Small-town Pa. brewer Yuengling makes big time
Pennsylvania brewer D.G. Yuengling & Son has seen a lot of change since its founding in 1829 — Prohibition under the 18thamendment, grain rationing during World War II and more recently the rise of microbrews in the U.S.
But Richard "Dick" Yuengling, the current president and fifth-generation owner of the brewery that bears his family's name, says some things never change.
"Beer is beer," Yuengling said. "It's corn and barley and water and yeast and hops — lots of hops."
The Yuengling family's straightforward approach to beer and business has catapulted the brewery to huge success over the last two decades. The company has gone from about 245,000 barrels of beer produced in 1993 to about 2.8 million barrels of beer produced in 2012 — making it the No. 4 U.S. brewing company by beer sales volume last year.
That feat is all the more impressive considering Yuengling serves only 14 states at present.
"We're kind of a nuts and bolts company," Dick Yuengling said. "We make kind of standard American beers, but we just happen to make them with a little more taste and character than other people."
A FAMILY BUSINESS
Yuengling is in many ways a brewer whose time has finally come.
After success for decades as a local mainstay in eastern Pennsylvania, the company struggled in the 1950s and 1960s as national breweries rose to prominence. Dick Yuengling's first impressions of the business were in this tough era, stacking cases of beer and cleaning brewing tanks in the summer while he was in high school.
By the time he went away to college, the family was pushing him to find a different line of work. But in 1985, Dick bought the company from his father, Richard Yuengling Sr., and vowed he wouldn't let the century-old brewer fail.
"We were doing probably 137,000 barrels," he said.
He strengthened the distribution network, modernized the brewing and bottling equipment and dug up a historic recipe for Yuengling Traditional Amber lager.
By the 1990s, Yuengling was so successful it had run out of capacity — prompting the company to both build a new plant in its hometown of Pottsville, Pa., but also to purchase an old Stroh's brewery in Tampa to increase production and serve new markets across the East Coast.
But the moves were made out of a desire to serve existing customers, not "trying to sell our brand to the masses," Yuengling said. "We bought the plant with the purpose of supplying the Pennsylvania market because we were sold out of beer here," he said.
That desire to serve existing markets first instead of pushing for rapid growth is one of the reason the brewer has enjoyed such success, Yuengling said. "That, plus the fact we're family owned and operated — we're American owned," he added. "I think the customer respects that."
CHANGING TASTES
Of course, the beer business in 2013 is not quite as simple. Plenty of brewers of all sizes are having trouble thanks to the changing tastes of Americans.
U.S. beer sales are challenged by younger Americans who increasingly prefer wine or liquor; a recent Gallup poll showed only 41% of 18- to 29-year-olds named beer as their preferred beverage, compared with 71% of those in the same age group who preferred beer 20 years ago.
Furthermore, the rise of craft brews has put the squeeze on mega-brewers as consumers look for more flavorful options from smaller, niche producers instead of traditional favorites. The Brewers Association reports that while overall beer sales rose less than 1% by volume in 2012, smaller craft brewers and microbreweries saw volume increase by 15% by volume.
"We've seen demand for full-flavored beers rise year after year for a long time light American adjunct lagers, which is kind of your standard macrobrew, satisfied the majority of customers, and that's just not true anymore," said Bart Watson, staff economist at the Brewers Association.
Or, as Dick Yuengling puts it, "I think people are drinking less, but they are drinking better."
"We've made ale and porter here, which are craft brews, since the inception of the brewery," he said. "It was just that people never discovered them."
A LONG WAY TO GROW
Watson points out that Yuengling is not technically a "craft brewer" under his group's definition, since its range of products includes some beers that supplement traditional malted barley with other grains. But he says the company does have a number of successful craft beers in its line, and it is a testament to "regional products and beers that are alternatives to a national brand."
And he's quick to point out that despite Yuengling's big growth in recent years, it's still just the "biggest of the small fish."
"Beers like Sam Adams and Yuengling have about 1% of the U.S. beer market, so it's not like they're on equal footing with Anheuser-Busch InBev," which sold about 99 million barrels of beer last year compared with just under 3 million for both Sam Adams and Yuengling, Watson said.
As long as "nimble, local innovators" can keep quality high, they have a lot of room to grow, Watson said.
THE FUTURE OF YUENGLING
So what's next at Yuengling?
The privately held company doesn't disclose financials, but Yuengling said that "we're doing well" and has little debt. And while the brewer will continue to reach new customers where it can, Dick Yuengling is more concerned with serving those loyal to the brand than making a big move to go national.
In fact, part of the reason Yuengling is so successful is because its smaller geographic footprint allows for better margins, thanks to a smaller and efficient distribution network.
As for the products, there are some new drinks in the works.
"We're starting to dabble a little bit in the seasonal beers so next year we'll come out with a summer wheat beer," Yuengling said.
But one thing is certain: Dick Yuengling isn't coasting. "I love what I do," he said. "I'm here at 10 after 5 in the morning, and I probably put 10 to 12 hours a day into this company."
And when he does choose to slow down, you can bet it will be so he can hand the business to another member of the family.
"It's kind of a freak when family businesses extend past three generations, let alone into six," Yuengling said. "I have nine grandchildren, and hopefully one of them will come and run it."
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor's Guide to Finding Great Stocks.
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