Slow Grower

If the pressure to keep a family-owned business going was proportional to its age, Dick Yuengling Jr. would have bowed shoulders. D.G. Yuengling & Son Inc., the fifth-generation company he bought from his father in 1985, celebrated its 182nd anniversary this year.

But at 68, Yuengling (pronounced “ying-ling”) still is standing tall. And after nearly two centuries as a fairly obscure regional brewer, so is his company. Today the Pottsville, Pennsylvania, brewer’s beers have acquired cachet among aficionados outside its home state. Its flagship Yuengling Traditional Lager can be found in trendy Manhattan bars as well as blue collar Pennsylvania pubs. Although it sells only in 13 Eastern states and the District of Columbia, D.G. Yuengling & Son is the country’s fourth-largest brewer, producing just over 2 million barrels of beer annually from two hometown breweries and a third in Tampa, Florida.

That’s a dramatic increase from the 127,000 barrels a year the brewery produced when Yuengling took over in 1985. While it’s bigger than most microbrewers, the company is still a fraction of the size of the industry’s domestic heavyweights, Anheuser-Busch and MillerCoors.

The company’s size partly reflects the fiscal conservatism of Yuengling, a renowned penny pincher who’s been known to rinse out and reuse disposable coffee cups and who’s just as adamant about pursuing growth cautiously.

Yuengling talked to Inside Edge writer Randy Myers about the challenges of safely expanding a nearly two-century-old company.

Q: As the president and owner of what beer aficionados might call a national treasure, you must feel a special responsibility to preserve its financial health. How do you balance the capital demands of a growing business with your desire to maintain a strong balance sheet?
A: When I started in this business there were many small breweries here in the coal region of eastern Pennsylvania, all of whom except maybe one have gone out of business. That makes you cautious about how you spend money.

Q: So how do you finance growth?
A: We try not to do things unless we are able to fund them ourselves, but that doesn’t always happen. When we built a new brewery 11 or 12 years ago, we got $50 million in loans from a couple of Pennsylvania banks. Two years after that we installed a new kegging system that cost about $30 million, and we issued bonds to help finance that. On the other hand, we’re undertaking two $25 million expansion projects right now that we’re going to fund ourselves. I try to minimize debt as much as I possibly can. I hate borrowing money.

Q: Did that approach help you through the recent credit crunch?
A: I didn’t have to go to anybody, fortunately, for credit or loans during that period. We did continue to grow without going into a lot of other states to keep our volume up. We were growing in our existing market, which is certainly encouraging.

Q: In 2010, you signed a deal to buy a former Coors brewery in Memphis, Tennessee, that would have doubled your capacity but then backed out. Why?
A: We looked at the plant and were very interested in it. But as we did our due diligence we found some issues we really didn’t want to deal with. The investment (that would have been required) on top of the purchase of the brewery and the land was just huge.

Q: You’re expanding into Ohio. With your brand so popular — sales were up 7 percent last year while industry sales were down slightly — why not move into new areas even more aggressively?
A: We’ve always had a game plan of expanding into adjacent territories. But I don’t want to just throw the beer into states where the consumer is not familiar with our brand. I think it’s dangerous. I’ve seen so many regional breweries do that and they failed. They weren’t satisfied with a good, strong core market. This isn’t a race. This company had 156 years of history before I took it over, and I want to keep it growing. I have two children working here who are very interested in it, and I want to make sure I don’t leave them with a problem.

Q. You’re intimately involved in the company’s operations. Whom do you rely on when you need to make decisions about raising capital or funding an expansion?
A: I have an accounting firm locally that I have a lot of respect for, Jones & Co., run by friend of mine, Bill Jones. He’s very astute with finances and taxes, and I take a lot of advice from him. He structured all the loans to build the brewery.

Q: What’s the biggest challenge of financing a smaller, privately held company?
A: Staying financially healthy by spending properly and growing within your means. I see some smaller brewers are going to open up the East Coast markets (that) are from the West Coast. It will be interesting to see. There’s a huge investment in doing that. You must have bottling lines or can lines running fast enough to supply those markets. You have to buy kegs. A new keg is $150 and you need tens of thousands of them. That’s a big bill, so you have to have the money to do that. You also have to make sure your customers can get those kegs back to you, so you can turn them over as many times as possible throughout the year.

Q: Does being in the middle of the pack — not small enough to be considered a hip, boutique brewer, but not as large as the big guys — pose its own difficulties?
A: It does in that wholesalers look for the same expenditures from us that are made by the major brands. They look for you to spend more than you’re capable of spending sometimes. We’ll never outspend Anheuser Busch or Miller or Coors; we can’t do it. We can’t get our beer to the consumer by flooding the TV with advertising. It’s just too expensive.

Q: How do you compensate?
A: We play to the fact that we’re an American, family-owned company, which neither of those others are at this point. But wholesalers still sometimes expect a little more than we can deliver. They might (want us to have) five reps in a territory, we’ll give them one or two. We minimize the number of [products] they have to handle. We try to get them to understand us and our culture, and the benefits of handling our brands. We’re very profitable to the wholesaler.

Q: On the other hand, there must be things you can bring to the table that microbrewers can’t.
A: We can deliver the beer to our customers. A lot of microbrewers run into a problem with all the different products they make. They get a spigot with, say, a summer ale, a guy puts it on draft, and the next thing you know he decides he wants another keg and he can’t get it because they’ve run out. That’s the worst thing you can do. I can’t say it’s never happened to us, but it shouldn’t, because we’re small and can react quickly to wholesaler demands. We know what a wholesaler has on his floor in inventory, and if another guy needs something, we can steal a load until tomorrow and make sure that guy can supply his customers with product.

Q: How does a company with so much history, and so many entrenched systems, stay innovative and nimble?
A: I don’t think of us as innovative. We don’t jump into a lot of new things. I remember back in the 1960s when Iron City came out with a flip-top can. I said to my dad, “That’s a great thing, we should get into it.” He said, “No, let them test it.” Well, they really grew their business because they had this pop-top can. I always remember that. But we don’t jump into weird packaging concepts, and we don’t get into a lot of seasonal beers that the craft brewers do. When we do try something new — we brought a bock beer out two years ago, and we’ll do an Oktoberfest beer for the first time this year — we test in kegs before we spend a lot of money on packaging materials. When you do packages, you’ve got to buy labels and six-pack carriers by the millions. Development is very expensive. I want to see how it goes on draft before putting it in a bottle.

Q: Controlling costs factors heavily into almost every decision you make.
A: That’s the way I operate. I’m not a financial expert. I’m a production guy; that’s the way I grew up in the brewery. I take care of production and packaging concepts. People want to come out with a new package, and I say okay we can do it or we can’t. I’m an efficiency nut in the packaging operation; that’s what I am.