Answer and finish the Strategic Objective Assignment

This assignment will assist you in developing objectives to achieve a specific strategy. Read the case “Schlitz Beer” and develop a SWOT analysis from the information provided in the case (there is no set limit for the number of items in each category). Once the SWOT is completed identify a strategy you believe Schlitz beer could have pursued and then create an objective to complete the strategy. Information on strategy implementation and objectives can be found in the week 9 class files folder.
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HOSP4060 Hospitality Strategy Design and Execution Seminar
Strategic Objective Assignment
This assignment will assist you in developing objectives to achieve a specific strategy.
Read the case “Schlitz Beer” and develop a SWOT analysis from the information provided in the case
(there is no set limit for the number of items in each category). Once the SWOT is completed identify a
strategy you believe Schlitz beer could have pursued and then create an objective to complete the
strategy. Information on strategy implementation and objectives can be found in the week 9 class files
folder.
Strengths
Weaknesses
Opportunities
Threats
Type of Strategy (choose from general or Porters’ generic)
Specific Strategy (what are you proposing Schlitz should do)
Objective (How will you achieve your strategy – see strategic objective document)
Schlitz Beer: Fall of the Former Industry Leader
Joseph Schlitz Brewing Company was an American success story, a firm that survived
Prohibition and maintained a position of prominence alongside its rival, Anheuser-Busch Inc. 1
Although Schlitz dropped to the third spot as the Miller Brewing Company achieved high
revenues in the 1970s, sales continued to grow, and the Milwaukee, Wisconsin-based brewery
expanded nationwide. However, a series of unfortunate events began to unfold in 1976 that
quickly unraveled Schlitz’s position as a leading brand. The struggling brewery was acquired by
Detroit, Michigan-based Stroh Brewing Company in 1982, which eventually discontinued the
Schlitz brand. In 1999, Pabst Brewing Company acquired the rights to the Schlitz brand and
worked with brewmasters to recreate the original formula. The brand was relaunched on a
regional basis in 2008.
The Leading Brewer for 50 Years
Schlitz formed out of the tavern and brewery business founded by a German immigrant, August
Krug, in 1849. Upon Krug’s death in 1856, his bookkeeper, another German immigrant by the
name of Joseph Schlitz, took over the business. After Schlitz married Krug’s widow two years
later, the business was renamed the Joseph Schlitz Brewing Company. Sales increased rapidly
during the 1870s after the Great Chicago Fire wiped out the local breweries, and Schlitz began
shipping its product to the devastated city. The company’s success led to the adoption of the
slogan, “The Beer That Made Milwaukee Famous.” In 1902, Schlitz sold more than a million
barrels of beer and surpassed Milwaukee-based Pabst Brewing Company to become the leading
brewery in the United States.
Following the end of Prohibition in 1933, Schlitz resumed its position as the top U.S. brewery. In
1952, Schlitz’s sales exceeded six million barrels of beer. Meanwhile, Anheuser-Busch, based in
St. Louis, Missouri, began building breweries to create a nationwide distribution network. In
1957, Anheuser-Busch became the leading brewery in the United States. Schlitz would retain its
second-place position for another 20 years. (As of 2011, Anheuser-Busch remained the leading
brewery in the United States, with 48.3 percent market share of U.S. beer sales to retailers, as
stated in the company’s June 6, 2011, press release titled “Anheuser-Busch Takes Gold, Silver
and Bronze at North American Beer Awards.”)
Competition Intensifies
In 1967, Schlitz introduced a new method of fermentation, called accurate balanced fermentation
(ABF), which shortened the process by 10 days. ABF allowed the brewery to increase production
by 25 percent and reduce margins. The process did not significantly affect taste, but according to
Michael R. Reilly in “Joseph Schlitz Brewing Co.: A Chronological History 1933–1969,” some
consumers perceived the brewery to be sacrificing quality for profits. As the decade ended,
Schlitz had 12 percent market share with sales of 15 million barrels, whereas Anheuser-Busch
commanded 18 percent of the market. However, the winds of change would begin to blow when
Philip Morris International Inc., the leading U.S. tobacco company, acquired the Miller Brewing
Company, ranked as the seventh-largest brewery in 1970.
Philip Morris lacked beer making know-how, but the company had the capital to make Miller
into another marketing-driven success. It began to address Miller’s lagging sales by pouring half
a billion dollars into promotion of the brand. The highly effective “Miller Time” commercials
showed men finishing the day at their rugged, outdoor jobs and turning to Miller for refreshment.
By the following year, Miller had moved up to become the nation’s sixth-largest brewery with
sales of 5.2 million barrels. According to the Milwaukee Journal article “Busch, Schlitz Still on
Top,” the leaders were Anheuser-Busch with 24.3 million barrels, Schlitz with 16.7 million
barrels, and Pabst with 11.8 million barrels. With sales of 8.5 million barrels, Adolph Coors
Company had taken the fourth-place spot from F.&M. Schaefer Brewing Company.
After Philip Morris purchased the rights to the “Lite” brand name, the low-calorie beer was
rolled out nationally in 1975. Miller overtook Pabst in 1976 and ousted Schlitz from the number
two spot the following year. Schlitz had introduced Schlitz Light in 1975, but Miller Lite had a
70-percent share of the low-calorie beer market in the United States. With its sights on the
number one spot, Philip Morris had the goal of increasing capacity from 24.2 million barrels to
40 million barrels by 1980.
Schlitz seemed oblivious to the signs that Miller and Coors were slowly encroaching on its
market share; instead, the firm embarked on its own plans for expansion to 35 million barrels by
1976. Despite having just completed its largest brewery in Winston-Salem, North Carolina, in
1970 and another in Memphis, Tennessee, in 1971, the company announced plans to spend
US$300 million on building a new plant near Syracuse, New York, and dramatically expand the
capacity of its Memphis plant from 4.4 million to 8.1 million barrels. Schlitz’s sales exceeded
US$1 billion for the first time in 1974, an increase of 13.8 percent, and the company’s plan for
growth seemed justified. However, an increase in the cost of materials and a strike at five plants
would cause Schlitz’s profits to be cut in half the following year.
Brand Loyalty Diminishes
Up to this time, brewers were not required to list ingredients on beer labels. Although the
regulation of food and beverages was theoretically under the jurisdiction of the Food and Drug
Administration (FDA), the Bureau of Alcohol, Firearms, and Tobacco (BATF) had regulated
alcoholic beverages since Prohibition ended in 1933. A conflict arose in November 1975 when
the BAFT rejected the FDA’s request to require labeling on alcoholic beverages. Consequently,
the FDA announced that it would impose ingredient labeling requirements on all alcoholic
beverages beginning January 1, 1977.
In anticipation of the FDA requirement of an ingredients list on beer, Schlitz mandated that plant
managers replace silica gel that was used to stabilize the beer and give it a longer shelf life. It
was to be replaced by a different stabilizer called Chill-Garde, which would be filtered out and
therefore not required on the ingredients list. However, the new ingredient unexpectedly reacted
with Kelcoloid, which was used as a foam stabilizer, creating tiny flakes in the beer. The flakes
gave the beer a hazy appearance that worsened over time.
Management did not know the cause of the haze, and no remedy was forthcoming for the
problem during the first half of 1976. The company’s research department believed that a higher
level of protein in the current crop of barley might be the root cause of the haze. Chairman
Robert Uihlein Jr. refused to hire an outside laboratory to look further into the matter.
Meanwhile, wholesalers became upset that Schlitz expected them to just continue delivering
hazy beer.
Once Chill-Garde was identified as the culprit, Schlitz executives ignored the plant managers’
recommendation to switch back to the silica gel stabilizer and opted, instead, to remove the
Kelcoloid. As a result, once shipments reached the marketplace, consumers began complaining
that the beer was flat. In April 1977, Schlitz finally hired an outside laboratory that rectified the
production problems. Schlitz initiated a recall of the bad beer, which amounted to a US$1.4
million write-off, but by then the damage to the brand was done. Many loyal customers had
decided that Schlitz no longer cared about quality and they abandoned the brand. (One irony is
that the ruling of the district court in August 1976 was that the regulation of alcoholic beverages
would remain with the BAFT, which did not impose ingredient labeling.)
Legal Troubles Begin
In 1973, the BAFT became aware that Schlitz was illegally making cash payments to retailers
that agreed not to sell competitors’ products. A warning was issued by the BAFT, and Schlitz
agreed to stop making these payments, which were tantamount to bribes. However, the issue
surfaced again in April 1976, when Schlitz, Miller, and Pabst were charged to appear before a
Senate Commerce Committee. Miller and Pabst denied claims that they were making illegal
payments to induce retailers and hotels to only sell their brand of beer. Schlitz released a
statement saying all questionable marketing practices had been terminated years prior. However,
Schlitz suspended its four top sales and marketing executives in August pending the
investigation.
In April 1977, the Securities and Exchange Commission (SEC) filed formal charges against
Schlitz for engaging in unfair trade practices beginning in 1967. The SEC had obtained
documents showing that the company had a budget of more than US$400,000 set aside for illegal
payments in 1969. Over the course of nine years, the brewery had allegedly paid more than US$3
million in direct payments to restaurant and hotel chains, to secure concession contracts at
airports and sports stadiums, and to reimburse wholesalers for payment of cash bribes to
retailers, among other illegal marketing practices. The bribes were disguised on the books in a
variety of ways, such as market research or payment of hotel rooms that were never actually
used.
In March 1978, a federal grand jury indicted Schlitz on 745 misdemeanor charges relating to the
illegal payments in the civil case with the SEC as well as three tax felonies. In July, Schlitz
settled the civil lawsuit filed by the SEC by agreeing not to engage in unfair trade practices and
to hire an outside consultant to review the legality of marketing practices. Four months later,
Schlitz was found guilty of two misdemeanors in the criminal case and ordered to pay a
US$750,000 fine. To Schlitz’s benefit, the other charges were dropped, which put an end to the
chance that Schlitz might lose its license to sell in more than a dozen states.
Leadership Shifts Away from Family Members
As if things could not get any worse for Schlitz in 1976, chairman Uihlein unexpectedly died of
leukemia in November. For more than 100 years, Schlitz had been a family-owned business.
When Joseph Schlitz died without heirs in 1875, ownership transferred to his nephews, including
August Uihlein. At the end of Prohibition, August’s son became president, and in 1961 his
grandson, Robert Uihlein Jr., took over. Robert also became chairman when August retired six
years later. The first shares of company stock were sold outside the Uihlein family in 1961, but
the family still retained 82-percent ownership a decade later.
To fill the void left by Robert Uihlein’s death, Eugene Peters took on the role of CEO, and
Daniel McKeithan Jr. was elected chairman of the board. Peters had been promoted to the
position of president just two months prior. With legal troubles mounting, the firm’s legal
counsel moved into the third most powerful position in the company. The company was in the
hands of three nonfamily members for the first time in its history. A Schlitz marketing staffer at
the time was quoted by Jacques Neher in his June 9, 1981, Milwaukee Journal article as saying,
“Here were three guys running the second largest beer company in the world, and not one of
them had ever sold a case of beer in their lives. It was amateur night at the zoo.”
Aimless Advertising
The trio decided to fire the marketing executives who had been suspended during the
investigation into illegal bribes, leaving the company adrift without experienced marketing
leadership. As Schlitz struggled with its own troubles, Anheuser-Busch was contending with a
96-day workers’ strike. This caused Schlitz sales to reach a record of 24.2 million barrels in
1976. It was an opportune time to try to overtake its chief rival, but Schlitz’s marketing staff was
ill-equipped to effectively promote the reformulated brand that consumer surveys were rating as
terrible.
Peters and McKeithan rejected the image advertising campaign presented by the Leo Burnett
advertising agency, which had spent US$200,000 on market research. Peters wanted to challenge
loyal consumers who might be considering switching to another brand in what, according to
Martyn Cornell in Beer Connoisseur Online, were dubbed the “Drink Schlitz or I’ll Kill You”
commercials. Protest letters began to pour in, and the commercials were pulled after just two
months on air. With third-quarter sales numbers in and the company US$75 million behind the
previous year, the industry expected Miller to overtake Schlitz by year-end. Peters resigned in
October 1977, and Frank Sellinger, a former executive at Anheuser-Busch, was named the new
president.
Slumping Sales
Despite the many woes at Schlitz, 1978 ended with sales of 19.6 million barrels, and the firm
managed to turn a profit of US$12 million. However, things changed drastically the following
year. Schlitz lost US$50.6 million after selling only 16.8 million barrels. This was a setback to
sales volumes of seven years prior. Facing severe overcapacity, Schlitz was forced to close its
plant in Hawaii on May 12, 1979, after failing to find an interested buyer. The following year,
Schlitz sold its Syracuse brewery, which had been constructed just four years prior, to AnheuserBusch.
The drop in sales allowed Pabst to surpass Schlitz, which fell in brewery rankings to the fourthlargest, with 8.5 percent market share (a drop from 12 percent a decade prior). Rumors began to
surface of plans to close the landmark brewery in Milwaukee. After a workers’ strike in June
1981, the Milwaukee plant did shut its doors. With five plants continuing to operate (in Tampa,
Florida; Winston-Salem, North Carolina; Longview, Texas; Memphis, Tennessee; and Van
Nuys, California), Schlitz still had significant overcapacity of about 10 million barrels.
Schlitz was receptive to a merger with G. Heileman Brewing Company, which had achieved
success buying approximately 30 regional brands and avoiding the costly expense of national
advertising. In August 1981, Schlitz accepted Heileman’s offer, but the Justice Department
rejected it on antitrust grounds. Six months later, Schlitz accepted an offer of approximately
US$500 million from Stroh Brewery Company. Surprisingly, the Justice Department approved
the merger with a stipulation that Stroh sell either the Schlitz plant in Memphis or WinstonSalem to a brewer other than Anheuser-Busch or Miller. The deal was finalized in June and
ownership of Schlitz passed to Stroh.
Industry Consolidation Continues
Some years later, Stroh ran into financial difficulty and was forced to sell various assets. In 1999,
ownership of the Schlitz brand was transferred to Pabst, along with Old Milwaukee (Schlitz lowcost beer introduced in 1960) and several other brands. (In the same deal, Miller agreed to buy
the Mickey’s and Henry Weinhard’s brands from Stroh.) Industry consolidation continued with
Pabst’s acquisition of G. Heileman and others. In June 2008, SABMiller PLC and Molson Coors
Brewing Company merged their U.S. operations into MillerCoors LLC, with headquarters in
Chicago. The companies’ combined sales for fiscal year ending in March were just over 70
million barrels. Shortly thereafter, Pabst announced it was relaunching Schlitz beer, which would
be brewed on the East Coast under a contract with MillerCoors. In June 2010, the Metropoulos &
Co. investment company purchased Pabst.
It is not clear whether Schlitz could have survived the competitive forces in the brewing industry
had it not made some of the bad decisions that led to its downfall. What is clear, however, is that
a drop in beer quality and poor management hastened the brewery’s demise. When the company
did not address consumer complaints about the new formula, and legal troubles further damaged
the Schlitz image, consumers abandoned “The Beer That Made Milwaukee Famous” and never
looked back.

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