Pittsburgh Brewing Company Business Information, Profile, and History

Company Perspectives:

An innovator in the industry, PBC has continued through the years to introduce new products yet maintain the same emphasis on excellence t hat its ancestors did. Pittsburgh Brewing has remained for 142 years dedicated to all of its products and to the public it serves--a publi c that returns that favor by continuously showing interest in and ent husiasm for the hometown brew.

History of Pittsburgh Brewing Company

Pittsburgh Brewing Company is one of the oldest beer makers in the Un ited States, and one of the 15 largest. The firm's signature brands a re Iron City and I.C. Light, and it also makes Augustiner, American, Brigade, and Old German. They are distributed in the eastern United S tates and to a few countries overseas. Pittsburgh Brewing has been ow ned since 1995 by an investment group led by vice-chairman Joseph Pic cirilli. Faced with mounting debt, in December of 2005 the company fi led for Chapter 11 bankruptcy protection.

Origins

The roots of Pittsburgh Brewing date to 1861, when German immigrant E dward Frauenheim and several partners founded a small brewery in the rapidly-growing city of Pittsburgh, Pennsylvania. The firm (officiall y known as Frauenheim, Miller & Company) began with a golden-hued lager beer, reputedly the first of its type in the United States, wh ich it named Iron City in honor of Pittsburgh's leading industry.

After several years the beer began to catch on, and in 1866 the compa ny moved into a new $250,000, four-story brewery. With growth con tinuing unabated, in 1869 an additional three-story structure was add ed. In the 1880s the firm became known as Frauenheim and Vilsack when Leopold Vilsack bought the stakes of Frauenheim's original partners. The brewery now had annual capacity of 50,000 barrels, making it one of the largest outside of the East Coast.

In 1899 the company merged with 20 other regional breweries to form t he Pittsburgh Brewing Company, after which some operations were conso lidated and others were shut down. Total capacity was now more than o ne million barrels per year. By 1918 the publicly-traded company's an nual revenues reached $7.7 million, and it recorded a profit of & #36;800,000. Total production for the year was 855,795 31-gallon barr els.

Prohibition Ends Beer Production in 1920

In 1920 production of alcoholic beverages was outlawed in the United States, and the firm was forced to reconfigure its business model to survive. During the 13 years of Prohibition Pittsburgh Brewing produc ed nonalcoholic "near beer," soft drinks, and ice cream, and ran a co ld storage business. A new unit, Tech Food Products Company was forme d to oversee some of these operations. In 1921 sales fell to $1.8 million and a loss of $667,000 was recorded, and the company con tinued to operate in the red until 1930.

When beer production resumed in 1933 after Prohibition was repealed, the firm elected a new president, John W. Hubbard, and formed a new s ubsidiary, Iron City Brewing Company Its products included Iron City Pilsner, Iron City Lager, Tech Beer, Dutch Club Beer, and Blue Label Beer. In 1947 a new $1 million expansion and upgrade was begun, a nd despite labor strife involving the Teamsters, by the mid-1950s Iro n City had become the best-selling beer in the Pittsburgh area, where it was especially popular with steelworkers.

An annual tradition begun during this period was the production of a beer called Olde Frothingslosh. Invented as an on-air joke by a Pitts burgh disc jockey whose pseudo-commercials used the tagline "the pale stale ale with the foam on the bottom," the firm sent out 500 cases of Tech beer with Olde Frothingslosh labels to shareholders in 1955 a s a Christmas gift. The idea was a hit, and the mythical brew was man ufactured each winter thereafter for public consumption. By 1960 its popularity had increased to the point that $200,000 was budgeted to promote it, comprising the company's largest ad campaign to date.

In 1962 Pittsburgh Brewing made beer industry history with the introd uction of the easy-opening "snap-top" can, developed by locally-based Alcoa aluminum. It was soon adopted as an industry standard, as was a later company innovation of this era, the twist-off bottle cap. The firm was also one of the first to use a new cold filtration process that made canned beer taste more like draft. By 1964 annual sales had risen to $17 million.

In 1965 an attempt to buy major Pennsylvania rival Duquesne Brewing w as blocked by the U.S. Justice Department, but in 1967 a smaller area company, DuBois Brewing Company, was acquired. That firm had long br ewed a beer called Budweiser, and a decades-old legal dispute over th e name with Anheuser-Busch was settled several years later with a rep orted $1 million payment to Pittsburgh Brewing. In 1969 the compa ny also signed an agreement with Dr. Robert Cade, inventor of Gatorad e, to brew a lemon/lime malt beverage he had developed called Hop 'N Gator.

An 11-month boycott of Iron City beer by Pittsburgh's African America n community in 1971 resulted in the firm agreeing to hire more blacks , but that settlement was followed by an even larger boycott by racis t whites. Sales declined by an estimated 15 percent and the firm's un ion workers went on strike for two months. Despite these problems, Ir on City continued to be the number one brand in the Pennsylvania-West Virginia-Ohio market.

The year 1972 also saw the firm purchase the rights to a number of ot her brand names including Gamminus, Robin Hood Cream Ale, Augustiner, and Mark V. The latter was a low-calorie beer that was considered th e forerunner to the light beers that became popular later in the deca de. In 1973, the company closed the former DuBois brewery.

In the late 1960s and 1970s the high-powered marketing campaigns of n ational firms like Anheuser-Busch and Miller took their toll on regio nal brewers, and the company's beers gradually came to be seen as bud get-price brands outside of their local stronghold. For much of the 1 970s Pittsburgh Brewing operated in the red, despite efforts to broad en distribution to states like Florida and Illinois.

New Products in the 1970s

In 1978 the struggling firm enticed retired executive Harry Glenn Wol fe back to serve as chairman, and he brought in an old friend, Miller Brewing veteran William F. Smith, for the job of president. Under th eir leadership the company introduced a new low-calorie beer called I .C. Light, which was marketed aggressively to younger drinkers and so on captured more than two-thirds of light beer sales in the area. The campaign also helped restore the luster of the Iron City brand, and in 1980 the company reported a net profit of $1.3 million on reve nues of $38.4 million, up from $25 million just a year before . Total production now topped one million barrels.

In 1981, after settling a brief strike by the company's employees, Sm ith left to head troubled industry giant Pabst (which later unsuccess fully sought to buy Pittsburgh Brewing). His place was taken by Rober t Seymour, who moved to the post of chairman a few months later when former Gimbel's head Harvey Sanford was named to the posts of preside nt and CEO.

In 1982 the company started a five-year, $12 million modernizatio n program that would add warehouse space and boost bottling capacity by 50 percent. The year 1984 saw introduction of a new premium beer, I.C. Golden Lager, which quickly grew to take a 5 percent share of al l beer sales in southwestern Pennsylvania, one-eighth of the firm's t otal share of 40 percent. The company was again working to upgrade it s image by dropping some brands and reducing its distribution area to focus primarily on Pennsylvania, where 80 percent of sales were made . For 1984, revenues topped $44.7 million.

In 1985 a management-led group offered $26.5 million to take the company private, but they were topped by Australian financier Alan Bo nd's Bond Corporation Holdings Ltd., which was seeking entrée into the American beer market. After the $28.5 million deal was c ompleted Swan Export Lager was introduced to American drinkers, and P ittsburgh Brewing's distribution area was expanded.

The firm was now using its excess brewing capacity to produce beers f or other companies under contract, including Pennsylvania Pilsner, Ol de Heurich, Thirteenth Colony Amber, and Samuel Adams Boston Lager. T he latter, brewed for the Boston Beer Co., would eventually come to a ccount for more than a third of total production.

American Beer Falls Flat in the Late 1980s

In 1987 Pittsburgh Brewing took the bold step of launching a new bran d called American Beer that was intended to compete nationally agains t the likes of Budweiser, Miller, and Coors. Industry analysts gave i t little chance of success and the effort was scuttled the following spring, though the beer would later be reincarnated as a low-priced b rew that was exported to such countries as Poland and Russia.

In January 1988 the company was reorganized as a unit of new $1.2 billion Bond acquisition G. Heileman of Wisconsin, at which time CEO Harvey Sanford resigned. During this period the firm introduced a nu mber of new drinks, including flavored malt beverage I.C. Cooler, I.C . Ice, I.C. Dry, Classic Draft, Classic Draft Light, and a non-alcoho lic brew called Keene's.

Alan Bond's acquisitions had left him with an unwieldy $4 billion debt load, and in 1990 he was forced to sell his Australian brewerie s and resign from the firm that bore his name. In 1991 G. Heileman fi led for bankruptcy and a group of Pittsburgh Brewing employees led by retired CEO Harvey Sanford once again made an attempt to buy the com pany. This time they lost out to the $28.5 million offer of Micha el Carlow, a 40-year old businessman who (in partnership with his fat her Frank) had recently taken control of the troubled Pittsburgh-base d candy maker D.L. Clark Company.

The summer of 1992 saw beer sales boosted with a new ad campaign that spotlighted local beer drinkers' fantasies and the tagline "It's a ' Burgh Thing." In 1993 the firm responded to the growing interest in " craft beers" like Sam Adams by introducing J.J. Wainwright Select, wh ich was named after one of the 21 companies that had originally bande d together in 1899 to form Pittsburgh Brewing. The firm was also havi ng success with exports of American Beer to Russia, which accounted f or 7 percent of revenues.

In February 1994, after the Carlow-owned City Pride Bakery unexpected ly closed, a Pittsburgh Post-Gazette investigation of the man once touted as a savior of local jobs uncovered a checkered past whic h included bad debts and much ill will. In early 1995 Carlow's lender , PNC Bank N.A., accused him of a "check-kiting" scheme in which he h ad allegedly stolen $31.3 million. In February, the brewery's own er was forced to declare bankruptcy.

New Ownership in the 1990s

In the summer of 1995 Keystone Brewers, headed by 32-year old former trash hauling company owner Joseph Piccirilli and financier James M. Gehrig, agreed to pay $12.4 million and assume $17 million in debt to buy the firm, narrowly beating out yet another offer from a Harvey Sanford-led group. After the acquisition Piccirilli and Gehrig began putting in long hours to repair the damage caused by Carlow, a nd by year's end sales had begun to improve and the firm was looking at the possibility of expanding beyond its 14-state territory.

In May 1996 Michael Carlow pleaded guilty to bank fraud, conspiracy, embezzlement, wire fraud, and filing false income tax returns, and he was later sentenced to eight years in prison and ordered to pay $ ;2.3 million in restitution and back taxes. His predecessor as brewer y owner, Alan Bond, was now also behind bars, serving time for art fr aud.

Meanwhile, Piccirilli, who had no formal management training, was cut ting costs by dismissing the firm's veteran sales team and institutin g frequent week-long shutdowns of the brewery, as well as dropping th ree long-time local distributors in favor of a fourth that had offere d to pay a fee for the privilege. In March 1997 more than 100 members of one of the company's unions walked off the job to protest a work scheduling decision, and Piccirilli immediately fired many of them. H e later rehired most but sued the union for the work stoppage, after which an arbitrator ruled that the firm had to rehire all of the fire d workers and give them back pay.

In 1998 Pittsburgh Brewing acquired the rights to more than 20 older brands from bankrupt Evansville Brewing Company, including Wiedemann, Falls City, Drewry's, and Sterling, but efforts to merge with two ot her breweries failed and the contract to brew Sam Adams ended and was not renewed. In 1999 another merger deal with distributor Capital Be verage fell apart, while James Gehrig and several other top executive s left the firm to work for a new Cleveland-based brewery. Pittsburgh Brewing subsequently sued the latter over the alleged similarity of its label design to the recently-revived 1950s red circle Iron City l ogo. In 2000 a new "superpremium beer," Augustiner Lager, was introdu ced, and the following year some of the firm's brews were packaged in plastic bottles for sale at sporting events.

Debt Mounts in Early 2000s

Production was now steadily declining, and with money tight needed up keep and improvements to the company's aging brewery were being ignor ed. Pittsburgh Brewing was also having trouble making payments on a & #36;1.4 million loan from the Pennsylvania Industrial Development Aut hority, a $358,000 energy bill, nearly $200,000 owed the stat e treasury department, and some $3.7 million due the Pittsburgh W ater & Sewer Authority, which in 2002 threatened to shut off the firm's water supply if it was not paid. Though a payment plan was soo n worked out, the company disputed its sewer bill, arguing that a sub stantial portion of the water became beer so that the standard ratio of water to sewage used to calculate service charges did not apply.

In August 2004 the company's sagging fortunes were boosted by the suc cessful introduction of a new aluminum bottle for Iron City beer, whi ch was said to make the beverage stay cold longer. Though already ava ilable in Japan, Pittsburgh Brewing was the first large U.S. firm to use the container. Sales were brisk, and the can was named one of the ten best new products of the year by Business Week magazine. A few m onths later I.C. Light was also made available in the bottle. During 2004, according to Modern Brewery Age magazine, the firm brewe d 372,000 barrels of beer, down from 927,000 a decade earlier, making it the eleventh-largest brewer in the United States.

In 2005 Pittsburgh Brewing asked the U.S. government's Pension Benefi t Guaranty Corporation to take over its pension plan, which had a 6;5.6 million deficit, claiming it would go bankrupt if the request w as not granted. Over the summer the federal government also filed a & #36;750,000 lien against the firm because of unpaid excise taxes, whi le the still-unresolved dispute with the water and sewer authority co ntinued to simmer. When the company was unable to meet an early Decem ber deadline to pay $2.5 million owed in the latter case, it file d for Chapter 11 bankruptcy protection. Industry analysts held out ho pe that the firm could recover, citing the iconic status of the Iron City brand in Pittsburgh and the success of other brewers in returnin g from bankruptcy.

After nearly 150 years of operation, the Pittsburgh Brewing Company w as facing one of the biggest challenges in its history. As its owners and employees fought to keep the company alive, the firm entered ban kruptcy with hopes for an eventual return to profitability.

Principal Subsidiaries: Wainwright Brewing Company; Commonweal th Brewing Company.

Principal Competitors: Anheuser-Busch Companies, Inc.; Miller Brewing Company: Coors Brewing Company; Pabst Brewing Company; D.G. Y uengling & Son, Inc.; City Brewing Company; InBev USA.; High Fall s Brewing Company.

Chronology

• Key Dates:
• 1861: Edward Frauenheim begins brewing Iron City beer in Pitts burgh, Pennsylvania.
• 1899: Firm unites with 20 other area brewers to form Pittsburg h Brewing Company.
• 1920: Prohibition begins; company provides cold storage; makes near beer, soft drinks.
• 1933: Beer production resumes.
• 1950s:Iron City becomes Pittsburgh area's top-selling brand.
• 1962: Firm introduces industry's first "snap-top" beer can.
• 1978: I.C. Light is introduced and becomes company's best sell ing product.
• 1986: Australian Alan Bond acquires firm as part of efforts to bring his beers to United States.
• 1992: Michael Carlow buys Pittsburgh Brewing from Bond for 6;28.5 million.
• 1995: Carlow is charged with fraud and steps down; Joseph Picc irilli-led group buys firm.
• 2004: New aluminum bottle introduced to strong sales.
• 2005: Debt-ridden company files for Chapter 11 bankruptcy prot ection.