Wednesday, April 23, 2008

The Stupidest Business Decisions in History.


HOW DO WE COMPETE WITH BUDWEISER?


Executive: Robert Uihlein, Jr., head of the Schlitz Brewing Company in Milwaukee, Wisconsin.


Background: in the 1970s, Schlitz was America’s #2 beer, behind Budweiser. It had been #1 until 1957 and has pursued Bud ever since. In the 1970s, Uihlein came up with a strategy to compete against Anheuser-Busch. He figured that if he could cut the cost of ingredients used in his beer and speed up the brewing process at the same time, he could brew more beer in the same amount of time for less money … and earn higher profits.


Decision: Uihlein cut the amount of time it took to brew Schlitz from 40 days to 15, and replaced much of the barley malt in the beer with corn syrup - which was cheaper. He also switched from one type of foam stabilizer to another to get around new labeling laws that would have required the original stabilizer to be disclosed on the label.


Impact: Uihlein got what he wanted: a cheaper, more profitable beer that made a lot of money … at first. But it tasted terrible, and tended to break down so quickly as the cheap ingredients bonded together and sank to the bottom of the can - forming a substance that "looked disconcertingly like mucus." Philip Van Munchings writes in Beer Blast:


Suddenly Schlitz found itself shipping out a great deal of apparently snot-ridden beer. The brewery knew about it pretty quickly and made a command decision - to do nothing … Uihlein declined a costly recall for months, wagering that not much of the beer would be subjected to the kinds of temperatures at which most haze forms. He lost the bet, sales plummeted … and Schlitz began a long steady slide from the top three.


Schlitz finally caved in and recalled 10 million cans of the snot beer. But their reputation was ruined and sales never recovered. In 1981, they shut down their Milwaukee brewing plant; the following year the company was purchased by rival Stroh’s. One former mayor of Milwaukee compared the brewery’s fortunes to the sinking of the Titanic, asking "How could that big of a business go under so fast?

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