30 Under 30 2024

Blowing away a $9 billion business in one stroke

It took the Stroh family over a century to build the largest private beer fortune in America. And it took just a few bad decisions to lose the entire thing

Published: Aug 1, 2014 06:00:10 AM IST
Updated: Aug 1, 2014 03:22:55 PM IST
Blowing away a $9 billion business in one stroke
Image: Courtesy Frances Stroh
In the 1980s, Stroh’s emerged as one of America’s fastest-growing companies and the country’s third-largest brewing empire

As with many of America’s great fortunes, the Stroh family’s story starts with an immigrant: Bernhard Stroh, who arrived in Detroit from Germany in 1850 with $150 and a coveted family recipe for beer. He sold his brews door-to-door in a wheelbarrow. By 1890, his sons, Julius and Bernhard Jr, were shipping beer around the Great Lakes. Julius got the family through prohibition by switching the brewery to ice cream and malt syrup production. And in the 1980s, Stroh’s surged, emerging as one of America’s fastest-growing companies and the country’s third- largest brewing empire, behind public behemoths Anheuser-Busch and Miller. The Stroh family owned it all, a fortune worth at least $700 million, according to Forbes. Just by matching the S&P 500, the family would currently be worth about $9 billion.

Yet today, the Strohs, as a family business or even a collective financial entity, has ceased to exist. The company has been sold for parts. The trust funds have doled out their last pennies to shareholders. While there was enough cash flowing for enough years that the fifth-generation Strohs still seem pretty comfortable, the family looks destined to go shirtsleeves-to-shirtsleeves in six.

“We made the decision to go national without having the budget,” sighs Greg Stroh, a fifth-generation family member and former Stroh Brewery employee. “It was like going to a gunfight with a knife. We didn’t have a chance.” His analysis comes tinged with inevitability. It wasn’t. A handful of family-owned regional brewers such as Yuengling and Schell’s continue to thrive, while others, like Olympia and Hamm’s, sold out. And the Strohs’ biggest rivals during the 1980s and 1990s, the Coors, who also aspired to turn their no-frills, regional suds into a national powerhouse, remain in the top 100 on the Forbes America’s Richest Families list.

The Strohs chose a different path, a saga that serves as a powerful reminder: Hard as it is to build a family business designed to last in perpetuity, it’s shockingly easy for any successor to tank it.

For its first century, the Stroh beer business, based in Detroit, grew by following the basics: respect your customers; respect your employees. The former meant catering to Midwest working-class tastes at working-class prices (the family watered down Bernhard Stroh’s precious recipe, after hops and wheat shortages in World War II left Americans accustomed to weaker brews). The latter by treating every employee like an honorary member of the clan. John Stroh, who oversaw a dramatic sales surge in the Eisenhower years, “was known for walking in the brewery and knew everyone’s first name,” his grandnephew Greg remembers. “Employees would run through walls for the family.” As if to connect the customers and the business, the Stroh signature was emblazoned on every bottle, topped by a family crest with a lion. Sales surged in lockstep with post-war Detroit, from 500,000 barrels in 1950 to 2.7 million barrels in 1956.

The mammoth changes came in the early 1980s. John Stroh had moved into the chairman’s role in 1967 and handed control of the brewery to his nephew, Peter, who became CEO in 1980. Like John, he had a plan to grow, but not incrementally: He would do it by acquisition. In 1981, Stroh bought New York-based brewer F&M Schaefer, which, like Stroh, was founded by a German immigrant in the mid-1800s and also offered low-priced suds to its regional fans (famous marketing line: “The one beer to have when you’re having more than one”). The next year, in what family members describe as “the minnow swallowing the whale,” Peter Stroh bet the family business, borrowing $500 million (the book value of the Stroh business was $100 million at the time) to buy Joseph Schlitz Brewing of Milwaukee.

Suddenly Stroh was the third-largest brewer in the US, with seven plants and a national footprint. Forbes valued the company at $700 million in 1988, listing the Strohs with one of the largest family fortunes in the US at the time, shared by 30 relatives.

But Peter Stroh’s grand vision of a thriving US-wide brewer failed to materialise. It largely missed the boat on the biggest industry trend in a generation: Light beer. And Stroh’s core product—cheap, watery, full-calorie beer—was a commodity. But saddled with debt, Stroh couldn’t afford to match the ad spending of its bigger rivals, Anheuser-Busch and Miller. Unable to spur demand through marketing, Stroh turned to price, introducing a 15-pack for the price of 12 cans and a 30-pack for the price of 24. The latter had legs, but it wasn’t enough to outrun the shrinking margins.

Meanwhile, an ambitious family from Colorado began moving into the Stroh markets. “It became a competition between Stroh and Coors,” says Scott Rozek, a former director-level employee who spent 12 years at Stroh. “At that time, there were four big breweries in a three-brewery industry—there was really only room for three.” By the end of the 1980s, Coors overtook Stroh as the country’s third-largest brewer. In August 1989, the Stroh Brewery Co was in retreat. The company that had treated employees like family laid off 300 people, one-fifth of its white-collar workforce. “I had to let go four of the five people in the marketing research department. It was heartbreaking,” says Ed Benfeld, former director of market research at Stroh.

The next month, Peter Stroh, who died in 2002, agreed to sell the family business to Coors for $425 million. But Coors pulled out of the deal a few months later. “It had something to do with due diligence, and Bill Coors,” says Benjamin Steinman, long-time editor of newsletter Beer Marketer’s Insights. “There were lots of stories.”

Desperate, Peter Stroh brought in renowned adman Hal Riney to give the Stroh’s brand a more upscale look and position. The cherished Stroh signature gave way to block print, prices were raised, and the 15-and 30-packs were nixed. It could not have been a worse decision. But since the product hadn’t changed, customers could do the math: Sales of Stroh’s-brand beer fell by more than 40 percent in one year, “the biggest drop in sales in the history of beer,” says Benfeld. Market share for Stroh’s, as well as for its acquired brands like Schaefer, Schlitz and Old Milwaukee, fell from 13 percent in 1983 to 7.6 percent in 1991. Even CEO Peter Stroh admitted to the troubles. “We’ve been through a very difficult period,” he told Forbes in 1992. “We tried to do too much.”

And yet it tried to do more. In 1996, Stroh repeated his mistake, borrowing yet more money for the $300 million acquisition of struggling brewer G Heileman. The purchase fell flat. Heileman had breweries in cities like Seattle and Portland, where Stroh didn’t, but it lacked a big stable of strong brands. One industry analyst remembers the deal described as “two sick chickens—they were both declining.”

It got worse. Peter Stroh had tried to diversify the business, with investments in biotech and Detroit real estate. Both were far from the family’s core competencies and lost them millions more. By 1998, cousin John Stroh took charge at Stroh Cos, the brewery parent. And while the company had turned to contract brewing for others, including Sam Adams, to make up for plummeting sales, Stroh took a mortal hit in 1998 when it lost a contract with Pabst.

By 1999, there was internal concern about whether it could even make interest payments on the debt incurred, says one former executive. And so Bernhard Stroh’s legacy was sold for scraps: Miller Brewing, then owned by Philip Morris, bought Stroh’s Henry Weinhard’s and Mickeys brands, while Pabst bought the rest of the brands owned by Stroh’s as well as its brewery near Allentown, Pennsylvania, for a price sources peg at $350 million—about $250 million of which was used to pay down debt incurred with the Heileman purchase. Some of the remaining $100 million or so was transferred to a fund to pay employee pension liabilities, which Stroh had retained in the sale. The rest went into a fund for the family that dribbled out cheques until 2008, when it was completely tapped. For generations, growing up as a Stroh meant a life of comfort. “My life with my father felt like being inside a gilded bubble,” says Frances Stroh, whose father, Eric, quit the company after a fight with brother Peter in 1985. An artist at heart, Eric spent millions buying hundreds of antiques—guns, cameras, guitars—to fill the big house that Frances grew up in. Saving, Frances says, was not a priority.

And why would it have been when the cheques rolled in? In the 1980s, the seven members of the fourth generation got $800,000 a year. (There were another 20 or so shareholders from the third and fifth generations as well, who received differing amounts.) That enabled several Stroh families to live in stately homes on gated Provencial Road in the tony Detroit suburb of Grosse Pointe Farms, with maids, cooks, country club memberships, boarding school tuition and no need for 9-to-5 jobs. “A lot of people were living off the family business,” says Greg Stroh, who’s now 47.

Blowing away a $9 billion business in one stroke
Image: Timothy Archibald for Forbes
Frances Stroh is writing a memoir about her family which enjoyed roaring success and then faced many troubles

As with too many families with more money than direction, drugs and alcohol followed. Frances Stroh was kicked out of boarding school after she was caught drinking. Her three brothers also got kicked out of different schools. In an excerpt from a memoir about the family that Frances is writing, she describes one incident during her college years when she was snorting cocaine with her brothers while the rest of the family was downstairs having Christmas dinner at their Grosse Point Farms home. 

One of her brothers, Charlie, narrowly avoided going to prison for dealing in cocaine in college in the early 1980s. His parents forced him to join the Marines, and good behaviour in the service was the key to evading a prison sentence. Yet the demon of addiction re-appeared two decades later, in 2003, when he fell to his death from a 10th-foor hotel balcony in Texas, as the sheets he tied together to form a rope failed to hold. He was 43. One report quoted the police as saying that he called the front desk at the hotel “to report a bank robbery and other nonsensical things.”

There have been other tragedies too. Nick Stroh, a fourth-generation member of the family and a freelance journalist in Africa, was bludgeoned to death by Ugandan troops in 1971 after he investigated reports of an army massacre. Peter’s brother Gari Stroh Jr, who ran the Stroh ice cream division, became a quadriplegic after a fall from a horse on his farm in 1982. And so on.

All of which served to make 1989—the year of the failed sale to Coors—something of a shock to the family. For the first time, the company couldn’t come up with dividend payments. “My generation probably grew up with the illusion that things were going to be pretty good,” says Greg Stroh. “We had to make adjustments.”

Eric Stroh was hit particularly hard. His first wife had to briefly loan him money to help him make ends meet. In 2009, a few months after the cheques stopped for good, the overweight and diabetic Eric collapsed, alone, after letting a leg wound go untreated—most of his estate went into trusts to pay liabilities to his two former wives.

Frances and her two surviving brothers each inherited $400,000 from a trust. She also inherited her dad’s collections of antique cameras, guns and guitars—some of which turned out to be fakes, and others, fittingly, worth pennies on the dollar of what her father had paid for them.

(This story appears in the 08 August, 2014 issue of Forbes India. To visit our Archives, click here.)

Post Your Comment
Required, will not be published
All comments are moderated
  • Kush Bhargava

    It takes generations to build a reputable fortune but just one generation to bring it to its knees, not necessarily because of incompetence.

    on Apr 3, 2016