Pittsburgh Brewing Company

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Pittsburgh Brewing Company

3340 Liberty Avenue
Pittsburgh, Pennsylvania 15201-1394
U.S.A.
Telephone: (412) 682-7400
Web site: http://www.pittsburghbrewingco.com

Private Company
Incorporated: 1899
Employees: 200
Sales: $22.3 (2004 est.)
NAIC: 312120 Breweries

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

Origins

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

After several years the beer began to catch on, and in 1866 the company moved into a new $250,000, four-story brewery. With growth continuing unabated, in 1869 an additional three-story structure was added. 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 the Pittsburgh Brewing Company, after which some operations were consolidated and others were shut down. Total capacity was now more than one million barrels per year. By 1918 the publicly-traded company's annual revenues reached $7.7 million, and it recorded a profit of $800,000. Total production for the year was 855,795 31-gallon barrels.

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 produced nonalcoholic "near beer," soft drinks, and ice cream, and ran a cold storage business. A new unit, Tech Food Products Company was formed 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 continued 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 subsidiary, 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, and despite labor strife involving the Teamsters, by the mid-1950s Iron 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 Pittsburgh 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 as a Christmas gift. The idea was a hit, and the mythical brew was manufactured 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 introduction of the easy-opening "snap-top" can, devel-oped 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 was blocked by the U.S. Justice Department, but in 1967 a smaller area company, DuBois Brewing Company, was acquired. That firm had long brewed a beer called Budweiser, and a decades-old legal dispute over the name with Anheuser-Busch was settled several years later with a reported $1 million payment to Pittsburgh Brewing. In 1969 the company also signed an agreement with Dr. Robert Cade, inventor of Gatorade, 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 American community in 1971 resulted in the firm agreeing to hire more blacks, but that settlement was followed by an even larger boycott by racist whites. Sales declined by an estimated 15 percent and the firm's union workers went on strike for two months. Despite these problems, Iron 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 other brand names including Gamminus, Robin Hood Cream Ale, Augustiner, and Mark V. The latter was a low-calorie beer that was considered the forerunner to the light beers that became popular later in the decade. In 1973, the company closed the former DuBois brewery.

In the late 1960s and 1970s the high-powered marketing campaigns of national firms like Anheuser-Busch and Miller took their toll on regional brewers, and the company's beers gradually came to be seen as budget-price brands outside of their local stronghold. For much of the 1970s Pittsburgh Brewing operated in the red, despite efforts to broaden distribution to states like Florida and Illinois.

New Products in the 1970s

In 1978 the struggling firm enticed retired executive Harry Glenn Wolfe back to serve as chairman, and he brought in an old friend, Miller Brewing veteran William F. Smith, for the job of president. Under their leadership the company introduced a new low-calorie beer called I.C. Light, which was marketed aggressively to younger drinkers and soon 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 revenues 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, Smith left to head troubled industry giant Pabst (which later unsuccessfully sought to buy Pittsburgh Brewing). His place was taken by Robert 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 president and CEO.

In 1982 the company started a five-year, $12 million modernization 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 all beer sales in southwestern Pennsylvania, one-eighth of the firm's total share of 40 percent. The company was again working to upgrade its 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 Bond's Bond Corporation Holdings Ltd., which was seeking entrée into the American beer market. After the $28.5 million deal was completed Swan Export Lager was introduced to American drinkers, and Pittsburgh Brewing's distribution area was expanded.

The firm was now using its excess brewing capacity to produce beers for other companies under contract, including Pennsylvania Pilsner, Olde Heurich, Thirteenth Colony Amber, and Samuel Adams Boston Lager. The latter, brewed for the Boston Beer Co., would eventually come to account 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 brand called American Beer that was intended to compete nationally against the likes of Budweiser, Miller, and Coors. Industry analysts gave it little chance of success and the effort was scuttled the following spring, though the beer would later be reincarnated as a low-priced brew 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 number of new drinks, including flavored malt beverage I.C. Cooler, I.C. Ice, I.C. Dry, Classic Draft, Classic Draft Light, and a non-alcoholic brew called Keene's.

Company Perspectives:

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

Alan Bond's acquisitions had left him with an unwieldy $4 billion debt load, and in 1990 he was forced to sell his Australian breweries and resign from the firm that bore his name. In 1991 G. Heileman filed for bankruptcy and a group of Pittsburgh Brewing employees led by retired CEO Harvey Sanford once again made an attempt to buy the company. This time they lost out to the $28.5 million offer of Michael Carlow, a 40-year old businessman who (in partnership with his father Frank) had recently taken control of the troubled Pittsburgh-based 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, which was named after one of the 21 companies that had originally banded together in 1899 to form Pittsburgh Brewing. The firm was also having success with exports of American Beer to Russia, which accounted for 7 percent of revenues.

In February 1994, after the Carlow-owned City Pride Bakery unexpectedly closed, a Pittsburgh Post-Gazette investigation of the man once touted as a savior of local jobs uncovered a checkered past which 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 had allegedly stolen $31.3 million. In February, the brewery's owner 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, and 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 brewery owner, Alan Bond, was now also behind bars, serving time for art fraud.

Meanwhile, Piccirilli, who had no formal management training, was cutting costs by dismissing the firm's veteran sales team and instituting frequent week-long shutdowns of the brewery, as well as dropping three long-time local distributors in favor of a fourth that had offered 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. He 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 fired 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 other breweries failed and the contract to brew Sam Adams ended and was not renewed. In 1999 another merger deal with distributor Capital Beverage fell apart, while James Gehrig and several other top executives 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 logo. In 2000 a new "superpremium beer," Augustiner Lager, was introduced, 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 upkeep and improvements to the company's aging brewery were being ignored. Pittsburgh Brewing was also having trouble making payments on a $1.4 million loan from the Pennsylvania Industrial Development Authority, a $358,000 energy bill, nearly $200,000 owed the state treasury department, and some $3.7 million due the Pittsburgh Water & Sewer Authority, which in 2002 threatened to shut off the firm's water supply if it was not paid. Though a payment plan was soon worked out, the company disputed its sewer bill, arguing that a substantial 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 successful introduction of a new aluminum bottle for Iron City beer, which was said to make the beverage stay cold longer. Though already available 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 months later I.C. Light was also made available in the bottle. During 2004, according to Modern Brewery Age magazine, the firm brewed 372,000 barrels of beer, down from 927,000 a decade earlier, making it the eleventh-largest brewer in the United States.

Key Dates:

1861:: Edward Frauenheim begins brewing Iron City beer in Pittsburgh, Pennsylvania.
1899:: Firm unites with 20 other area brewers to form Pittsburgh 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 selling 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 $28.5 million.
1995:: Carlow is charged with fraud and steps down; Joseph Piccirilli-led group buys firm.
2004:: New aluminum bottle introduced to strong sales.
2005:: Debt-ridden company files for Chapter 11 bankruptcy protection.

In 2005 Pittsburgh Brewing asked the U.S. government's Pension Benefit Guaranty Corporation to take over its pension plan, which had a $5.6 million deficit, claiming it would go bankrupt if the request was not granted. Over the summer the federal government also filed a $750,000 lien against the firm because of unpaid excise taxes, while the still-unresolved dispute with the water and sewer authority continued to simmer. When the company was unable to meet an early December deadline to pay $2.5 million owed in the latter case, it filed for Chapter 11 bankruptcy protection. Industry analysts held out hope that the firm could recover, citing the iconic status of the Iron City brand in Pittsburgh and the success of other brewers in returning from bankruptcy.

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

Principal Subsidiaries

Wainwright Brewing Company; Commonwealth Brewing Company.

Principal Competitors

Anheuser-Busch Companies, Inc.; Miller Brewing Company: Coors Brewing Company; Pabst Brewing Company; D.G. Yuengling & Son, Inc.; City Brewing Company; InBev USA.; High Falls Brewing Company.