Clash of the beer barons: Pabst tells Milwaukee jurors greed drove MillerCoors to end brewing deal
For more than a century, beer behemoths Pabst and Miller competed for customers at taverns around Milwaukee, and far beyond.
But as the markets changed in recent years, so did the companies. Miller is now MillerCoors, part of Molson Coors. Pabst closed its giant Milwaukee brewery in the 1990s and has reemerged as a private company based in Los Angeles that pays MillerCoors to make its Blue Ribbon and several other brands.
Today, they're squared off in a Milwaukee County courtroom for a trial that Pabst says could determine its survival and is sure to offer a detailed look inside the changing economics of the Big Beer industry.
Eugene Kashper, CEO of Pabst Brewing Co., told a Milwaukee County jury Tuesday that he bought the company in 2014 because its "iconic brands were part of the American fabric," and it still had a national distribution network despite having shrunk to just 2.5 percent of the U.S. market.
He had plans to grow Pabst's many brands and perhaps create new beverages.
Earlier Tuesday, his attorney, Adam Paris of Los Angeles, told the jury during opening statements that MillerCoors "torpedoed those plans" out of "greed and fear" when it decided in 2015 it would not extend its deal to brew Pabst beyond 2020, in breach of their contract and violation of Wisconsin law.
MillerCoors attorney Eric Van Vugt of Milwaukee said Pabst's theory that the larger company conspired to force out Pabst is ludicrous. In his opening, he told jurors MillerCoors was never obligated under the contract with Pabst to keep making its beer at the same price after 2020.
"Our goal was never to put Pabst out of business," he said, "but to assure MillerCoors could stay in business."
Beer industry challenges
Van Vugt said the last five years have been challenging for MillerCoors and the entire beer industry.
"We can act in our best interest, even if the consequences aren't what Pabst wants," he said.
Jurors will hear current and former MillerCoors executives, consultants and others discuss how the firm decided, in 2015, not to extend the Pabst deal without a new price.
While Paris said MillerCoors makes $70 million to $80 million annually from Pabst, Van Vught called the current price of about $17 a barrel "a sweetheart deal" for Pabst that MillerCoors could not agree to sustain for another decade at a time when MillerCoors itself was shrinking amid rapid changes in the adult beverage industry.
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The question turns on whether MillerCoors would have the capacity to keep brewing Pabst products. MillerCoors has already mothballed a North Carolina plant, and might have to close more, Van Vugt said.
"We can't commit to capacity we don't think we'll have" in 2025, he said. He said the company will keep brewing Pabst until 2020, and perhaps through a two-year wind-down period, under the current contract. He said Pabst knew that in 2015 and had 7½ years to find new sources.
Plus, according to Van Vugt, Kashper knew the life of the deal beyond 2020 was uncertain and used that fact to negotiate a lower price from Pabst's prior owners.
Paris told jurors that MillerCoors changed its view only after Kashper met with them prior to closing on his purchase of Pabst, and shared his plans for growing Pabst into areas MillerCoors felt it might also have to explore.
When they finally told him they decided MillerCoors would not extend the deal, Kashper said, he was shocked. He said the firm's alternative "economic solution," to raise its fee $26, would have bankrupted Pabst, and MillerCoors knew it. Pabst made only $6 to $7 profit per barrel at the current fee, he said.
"You can't jump the Heineken price and sell PBR," he said.
Right before the 2015 meeting, MillerCoors announced its plan to shut down its 1970s-era Eden, North Carolina, brewery in 2016. Kashper said Pabst offered to buy it for $100 million. MillerCoors countered at $750 million, which Kashper more closely approximated a brand-new, state of the art plant.
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In his opening, Paris showed a giant graphic of a beer barrel, showing all the costs that go into production for Pabst. Even at the current fee of about $17 a barrel, above MillerCoors' costs, there's only a tiny margin for profit at the top.
By demanding that fee rise to about $42 for any beer made after 2020, MillerCoors took unfair advantage of Pabst, Paris said.
"You get to decide how this story ends," Paris told the jurors.
The trial, before Circuit Judge Timothy Witkowiak, is expected to last three weeks.
Pabst traces its history to 1848 when Jacob Best opened the brewery with a capacity to brew 18 barrels per batch. Today, the Pabst umbrella covers Old Milwaukee, Old Style, Lone Star, Pearl, Schaefer and others.
MillerCoors goes back to 1855, when Frederick Miller settled in Milwaukee, leased and later purchased the Plank Road Brewery. Today, its 99 beers include those under the Miller, Leinenkugels, Coors, Blue Moon, Henry Weinhard's and Molson labels.
