By Gregg Smith

Economists view America's brewpubs as nearly insignificant, making up a very small part of the beer market. Most capture a loyal, if only local following, but one of Milwaukee's most famous breweries rose from a brewpub. Milwaukee's big three brewers were captains of industry and their businesses were considered indestructible. Yet one would run a complete cycle of success to failure. It had astonishingly brilliant management and rapid growth, followed by equally poor management and rapid decline.

It began when August Krug arrived from Germany and opened a well regarded restaurant in the 400 block of Chestnut street. Krug understood the low profit margin in restaurants and always cast an eye toward cutting costs. To create more efficient and reliable operations, Krug decided he could brew his own beer for far less than what local brewers charged and in 1849 constructed a brewhouse. Customers enthusiastically lapped up Krug's beer and sales soon reached far beyond the dinning room.

In 1850 Krug made two moves which, though appearing insignificant at the time, would have a dramatic impact on his company. One was hiring a 20 year old bookkeeper, the other was sending for an eight-year old nephew in Germany.

The bookkeeper was a young man born in Mayence, Germany in 1831. His father's work as a wine and beer broker influenced the bookkeeper, teaching him the intricacies of both business and brewing. Six years later, in 1856, Krug died and the young bookkeeper named Joseph Schlitz assumed the role of brewery manager. Schlitz was an ambitious young man and made his way toward ownership by variation on a familiar theme. He married Krug's widow Anna. Two years later the company was renamed Jos. Schlitz, with an address of 3rd and Galena streets. By expanding the brewing operations, and marketing area, and with the unlikely aid of a disaster, Schlitz was vaulted into a position of prominence.

Milwaukee's southern neighbor was growing fast when the great Chicago Fire of 1871 essentially destroyed the city. Devastating to not only dwellings, the conflagration tainted the water of reservoirs, wells, rivers and even Lake Michigan. Quick to react, Schlitz knew survivors suffered from thirst and by rail and road he started a river of beer flowing south.

Grateful Chicago was instantly bonded to Schlitz and before local breweries could rebuild, Schlitz captured the city's beer market. Within a year the company adopted the slogan "The beer that made Milwaukee Famous" for all aspects of its marketing. Famous indeed around the city of Chicago, to this day beer drinkers can spot the terra cotta "Schlitz Globe's" built into the facade of older Chicago bars.

Following the fire Schlitz sales grew by over 50 % and in 1874 the company was renamed Joseph Schlitz Beverage Company. Unfortunately, Schlitz wasn't destined to enjoy it. Overdue for a vacation, Schlitz booked an 1875 passage to Europe for both he and Anna on the steamer "Schiller" . The intention was to visit Mayence. His choice of ships was fatal. The Schiller sank in transit, and neither his nor Anna's bodies were ever recovered.

Despite the loss of Schlitz the company remained viable by a lesson Schlitz learned from August Krug's death. Wisely inserted into the will, two provisions ensured the company's health after his passing. One stipulated the business never remove "Joseph Schlitz" from its name. The other appointed Krug's nephew, the same nephew Krug brought over from Germany as an eight year old in 1850, as head of the brewery.

Schlitz's choice of then 33 year old August Uihlein couldn't have been better. Along with his brothers Henry and Edward, he continued the business strategies initiated by Schlitz. The company developed a system of agencies across the United States to sell beer, and developed its own far reaching network of rail distribution. From a ranking of tenth largest US brewer in 1877, the national marketing plan vaulted the company to third by 1895.

Sitting among the top three breweries was little comfort when only a few years later America introduced prohibition. Schlitz met the challenge as did others, refitting the brewery to produce near beer, yeast, soft drinks, malt syrup, chocolate and a candy named "Eline". Emerging from prohibition as the Joseph Schlitz Brewing Company, with an address of 235 Galena street, the brewery launched a plan of acquisition and new construction that led them to second and finally first in US beer production. For the next 40 the years the company would remain near the top, and at one point was ranked as the largest in the world.

After peaking in the late 60s, Schlitz began a rapid descent. Abandoning the concepts that led the company to success, they erringly decreased emphasis on the core business. While competitors directed more of their budgets to beer advertising Schlitz was diversifying, buying into a winery and also a feed company.

During the same period the brewery was experimenting with an accelerated fermentation process. Consumers perceived a change in taste, that was suggested, in part, by a rumor that the brewery was shipping "green" beer out the door. Sales declined, and suffered further when two batches of hazy beer forced them to dump over ten million bottles, exaggerating the image of a drop in quality. Again consumers fled. When the company finally attempted to repair the damage they responded with an ill-received ad campaign that drove away more Schlitz drinkers. Dramatic and extreme, the company never recovered from the loss of sales. Several other brewers vied to take over the company with Stroh the eventual winner. Ultimately the once proud label was relegated to a secondary, regional status.

Popular phrases often have a solid basis of reality. "The bigger they are, the harder they fall" aptly describes the decline of the Schlitz empire. Economists now look upon it as a nearly insignificant part of the beer market.

� Gregg Smith