Billy Beer: When American Beer Hit Bottom, Then Bounced Back

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1:47Pushkit. Too quick? No, it was perfect. Pushkit, stop. You got it.

2:05Jacob Goldstein, I want to tell you a story about two brothers from Georgia. One was a goofy-looking peanut farmer. The other one, also a little goofy-looking, also peanut farmer, also the president of the United States of America. Jimmy Carter. And Billy Carter. They looked similar, Billy and Jimmy, but their temperaments were different. Jimmy Carter, the president, was sober, both in the sense that he rarely drank, but also in the sense that he had pretty strong religious views. He felt that if you looked at a woman who was not your wife with lust in your heart, this was actually a form of adultery.

2:42Billy, his brother Billy, loved drinking, loved beers, and he would drink them with this unquenchable thirst. And he judged the 1977 Miss Piggy's Pizza Beauty pageant. I'm going to argue that Billy and his brother, the president, were essential to an important moment in business history, specifically the history of the beer industry in the United States of America. Between the two of them, they were responsible for possibly the very lowest point in American beer history, which we will tell you about, and eventually the birth of the fantastic American craft beers we have today. It's a fall and rise story.

3:22And surprisingly, it is the teetotaling president, not the drunkard, who saves the great American brewski. I'm Robert Smith. Have you ever said brewski before in your life? I have never said brewski before, Mel. I'm Jacob Golson, and this is Business History, a show about the history of beerness. No, a show about the history of business. No, do it, do it, do it. We're going all the way. This story answers some questions that I have always had about beer. How did a nation of immigrants, each of which brought delicious beers with them, create an American beer industry that at least in the 60s, 70s, 80s, served bland, watery swill?

3:59And how did craft beers finally break that curse? And the answer, this is going to delight you, is tax policy and regulation. It does delight me. The two most powerful forces in the universe. I was a kid during this era, and the news just loved stories about Billy Carter. And maybe it's because Jimmy was a goody two-shoes, but Billy, oh, people would tell these stories about the president's brother is a redneck, he's a good old boy. And Billy Carter embraced those terms. Jimmy Carter's route to the presidency was a classic one. He left the small town of Plains, Georgia as soon as he could to attend the Naval Academy.

4:41He joined America's nuclear submarine fleet. And when his father died, he went back to run the family business, the family peanut farm. Billy, 12 years younger than Jimmy, Billy flunked out of university. He left a$4 ,000 beer tab behind. It's a lot of beer. It was a lot of drinking. He ended up working and managing the peanut farm. But he was smart. Billy kind of was smart. He was a voracious reader. He did a great job of running the peanut farm. But he did find that the drunken good old boy schtick was effective in the peanut business. He once told a reporter, I got a redneck, white socks, and blue ribbon beer.

5:25Blue ribbon beer like PBR, like Pabst Blue Ribbon? Pabst Blue Ribbon. He would roll up to farmers and peanut buyers in his pickup truck with an open Pabst Blue ribbon, driving while drinking, between his knees. And the customers just loved it. So in 1972. It was like a business show. He was like a salesman selling this character of Billy Carter to some extent. Yeah, of this Southern farmer, you know, who loved America, loved his beer. And he's a good time. You're happy. If you're in business with him and he shows up, you know it's going to be a good time. I think it still works in business to this day.

6:00Like you were not unhappy when Billy Carter rolled up with a six pack of PBR. In 1972, Jimmy Carter was governor of Georgia and Billy Carter also made his big career jump. So he was living at this time, Plains, Georgia, in a dry county, meaning they couldn't sell alcohol. You could find alcohol, but they didn't officially sell alcohol in the county. So Billy Carter joins the town council for the sole reason of voting to allow alcohol sales in the county. And once that vote went through, he resigned from the town council. He bought the only gas station in town in Plains, Georgia. And he put up a big beer sign and said, we are selling beer, which I helped legalize, here at the only gas station in Plains, Georgia.

6:49and it became this community hub for the city with Billy holding court. Why don't you give me his quote? We were a beer joint that sold gas as a sideline. I probably drank or gave away more beer than I sold. That second part is the trick, right? It's great if your business is selling beer. Good, classic business. Giving the beer away, that's going to hurt you in the end. And drinking it also. Now, at this point, I want to leave the Carter brothers for a moment. And I want to follow the beer itself, the Pabst Blue Ribbon, because unbeknownst to Billy's belly, Pabst is a perfect way to tell the story of how beer got to America and how it got so bad.

7:31We're going to flashback now 130 years to 1844. I'm there. I'm ready. I love the 1800s in business history. As you know, it's my favorite business history century. So since this is a beer store, you know it's going to feature Germans. 1844, a lot of Germans are coming to America, including Jacob Best, who starts the Empire Brewery in Milwaukee, Wisconsin. Now, in this era of German migration, they brought a new style of beer. They'd brew a beer. It's all cloudy, has all this stuff in it. And they would store it somewhere cold, like in a cool cellar. and the stuff inside the beer would sort of drop down to the bottom.

8:15And Jacob, do you know what Stor away is in German? Stor away. No, no, no. It's Lager, where we get the term lager. So this is the beer that the Germans have brought to America and this new process. And after the Lager process, you had a clear, mellow beer that stayed fresh longer than other ales. And the timing of Jigabest was impeccable because soon after the brew reopened came the great lager drought of 1854. Put it on the calendar. It's like a bank panic, but for beer. I knew all the bank panics. I did not know about the great lager drought of 1854. It had apparently been a hot summer. There's all this newly arrived German population in St.

9:04Louis and Chicago, and they drank the city's dry. The Chicago Journal wrote about this. Here, give it to us, Jacob. Germans disconsolate and haggard wander from hall to hall, and as yet there is no beer. Something must be done. A newspaper loves nothing more than to say something must be done. The problem was that most lager at this point was sold within a mile or two of where it was brewed. Number one, it's heavy, so it's expensive to move. But number two, it's because once the beer gets warm, it starts to go bad. But luckily for Jacob Best, this is the beginning of the age of the cold chain.

9:43So you had ice, you had railroads, you had shipping, you had a way to transport beer. Call back to our Ice King show. Of course. This was right around this time, mid-1800s, kind of early to mid-1800s. hundreds, they're industrializing ice before they have refrigeration. They're cutting it out of frozen lakes and using it to keep beer cool. It was actually one of the first places it spread from Boston was Milwaukee for the beer business. So you have a new way to transport beer. You have a beer panic in the big cities. And so Jacob Best starts to ship barrels of their lager on the Lake Michigan ferry to Chicago and then down a canal to St.

10:20Louis. Lager drought over. Jacob Best and eventually his son Philip started to build their brand. It's the other thing happening in the 1800s is the launch of brands. They put their last name, Best. They put their last name. It wasn't Worst, Worst Beer? Worst, no. It was Best Select, and they put it on the bottle. And they came up with a drinking song specifically for their beer. Here are the lyrics printed in Maureen Ogle's great book, Ambitious Brew. Jacob, sing us a drinking song of the bests. When the glasses loudly ring, all the waiters quickly spring, serving promptly all the guests with the bestest of the bests.

11:05With the bestest of the best. Boom, boom, boom. I want a tuba for that. The bests were soon making enough profit to expand. They built a new brewery in Milwaukee, looked like a gothic castle, and the logger vaults extended for several city blocks under the city. It's all beer below Milwaukee. We need a comic book. We need a beer comic book down there. Eventually, a steamboat captain married into the family and he took over the business and renamed it. His name was Frederick Pabst. He tied a little blue ribbon around the next of the bottles. Like an actual blue ribbon? Yeah, as part of the marketing.

11:40They could stand out. I always thought it was because they won a blue ribbon at a contest or something. They later did also. The actual blue ribbon seems impressive. It's nice. Now, you needed a gimmick like this to stand out because everyone was getting into the brewing business in the late 1800s. We start to see companies like Schlitz, Miller, Anheuser-Busch, and Pabst. Now, maybe because it was a product of the German immigrants, beer did not enjoy the best reputation in the late 1800s. This is when the temperance movement was rising in America. People said, we should outlaw alcohol. It's terrible.

12:16And these German and Irish immigrants, they were painted as being drunks, invading and destroying America. The beer industry fought back with science. They said, listen, beer is a low alcohol alternative to the devil that is whiskey. They said in court, you could drink 20 pints of lager before you could get drunk. It's a lot of pints. The brewers might have won this argument. But just as the prohibition movement was growing, the U.S. declared war on Germany in 1917. and beer became an easy target for, you know, the propaganda of the war. Here's what one pro-Prohibition politician had to say. No Germans in the war are conspiring against the peace and happiness of the United States more than Pabst, Schlitz, Miller, and others of their kind.

13:04We don't like that phrase, their kind. It's never good. No. We should do a Prohibition show in the future. Yeah, there's a lot of sort of tax and regulation. I mean, even just Al Capone. I think there's a business case study about Al Capone that I've been meaning to dig into. Oh, we should definitely do it. Just after the war, the 18th Amendment passed, which meant that prohibition was in effect in the United States of America. Production of alcohol is now banned. And the big beer companies converted their giant factories to make near beers, like low-alcoholic soft drinks, essentially. It would have been very popular today.

13:41That is the trend. And because they had ice houses and refrigeration plants, some started to produce ice cream. Pabst made spreadable cheese. In fact, got sued by Kraft. Pabst also had a big real estate portfolio from all the beer gardens and hotels and taverns it had acquired. It developed these properties, rented, sold them off. It did anything to survive prohibition. And because all of this, you know, a lot of the small breweries went out of business. But Pabst, they made it through when Prohibition was repealed in 1933. They could reopen the factory and start to sell beer again in America.

14:20But the Pabst that they were about to brew, the one that Billy Carter was to come to love, would not be the same beer. It would taste different than the one that carried that first blue ribbon. It would be much worse. After the break.

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18:04I think we've all heard about the celebrations when Prohibition was repealed and people were drinking in the streets. It feels like it was this anomaly in America. But Prohibition really changed the industry, obviously. People drank less. They just did after Prohibition. And the industry structure was altered. In the old days, if you were Pabst Blue Ribbon, you would have a beer garden. A lot of bars were owned or financed directly by brewers, right? It was a vertical integration, basically. But when prohibition was repealed, the U.S. government was like, well, wait a minute. Let's not go back to the way things were.

18:40Let's create something new called a beer distributor. It ended up being a, what is it, a three-tier system? Three-tier system. This is the phrase everybody uses. Yeah. So rather than sell the beer you made to someone who wants to drink the beer you made. Or even rather than sell it to a store that's going to sell it. The brewer would sell it to a distributor. The distributor would sell it to a store and the store would sell it to the customer. Yes. So the three tiers, to be clear, are brewer, wholesaler slash distributor and store. And like just like why did they do that? What is the rationale?

19:12I think the government was worried that the brewers had incentive to, first of all, to take over markets because they owned the bars and the beer halls. And also an incentive to encourage people to drink more than they probably should. because it is their product. So they were concerned about alcoholism, but also they were concerned about taxing the industry. And they felt like if they reduced the power of all parts of the brewing industry, it would be easier to track the beer and to tax the beer. And maybe, you know, I'm kind of making this up, but antitrust was particularly aggressive around this time.

19:51And there was that famous case, you know, movie studios used to own movie theaters. And there's the famous case that went to the Supreme Court where the government didn't want that to happen anymore. They didn't want that vertical integration. And they won. And movie studios were no longer allowed to own theaters anymore. This is the analog of that, right? Beer brewers can't own bars anymore. And it seems like there are some, I don't know whether they're intended or not, but there are some interesting structural consequences of this shift. One of them, of this three-tiered system, is it seems to be quite bad for small brewers, right?

20:24They already were having a hard time. A lot of them had gone out of business in Prohibition. They don't have a lot of leverage with the distributors, right? Distributors have a limited storage space, limited truck space, and limited shelf space. These are the things that distributors care about. And so, in theory, they could negotiate with every small brewery. But if you're a distributor, it's easy to just talk to Pabst Blue Ribbon and to, like, fill up your truck with Pabst Blue Ribbon and to put it on the shelf. And I bet Pabst Blue Ribbon will give you a deal. I mean, it kind of reminds me of the A &P story as well, where the big player, it just has economies of scale and efficiencies.

21:02And the distributor just wants to do the easiest, cheapest thing, the most efficient thing. And why wouldn't they? And that's good for the big brewers and bad for the small brewers. So now we have beer distributors and the big breweries seem to get bigger. The smaller ones seem to be hurt after this. And it's interesting when you have a market like this, and there's a few big players, there's a couple of ways the market can divide, differentiate. One way would be that, you know, some people could start making beers for a more sophisticated palate. You could have basically a rich person's beer, costs a lot, has great flavor, and then a cheaper swill you could sell to the masses.

21:44What actually happened was that all the big breweries decided they were going to cut costs and compete to be the cheapest, blandest, most generic beer out there. This feels very mid-century to me. I feel like we're in the kind of post-war period here, right? We're in the 1950s, 60s. It feels like this very mass market era. And you can imagine the three-tiered system being highly relevant here, right? We want to fill the distributor's trucks with our couple beers, with our one or two basic beers that everybody's going to want and send them out by the case. So with this philosophy, Pabst and the other brewers decide they need to cut costs, become more efficient.

22:27They add corn and rice to make the beer cheaper and blander. And at this point, they decide they're going to compete through advertising, not the flavor space. The flavor space. The flavor space. So by the 1970s, basically, every beer is weak. It's very light, very pale, very dry. And the only thing to differentiate is the name on the label and the tagline. The tagline became so important. Here, why don't you read me some of these taglines? Miller makes it right. Ah. Where there's life, there's bud. If you like beer, you'll love Schlitz. You know what things made me think of? Do you remember the Homer Simpson line?

23:10Beer. The cause of and solution to all of life's problems. Something like that. Well, he's making fun of this era of beer. And because it is the Mad Men era and they are starting to advertise on television and sponsor big league sports, these beer names are everywhere. And everyone's looking for their competitive advantage in terms of how can I get the name of my beer to stand out? Who can I get to hold up my beer and say this beer is the best? and their eyes turned toward Plains, Georgia. It's 1976. Governor Jimmy Carter runs for president. And the world's press descends on Plains, Georgia. You know, I've been there myself.

23:58You have to do the puff piece about the people running for president where you interview all their neighbors and their relatives and who should be there at the gas station when you drive into Plains, Georgia, but the president's brother, Billy Carter. And they loved him. Jimmy Carter, the president, later said, why don't you give me this quote? He could play the country bumpkin as well as anyone. His beer drinking helped promote that image. He had a can of beer in his hand in every photo I ever saw. And I just want to point out that phrase, play the country bumpkin. Because what President Carter is saying here is Billy knew what he was doing.

24:41He was conscious that he was putting on an act, creating a persona, and he was good at it. And what Jimmy Carter didn't say is that this act, this image of the country bumpkin, actually helped his run for president. This is just after Vietnam and Watergate, and Americans were suspicious of the same old politicians in Washington, D.C. And Billy, yeah, he was embarrassing. He used some unfortunate language. But he humanized Jimmy Carter. He made it seem like this is an authentic politician from an authentic small town. And who amongst us doesn't have a brother that says the wrong thing occasionally?

25:17So Billy took advantage of this. He went on TV game shows. He judged belly flop competitions. And eventually he hired an agent to handle all the media requests and business propositions that flooded in. Definitely taking advantage of his brother's run for president. And you can imagine the beer companies are taking a look at this guy who is never without a beer in his hand. And they think, this guy. We can make money off of this guy. One company in particular, this was a small brewer trying to compete against the Paps and the Budweiser's of the time. It was called Fall City Brewing Company. They were a little desperate.