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Evansville Brewing Company.

EVANSVILLE BREWING COMPANY

The sobering news hit John Durnin like a civic wake-up call. Evansville's venerable Sterling Brewery was closing--and with it would go jobs, prestige and history. Enough .

Durnin, the successful co-owner of Evansville's Koch Label Co., vividly recalls his visceral reaction to the January 1988 announcement that in three months G. Heileman Brewing Co. would shut down the 125-year-old brewery. "I thought this was a shame, because here was an asset, clearly of benefit to the city, something that helps give it its personality," recalls Durnin. "For too long we had been seeing businesses move out. Wasn't there something we could do to save it?"

There was.

Durnin, whose company is a leading manufacturer of beer-bottle labels, and attorney Mark Mattingly, counsel for Koch Label, did some brainstorming--and some consensus-taking. While some prominent locals bashed the brewery as an investment dinosaur, other--quieter--elements indicated interest in a save-the-brewery effort.

The dauntless Durnin, who has been doing business regularly with Heileman for years, became the would-be buyer's point man. His early role was to approach Heileman, which had been purchased by Australia's Bond Holdings Corp. the previous fall, to see if management would consider selling Sterling Brewery.

It would. "I believe they really wanted to do what was good for their people (about 100 employees) and for Evansville," assesses Durnin. "Their response was very positive."

While Heileman officials have no comment on the dealings, it's understood they were hardly inundated with offers. In today's top-heavy beer business, entrepreneurs and investors rarely belly up to a marketplace dominated by the intimidating likes of Anheuser-Busch, Miller and Stroh, and characterized by flat sales, contracting profit margins, changing demographics and altering alcohol attitudes.

Resold breweries typically change more than owners. They turn into retail boutiques, alternate manufacturing facilities or even prisons, after the equipment has been sold off. Other old breweries, such as the long-dormant Schlitz facility in Milwaukee, merely add to the ranks of civic white elephants awaiting wrecking balls.

An effort to buy--lock, stock and barrels--a struggling enterprise and make it work in an industry that's lost more than 80 percent of its members during the last two decades seemed formidable to most observers and foolish to the rest. A new owner would get an old, fortress-like facility and some undistinguished budget beers. It was enough to prompt some deep-pocketed locals--those deemed likely buyers--to opt out as major players.

"I'd say there were more people saying it couldn't be done than saying it could," says Evansville Mayor Frank McDonald. "But I felt that if anyone could pull it off, John Durnin could. He had the ability to draw good people and he had some expertise."

And he had more than community altruism as an inspiration. "Look--this wasn't just a matter of civic responsibility," acknowledges Durnin. "I really saw it as a sound investment. I know something about this business. Regionals were beginning to effect a comeback. We had to a convince everybody there was a niche for regional breweries that appeal to a different palate, more flavorful, if you will.

"I became convinced that if you get into a region and develop loyalty, you could make it, because you really were not in competition with Miller, bud and Stoh," explains Durnin. "Let's be honest. In the U.S. today, all of the main breweries have excellent-tasting beer. If everybody is making a high-quality product, what's left? Marketing. That's the key."

Once the financing is set, that is.

Durnin and Mattingly formed the Evansville Brewing Co., the corporate entity that would buy Sterling Brewery from Heileman. The negotiated price would range from $4.6 million to $7.3 million--depending on royalty revenues during the next seven years. It included the 7.3-acre property, inventory and exclusive rights to the Sterling, Falls city, Drewry's and Cooks brands as well as rights to the Wiedemann brand of Indiana, southern Illinois, southern Ohio, Kentucky and Tennessee. They brought in respected industry executive John Brzezinski as president; rallied most of the erstwhile Sterling work force around regained jobs at lower wages; and preached community support.

They looked at financing options before producing the package--including locally lent, short-term "bridge financing"--that completed the purchase in September. The "Back Home Again" signs went up and the beer barreled out to a 200-distributor network by mid-October

Up-front help had been provided by Merchants National Bank & Trust Co. of Indianapolis--with loans totaling more than $2 million--and the Indiana Community Business Credit Corp., which put up $650,000. The final financial hurdle was cleared this January when Evansville Brewing Co. completed a $1.2 million private stock offering through the Indianapolis brokerage of Raffensperger, Hughes & Co.

"Once we got Brzezinski," recalls Mattingly, "the financial package really came about. His credentials are excellent. He knows production marketing, management and finance. When he was at Lone Star (in San Antonio), he took a cowboy brand and turned it into a cult beer. We paraded him around to the bankers and other financial people. We couldn't have done it without him."

Brzezinski, a veteran of nearly 40 years in the brewery business, spelled instant credibility for the fledgling Evansville Brewing Co. He was formerly executive vice president-general manager for Lone Star Brewing Corp. in San Antonio, Texas. That background earned him a three-year employment contract as president and chief executive officer at $150,000 annually. Moreover, Merchants National Bank required the brewery to take out a $250,000 life insurance policy on the 62-year-old.

"The lenders had a lot of comfort in him," underscores James Davis, deputy director of the Indiana Employment Development Commission and a board member of the ICBCC.

"Brzezinski came out head and shoulders above all the other candidates," says Durnin, who has since ceased an active role in the company. "He had the broadest business exposure and is the kind of guy who's affable and very community-minded. He's a very young 62; he has more energy than most people at 45."

By all accounts, he'll need it. His task, say industry observers, could be an arduoous one.

"Ten years ago, Anheuser-Busch had 19 percent of the market," points out Bill Leach, a food-and-beverage analyst with New York-based Donaldson, Lufkin & Jenrette. "Today it has 42 percent. It's not real attractive market if you're not one of the big guys. Maybe there's room for another niche brewer, but I wouldn't want to invest in it personally."

Notes Robert S. Weinberg, a marketing professor at Washington University in St. Louis and a brewing-industry consultant: "It's plenty tough today even if you are Anheuser-Busch or Miller. Over the years, I've seen too many breweries with good products and reasonably good management fail, because there was no place in the market for them. Hell, Heileman has damn smart people. If they couldn't do it (at Sterling), I'm not sure it can be done."

"Brzezinski, however, thinks it can be done--if the focus is right and the marketing on the money. He'll not be at lagerheads with the nationals, he maintains.

"There were approximately 180 million barrels of beer sold in the U.S. in 1987," he says. " About 80 (percent) to 82 percent of that was tied up by the leading four to five brands. Simple mathematics tells you there's about 30 million barrels that were being sold by the remaining brewers. In our opinion, that volume was very mobile, very fluid. No particular brand loyalty. It was that segment of the market that we were going to address.

"And after almost 40 years in the business, I'm not exactly without industry sources," adds Brzezinski. "I did some quick research and established that the brands we would get were all very recognizable and percieved to be good quality, and that they had all slipped into the (inexpensive price category they were in simply because there was no marketing support. Heileman used them, in my opinion, as cash cows to help fund support given to their first-tier brands, such as Old Style, Colt 45, Ranier and Lone Star."

In Brzezinski's office, the dominant motif is beer. It's represented on mirrors, a clock, a tray, a calendar, coasters, glasses, steins, picture, sketches and cans. There's even a desk-sized model of an airplane made of Sterling beer can parts. But what's really on tap in John Brzezinski's digs is the beer business.

The Bloomfield, N.J., native has been in that business since 1950, when he parlayed his degree in chemistry from Seton Hall University into a quality control technician's job at P. Ballantine & Son. Later, he was promoted to technical director--responsible for all product formulation--forthe Newark-based brewer.

In 1971, Brzezinski left Ballantine to become vice president and technical director for Lone Star. Subsequently, as Lone Star's executive vice president, general manager and chief operating officer, he was directly involved in the formulation and implementation of acclaimed marketing and sales plans.

From 1982 to 1985, Brzezinski was executive vice president for the Pabst Brewing Co. in Milwaukee. After resigning from Pabst in 1985, he purchased the Nance Marble Co. in San Antonio. Nance is still a going concern, but Brzezinski withdrew from it in April 1988 to devote himself full-time to the acquisition of the Sterling Brewery.

Brzezinski now presides over one of only two breweries left in Indiana. The other is Fort Wayne-based Falstaff Brewing Corp. His hands-on knowledge of the brewing business is an industry given.

Says Wayne Ramsey, the manager of Raffensperger, Hughes & Co.'s Evansville office, "John Brzezinski is probably as well-qualified as anyone in the industry to do this job. His marketing skills alone can capture it (market share lost prior to reopening) back. If there's a regional brewer that's going to work out in the U.S., it's this one--and Brzezinski's a big reason."

Adds Meg Blair, president of Evansville-based Research Systems Corp. and a private investor in the brewery, "Brzezinski is progressive in an industry that traditionally can be pretty backward. He knows a small company has to hustle and do some things differently."

Brzezinski poured over the Heileman books production costs and volume assumptions and found the numbers realistic. He also toured the facility before it closed and observed that while most of it was not state-of-the-art, neither it turn-of-the-century. Amid the catwalks and cauldrons--and the century-old brew house and cellar--was a network of well-conditioned and relatively new packaging and canning lines. He noted well-maintained equipment and an exceptionally experienced work force.

"When we coupled what we had--including lowered labor costs--and put it into the pro forma and still stayed on the conservative side, I knew we had something to show the financial community," recalls Brzezinski. "We could show that not only could we exist, but that with modest growth over the next five years, we could be very profitable. I came to the conclusion that it was a hell of an opportunity and an exciting challenge."

First-year projections, which include allowances for last year's distributor uncertainty, sales inactivity and volume slippage, are for about 438,000 barrels. Through the first quarter, says Brzezinski, the brewery was running "slightly ahead" of that schedule. In 1987, Sterling Brewery's last full year of operation, the facility shipped out about 600,000 barrels of the five (acquired) brands. (The plant's capacity is more than 1 million barrels.) "I don't think anyone can accuse us of being overly optimistic," observes Brzezinski.

Evansville Brewing is licensed to sell its beer in 14 states and has licenses pending in 10 others, but its core market is likely to remain Indiana and key parts of Illinois, Ohio, Kentucky and Tennessee. Evansville Brewing is out to take advantage of regional roots with local promotions and community involvement, promises Brzezinski. Both Sterling and Cooks began in Evansville; Drewry's in South Bend; Falls City in Louisville; Wiedemann in Cincinnati.

"Hey, we're thrilled to death that they've got these brands and Heileman doesn't," says Bob Connolly, the owner of Ohio Valley Beer & Wine in Cincinnati. "Now we have a company that will support its product. I've already seen Brzezinski twice," Connolly says.

According to Steve Hankins, general manager of Evansville's Central Beverage Co., "A lot of the local retailers are supporting it. And not just saying it--but putting it in their ads."

None of which surprises Brzezinski, whose grand strategy includes repositioning bargain brews as favorite local beers.

"If you draw a circle around Evansville, you find that all of these brands come within a radius of 150 to 200 miles of here," points out Brzezinski, "and our principal marketing states are all very familiar with these brands. We then came to the conclusion that if we were able to formulate regional marketing programs, following the Lone Star experience, we'd be apt to see an increase in volume and loyalty."

The Lone Star experience showed that an essentially "redneck" brand, with the aid of creative marketing that entailed such promotions as armadillo races, could transcend its earthy image. It eventually caught on with younger drinkers and built an allegiance within the 21 to 45 age group.

But conceiving a Lone Star counterpart for the Heartland is only one facet of a three-part corporate strategy.

With light beers now accounting for more than 25 percent of all beer sold in the United States, Evansville Brewing will push aggressively to sell more than the heretofore negligible amounts of its Sterling Light, Wiedemann Light, Falls City Light and Cooks Light. Since the brewery's fall reopening, light-beer sales have tripled to about 3 percent of total. Brzezinski is aiming for a 5 percent to 10 percent share by year's end.

The brewery also needs to gather more research about who its drinkers are--and aren't--and then choose an advertising agency to implement its regional "favorite local beer" approach.

Finally, the company plans to wean itself from the budget-beer set. "If consumers are perceiving quality over the next two to three years, our objective is to slowly raise prices of these brands," explains Brzezinski. "Then we'll put more marketing support behind them. The products deserve more."

Gene Pfeiffer, president of Evansville-based Black Beauty Resources, Inc., a major corporate investor in the brewery's private stock offering, is already impressed. "I've seen the facility and how efficiently it's operating," says Pfeiffer, "and I'm very impressed with Brzezinski. I'm also seeing a lot of community support.

"I know our people drink a lot of Sterling."

PHOTO : The 125-year-old brewery was bought-lock, stock, and barrels-from Heileman with the rights to Sterling, Falls City, Drewry's, Cooks and Wiedemann brands: From left are Vice President Mark Mattingly, President John Brzezinski and John Durnin, a major investor and point man for the deal.

PHOTO : Took San Antonio's Lone Star from a cowboy brand to a cult brew: John Brzezinski.
COPYRIGHT 1989 Curtis Magazine Group, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Indiana
Author:O'Neill, Joe
Publication:Indiana Business Magazine
Article Type:company profile
Date:Apr 1, 1989
Words:2445
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