Schlitz is a Business School Case Study

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I’m a little embarrassed to admit it, but I never knew what happened to Schlitz. When I was a little kid, I remember seeing Schlitz all over the place and thinking it was “the” beer. By the time I started drinking, it was one of those beers I’d drink because I could get a case for $5 (in the 1980s), putting it in the category of Buckhorn, Blatz, Red White and Blue, and Beer (the generic “brand”).

It isn’t just my murky childhood memory. Schlitz was the beer. In fact, for much of the twentieth century, it and Budweiser duked it out for top beer in the United States. But then Budweiser took over that top spot in the late 1950s with effective marketing, and Schlitz fell decidedly to number two.

In response, it decided it would become the most profitable beer in the U.S. and started to slash production costs (now called the “Schlitz Mistake”). When drinkers noticed and its sales plummeted, it responded with an awful marketing campaign that seemed to threaten viewers (now laughingly called the “drink Schlitz or I’ll kill you” campaign).

It’s all laid out in this article that I stumbled across last night.

CEO “Uihlein instructed his brewers to begin cutting costs by using corn syrup to replace some of the malted barley used to make the beer, and by substituting cheaper hop pellets for fresh hops. The ingredient alterations were meant to be made incrementally, Uihlein’s belief apparently being that drinkers would not notice each slight change to the product. Unfortunately, as commentators later pointed out, the steps from A to B and from B to C might have been tiny and unnoticeable, but the steps from A to M added up to a big leap.

“At first all seemed to be working. In 1973 Schlitz was able to boast that it had the most efficient breweries in the world, and it was carrying out a rapid expansion of its production capacity. Its profits-to-sales ratio and its utilization of its plant – in terms of capacity against actual production – were both substantially above the industry average. Market share was growing faster than at either of the other big two American brewers, Anheuser-Busch and Miller. Rivals tried to trip Schlitz up by claiming that its ABF brewing method meant it was selling “green,” or too-young beer. Schlitz responded by changing the meaning of ABF from “accelerated batch fermentation” to “accurate balanced fermentation.”

“Uihlein had already been given a warning about what could happen if drinkers felt a brewer was messing about with beer quality, however. In 1964 Schlitz had acquired the Primo Brewery in Hawaii. By 1971, Primo accounted for 70 percent of all beer sold in Hawaii. Then Schlitz stopped full brewing at the Primo plant, instead shipping dehydrated wort from its brewery in Los Angeles for fermentation in Hawaii. Islanders said the taste of their favorite beer had been altered for the worse with the change, and Primo’s market share dropped like a brick to just 20 percent in 1975. Schlitz started full brewing in Hawaii again that year, but sales of Primo never recovered to their previous high.

“Back on the mainland, the brewery had attempted to respond to the growing success of Miller Lite, the first successful low-calorie beer, with the launch of Schlitz Light in late 1976. But perhaps because drinkers were already suspicious about what went into ordinary Schlitz, Light was a failure in an otherwise expanding sector.

“Meanwhile Schlitz was running into trouble with its mainstream brand, after an attempt to disguise to consumers what it was putting into its beer. Because it aged its beer less than other brewers, Schlitz had to add silica gel to the product to prevent a haze forming when it was chilled. In 1976 the company began to worry that the United States Food and Drug Administration would compel brewers to list all their ingredients on bottles and cans. Its use of silica gel would show up in harsh contrast to its rivals such as Anheuser-Busch, who aged their beers longer, allowing the protein to settle out naturally, and therefore did not need to use artificial anti-haze products. 

“Anheuser-Busch was sure to point to Schlitz’s use of an “unnatural” product in its beers and contrast this with the “all-natural” Budweiser. By 1967 the company’s president and chairman was August Uihlein’s grandson, the polo-playing, 6-foot-4–inch-tall Harvard graduate Robert Uihlein Jr., then 51. Robert decided that if he could not sell more beer than Anheuser-Busch, he would at least make his company more profitable than his St. Louis rival. The first step in Uihlein’s plan to save money was a new brewing method Schlitz called “accelerated batch fermentation,” or ABF. This cut the brewing time for Schlitz beers from 25 to 21 days, and then from 20 to 15 days, compared to the 32 to 40 days of storage – or “lagering” – used for Budweiser.

“Schlitz decided to use another beer stabilizer instead, one that would be filtered out of the final product and thus would not have to be listed as among the ingredients. Unfortunately, what Schlitz’s brewing technicians did not know was that the new anti-haze agent, called Chillgarde, would react in the bottles and cans with the foam stabilizer they also used, to cause protein to settle out. At its best this protein looked liked tiny white flakes floating in the beer and at its worst it looked like mucus, or “snot,” as one observer bluntly called it.

“For months Schlitz kept quiet about the problem, with Uihlein arguing that the haze was not actually physically harmful to drinkers, and in any case not much of the beer would be kept at temperatures at which the haze would form. However, drinkers did complain, sales began to drop and Schlitz had to make a secret recall of 10 million bottles of beer, costing it $1.4 million.”

One Response

  1. Kevin