fedgazette

"Beer Town" holds on to brewing legacy

Rosie Cataldo - Staff Writer

Published March 1, 2001  |  March 2001 issue

Octoberfest celebrations, the smell of wheat and barley in the air and the world's largest six-pack (storage tanks painted to look like a six-pack of beer) are important factors in the identity of La Crosse, Wis. When faced with losing its beer-brewing legacy of 143 years, the city, along with the state and La Crosse County, got a fork and started pitching to keep tradition alive.

The former G. Heileman Brewery went bankrupt 14 years ago and has since been tossed around between several parties. During that period, the brewery's value plummeted from $1.3 billion under G. Heileman, to a mere $6 million under its current owners. And despite an infusion of more than $1 million in public loans, the brewery's future remains uncertain.

The birth and rebirth(s) of a brewery

Gottleib Heileman and John Guhn founded City Brewery in 1858, just 17 years after the permanent settlement of La Crosse. Their business prospered, with total sales of $5.4 million in 1941 and reaching $17.7 million in 1950. As they acquired more companies, annual sales jumped to $557 million in 1979. At its all-time peak in 1985, the brewery's sales totaled $1.1 billion.

The brewery's success made it attractive to foreign investors, and in 1987 an Australian brewer executed a hostile takeover for $1.3 billion. Under the Australian owner, the brewery was heavily leveraged with debt and went bankrupt in 1991. Bank lenders owned the brewery from 1992 to 1993 and then sold to an investment-banking firm in 1994 that was also unable to turn around declining sales.

Stroh Brewing Co. purchased the plant in 1996, but because of declining profits and price wars among beer brands, Stroh sold most of its brands to Pabst Brewing Co. and the remainder to Miller Brewing Co. before closing the brewery Aug. 8, 1999, putting about 400 employees out of work. The closing caused the La Crosse metropolitan area unemployment rate to rise from 2.8 percent in July to 3.3 percent in August, the area's highest unemployment rate since December 1996, according to the Wisconsin Department of Employment.

At the end of August 1999, Platinum Holdings, a New York investment firm, paid Stroh $10.5 million for the plant and started City Brewing. Unfortunately, these owners were also unable to make ends meet, even though the city and the county each contributed $450,000 in public loans. Platinum Holdings was forced to lay off its 62 employees.

A new beginning?

The now-fragile brewery rests in the arms of a group of local residents and former G. Heileman employees who, with the help of public funds, bought the plant in November 2000 for $5.9 million.

The city, county and the state helped keep the area's brewing tradition alive by lending the new crew money to purchase the brewery. "It's unusual for the county to get involved," said William Shepherd, La Crosse County corporate council. According to Shepherd, the city and county each loaned $166,667 to the newly titled City Brewing Co. (CBC) to assume the prior loans held by Platinum Holdings. But the funding didn't stop there. The state provided CBC with $500,000 in additional loans, as well as tax credits.

Sheperd added that they didn't want to lose the long-standing brewing tradition. "The city and the county realized if the brewery shut down, there'd be no way for new investors to start it up. ... We feel there's a bright future if capitalized adequately," said Shepherd.

La Crosse Mayor John Medinger said, "We assisted because they asked us to. We always like to assist businesses when we can, under the law. ... We didn't want [the brewery] to sit empty and rust away. We wanted to maintain jobs and create a tax base. When you use taxpayers' money it's controversial, but since La Crosse has a history of the brewery, the public supported it." Medinger believes the brewery will succeed under new ownership because "it's been well capitalized and the management and employees are very loyal to the institution and to the greater La Crosse area."

The brewery currently is down to only 30 employees, and CBC is in the process of negotiating new contracts. "People are standing in line wanting to come to work. We don't have a problem finding people," said Randy Smith, CBC president. "We'd like to see over 100 [employees] in 2001. ... It will just depend on how many products—proprietary and contract—we'll be producing."

Not only will CBC brew local beers such as La Crosse Lager and City Lager, but the company plans to contract to brew and package beverages for outside companies that do their own marketing. CBC would no longer be categorized as a brewery, but as a "contract packaging brewery," an industry that has sprung up in the past five years.

About 50 percent of the brewing capacity could be devoted to ethanol production if CBC finds the necessary $12 million to $15 million to make the plant conversion, either through private or public funding. If the financing is obtained, it could take a year to convert part of the brewery for ethanol production.

From an outsider's perspective, beer industry guru Jerry Steinman, publisher of Beer Marketer's Insights, which is consumed by the beer industry and Wall Street, said he can't tell if CBC will succeed or fail. "From their point of view, it's worth the effort. They know how tough it is and know it is going to be a tough fight." Steinman did add that the total beer industry was up an estimated 1.3 percent in 2000, and has been up the past three years. "We'll see if they sell enough beer to meet their costs," he said.

For now, the giant six-pack, which holds 688,000 gallons of beer and stands outside City Brewery, awaits a new label. Its new face depends on its latest owners and the business they can generate. "If we're doing okay, we'll probably repaint it," said Smith.

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