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WisBusiness: Leinenkugel's Bucks Flagging Traditional Beer Sales with Craft Brews
5/2/2006

By Brian E. Clark
WisBusiness.com

CHIPPEWA FALLS – Total beer consumption in the United States is flat. But many craft beer brewers – including those in Wisconsin - are doing well.

According to the Brewers Association, craft brewers sold 9 percent more barrels of beer in 2005 versus 2004. That made craft beer the fastest growing segment of the US beverage alcohol industry for the second consecutive year.

Leinenkugel’s, which has been run by the same family for five generations, is the largest craft beer maker in the Midwest. Three-quarters of its 350,000-barrel-a-year production is now devoted to specialty beers such as Honey Weiss, Berry Weiss, Big Butt Doppelbock and its latest creation, Sunset Wheat.

Just six months ago, the 139-year-old brewer introduced its fall/winter seasonal, Apple Spice. The new brew was so popular, brewery president Jake Leinenkugel said, that it sold-out in a matter of weeks in many locations across the Upper Midwest.

And at a recent major beer competition in Seattle, the company grabbed a silver medal for its Honey Weiss and a bronze for its Sunset Wheat.

WisBusiness.com Editor Brian Clark sat down recently with Leinenkugel’s president Jake Leinenkugel, a wiry former Marine, to talk about the company’s success with craft beers, its work with Miller Brewing and the potential for expanding its brewing operation.


Brian Clark: How do you define craft beer? Is it determined by size?

Jake Leinenkugel:
That’s a good question, because there are a lot of different standards that people apply in our industry to craft beer today. Microbrewing is really the term for the size of a particular brewery. Microwbreweries are breweries that produce around 15,000 barrels of beer a year.

Craft is the style of beer or brewing. Right now you could say to some degree that the largest brewery in the country, Anheuser-Busch, does 20 different styles of craft beer. They got into this because their distributors demanded it.

There has been an explosion of craft beers over the last 20 years, and in particular the last two or three years. I define craft beer as a beer that is differentiated from the nondescript beers that the larger breweries are producing in the United States.

Clark: What would examples of those standard beers be?

Leinenkugel:
Those are mainly low-calorie beers, easy drinking, yet clean likable beers for the mass beer-drinking market. They include Bud Light, Budweiser, Miller Lite, Miller Genuine Draft, Coors, Coors Light. Those are traditional styles of what I would call big brand, big brewery beers.

Clark: What percentage of the market do they have?

Leinenkugel:
They (chuckle) have had more than 90 percent of the domestic market, which is absolutely huge. But if you look at what’s happening in the United States today, imports and craft specialty beers have taken more than 10 percent of the market and are growing. Now it’s about 86 percent national big brewery business.

The other 14 percent is guys like Leinenkugel’s and imports and other specialty brewers throughout the country. So our market share, albeit very small, is growing. And that’s pretty dynamic.

Clark: Can you tell me what is Leinenkugel’s market share?

Leinenkugel:
Sure, in Wisconsin we have roughly about 2 percent of the market. But in the Minneapolis area, where we are growing most rapidly, we have about 3 percent.

Clark: How about Chicago?

Leinenkugel:
That is an upstart market for us, but it’s where we need to expand if we want to continue to grow. We have to be in all the metropolitan markets in the Upper Midwest. We are doing about 0.7 percent in Chicago. That’s small, but our market share there 10 years ago was almost nil.

We were less than one-half of 1 percent for Wisconsin a decade ago and less than that in Minnesota. And we had one-tenth of one percent in Chicago. So if you look at the last 10 years, even though we have small market shares compared to large brewers, there is significant growth.

Clark: What is happening with sales of regular beers from the big brewers?

Leinenkugel:
According to the Beer Institute’s monthly reports and information from others who track beer sales in the U.S., you’re seeing that the domestic beer business is flat. There is no growth when you total in everyone’s business. The growth is coming from the influx of imports over the past decade.

Clark: How about craft beer?

Leinenkugel:
It is starting to gain momentum. Its market share was non-existent 15 years ago. Today it is hitting 5 percent. On top of that, imports are hitting about 10 percent.

Clark: Why is overall beer consumption flat?

Leinenkugel:
I think there are a lot of different dynamics in play. Many things have changed just since I started here in 1982 – after being a Marine for six years. The sociability of beer and how it is perceived is no longer the same. There are a lot of legislative concerns and the taxes have gone up a lot.

At the same time, there has been a major shift from what we call full-calorie, full-bodied beers to low-cal light beers. And of course, that all started with Miller Lite some 30 years ago – believe it or not.

I was one of those who said that style of beer would never be more than 10 percent of the U.S. market share. And boy how wrong was I because it’s now more than 50 percent. That means that one out of every two beer drinkers is drinking a low-cal light beer.

That said, there are a lot of lifestyle and health issues that play more dynamically than anything else.

Clark: When did Leinenkugel’s start focusing on craft beer?

Leinenkugel:
Well, we started almost 139 years ago. It was my great, great, great grandfather who came over from the Rheinbach area of Germany. He knew how to brew beer. He brought his family over and they settled in Sauk City. Of course, he built a brewery. That was the first Leinenkugel Brewing Co. back in the 1850s. He ended up with five sons and he taught them all how to make beer.

As far as we can tell, his father had a tavern in Germany. We believe they also brewed beer on site, so there was the start of a microbrewery. He knew the art of brewing from the old country and taught his sons. They ended up going throughout Wisconsin to open breweries or work with other brewers.

I always say the smartest one was Jacob because he came up here to Chippewa Falls with a friend named John Miller back in 1867.

Clark: What drew them to Chippewa Falls?

Leinenkugel:
They came here because there were 2,500 thirsty lumberjacks in these parts. This was the largest lumbering area at the time for great white pine. So there was a built-in market and he settled where the brewery is today. This was the hub and they could even grow the corn, grains and hops or trade for it with the local Ojibwe Indians, who had a settlement north of here.

They handcrafted beer in a small, one-building brew house. The workers started building homes here. They also had cattle and pigs and horses that they used for delivering the beer. He brought that trademark of a true, lager style German beer to this area.

Clark: What happened to the other brothers?

Leinenkugel:
A couple of them died young. Another opened a brewery in Eau Claire and then sold it. It was Jacob who thrived in large part because of the location. No one competed with him for a long time, so he had a corner on the market.

Clark: Did the Miller have any connection to today’s Miller Brewing Co.?

Leinenkugel:
No he didn’t, but everyone laughs at that today and thinks that’s how we got connected to Miller. They were just best of friends. In fact, they are buried together up on the hill along with their wives and families. That was the start.

Clark: What was that beer like?

Leinenkugel:
It was a little heavier and a little more malted and flavorful. And it stayed that way and was consistent through the years up to this day. We are proud that there is a difference. There is a little more substance and body and flavor to the beer.

We discovered something in the '70s when younger consumers, who did not sometimes drink Leinie’s Original, said they couldn’t wait for the bock beer to come out. They said it was the best bock beer. That was an eye opener.

Clark: How do you define bock beer?

Leinenkugel:
Bock beer has Bavarian roots. Monks brewed it during the Lenten season. They wanted a stronger, more flavorful, full-bodied, alcoholic style beer because they were fasting during that time. They were your original upstart beer makers, those Bavarian monks. It came out in February around Ash Wednesday and lasted through Easter. It has a lot of folklore and myths associated with it. Some are quite funny.

And to this day, some people believe it is the beer from the bottom of the barrel or the kegs because it is so dark and rich. The reason they thought that was because every year, breweries of all sizes did all their maintenance and cleaning of their tanks when there was less demand.

Bock beer wasn’t from the bottom of the barrel, though. It was dark because it came from heavily caramelized malt, which gives it a rich, brown color. It is roasted differently than a standard two-row or six-row barley malt that you would use in bread-making. This is more like a seven-grain or multi-grain bread that would give off more extract and more flavor. It does the same for beer. You also have to produce it longer. It settles and ages longer, so you have more substance to it.

Clark: That started in the '70s?

Leinenkugel:
Actually, we’d been brewing it for a long, long time. But it wasn’t till the '70s that we started to notice that there was a different consumer profile coming into play.

Clark: But you only produced it for a couple of months?

Leinenkugel:
Right. But even when I was in the Marine Corps, I’d hear from my father that bock beer was doing well and they were seeing increased sales. So the next step was to see if they could increase the price compared to Leinie’s Original.

When you think about it, that was a pretty gutsy move 35 years ago, for a small brewer to increase the price that wasn’t based on the bigger brewers doing it first. It was only about a penny a bottle more, but we found out it had no effect on consumers. They didn’t complain that the price was too high.

Clark: Who made up that market?

Leinenkugel:
At the beginning, it was the German heritage style of drinker going back to pre-Prohibition through World War II because he or she knew bock beer. But in the '70s, there was a new consumer dynamic starting and that was intriguing. For us, that was our first ray of light that there was possibly a different consumer out there.

In the fall season of 1986, we expanded with an Oktoberfest style of beer. The first one we did was called Leinenkugel’s Limited. It was based off an Oktoberfest formula with different malting and hopping.

Clark: How would you describe the taste of that?

Leinenkugel:
Wonderful. I say that because it is probably one of the best-balanced beers produced in my opinion by brewmasters in the United States. It continues today under a different name. When someone drinks it, he or she knows it’s different. The first year, we thought we’d made enough for three months, but it sold out in one month. And we thought we were taking a risk and had over-produced. We learned something there.

In 1987, five years after I came back from the Marines, we brewed twice as much Limited and it all sold out again and we got an even higher price for it.

Clark: Were others doing the same thing?

Leinenkugel:
Yes, there were microbrewers that went back to the '70s. One of them was Fritz Maytag with Anchor Steam beer. I was in the Marines then. My dad knew Fritz and is still a friend. He is from the Maytag (washer-dryer) family and he said he wanted to try resurrecting an old defunct style of beer out in San Francisco.

I remember tasting it, not liking it and looking at my dad and him saying, “I don’t know if I should tell Fritz it’s not very good.” But Fritz was such a pioneer in our industry because he tried something different and really hopped it, overly hopped it and made it bitter.

His rationale was that he only wanted to hit one-tenth of 1 percent of the market. Long story short, Fritz went on to be very successful. I call him the grandfather of the microbrewery movement. He was the impetus behind it. He’s now gotten into a winery and other things. He was smart because he went high end and charged a lot more for his beer. Still does today.

He got to be about a 100,000-barrel brewer and was very happy with that, selling mainly in the San Francisco Bay Area, with some national distribution. He’s got a gorgeous little brewery in San Francisco. And he started this in the '70s, long before any of us thought it would be possible.

We also paid attention to Jim Koch, who started the Boston Beer Company on the other coast. He did the same thing as Maytag, but did it in a bigger way and took it national with Sam Adams beer in the 1980s.

Clark: When did you join forces with Miller Brewing?

Leinenkugel:
My dad got a letter from them in 1987 because they were paying attention to our little brewing company north of them. We weren’t a threat at all to their business, but they were intrigued by our new style of brewing. We had a very good relationship with them and most other brewers in the state at that time.

Clark: What did the letter say?

Leinenkugel:
That they would be very interested in exploring a joint marketing venture with our company. I remember my dad taking the letter to Bill Casper (former Leinenkugel’s chairman). Bill read it, looked up at my dad and asked, “What do you think they want from us?” And my dad said, “I think they want us to buy them.” We tell that to every sales group we have.

Clark: What happened next?

Leinenkugel:
It started a discussion with the second largest brewer in the country for that joint marketing venture. And in 1988, about six months after we got that letter, we did that and our business has gone from a 60,000-barrel brewery to a 350,000-barrel brewery as far as total sales.

Clark: Was that because of the success of your craft beers?

Leinenkugel:
Yes, it has been the craft beers first and foremost. It differentiates our beers from the mass, giant producers. And over the past 20 years, with the aid of Miller, we have greatly increased our business acumen. The assistance we have had in marketing has been big. Another big thing for a small brewer like us was being opened up to their distribution network. Other than that, they pretty much left us alone.

Clark: Really? That seems remarkable.

Leinenkugel:
Most people said it would never happen. They said we’d be absorbed within a couple of years and now we’re 20 years down the road. I’ve had 10 different bosses in that time and I think I’ve gotten something from each one of them. It’s been a blessing for my growth and the company’s growth.

People always ask, “Aren’t you worried about being part of Miller?” I’m not because they understand us and allow us to be different. They use us to have some fun, too. And they’ve let us spread our wings, to expand twice and build one of the best brewhouses around. It’s capable of making twice as much beer as we can get out the door. Now our tank capacity is limited, we need more tanks.

Clark: How many tanks do you have?

Leinenkugel:
We have a lot of tanks in two different buildings, but it’s not enough.

Clark: When do you think Miller might make a decision on your request to build more tanks?

Leinenkugel:
Well, let’s say I’ve set the table for that to happen. We should get some answers in the next quarter.

Clark: And you now have 10 craft beers?

Leinenkugel:
Yes, we have 10 different styles.

Clark: What percentage of your production is craft beer?

Leinenkugel:
Leinie’s Original is still the main beer, along with the complimentary Leinenkugel’s Light that we’ve done because of the light beer consumer. That end of the business is 25 percent and 75 percent is craft beer.

If we would have had this discussion five or 10 years ago, I’d never have predicted it would have gone over 50-50, but it’s accelerated that much.

Clark: Which of your craft beers is the most popular?

Leinenkugel:
Honey Weiss. We are also doing a new entry that we think will be as big, if not bigger. It is called Sunset Wheat and we’ve tested it a lot with consumer groups. It’s gotten raves, even compared to Honey Weiss and Berry Weiss, which were very strong with consumers when we first tested them.

Clark: How many of them are available year-round?

Leinenkugel:
Our biggest one year-round certainly is Honey Weiss. Then there is Red Lager, which still has a large fan base. It has a red-malted, darker color to it. It was our first real foray into craft brewing after we did the seasonals of bock and Limited.

In 1993, we created Leinie’s Red Lager and it exploded. It is still our third largest seller. After that is Leinie’s Creamy Dark, which we put no support behind. It’s all word-of-mouth and it just continues to grow. That’s a real traditional German dark beer. It’s exquisite and I love it as a draft. It is full-bodied, full-flavored and is great with steak. I call it my night-time beer because that is the one I like to have before I go to bed. And I always sleep through the night.

Because of our capacity constraints, we are going to stop brewing Amber Light and North Woods. So they will be gone from the marketplace by June or July, if not sooner.

Clark: Will you bring them back if you get more tanks?

Leinenkugel:
We certainly hold that as a possibility and that is what we told those consumers who love those styles of beer. I would certainly suggest that North Woods, because of its flavor profile and the consumer demand, plus the letters and phone calls I’ve had, will have to come back.

It’s a hard decision to cut a popular beer in order to make a new one. But we are doing it because of how well it tested and the flavor profile it has. It has a great aroma and some citrus and a spicy coriander base to it. When you put all those together, it is a very refreshing, wheat style of beer that has a cloudy haze to it. So it is not a traditional-looking beer, but the sampling of consumer groups has been phenomenal.

Clark: To go back to the Miller purchase of your company, are you unique in being left pretty much alone?

Leinenkugel:
The way I look at it now from a U.S. brewer’s perspective, we are special. First of all, they left us to be ourselves with our management team. They said, “go ahead and do some wacky and crazy things, just be sure they are legal, moral and ethical.” Of course, I still have a very tight reporting relationship with them.

Clark: In other words, you still have to make money?

Leinenkugel:
Of course. I have goals, parameters and objectives that must be met just like we would if we had a board of directors. Now, over the past 10 years, smaller craft brewers have been begging (to join) larger breweries and larger breweries have been looking for opportunities to bring craft beers into their distribution system. So you are seeing more of that happening today than ever. Anheuser-Busch has relationships with craft brewers throughout the United States. It’s very interesting to see how that is evolving.

Clark: If Miller had been unhappy with you, could they have brought in their own management team?

Leinenkugel:
Yes. I have no golden parachute. I am here like any other employee. I have no problem with that and I have always said that you either perform or fail to perform and then live by those consequences.

Clark: So it is five generations now that have been running this brewery?

Leinenkugel:
I am the fifth generation, along with my brother Dick, who is vice president of sales, and my brother John, who is a sales rep over in Minnesota.

Clark: Are there any other breweries that have that kind of continuity?

Leinenkugel:
Yuengling Brewery in Pennsylvania has a history that matches up with ours. They are also fifth generation and Dick Yuengling has a couple of daughters coming up.

Clark: Can you find Leinenkugel beer outside the Midwest?

Leinenkugel:
We do very well in certain markets like Denver and Atlanta. The west coast of Florida has Leinie’s Red. There are some other markets where we are looking at becoming bigger and better, but we are in no rush to do it because of our capacity situation.

Clark: If you get the new tanks, how much could you grow?

Leinenkugel:
With our brew kettles, we have a capacity of 600,000 barrels. We are currently limited to 350,000 throughout our entire network. In fact, right now, it’s hard for us to do much more than 250,000 here on site. We also have a brewery in Milwaukee called the Leinenkugel’s 10th Street Brewery that we bought 10 years ago. But we have that at capacity doing a lot of the extra Honey Weiss.

During the summer, we have to brew some of our Leinie’s original at the Miller State Street Plant in Milwaukee because we don’t have the capacity here during the summer. So we have three different systems in play.

But we have heard from our customers and distributors that brewing in Chippewa Falls is very important. It goes hand-in-hand with the Leinenkugel name.

Clark: Why?

Leinenkugel:
We found that Chippewa Falls is very intriguing as a name to people. So we would like to keep as much a presence here as possible. I really try to sell that to people at Miller so that they will invest and maximize our potential up here.

Clark: Do you think it sounds exotic to consumers?

Leinenkugel:
I didn’t think so growing up here. But our research has shown that it is sort of cool and hip and even mysterious. People seem to like the idea that three brothers are still involved in running the family brewery five generations down the line. They even think the name Leinenkugel is intriguing. But our recognition has grown a lot in the last 15 years. Now we are looking for more new drinkers.

Clark: Where is your beer most popular?

Leinenkugel:
In terms of overall sales, it’s Minneapolis/St. Paul. And in the home market, within 50 miles of Chippewa Falls, we are extremely strong and are the number one craft brewer. After that, it’s Madison, Milwaukee and Chicago. The majority of our time, focus and personal appearances, radio are concentrated on those five markets.

Clark: Are there any other family members in the company?

Leinenkugel:
No. There are two older and smarter sisters who became teachers here in Wisconsin. One of them married Mark Bugher, who runs the University Research Park in Madison and is a real bright guy, too.

Clark: Why has there been an upsurge in craft brewing?

Leinenkugel:
The strongest reason I see is that there is a growing segment of the population that wants something that looks and tastes different.

The second thing we discovered is that women were left unapproached by most brewers. We have been able to connect with female beer drinkers and females who did not like beer. They really connected through Leinenkugel’s Berry Weiss. It is our largest seasonal brand. It continues to grow at double digits during the summer months. And we are thinking of keeping it out all year if we can get the tanks.

It opened up the door for most females to say that they liked that style of beer. And they might never have liked beer before. It is sweeter, more fruity, yet it has beer as its major base. We’ve also seen some of those females who said they didn’t like the taste of beer go on to enjoy Honey Weiss, which is a standard style of wheat beer, but is something of crossover.

Then we came out with Leinenkugel’s Apple Spice this past fall as a seasonal. The same thing happened as with Leinie’s Limited back in 1986. Apple Spice flew off the shelves. We priced it higher than our typical craft beers, but found it was a huge success with both men and women, but mainly women.

I think we discovered that we can connect better with females, so we’ll concentrate on that. That does not mean we will become a house of “chick beers” because we aren’t. But we found a group that no one else spent much time with and we’ll expand that, but at the same time keep those traditional styles of beer.

Clark: How did you discover that women were underserved?

Leinenkugel:
I think we all knew it. But 30 years ago, this was a male-dominated business. Today that has changed dramatically and there are a lot more women working in the industry, and in senior management positions. Their presence helped create a “what about us?” approach to exploring. We just happened to hit it with our Honey Weiss, Berry Weiss and Apple Spice.

Clark: How do you advertise your beers?

Leinenkugel:
Non-traditionally. We don’t look at big media per se. We spend some time doing unusual radio because we can take radio and play with it in those five markets I mentioned. I like to get the brothers’ angle into the market, with us doing something quirky. I don’t know of too many brewers who can send fifth-generation, three brothers into a market to meet consumers.

We also started a neat little club called the “Leinie Lodge” to fit around our setting. We also found out that word-of-mouth is absolutely essential and building customer relationships one-on-one. We have a passion for that and we work very hard at it.

Once we identified our loyalists, we thought it would be neat to put people on a list and send them a direct mail piece with news in it. So we asked people for their addresses and it started out with a couple of thousand people. Today it is more than 175,000.

Clark: When did that start?

Leinenkugel:
It started about 1992, but it wasn’t until the late '90s that we really attached ourselves to this. My wife Peg puts out the “Leinie Legend,” three times a year. She does most of the articles, but I do one called “All About Beer.” It’s usually the lead one, though she has bumped me a few times. She even has beer recipes in there. That’s taken off so much that it has actually become expensive for us. And we think that it will grow to more than 200,000 this year.

It’s a neat thing for a little brewery, other than the cost behind it. Still, it’s a touch point that really connects. We also have a Web site that is a little different. But the number of hits we get is phenomenal. The consumer can respond about our tours, our beer or anything they want. I even get email from people I served with in the Marines 25 years ago asking if I’m the same guy they knew. It’s sort of cool, and we reply to every one. I’m amazed at the responses we get.

Clark: When did South African Breweries take over Miller? And what effect did that have on your company?

Leinenkugel:
In 2002. Sure we were concerned what they might do. But I did research on who they were and I found out that they were true beer people. They have a passion for beer and have more than 140 breweries around the world. The folks they brought in are tough and disciplined and challenging.

To me, being an ex-Marine, I love that. A lot of people didn’t at first. It made them nervous. It was the first time they’d been asked 20 questions in a meeting. But they’ve made good changes, including the marketing strategy. Any brewery my size would love to have that discipline and principle that they bring. I like it and I know I have to be prepared because one of their folks will challenge me. And that’s the way that good businesses get better. ...

Clark: Do you think many craft beer drinkers are also wine drinkers?

Leinenkugel:
That’s a good point. Yes, I think they are part of the changing beer dynamic. I think you are seeing more crossover now than ever. A lot of baby boomers also like craft beer. And they have a lot of disposable income and they are willing to buy up. That bodes well for us. One night, they might have a Leinie’s Creamy Dark and the next night split a bottle of red wine over dinner. They may not drink a lot, but they drink smarter.

Clark: Do you do recommend your craft beers with different foods?

Leinenkugel:
Yes. That’s part of our newsletter. My wife does a great job with that. We also do beer dinners at nice restaurants. We have accounts who say they want to get 50 people together and have five different courses that might include duck with a Honey Weiss glaze, for example. Chefs will put together food parings with help from us.

One thing that is popular around here is fish fries. A Honey Weiss batter is good with that, served with a Honey Weiss pint or bottle.

We also discovered some years back how well Creamy Dark pairs with chocolates. It’s unbelievable how well that plays with chocolate cake or chocolate torte. It blows people away because the majority thought the two would never go well together.

We are educating consumers who might first of all say, “Ick.” Now they are trying and often liking what we suggest. People are more willing now to try new things. ...

Clark: Do the fans of Leinie’s Original ever ask what has become of the brewery they knew?

Leinenkugel:
Yes, there is that group of people. And God bless them because they were the ones who stuck with us and still stick with us. They are what they are and they are loyalists and they don’t change. But they are not terribly interested in sampling a wide variety of beers. And that’s okay.


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