August Schell Brewing Company Inc. Business Information, Profile, and History

Company Perspectives:

At Schell's, we believe that not all beer is created equal. And passionately so. Any beer with true substance must start with the very finest malts and hops. No exceptions. Both ingredients greatly affect the taste, aroma and color of the beer, and are carefully selected to match the style that's being brewed. From our legendary Pilsner to our award-winning Schell's FireBrick lager to our seasonal favorites, you can rest assured that what only takes you minutes to finish, took weeks to create and over 140 years to perfect.

History of August Schell Brewing Company Inc.

August Schell Brewing Company Inc. is the nation's second oldest family-owned brewery. Located in New Ulm, Minnesota, the brewery is operated by the fifth generation of family members since August Schell founded the company in 1860. The company is well known throughout the Midwest as a regional "craft brewery" with a combination of beers, lagers, and ales, including specialty and seasonal beers. Schell's beverages are available through distributors in Minnesota, Illinois, Iowa, North Dakota, Pennsylvania, South Dakota, and Wisconsin. The company brews 38 different beers; about 16 of those are varieties of contracted brews distributed under different names. Schell brews approximately 110,000 barrels of beer each year. In 2002 Schell became the state's largest and oldest brewer following the demise of the 150-year-old Minnesota Brewing Company.

Schell Brewing has thrived over the decades by adapting to the changing market, anticipating future trends, and building on its regional popularity. Like most breweries, Schell offers visitors' tours, but Schell's facilities have the added allure of being surrounded by beautiful gardens and grounds along the Cottonwood River. The family incorporates its rich German heritage into the brewery business as well as into the aesthetics of the surrounding property, earning the brewery and its grounds a spot on the National Register of Historic Sites. The brewery hosts thousands of visitors each year who come for tours, beer tasting, and special events such as the annual Bock Fest in March. The company's events and marketing efforts have helped create a strong local and regional brand loyalty to Schell's products.

Putting Down Roots to Brew a "Good German Beer" in the Mid-19th Century

It all began when August Schell, born in Durbach, Germany, left his homeland at age 20 to search for new opportunities in the United States. After living in New Orleans and Cincinnati, August settled in Minnesota in 1856 with his wife, Theresa, and their two daughters. August and Theresa helped found the town of New Ulm with a small group of German friends and acquaintances from Cincinnati.

After a few years working as a machinist in a flour mill, August Schell's desire for a good German beer led him to open a small brewing company just outside of town. His partner was Jacob Bernhardt, who had experience working as a brewmaster in a St. Paul, Minnesota, brewery. Their small brewery along the banks of the Cottonwood River produced 200 barrels of beer that first year. (One barrel is equal to 31.5 gallons or 13.75 cases of 24 12-ounce cans or bottles of beer.) The partners chose to build the brewery near an artesian spring, which provided clean, pure water for the brewing process. The nearby river also enabled the small brewery to easily transport beer and supplies, as well as provide access--at least in wintertime--to ice for refrigeration.

In the early days, the brewery location was in the heart of Dakota Indian territory. When the Sioux Uprising (also referred to as the Dakota Conflict) threatened the region in 1862, the brewery, like everything else, was a vulnerable target for the Native Americans' wrath. Fortunately, Theresa Schell had established herself as a friend to the local Dakota people, and they repaid her kindness by keeping damage well away from the brewery.

In 1866 Bernhardt became ill and decided to sell out his portion of the business. Schell became sole owner of the company for a price of $12,000. Throughout the next several years, the business blossomed under Schell's management. He built several additions to the original brewery facility.

Second Generation Taking Over in the Late 1800s

In 1878 August Schell turned over daily operations to his sons Adolph and Otto, but remained as chief executive of the company. Adolph managed the business, and Otto, who had spent time studying brewing in Germany, became brewmaster. Later, after Adolph moved out of state, Otto and his brother-in-law George Marti partnered to operate the brewery. Back in those days the beer was delivered to bars by horse-drawn wagon in oak barrels. When trucks were used in later years, Schell even delivered to people's homes.

In 1885, August and Theresa Schell built the Schell mansion and had the brewery property beautifully landscaped with gardens and a deer park. The picturesque landscaping still encompasses the brewery complex today, more than 100 years later. Their attention to detail earned the mansion and grounds a spot on the National Register of Historic Sites.

Sometime before he died, August Schell commissioned a Copper brew kettle for the brewery, which held 3,520 gallons of beer. It cost $25,000. At the time copper was the best metal to use in the brewing process. It helped brewers avoid problems due to the acidic content of wort and beer.

August Schell died in 1891, leaving the brewery to his wife. His youngest son Otto was the manager. The family incorporated August Schell Brewing Company in 1902, with Otto serving as president, Theresa as vice-president, and George Marti as secretary-treasurer. In 1911, Otto died suddenly. Theresa died just four months later, leaving George Marti to run the brewery.

From Prohibition to Expansion of the Product: 1920s-80s

The brewery continued to flourish under George Marti's leadership until Prohibition was signed into law in 1919. Prohibition laws banned the manufacture, sale, and transportation of alcoholic beverages in the United States. Wisely, Marti responded by shifting the brewery's production to "near beer," soft drinks, and candy. When Prohibition laws were finally repealed in 1933, Schell's brewery easily made the transition back to brewing malt beverages. The brewery was fortunate; during that time period, approximately 1,300 breweries in the country went out of business.

The next generation, represented by Alfred Marti, took over brewery management in 1934 after George Marti passed away. The younger Marti added entertainment to the brewery's local allure by establishing the Schell's Hobo Band, which still performs in the community today. In 1969, Alfred Marti retired, passing on leadership to his son Warren.

Warren Marti expanded the product line, adding new types of beer such as Schell's Export and Schell's Light. He also collaborated with Arneson Distributing in nearby Sleepy Eye, Minnesota, to make 1919 Root Beer, which the brewery still produces.

Beer cans also were introduced during Warren Marti's tenure as head of the business. The company made its products more attractive to consumers and collectors by putting scenic designs on Schell's beer cans. When Marti retired in 1985 the company was flourishing despite the growth of large breweries throughout the country, which were dominating the industry and squeezing market share from small regional breweries.

August Schell's great-great-grandson Ted Marti took hold of the brewery reins in 1985. In addition to the education Marti received growing up around the brewery, he studied at Siebel's Institute of Brewing in Chicago and at several breweries in Germany. Marti's entrepreneurial spirit led the brewery to begin brewing specialty beers--including malts, pilsners, pale ales, and weizens, some of which won national awards in the beer industry. At the 1988 Great American Beer Festival, Schell's Pilsner earned a gold medal in the domestic premium category and Hefeweizen earned a gold medal in the wheat beer category. Pilsner also won first place in 1991 at the Great International Beer Tasting Festival. Schell's Octoberfest and Hefeweizen were awarded silver medals at the 1991 and 1993 Great American Beer Festivals. Schell's Bock earned regional exposure as the Best Dark Super Premium Lager in a Twin Cities Reader magazine poll in 1991.

By 1989 Schell was producing eight varieties of beer, from hometown favorite Deer Brand to Weiss Beer. Schell's premium beers including Pilsner and Weiss were well known and well regarded nationally. Schell also began brewing contract beers for a St. Louis-based microbrewery. Among other varieties, Schell brewed their Shlafly's Pale Ale and Oatmeal Stout.

Joining the Specialty Craft Beer Market in the 1990s

Under Ted Marti's leadership, the brewery expanded its offerings and began to focus more on specialty beers, positioning beers such as Firebrick Lager against Killian's Red and Leinie's Red. Innovative executive Marti led the pack of American brewers by bringing bocks and pilsners to the United States before most of the competition. Despite Marti's strong leadership, in 1998 Schell brewed barely more than 40,000 barrels of beer, just two-thirds of its potential capacity. About half of that was contract beers for outside companies, a shrinking piece of the brewery market.

Schell gained regional exposure and added to its historical image in 1998, when the Twin Cities airport opened a theme bar that looked like a brew pub, highlighting Schell's brewery history and several of Schell's beers. Schell marketers encouraged its customers to become beer connoisseurs by distributing recipes that included Schell beverages as ingredients in addition to providing suggestions about which Schell beers were best to accompany a particular dinner menu. Recipe order forms were distributed in six-packs of Schell's beer. Clever packaging also added to Schell's appeal with consumers and helped distinguish its products. For example, Schell marketed Spanish Peaks Black Dog Sweetwater with a label that featured a black paw print and the phrase "no whiners."

Demise of Regional Breweries in the Late 20th Century

The last half of the 1990s proved to be a difficult time for small and regional breweries. Beer consumption nationwide had leveled off, prompting the big brewers to lower prices. The mega-breweries dominated the market, with price wars between Miller and Anheuser-Busch luring market share from the smaller players. Together the two brewing giants secured 75 percent of annual beer sales in 1998.

Minnesota saw the closure of Stroh Brewing's East St. Paul plant in 1997, and nearby G. Heileman Brewing Company in La Crosse, Wisconsin, in 1999. At the same time, the state's largest brewery, Minnesota Brewing, was struggling and dealing with a labor strike. While large national brewers across the country closed inefficient plants, small player August Schell Brewing hung on. Schell had experienced modest gains in sales of its proprietary brands, an increase of 5 percent over 1997, which surpassed the 4.1 percent growth in the rest of the industry during the same period.

Ted Marti knew Schell could not compete with the huge advertising budgets of the nation's top breweries. Marti instead expanded the brewery's emphasis to specialty brews. The popularity of Schell craft beers grew in part due to local consumers' pride. Schell began to gain an image as a specialty craft beer maker. That image, founded in a quality product, combined with clever packaging and an image campaign, helped boost sales 20 percent. Schell competed where it mattered and where the brewery excelled--in taste, rather than pricing.

In 1999 Schell took what some in the industry viewed as a risk by building a new state-of-the art brewery and retiring the old copper brew kettle system. The company made a $600,000 investment in a new, more reliable and efficient brewhouse at a time when the sales outlook was uncertain. The result was four new stainless steel brewing kettles--the mash tun, lauter tun, brew kettle, and the whirlpool--one for each step in the brewing process, and subsequent improved brewing quality. The new brewhouse was built alongside the old one, and it boasted a capacity of 560 barrels a day. At the time Schell brewed 14 of its own beers (four premium and ten specialty) and 50 beers under other brands.

2000 and Beyond

In 2002 Schell purchased the Grain Belt product line, a 109-year-old Minnesota beer tradition. Schell rescued the piece of Minnesota history from disappearing off the shelves for good. Minnesota Brewing closed in June of that year after filing for Chapter 7 bankruptcy. It had been the state's largest volume brewer prior to its closing. Adding the Grain Belt line made Schell the state's top producing brewery, with annual gallonage expected to reach 110,000, up from Schell's 70,000 the previous year.

The acquisition of a beer with such a strong history fit well with Schell's own emphasis on history and heritage. In addition, Grain Belt connoisseurs were thrilled that a Minnesota brewer would take over their product. Fortunately, there was not a lot of market overlap between the two brands. Initially, Schell brewed Grain Belt Premium, the top-selling Minnesota-brewed beer in the state. Schell planned to begin eventually brewing Grain Belt Light and Golden.

The brewery gained national recognition again in 2002 when its new Firebrick Lager, "an all-malt Vienna style lager made from roasted malt and imported hops," earned a bronze medal at the 21st Annual Great American Beer Festival in Denver. Firebrick was awarded the third place medal in the American Amber Lager category. More than 1,400 breweries in the country competed in the annual contest.

By the end of 2002, Grain Belt Premium had become Schell's best-selling beer. Schell also produced and distributed the packaged beers for James Page brewery, and by January 2003 Schell produced the entire James Page brand for the small, struggling Minnesota brewery.

Schell was expected to brew about 110,000 barrels in 2003, its largest volume ever. With the addition of the Grain Belt line, Schell's market share could approach its closest competitors in the state--Leinenkugel, with a 2 percent share of the Minnesota market, and Coors, with about a 4 percent share.

Under Ted Marti's leadership, August Schell Brewing Company had in a sense reinvented itself by branching out into upscale specialty brews. It also had earned a national reputation for some of its premium beers, with Pilsners and Weiss beers distributed nationwide. But its primary market continued to be regional--85 percent of Schell's beer is sold to Minnesota consumers. Throughout southern Minnesota and parts of Iowa, Schell competed well with the big players in the industry.

But in the Twin Cities of Minneapolis and St. Paul the company excelled in the specialty beer market. At the beginning of the 21st century its products included Schell original, light, dark, Pilsner, Bock, Firebrick Lager, German Pale Ale, Schmalt's Alt, Doppel Bock, Miafest, Zommerfest, Hefeweizen, Octoberfest, and Snowstorm Beer. Snowstorm is a special brew of Ted Marti's available only during November and December and reinvented each year. As the company web site explains, "legendary Snowstorms of the past have included a cherry-vanilla porter, a mead/ale, a raspberry-chocolate brew and a Scottish ale,"--no doubt, evidence of Marti's creativity.

Although growth had been phenomenal in its 142-year history, the brewery business remained in the family of August Schell's descendants. Family members comprised the board of directors and stockholders. The company had built and fostered a strong regional loyalty by maintaining a small-town, quality image. Keeping that heritage alive helped to ensure the "old world" quality often lacking in the efficiency-driven 21st century.

Principal Competitors: Jacob Leinenkugel Brewing Company; Adolph Coors Company; Pabst Brewing Company; Miller Brewing Company; Anheuser-Busch Companies, Inc.

Chronology

• Key Dates:
• 1860: August Schell partners with Jacob Bernhardt to open a small brewery in New Ulm, Minnesota.
• 1866: Jacob Bernhardt sells his share of the brewery to August Schell.
• 1878: August Schell's sons Adolf and Otto take over the brewery operations.
• 1902: Otto Schell incorporates the August Schell Brewing Company.
• 1911: George Marti (brother-in-law) takes over the company after Otto's sudden death.
• 1919: Prohibition begins and Schell adapts by brewing "near beer" and soft drinks.
• 1933: Prohibition ends.
• 1934: George Marti's wife, Emma, and son Alfred assume brewery leadership.
• 1969: Warren Marti manages the brewery after his father Alfred retires.
• 1985: Warren Marti retires, leaving son Ted to head the family business.
• 1990: Schell introduces a line of specialty beers.
• 1999: A new state-of-the-art brewhouse is erected.
• 2002: Schell purchases the Grain Belt beer line from struggling Minnesota Brewing Company.