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Billy Busch targets Bud drinkers with new beer

At opposite ends of the long wooden bar at O'Connell's Pub, two men work the lunchtime crowd — offering smiles, handshakes and free beer.

One is Jim Hoffmeister, a former top executive at Anheuser-Busch Cos. The other is William K. "Billy" Busch, a son of August "Gussie" Busch Jr., the man who turned Budweiser into the nation's dominant beer brand.

Hoffmeister, a near four-decade veteran of A-B, and Billy Busch, a scion who never worked for the company, are doing something that neither has done in a long time: peddling beer door-to-door.

"I hit three places last night," Hoffmeister said, standing near the bar. "It feels good to be back in the beer business."

The business now, though, is selling Kr?ftig, a new brand that Busch, with the help of Hoffmeister and two other former A-B executives, launched this month under the banner of the William K. Busch Brewing Co.

Kr?ftig is the first beer brewed by anyone with the Busch name since A-B was taken over by Belgian brewing giant InBev three years ago, and it is being introduced with high ambitions. The goal: to brew beers that will compete with national brands, including the ones that made the Busch family fortune.

"There's still a lot of loyalty with a lot of family members," Busch said, sitting in an O'Connell's booth. "But for me, personally, the loyalty isn't there."

Kr?ftig has already brewed 7,200 barrels, or about 100,000 cases. It aims to brew 2 million barrels every year, the bulk at a brewing facility it plans to build in St. Louis within three years. Hoffmeister, the company's chief executive, mentions "4 or 5 million barrels" as if that were almost a given.

"When Billy and I first started talking," he says, "I wasn't interested in 200,000 or 300,000 barrels."

Schlafly, St. Louis' largest craft brewer, by comparison, plans to brew 50,000 barrels next year. But even a few million barrels represents a tiny fraction of what the biggest beer companies bring to market — A-B InBev shipped nearly 102 million barrels last year.

"They're trying to compete with Bud, Miller and Coors, and that's a fantastic goal," said Dan Kopman, co-founder of Schlafly, adding, "It's going to take hundreds of millions of dollars to make what they're doing a reality, but I hope they can do it."

The Kr?ftig team declined to disclose the scope of its investment, but its ambitions, industry analysts say, make the effort audacious and unusual.

"Four or five million barrels is enormously enthusiastic," said Eric Shepard, of Beer Marketer's Insights, a beer industry research company. "Those are very high expectations, and it would be something if it actually happened. We'll see. Never say never."

Making a lager

With the takeover of A-B in 2008, many St. Louisans felt the city lost a piece of its brewing heritage and a connection to the colorful family at its center. Billy Busch feels the same nostalgia.

"It dawned on me that there was no longer a Busch brewing beer," Busch said. "We'd done that for 150 years."

So Busch began plotting a comeback. He settled on the idea of brewing a lager, like Budweiser. "I'm comfortable with lagers," Busch says.

His team consulted master brewers in Germany and tried 10 recipes before settling on an all-malt brew, made with just four ingredients and hewing to German purity laws. He chose the name, which is German for powerful and used to describe someone who overcomes obstacles. He hired an award-winning craft brewer, Marc Gottfried, of the Morgan Street Brewing Co.

Yet the Kr?ftig team deliberately eschews the craft brewing label, which would typically get tacked to an all-malt brewing operation of its current size.

"In some sense, the Busch venture is following in the footsteps of the most successful craft brewers," said Maureen Ogle, author of "Ambitious Brew: The Story of American Beer." "It's interesting that he's trying to avoid being labeled a craft brewer."

Instead, Busch wants to position Kr?ftig as a premium mainstream beer. At about $6.70 a six pack, it's less expensive than many craft beers, such as Sam Adams or Sierra Nevada, but more expensive than Budweiser.

"The Busch project seems to want to have it both ways," Shepard says. "They're trying to get a bigger piece of the mainstream pie than craft."

The industry is watching this strategy closely.

Over the last 10 years, mainstream beers have lost market share as smaller craft brewers have gained sales. Beer sales overall will decline for the third year in a row this year, while craft beer will climb to about 6 percent of the market.

About 200 brewing companies are expected to launch this year, nearly double the amount in any of the preceding 10 years. But most of the brewers are tiny compared to Kr?ftig, and many are being dubbed "nano-breweries."

"This one is very different in that they're not talking about growing slow and organically," explained Paul Gatza, director of the Colorado-based Brewers Association.

Brewing lager beers generally requires a more sophisticated brewing operation, so lagers favor well-capitalized projects, Gatza said. Of the 1,876 breweries in the country, only 70 are lager-only operations.

But thanks in part to Budweiser, lagers are the most-consumed beers in the country, and Kr?ftig targets that appetite.

"They're going for the heart of the market," said Benj Steinman, editor of Beer Marketer's Insights. "It's a more ambitious, well-capitalized enterprise than any I can think of in recent years."

Still, the fledgling company faces huge challenges, aside from an ailing beer market. Scaling up to a national level often stretches resources too thin and dilutes a brand. The cost of ingredients, especially barley, is shooting up as commodity grain prices rise. The brand, like any new one, has to crack through the fierce loyalty that many beer drinkers have forged with their brands.

But Billy Busch and his team believe they have an ingredient that can test that loyalty: the Busch name. And in St. Louis, Kr?ftig's first market, that name could be especially potent.

"The Busch family is legendary in its association with St. Louis, but it was not a family-controlled company when it sold, and there was a fair amount of bitterness about the sale locally," Steinman said. "I don't know how the family name plays now."

On the other hand, Steinman said: "He wasn't in the company before. He's saying: This is my chance now."

'Archetypal playboy'

The family that created the King of Beers often was described as St. Louis' royalty. If that was the case, Billy Busch wasn't born to rule.

As the ninth of 11 children born to August "Gussie" Busch Jr., Billy Busch was far removed from the line of succession. When he was 15, his half brother — August Busch III — seized control of the brewery from their father in a move that A-B watchers described as a palace coup.

Billy Busch continued to live with his father at Grant's Farm, the family estate in South County, and the French Renaissance-style mansion there that always was kept apart from the animal park's visitors. He came of age surrounded by the reminders of the family's brewing history — Clydesdales and the trappings of three generations of beer barons — but Grant's Farm no longer was the seat of the family's power.

Billy Busch, now 52, learned to play polo at 13. As a young man, he and some brothers were nationally ranked and played for A-B affiliated teams. But other pursuits were what landed him in the news throughout the 1980s.

In 1981, prosecutors declined to press charges after Busch bit off another man's ear during a late-night brawl outside a South County tavern. Busch, then 22, told police that the other man started the fight.

A year later, Busch was charged with assault after an employee of a Naugles restaurant in Fenton accused him of reaching through the drive-in window and striking him in the throat. Busch was acquitted after testifying that the worker made an obscene remark over a loudspeaker about Busch's mother, and that his hand barely grazed the worker.

Busch's personal life made the Geraldo Rivera show during a child-custody battle that, in an unusual turn of events, was adjudicated by the Missouri Supreme Court. The court ruled in Busch's favor, but the majority opinion — written by Chief Justice Charles B. Blackmar — was far from flattering.

"I cannot say very much in Busch's favor," Blackmar wrote. "He is the archetypal playboy. He lives and 'works' at Grant's Farm, helping to train elephants and dogs for the public shows there and tending crops and gardens."

Blackmar criticized Busch for past drug use and for having a passion for "transient pleasures."

From 1986 to 1991, Busch and his brothers Adolphus and Andrew owned Silver Eagle Distributors, an A-B wholesaler in Houston. The brothers were forced to sell the company after a wholesaler affiliated with Miller Brewing Co. complained to Texas regulators that the brothers' ownership violated a "tied house" law prohibiting distributorship owners from having an affiliation with a beer maker.

Billy Busch's work at Silver Eagle was limited, but he enjoyed pressing the flesh and selling his products in a personal way — often by buying drinks for strangers.

It's exactly what Busch was doing this month at O'Connell's, the landmark south St. Louis tavern that was built by Anheuser-Busch in 1905.

In 1997, the bar was the backdrop for a $100 million television ad campaign that featured August Busch III talking about family tradition. The 60-second spot, which the brewery at the time said was largely unscripted, was the first time the company's then-chairman had appeared in a brewery ad.

Fast-forward to 2011, where Billy Busch stands just a few feet from where his half brother sat in the commercial, talking again about family tradition.

"Kreff-tig," Busch says to an O'Connell's patron who asks how the new beer is pronounced. "We wanted a name that reflects my family's German heritage and its brewing heritage."

Busch buys a beer for another customer, promising that — although the beer is contract-brewed in Wisconsin — he'll build a St. Louis brewery soon.

"I used to do this sort of thing quite a bit as a distributor," Busch said later. "Traveling to accounts and talking about the beer ... I loved it."

Talking to strangers, and having them want to talk to him, comes naturally for Billy Busch, says his older brother, Peter, the owner and chief executive of Southern Eagle Distributing, an Anheuser-Busch wholesaler in Fort Pierce, Fla.

He said that, perhaps more than any of the Gussie Busch's five sons, Billy inherited their father's magnetic personality.

"If people get to know Billy, they're going to love him," Peter Busch said. "He's a lot like my father in a lot of ways: He's outgoing, likeable, and I think he's got a great beer."

Repeat purchases

Rather than build a brewery right away, Kr?ftig chose to rely on contract brewing so it could focus its money on ingredients and growing a distribution network, a key in building the A-B empire.

"Success in the industry depends on their ability to come to agreements with wholesalers," said Paul Gatza, director of the Colorado-based Brewers Association.

The Busch name will likely open doors, and so will the connections forged by the new company's former A-B executives. But the money behind the enterprise, analysts say, will have the most clout with distributors.

"When they're talking about millions of barrels, they know there's a lot of upside for them," Gatza said.

This fall, Kr?ftig finalized deals with Summit Distributing and Robert "Chick" Fritz Inc., both of which distribute Coors and Miller products, in competition with A-B distributors.

"We're not excluding A-B wholesalers," Hoffmeister said.

But they worried A-B distributors would not promote Kr?ftig out of fear it could cannibalize Budweiser sales.

Kr?ftig hopes to build a loyal customer base in St. Louis, then expand into all of Illinois and Missouri starting in April. (Kr?ftig, now sold in bottles, also will be sold in cans, beginning in January.)

So far, wholesalers and consumers are responding to the brand. After two weeks, Kr?ftig is in 25 percent of the stores, restaurants and bars in the St. Louis region, outpacing the company's projections of 25 percent in the first month.

"We had high expectations for the brand, but it is performing better than we thought it would," said Kim Barrow, president and chief operating officer of Summit. "We're definitely getting repeat purchases."

The company has a "leg up" in St. Louis, Hoffmeister acknowledges. "Will it be as easy in other places?" he asks. "No."

But the Kr?ftig team is optimistic. It has already been looking for buildings or land in St. Louis, to build a brewery, though Hoffmeister wouldn't share details. In order to achieve the scale they want, the company will need a brewery of a size that would dwarf most craft brewers.

Sitting in the pub built by his ancestors, Billy Busch agrees that the ambitious venture into his legendary family's business might seem quixotic. But, he says, the time just seemed right.

"My father — those are big shoes to fill," he said. "But if that genetic pool was passed down to me, then I'm fortunate."

29 Nov. 2011

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