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New owners hope to cash in on Pabst's cachet

For the jet-setting owners of the spontaneously hip beer, the hardest thing may be leaving the brand alone.
/ Source: Business Week

On a July afternoon, Evan and Daren Metropoulos, the new owners of Pabst Brewing, showed up at the lounge on the 35th floor of the Mandarin Oriental in midtown Manhattan. They had come to discuss their plans for Pabst, which their father and co-owner, C. Dean Metropoulos, bought in May for about $250 million.

The Oriental does not serve Pabst Blue Ribbon, the company's flagship brew, so the brothers ordered a lemonade and an iced tea. A hotel like the Mandarin may seem an unlikely meeting place for the owners of a beer that has long traded on its working-class image — the Lutz Tavern, a dive in Portland, Ore., is more like it, where 16-ounce tallboys go for $1.75. But the Metropoulos brothers were very much at home. They were passing through on their way to a wedding in Rhinebeck, N.Y., of an old friend from Martha's Vineyard, Mass., where they have summered since they were boys. Evan, 29, divides his time between Miami Beach, Los Angeles, and New York City. Daren, 27, lives in Los Angeles, in Hugh Hefner's old residence, a 7,300-square-foot English manor house he recently bought for $18 million.

Evan, in a green polo shirt and gold necklace, has a generous build and gregarious manner. Ideas for the future of Pabst's portfolio of brands spilled out of him in an entrepreneurial stream of consciousness. Daren, who occasionally interrupted, was in a navy blazer and button-down shirt. He is narrower, quieter, and cleaner shaven than his effusive brother.

Evan had been thinking about Red White & Blue beer, one of the company's roughly two dozen defunct brands, which they hope to revive. "What if we made that the military beer?" asked Evan. "What if we gave a huge portion of the proceeds to military charities — a grassroots program with military families? Why shouldn't Red White & Blue be the absolute American beer for the American soldier? We'll bring, you know, the Rotary Club, the veterans."

"To help collaborate and get involved," added Daren.

"To support our troops," Evan continued. "We could develop a whole beer brand around our troops. So that when you see Red White & Blue at your barbecue, you know that money's supporting people who have died for our country. Those are ways that Budweiser will never be able to relate to. They're not American, like us."

"This is an American company serving the American people," noted Daren.

Evan began to get worked up, saying: "If you knew that 25 percent of your proceeds from Red White & Blue Beer were going to support these charities, then shame on you for drinking Bud Light! What the hell are you drinking that for? To support some foreigners?"

The brothers went on to lay out the Metropoulos strategy — a series of grassroots campaigns targeting regional markets. Celebrities, musicians, and local festivals would figure prominently. Lone Star, their Texas label, might sponsor rodeo riders. Primo, a Hawaiian beer, might build relationships with big-wave surfers. These campaigns would be supported by their father's knack for winning over distributors, as well as new product and flavor launches to build out Pabst's portfolio of brands.

Not present that evening, but central to the plans, was their father, 64, a billionaire known as "Mr. Shelf Space" for his ability to boost the sales of supermarket brands. The senior Metropoulos started out with a feta cheese business in Vermont and has established a long record of turning around names like Bumble Bee Tuna, Perrier-Jouët, Chef Boyardee, Duncan Hines, Aunt Jemima, Vlasic Pickles, Swanson frozen dinners, and Ghirardelli Chocolate. He bought Pabst from the charitable trust of Paul Kalmanovitz, the company's late owner, acquiring a trove of musty American beer brands, among them Colt 45, Old Milwaukee, Primo, Rainier, Schaefer, Stroh's, Schlitz, Schmidt, Lone Star, National Bohemian, and the flagship, Pabst Blue Ribbon. The company, based in Woodbridge, Ill., has about 200 employees and more than 80 trademarks and 42 beer brands, fewer than half of which are active. The beers are brewed through a contract with MillerCoors, according to Pabst's specifications, many at factories once owned by Pabst.

With the acquisition, Metropoulos has taken control of a murderer's row of brand names — if it were 1973. Of the 10 best-selling U.S. beers that year, Metropoulos now owns the brand names for the second, third, sixth, seventh, and eighth slots: Schlitz, Pabst Blue Ribbon, Schaefer, Stroh's, and Falstaff, respectively. None is in the top 10 now. Metropoulos sees that as a tremendous asset. "Americans are beginning to be drawn to nostalgia," he says. "They want brands that they remember being identified with their community and region."

In most of his previous deals, Metropoulos entered into partnerships with private equity firms and investment banks, and later sold out. With backing from the Texas-based buyout firm Hicks, Muse, Tate & Furst, Metropoulos bought International Home Foods in 1996 for $1.3 billion and sold it to ConAgra for nearly $3 billion in 2000. Along with J.P. Morgan and J.D. Childs, he bought Pinnacle Foods in 2003 and sold it to the Blackstone Group for $2.2 billion in 2007.

Pabst, says Metropoulos, is different. It's the first purchase Metropoulos has made without outside capital or an exit strategy. With Evan and Daren at the company's helm beside their father, the Metropouloses see Pabst as a platform for possible future acquisitions, and the foundation of the family's legacy.

"This is a trophy property," says Evan. "This is like an antique, unrestored Duesenberg, which we'll own for the rest of our lives."

If it is like an old car, Pabst Blue Ribbon has performed the Chitty Chitty Bang Bang-like trick of restoring itself, and the challenge for the Metropoulos family may be to stay out of the way and let the miracle keep happening. Over the past eight years, Pabst Blue Ribbon has reversed decades of slowing sales. After bottoming in 2001, sales of Pabst began to rebound, flattening out briefly in 2005, and then rising again with an increase of more than 20 percent in 2009.

The PBR renaissance can in part be traced to the marketing practices of its former owner, Kalmanovitz, who did no marketing at all. He oversaw a hostile takeover of the company in 1985 and quickly cut the company's advertising budget, bled the company of cash, and focused on developing the brewer's real estate. This led to a generation of beer drinkers who hadn't heard from Pabst, and who liked that. If they had any impression of Pabst, it came through the remembered refrigerators of their fathers and uncles, or Dennis Hopper's character in Blue Velvet expressing his strong preference for the brand. But it didn't come from the kind of messages that companies like Budweiser and Miller spent three decades slapping on every leasable surface. When the children of the late 1970s and early '80s reached legal drinking age, Pabst Blue Ribbon was waiting for them, a beer that offered the same inoffensive pilsner flavor as the mass-market brews but at a lower price, and without any marketing baggage.

"It was serendipity," says Kevin Kotecki, Pabst's chief executive. "There were a few wise people here who recognized the trend and started to slowly capitalize on it." Pabst marketers gave the brand a few careful nudges — like sponsoring bike messenger events and inviting artists to produce Pabst-related works. Gradually, with the brand's image being crafted not by the company but by its consumers, the beer spread into the hands of the hipsters who flock to neighborhoods like Williamsburg in Brooklyn and Silver Lake in Los Angeles. Along with Chuck Taylor sneakers and fixed-gear bicycles, Pabst became one of a handful of badges for a subculture that prides itself on its contempt for convention.

The Metropoulos brothers marvel at the beer's heritage. "A lot of blue-collar workers I've talked to say 'I've been drinking a six-pack of Pabst, every single day, seven days a week, for 25 years,'" says Evan.

"It's, like, habitual," says Daren. "It's part of their life. It's their lifestyle."

Unlike Kalmanovitz, the brothers take their marketing seriously. In the three months since the Metropouloses acquired Pabst, the brothers have personally brought the beer into more than 250 new restaurants, supermarkets, and bars. Among them is Avenue, a $2.5 million "gastrolounge" in the Chelsea neighborhood of Manhattan with a nearly impenetrable guest list. The brothers have Hollywood connections, and they are working them. There are talks with Snoop Dogg to get the rapper behind the launch of new Colt 45 flavors, which Evan described as "colorful, ripe, tasty, vibrant flavors that will incorporate 5 percent juice into the malt liquor."

"Snoop's mother drank Schlitz," Evan added. "He told me so himself!" In the coming months Funny or Die, the comedy website founded by Will Ferrell's production company, will begin producing sketches incorporating Pabst products. "The brothers' energy and positivity are just infectious," says Martin Lesak, an agent at Creative Artists Agency who helped put together the Funny or Die deal. "Evan said to us, 'We want to win. We want to blow these brands out, explode them, and make everyone lots of money.' I was down with that."

The Metropouloses are betting that the authenticity of the brand, when properly managed, can be scaled up and even exported. In China, a Pabst licensee already sells "Blue Ribbon 1844" for $44 per bottle, a special formulation using German caramel malts and aged in oak whiskey barrels. The Chinese vendor is emblematic of the Metropoulos ambition — to replicate the PBR resurgence and turn Pabst Brewing into the last grand old beer company owned by Americans and known worldwide.

Even as Pabst has grown over the past few years, consolidation in the beer industry has made it a comparatively smaller player. Two giants, Belgian ABInBev, which owns Anheuser-Busch, and London-based SABMiller, which operates MillerCoors as a joint venture with Molson Coors Brewing, control 80 percent of the $100 billion U.S. beer market. The two giants have had success pushing American-branded macrobrews overseas, but in the domestic market they've been losing share to niche players. Among the new offerings are "malternatives," which include sweet drinks like Mike's Hard Lemonade and Smirnoff Ice; and ultra-premium craft brews from companies like Full Sail and Sierra Nevada. Craft brewing sales rose 12 percent during the first half of 2010, pointing to a seventh consecutive year of outpacing the beer industry as a whole.

This flight from mass-market beer is especially dire in the so-called premium segment — the heavily advertised macrobrews like Budweiser, Bud Light, Miller Genuine Draft, and Miller Lite. Sales of Budweiser fell nearly 10 percent between the second quarters of 2009 and 2010, and only four of the country's top 30 brands, PBR among them, are growing. Drinkers looking for quality are buying craft brews; those looking for a cheap buzz are switching to nearly identical "sub-premiums" like Busch, Keystone Light, and Pabst Blue Ribbon.

"For PBR, any market share growth is going to come from premium lights — Bud Light, Miller Lite, and Coors Light," says Harry Schuhmacher, publisher of Beer Business Daily. "Pabst's taste profile is similar — a light lager. It's in a sweet spot. It costs less, but you're not ashamed to bring a 12-pack to a party. Pabst is cheaper, but it still has cachet."

"They need to keep doing what they've been doing," said Anthony Bucalo, an analyst who covers the beer industry for Credit Suisse. "Keep the brands local, hip, and organic. They can't screw that up and lose the core hipster drinker that's brought Pabst so much success."

Keeping advertising below the radar could be essential to the brand's continued growth, says Ted Wright, who worked on the team that managed the Pabst resurgence. "PBR was authentic because they were broke," he says. "When you're a salesman and you don't have money, then ipso facto you are authentic. There's no radio, no TV, no guy up there saying 'Hey, kids, PBR is cool!'"

Pabst Blue Ribbon sales totaled $165 million in 2009, according to SymphonyIRI Group, 42 percent of Pabst Brewing's total revenue and enough to offset laggard brands in the stable, such as the No. 2 and 3 brands, Old Milwaukee (down 11.8 percent this year) and Colt 45 (down 2.7 percent). Total company sales growth was 4.7 percent. With Pabst Brewing accounting for less than two percent of the U.S. beer market as a whole, a tiny sip of Anheuser-Busch InBev's market share would mean huge gains for the Metropouloses.

On a conference call with all three family members a few weeks before the meeting at the Mandarin Oriental, Evan sounded eager for competition. "Failure is not an option," he said. "We're going to look at this as a war."

His father gently reprimanded his son, then set forth a softer approach. "The world is a big place," Metropoulos said. "We have a wonderful portfolio that has a place in the heart of Americans across the country. Now, it's all about nurturing."

A few weeks later, father and sons drop by the Breslin Bar & Dining Room adjoining the Ace Hotel in New York, a restaurant resembling a vintage hunting lodge, with dark wood and nostalgic knickknacks. Evan bustles right over to the bartender and introduces himself. As Dean stands back and looks on approvingly, Evan pitches Pabst Blue Ribbon, Schlitz, and McSorley's, which Pabst markets on contract.

When the brothers were young, says Dean, they were nearly thrown out of an A&P on Martha's Vineyard for rearranging the tuna display. "But they own the company!" Dean told the manager, who finally agreed to let the boys move Bumble Bee to the front.

Evan trades cards with the bartender, then joins his father in a booth. Dean has senatorial hair and frank blue eyes. He is dressed impeccably in a gray suit with a fine check and a subtly patterned tie. He orders tea and shows off congratulatory e-mail for his purchase of Pabst. He notes that a young descendant of the Schaefer Beer dynasty sent along a copy of a family photo album with shots of the brand's old brewery on Fifth Avenue. The son of a friend told him about Pabst's following among Harvard students. "Every day I get these," says Dean. "People go wild. I've never had a brand talk to me like this."

One of the secrets to marketing, Dean says, is to "live the brands, to experience them, to feel them myself, and then make the consumer a part of that. Paying someone to say 'Oh, I'm P. Diddy and I'm drinking Perrier-Jouët' — that's not us. If we happen to know a celebrity and they happen to appreciate our brand, that's different. But it needs to be organic. Authentic."

As an example he cites Jeremy Shockey, another friend of the brothers. On the celebrity-tracking website there's footage of Shockey, a tight end for the New Orleans Saints, leaving a bar with the brothers, his arm over Daren's shoulder, wearing a PBR T-shirt and giving an impromptu tribute to the beer.

At the Breslin, Dean points out a sign hanging on the wall, a brass bull with glowing red eyes framed by the words "Schlitz Malt Liquor." Like Pabst, the sign had probably gathered dust for years before being recommissioned to authenticate the Breslin, which opened in 2009. "That's our bull," says Dean. "That's history."