area," but didn't want to look patronizing:  "How do you reach the Spanish market without putting cerveza on the label? You want them to accept the brand. I want the Hispanic market to drink an American beer and an American-made product."

 

How did Yuengling manage the new beer? Duran asked. "One of our employees was going, 'Our [Pottsville] beer is better than your [Tampa] beer," Dick said. "I sat him down with three glasses. Mahantongo (old Pottsville), Mill Creek (new Pottsville), Tampa. He picked the Tampa! You see?" Nobody can tell the difference. "But it's always a struggle up in the coal region." 

 

"It comes down to perception," Jennifer said. "We were fortunate we had an excellent group of brewmasters. We were able to get consistent taste. We look for any inconsistencies."

 

Yuengling isn't pushing exports. Beer drinking is down -- not only have Budweiser and Coors have lost more demand in the past 20 years than Yuengling produces, "Vitamin Y" sales in Yuengling's home counties are also off -- "we've opened new markets to make up for the loss of our home territory," Dick said. "People aren't drinking as much" beer in bottles and cans, and that isn't likely to reverse.  

 

In part the problem is the greater availability of fresh beer: "There's a lot of beer going through these brewpub restaurants. They're hurting other restaurants. We'll survive it.

 

"You can't sit down and drink a sixpack of an IPL. You can drink a six of premium light or lager. So you live with it. What can you do?"

 

Asked about work-life balance, Dick Yuengling did not go all touchy-feely. "You're married to your work," he told the crowd. "You don't have much time for anything else."

 

"They went through it with me, not going to their athletic events. Now they see why. You are married to your business." He smiled and looked at his daughters. "The worry is on their part now."   

 

Original article published: http://www.philly.com/philly/business/Yuengling-.html

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