Now, keg by keg, America's oldest brewery is expanding outside of Pottsville, Pa. Thanks to quirky state laws, the brewer has been able to hold its own at home against Anheuser-Busch Cos. and SABMiller PLC's Miller Brewing Co. But those laws are being challenged, and D.G. Yuengling & Son has responded by pushing into New York, Florida, North Carolina and even Alabama.
....
Last year, Yuengling, which is sold in nine states, boosted its national market share to 0.6%, equal to that of Boston Beer Co., maker of Samuel Adams, which is sold all over the U.S., according to estimates by Beer Marketer's Insights, a trade publication. ....
But the brewer's secret weapon is the state's arcane beer regulations, which have protected it from interlopers. Pennsylvania beer drinkers can't purchase beer in supermarkets or convenience stores, where the big brewers often squeeze small brewers off the shelves. Instead, consumers have to go to beer distributors or taverns. The beer distributors account for an estimated 70% of the state's beer sales, but by law they have to sell full cases, reducing the effectiveness of the big brewers' discounting tactics. Neighborhood taverns and delis can sell six-packs or 12-packs, but the prices there are generally quite high.
The state rules, which date to 1934, the year after Prohibition ended nationally, were intended to limit alcohol consumption and protect Pennsylvania's vibrant brewing culture from outside breweries. Through the Pennsylvania Small Brewers Association, a lobbying arm for small state brewers, Mr. Yuengling has opposed any changes in the law. "These laws have enabled small brewers to survive," says the 61-year-old Mr. Yuengling.
He may have a point. The market share of Anheuser-Busch, which accounts for about half of all national beer sales, is just under 29% in Pennsylvania, lower than in any other state, according to Impact Databank, which monitors the industry. And while niche microbrewers have had some success around the country, Yuengling holds an unusually large 13% share of the Pennsylvania market.
But these days, rivals intent on changing the status quo are challenging Yuengling. Jay Goldstein, a beer lobbyist who also serves as president of the Pennsylvania Beer Wholesalers Association, representing wholesale distributors for both large and small brewers, argues that the state system is unfair to beer drinkers and out-of-state brewers alike.
Mr. Goldstein and the Malt Beverage Distributors Association of Pennsylvania, the lobbying arm of beer distributors, say changing the law to allow distributors to sell 12-packs is critical. They point out that consumers pay only $5.99 to $6.99 for a six-pack of a craft beer such as Samuel Adams in most states, but in Pennsylvania buying such a six-pack at a tavern could cost as much as $8.75.
Consumers concerned about price buy cases from the distributors. But cases of beer from local independent brewers such as Stoudt's Brewing Co. in Adamstown and Troegs Brewing Co. in Harrisburg can cost as much as $25, compared with closer to $15 for nationally distributed domestic beers. The local brewers depend on adventuresome drinkers to give their products a try, but $25 is a big gamble. Local beer drinkers have noticed: The tax funds received from Pennsylvania beer shipments slipped 5.4% in 2003, the worst such decline in 20 years, as some consumers went out of state to buy their beer, even though cross-border sales of alcohol are illegal.
"The packaging law kills small brewers and makes sure Dick Yuengling's position is never interrupted," says Mr. Goldstein. "It's not Bud they are trying to put down, it's their fellow small brewers," which haven't yet established themselves. The Pennsylvania Liquor Control Board says 52 small independent Pennsylvania breweries have gone out of business in the past five years.
Mr. Yuengling insists his rivals are missing the big picture. The looming threat isn't lackluster beer sales or even Anheuser-Busch, he says. It's any move closer to allowing beer sales in supermarkets, which could eventually include big retailers like Wal-Mart Stores Inc. Once stores like Wal-Mart are allowed to start selling pallets of deeply discounted beer, he argues, small brewers, beer distributors and even wholesalers could be forced out of business.
Despite Mr. Yuengling's opposition, many believe change is inevitable, and Yuengling, which derives an estimated 65% of its sales from its home state, would be particularly vulnerable.
