Beer Necessities

Being owned by a corporate giant may not be ideal, but as small Texas breweries like Celis and Spoetzl are learning, it could be the only way to survive.

November 1996By Comments

THERE’S A NEW BUZZ IN THE BEER BUSINESS, and it’s creating some strange bedfellows. Though more than three quarters of beer drinkers still buy premium domestic brands like Budweiser, Miller, and Coors, sales of those labels have remained flat for most of this decade while those of so-called craft (or specialty) beers have quadrupled. The demand for alternatives to the typical watery brews has grocery stores making room for a jungle of flavorful specialties from Rhino Chaser Peach Wheat to Beartooth Blueberry Lager. As the craft sector has boomed, the small breweries that make such beers have had to keep up, and many are entering into what their fans regard as unholy alliances with the giants of the industry. But for a small brewery, such a union could actually be a matter of survival—and that’s exactly what’s happening in Texas.

Consider two new brews made in-state: Shiner Honey Wheat Ale, from the Spoetzl Brewery in Shiner, and Celis Dubbel Ale, from the Celis Brewery in Austin. Although Shiner and Celis are brewed and bottled by their creators, they’re distributed by the breweries’ multimillion-dollar owners, the Gambrinus Company and the Miller Brewing Company, respectively. This is the sort of thing that causes some consternation among fans of craft beers. For one thing, part of the appeal of a specialty beer is that it’s usually made in a small brewery by obsessive beer lovers, not in some factory by a huge corporation; devotees of craft brews also worry that the corporate owners will tamper with the recipes of their favorite drinks. (The sentiment is so strong that this summer, the Campaign to Protect the Czech Brewing Heritage was formed in Austin to help prevent independent breweries in the Czech Republic from being bought out.) But Miller and Gambrinus insist they’re only interested in improving business operations. And, as the stories of Spoetzl and Celis suggest, the marriage of a small brewery to a large company with an extensive distribution network may be one of necessity. “It takes a big partner for a small brewery to succeed,” says Ron Christesson, the director of sales and marketing at Gambrinus. “Without a large partner to help with marketing and sales, you literally can’t afford to do it.”

Indeed, if Gambrinus hadn’t bought Spoetzl seven years ago, chances are that Texas’ oldest independent brewery would now be nothing more than a historical footnote. Shiner’s brewery, which was founded by locals in 1909 and sold to Bavarian brewmaster Kosmas Spoetzl in 1915, had long survived on its own, but by the fall of 1989 it had suffered in the hands of a series of shortsighted owners and was on the verge of producing its last batch of Shiner Bock—a dark, inexpensive beer that had a small following in Austin, eighty miles north, but was barely known beyond the capital. Inexperienced in marketing and in dealing with beer distributors (the independent wholesalers who buy beer from breweries and sell it to retailers), the Houston group that owned Spoetzl couldn’t get Shiner beer on store shelves. Its huge Texas rivals—San Antonio—based Pearl and Lone Star, which recently moved from San Antonio to Longview—were discounting their products to rejuvenate faltering sales, and Spoetzl sank itself trying to remain competitive. Spoetzl turned to making beer for other companies, such as Austin’s Pecan Street Brewing; started producing wine coolers to diversify its market; and sometimes even sold its beer below cost. But nothing worked, and by the late eighties Spoetzl was losing $200,000 a year. So in October 1989 the owners sold out to San Antonio—based Gambrinus, the Texas importer of Corona beer.

The founder and CEO of Gambrinus, 46-year-old Carlos Alvarez, grew up in Acapulco, started in the sales department of Mexico City’s Modelo brewery, which makes Corona, and worked his way up to export director in the late seventies. While testing the Austin market for another Modelo product, Negra Modelo, he had witnessed Shiner Bock’s appeal firsthand. “You could see that the beer had the acceptability, drinkability, and characteristics that could take it further,” he recalls. Alvarez caught lightning in a bottle after his Texas trip by persuading his employers to begin exporting Corona, another beer he had eyed for success, to the U.S. By 1986 Corona became so popular that Alvarez was able to strike a deal with Modelo, break off from his employer, and establish Gambrinus to import Modelo’s now-famous beer to Texas and the eastern half of the U.S. In 1989, the year it acquired Spoetzl, Gambrinus sold $75 million worth of Corona.

With the purchase of Spoetzl, however, the company expanded beyond importing, and some folks in Shiner—as well as a few industry observers—began to suspect that the company’s boss wanted to become a brewer. “There was a lot of skepticism from not only the people at the brewery but the people in town generally,” Alvarez says. A salesman at heart, he was quite content to stick with what Gambrinus did best. “We were certain that the people who worked at the brewery made a good product,” he says. “All they needed us to do was market it and provide them with the financing to improve sales and grow.”

With Alvarez at the helm, Spoetzl eventually stopped brewing for Pecan Street and other labels. Then, emphasizing its distinctive flavor and dark color, Gambrinus began marketing Shiner Bock as a specialty brew. Billboards, posters, and other paraphernalia advertising Spoetzl’s “handcrafted beer” as “brewed one batch at a time” were sent to the company’s extensive network of distributors. And shrewdly, Alvarez aggrandized Shiner Bock by gradually raising its price by $1.50 per six-pack to put it just below that of most craft brews.

The moves paid off. Spoetzl’s production skyrocketed from 35,000 barrels (one barrel equals about 330 twelve-ounce bottles of beer) in 1990 to 138,000 barrels in 1995, making Shiner Bock the best-selling bock beer in the country. This summer Spoetzl tweaked the recipe of its flagship brand, Shiner Premium, and gave it a new name: Shiner Blonde. And since the buyout, Gambrinus has invested close to $15 million in the brewery, most of it going toward expansion; with a projected 180,000 barrels going out this year, Spoetzl is the largest regional specialty brewery in the Southwest and the seventh largest in the nation. (Breweries are broken down into three categories. Microbreweries make fewer than 15,000 barrels a year; regional breweries make between 15,000 and 500,000; and large breweries make more than half a million barrels.) As marketing director Ron Christesson says, “We are a regional brewery that has learned to produce specialty products as a matter of survival.”

By contrast, the Celis brewery did not need to learn how to make specialty beer. When 71-year-old Belgian brewmaster Pierre Celis founded the company in 1992, his first beers were Celis White, a Belgian-style wheat beer; Celis Golden, a crisp lager; and banking on Shiner Bock’s growing name recognition in Texas, a malty ale dubbed Celis Pale Bock. The brewery made 6,000 barrels its first year, and by 1994 it had shot up to 16,000 barrels, shedding its classification as a microbrewery to become the only other regional specialty brewery in Texas besides Spoetzl. Soon Celis White was being distributed in thirty states and was in high demand—too high, according to company spokesman Craig Foster. “We didn’t plan to grow so quickly,” he says. “We got to the point where we hit a wall and couldn’t produce the beer fast enough. We had distributors waiting four to six weeks for orders. We were like, ‘God, we’ve got to expand the brewery.’” But expansion meant a hefty investment, and having spent roughly $10 million to build its facility just a few years earlier, the brewery found itself in a financial bind.

Rather than risk losing some of its distributors, Celis made a deal that has created some controversy. In February 1995 the company sold a majority interest of the brewery to the American Specialty Craft Beer Company, a subsidiary of Miller. Outsiders immediately began to fret that Celis’ brew might suffer the same fate as a certain beer bought by Miller in the eighties. “When import beers became big, Miller bought Löwenbräu and changed it all up,” says Kevin Bartol, co-founder of Houston’s independent Saint Arnold Brewing Company. “The brand went down. I just hope that Miller leaves Celis alone.”

According to brewery president Christine Celis, who is Pierre’s daughter, Miller hasn’t meddled with the brewing process. Unlike Löwenbräu, she points out, the Celis brewery retained the rights to its recipes and brewing methods in its contract with Miller. And, she notes, her father has faced down a large owner once before. In 1990, when Pierre was in business with the international brewing consortium Interbrew in Belgium, annual production of his beers reached a phenomenal 300,000 barrels. To meet demand, Interbrew’s management ordered him to change the brewing method—a decision that did not sit well with Celis. “I will not be responsible for the quality of the beer nor its sales if I have to cheapen its creation,” the brewmaster declared, promptly selling out to Interbrew for an undisclosed seven-figure amount and setting his sights on Texas. Today Pierre seems confident that his family will keep making excellent beer. “In Belgium,” he says, “I learned my lesson with the big boys.” Bartol, for his part, contends that only time will tell how the Miller buyout will affect the brewery, but he does concede that, a year and a half after the sale, “Celis is still making great beer.”

And lots of it. With the help of Miller’s engineers and more than $3.5 million in capital, Celis recently revamped its refrigeration facilities and expanded its brewing capacity; the production goal is 65,000 barrels next year. Christine Celis also credits Miller with teaching her family about marketing. “Even though we’ve been here five years, it’s something that we are still not familiar with,” she says. “We still think differently from Americans.” But most impressive has been Miller’s help in getting Celis’ beer to the drinkers. Before the deal, Craig Foster says, “we were sacrificing distribution in our local markets to supply outside markets. So, rather than ruin our relationships with our local distributors, we made a decision to take care of our home markets.” By using Miller’s wholesalers, Celis was able to cut distribution from thirty states down to its best five, yet sell 50 percent more beer.

Since then, the Austin brewery has slowly raised its distribution back up to 11 states and now looks carefully at each new market before venturing out. Shiner has comfortably reached 22 states, but with nearly three thousand beers in the U.S. to compete with, Gambrinus too recognizes the need to pick and choose its sales regions cautiously. It will soon test the crowded California market, and Celis is itching to appease the East Coast consumers who send daily e-mail requests for its wheat beer, which was taken off the shelves there when the company scaled back. But newfound marketing prowess or no, each brewery still sells the majority of its beer in Texas, and neither one will forget who brought it to the dance. “The Texas consumer will continue to be at the forefront of what we produce,” Christesson says. Or, as Christine Celis puts it, “Texas is always going to be our number one market. It is our home.”

Patrick Earvolino is a freelance writer who lives in Austin.

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