43-Schlitz, Lessons From the Past

Is an unusual environment when a a set of higher priced competitors are able to attack entrenched industry leaders commanding the middle of the market as well as significant shares of both high- and low-priced products. Here is an example of this unusual case. It has not ended well for the industry leaders. It went on too long and cost too much market share.

Posted 8/25/08

“Schlitz, the beer that made Milwaukee famous.” The older baby-boomers among us may remember that advertising slogan. It was all over the media in the 50s and the 60s. Schlitz, after leading the domestic beer industry for most of the first half of the 20th century, disappeared. It has been gone now for a long time. Recently, though, its current owner resuscitated the old brand and formula and re-introduced it to the market. Schlitz is in test phase now, mostly in selected mid-west markets, and its popularity sounds an echo of its former prominence. The story of the rise and fall of Schlitz offers lessons for us, even today.

The Joseph Schlitz Brewing Company was just one of many brewers in Milwaukee in the late nineteenth century. It became a top seller only after the great Chicago fire of 1871 wiped out its Chicago competition. The failure of other brewers gave Schlitz its opening to become a leader in the market. Here is the first lesson. It didn’t “win” its market. It gained its top billing because it was one of the last brewers standing at the time. The failure of a competitor is the source of most share gain in many of the markets that exist today. (See “Failure Shifts More Share Than Success” on StrategyStreet.com/Tools/Perspectives.)

In the early years of the 20th century, Schlitz entered its halcyon days. It was the world’s best-selling beer for most of the first fifty years of the 20th century. Then, in the mid-1950s, the Milwaukee brewery’s workers interrupted production with a strike. The Schlitz product was scarce on the shelves and other competitors, such as Anheuser-Busch with its Budweiser brand, filled the gap. Budweiser and Anheuser-Busch have held the leading position in the U.S. market since that time.

Here we have a second example of the observation that failure is more likely to move share than is a “win”. Budweiser could not take share from Schlitz as long as Schlitz was readily available on the market. When Schlitz was not available, Budweiser gained share. Then Schlitz had to wait for Budweiser to “fail” before it would gain that share back. Budweiser didn’t fail.

In today’s market, the pilot’s union at United Airlines could learn from this lesson. Their occasional work actions to interrupt service for their employer, United Airlines, has caused that company to cancel several hundred flights. Great idea. Create failure for your employer in the marketplace. Allow others to pick up share that United would have held. Create a smaller airline with lower profits. Have fewer pilots and less revenue available to pay all employees, including the remaining pilots. Where do these pilots learn their economic history?

On with the Schlitz story. Schlitz remained a vibrant and profitable competitor, even after losing its leading share position to Budweiser. In 1970, it still had 12% of th market, compared to Anheuser-Busch’s 18%. Later, in the 1970s, new owners took over the business with the intention of expanding it. In order to do so with little investment, the owners shortened the fermenting process. They also had quality control problems with some of their ingredients that caused the beer to lose its taste. There was a lot of that poor quality beer out in the marketplace. But rather than recall it and correct the situation, the owners decided to weather the storm and sell the defective product in order to create more near-term profits. With this Reliability failure, customers abandoned the brand. By 1981, the Schlitz brewery closed and the Stroh’s Brewing Company from Detroit bought the brand. Stroh’s also struggled and became part of Pabst Brewing Company in 1999.

So, we have another lesson from the history of Schlitz. If you fail in Reliability you are in real trouble. The first success of Schlitz came from others’ failure in Convenience. Schlitz had product when others did not. The first failure in the 1950s also came as a result of a failure in Convenience. The product was not available to meet demand. But the most devastating failure was the last one. That was a failure in Reliability. The company delivered a very poor product to customers that had long trusted it to be consistently tasteful. Things like that can be unforgivable. In this case, the Reliability failure was fatal.

So, good luck to the new Schlitz. Let’s hope it learns the lessons of its past and consistently delivers good quality beer in the future.

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Update 2022:

After a series of ownership changes, Blue Ribbon Intermediate Holdings became the owner of Pabst and all its holdings, including Schlitz.  This company had a contract with MillerCoors to brew Pabst Blue Ribbon and Schlitz beers through 2020.  The Schlitz beer has a sentimental following in the Midwest.

By 2010 Anheuser-Busch InBev had a market share of nearly 48% of the market.  During the ensuing 10 years, the market shifted significantly from large brewers and importers to smaller brewers and importers, especially at the high end, Performance Leader, market.  By 2020 Anheuser Busch InBev had a market share of about 39%.

A company must create positive volatility, or exploit the failure of another competitor, in order to gain market share. HERE is more discussion on that concept

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Update 11/25

Let’s review some of the important developments in the US brewing industry since 2010.

The first thing you would notice is a highly unusual share shift from the large industry leaders, selling Standard Leader products, to smaller firms selling Performance Leader products. The industry leaders have been attacked from above rather than the more typical pattern from below. For examples, Anheuser Busch had a 48% market share in 2010 and roughly 38% today; Molson Coors had a 29% market share in 2010 but only 21.5 % today. The two leaders have lost 17 share points in 15 years. Smaller, Performance Leader companies such as Constellation Brands, selling Mexican beers, Heineken, selling high-end beer, Boston Beer and Diageo, of Guinness Stout fame, picked up most of that share. The high-end craft brewers gained share throughout the period.

The market leaders seem to have made half-hearted attempts to counter this trend. They benefited from the higher prices this trend produced for the industry. They emphasized their own Performance Leader products in their marketing and advertising. These efforts bore little in the way of results. Their volume of sales continued to slip.

In the meantime, economies of scale began to work against them. Normally, the largest companies in an industry enjoy significant economies of scale, granting them additional margins compared to competition, no matter the pricing environment. However, when market share and, especially, product volumes decline, economies of scale work against the industry leaders. Costs simply do not decline proportionately when sales volumes fall. 2010 was a difficult year for the brewing industry. Still, Anheuser Busch produced an ROE of 11.4% while Molson Coors earned a 9.5% ROE. Better years were just ahead until the volume losses started to bite. By 2024 Anheuser Busch produced a 7.5% ROE while Molson Coors yielded 8.4%.

Parenthetically, Pabst migrated to a Price Leader industry competitor and lost roughly 40% of its share from 2010 to 2025. Customers wanted a better or more distinctive taste much more than they wanted a lower price.

An industry leader would usually prefer to compete against challengers at the high-end rather than at the low end of the market. However, if industry leaders are losing share the story, as in this one, usually ends badly whether pricing is high or low. History proves that it is easy to lose share, but very difficult to regain it.

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