Chronicle of the beer wars: R.S Weinberg ponders a half century of beer market competition

Modern Brewery Age,  March 29, 2004  

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Robert Weinberg, a veteran of World War II and Korea, is also an amateur naval historian, and has spent much of his free time in recent decades studying the warships and operations of the world's great navies. His day job, as principal of the Office of R.S. Weinberg of St. Louis, MO, involves the in-depth statistical study of the beer industry. The twain has met in Mr. Weinberg's newest statistical construct, the Institutional Memory and Industrial Evolution Research Project, part of the Brewing Industry Research Program II. Mr. Weinberg says that between 1933 and 2004 there were seven "Beer Wars" and between 2005 and 2030, there will be at least three or four more. Our interview follows:

Modern Brewery Age: When did you come up with the concept: of "beer wars"?

Bob Weinberg: I used the term beer wars for the first time at a meeting of the security analysts federation in St. Louis in March 1978. This was contemporaneous with the first Star Wars movie, and I think that was the inspiration. I was for looking a catch notion, and thought I would call them beer wars. The thing that is interesting here, is that this is an institutional history. Any business is shaped by a number of institutional factors. These are factors over which the players have little direct control. Economic and social institutions establish how the game is played. You try to arrange things to have it played in your favor, but by and large, old man river just keeps on rolling along.

Historically, what I call the seven original beer wars occurred in sequence. You started with brewers trying to restart after Prohibition. Many players were just trying to get rich quick. That was the First Beer War, during the period 1933-1947. The Second Beer War, between 1947-1973, we saw the emergence of the national and super-regional brewers and the decline of local brewers. There were a number of things that determined this. A large portion of the U.S. beer drinking population was in the armed forces in World War II. If you were in the armed forces, odds are you were exposed to brands like Schlitz, Pabst and Budweiser. People sampled these beers, and I think the public's idea of beer changed forever.

I wonder if the beer that made it overseas would convert people, having traveled across the Pacific on the decks of Liberty ships, exposed to extreme heat ...

If you were overseas in combat conditions, almost any beer would have tasted good. The can was also a big thing. It allowed you to ship beer further. It became feasible to move beer great distances.

After the war, the relocation and increased mobility of large blocks of the population favored the creation of the super regionals and large national brewers. You may have been completely satisfied with your local beer, but when you moved it was no longer available, so you had to try a new beer. You must also consider demand and technological factors. There were new economies of scale with the introduction of cans, high-speed packaging lines and improved material handling systems. The savings could be used to increase profits and marketing expenditures.

Then, in the 1950s, along came TV advertising, and that was phenomenal. That created a barrier to entry, only surmountable by the larger brewers. These factors created that second beer war, which lasted a long time.

In the 1950s, the brewing industry was a club. Everyone knew each other. Everyone played the same game. In die immediate post-WWII period, many personal relationships were such that brewers disliked their principal competitors more than they liked profits. All sorts of things were done that made no rational sense at all. Several of the big brewing families had borrowed money prior to Prohibition, and later lost their breweries because their cash flow stopped and they couldn't pay their debts. As a result, post-Prohibition brewers were loath to borrow money.

Major expansions were financed out of retained earnings. If a family-owned brewer paid a high dividend to finance his lifestyle, at the expense of retained earnings, that company's future growth would be constrained. They would be at a disadvantage with competitors who were willing to accept lower dividends to plow money back in.

The period 1973-1977, which I call Beer War III, was triggered by two words that changed the competitive equilibrium--Philip Morris. No one in the brewing industry had ever spent so much money all at once. Philip Morris spent over a billion dollars on bricks and mortar in the short run. This forced serious competitors to build more capacity. All of a sudden there was a huge spurt of capacity. This squeezed people out.

The Fourth Beer War, 1977-1980, was a realization that the U.S. beer market would be competition among the few, an oligopoly. The Fifth Beer War, 1980-1991, marked the "new" competitive equilibrium. The brewers underwent consolidation for survival, all of them scrambling to attain critical mass. Critical mass is how much do you need to maintain a competitive marketing program. Convert that into how many barrels it will take, and there's your critical mass.