Discover the origin of the blue ribbon and American-style lager with a ship captain that lost his ship and knew nothing about beer.

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Dave Young:
I was going to say, “Welcome to the Empire Builders Podcast, blah, blah, blah, blah.” I didn’t open the document that has my standard opening script, Stephen.

Stephen Semple:
You didn’t. Okay.

Dave Young:
Can we just take it as written? That it’s an interesting podcast about empire building where you’re a business consultant and I’m your business partner and et cetera, et cetera.

Stephen Semple:
Okay.

Dave Young:
Is that all recorded?

Stephen Semple:
Well, you know what? I think we might just use this.

Dave Young:
So I was going to open up with a question for you.

Stephen Semple:
All right. Let’s hear it.

Dave Young:
You got any cold PBR on hand?

Stephen Semple:
See, I wouldn’t know what PBR was unless I told you ahead of time what this episode is about, but no, I don’t, and in fact, I’ve never had it.

Dave Young:
You’ve never had a cold PBR?

Stephen Semple:
I have never had a cold PBR, and for those who are not in the United States, please know that PBR is Pabst Blue Ribbon.

Dave Young:
Pabst Blue Ribbon.

Stephen Semple:
Yeah. There you go.

Dave Young:
What? You’ve never been to a bowling alley?

Stephen Semple:
Not in the United States.

Dave Young:
You ever been to a billiard lounge?

Stephen Semple:
Lounge makes it sound fancy.

Dave Young:
Oh, it’s fancy. Pabst Blue Ribbon. I hadn’t thought of that as a giant empire. It’s just another big old beer name, but I sense a story brewing.

Stephen Semple:
Well, there is because the story of Pabst is as much about the story of the origin of American style lager as it is a story about Pabst. The two are very, very integrated, and at its peak, Pabst was the bestselling beer in America. There was a time where it was a really, really big deal, and today American lager is the best selling alcohol on the planet, and the story starts back in 1863 with Captain Frederick Pabst and-

Dave Young:
He was a captain?

Stephen Semple:
He was a captain. He was a steamship captain.

Dave Young:
Oh cool.

Stephen Semple:
And basically, he lost his ship and all of the contents in a storm, and he’s sitting here thinking, “Man, I’ve got some savings and I need to start over,” but he wasn’t sure what he wanted to do.

Dave Young:
He’s sitting on the shore thinking, “I could sure use a cold beer.”

Stephen Semple:
Or maybe he was drinking while driving. Who knows?

Dave Young:
“Crap, I could use a cold beer right about now,” and so he made it.

Stephen Semple:
“I could use a cold beer ride about now,” and he’s married to Maria Best, who’s the daughter of Phillip Best, a Milwaukee Brewer, and he has a brewery over on Chestnut Street Hill in Milwaukee. And he basically convinces him to buy into the business saying, “Don’t do this ship captain thing. Buy into the business,” and so he chooses to do that, and at the time, the most popular beers were English style ales that were sold warm. But around the late 1800s, there was this increase of immigration from Germany and they brought a couple of things with them.

They brought the idea of kindergarten, but they also brought this desire for German style ales that were brewed cold and served cold, and in Germany, they brewed these basically in caves, and Milwaukee was a great place to make these beers. First of all, there was a large German population. There was water and there was lots of ice. They would just cut the ice in the wintertime stored over the summer, and there were 400 breweries in the U.S. at that time and 35 in Milwaukee alone.

Dave Young:
That says something, doesn’t it?

Stephen Semple:
It sure does. So here’s Captain Pabst. He decides he no longer wants to be ship captain and he takes his life’s savings and he buys a controlling interest in Best Brewery. At the time, the business is being run by Emil Schandein, who later went on to marry the other daughter Lizette, and later buy the remaining shares of the company, but that’s another story. So once Pabst takes over the business, he quickly learns that the brewery has fallen behind in technology. Pabst is familiar with all the changes that steam power is bringing around that time because of his experience as a ship captain.

So he looks at modernizing the brewery, but he decides, “You know what? Instead of building or upgrading, it would be faster to buy a modern brewery.” So he goes out, borrows a bunch of money, and he buys South Side Brewery. So give you an idea, they’re doing about 5,000 barrels of year of beer in their existing facility. To pay for this acquisition, they now have to increase their sales to 90,000 barrels of beer-

Dave Young:
Oh wow.

Stephen Semple:
… a year, and I have to remind you, he has no experience in beer. He’s a ship captain who lost his ship.

Dave Young:
He lost his ships. I was going to say, when you said he was no longer interested in being a steamship captain, I was like, “Well, he didn’t have any ships left.”

Stephen Semple:
So to make this work, he needs to sell beyond Milwaukee. He needs to sell to the whole region, and this acquisition makes him the largest in the area. Now, a few years after the acquisition in 1871, the Chicago Fire happens, and that levels a third of the city, tens of thousands of buildings, including 19 breweries.

Dave Young:
Oh, I smell opportunity.

Stephen Semple:
And Pabst sees opportunity because Chicago is just across the lake, so he buys land in Chicago, orders large warehouses to be built or bought if he can find them, and he’s going to take over the Chicago market. That’s what he decides to go after. Now, in a future podcast, we’re going to talk about Schlitz, because Schlitz and Pabst are very tightly tied together when it comes to the history of beer, because he gets out maneuvered by Schlitz. We’re just going to have to wait for that podcast.

Dave Young:
Okay.

Stephen Semple:
And you’re really going to want to listen to that one. It’s a great story as well. But Dave, I’m going to make you and everyone else wait. So here’s the problem. He has more production than customers and beer has limited shelf life. It goes bad. It spoils. It can’t be shipped easily because these are the days before refrigeration. So Captain Pabst decides he needs to change the beer recipe. He needs to make a new lager that can travel with more shelf life, and this means a formula with less protein. There’s a big opportunity here, because in 1875, there’s no national brands. So he gets his chemist working on it and they try to do all these replacements for barley, but this changes the flavor dramatically. They do lots of trial and error, but they make these little gradual changes. They’re really following the scientific method, and finally, they find a recipe using white corn, and this gives birth to the American style lager. They now have the-

Dave Young:
White corn?

Stephen Semple:
White corn. White corn was the key.

Dave Young:
Okay.

Stephen Semple:
And it all had to do with the proteins in it, a combination of the sugars that can be accessed for the brewing, the proteins that are in it and the flavor. So they now have a longer lasting lager. They can start selling further away. They started selling as far away as Colorado and New York. Production rises to a 100,000 barrels a year, and he changes the name from Best to Pabst Brewing Company, and they become the number one in the country. By 1880, this is four years after discovering this formula, they’re doing 270,000 barrels of beer a year.

Dave Young:
Oh, that’s amazing.

Stephen Semple:
And to stake dominance, he decides to build a 14 story building, the Pabst Building, 235 feet tall, one of the tallest in the country, dominates the Milwaukee skyline. He also builds Pabst Theater. By 1892, they’re doing 800,000 barrels a year, still number one. But at this point, Schlitz is starting to cut into their market with this idea of tied houses and more on that in the Schlitz episode, but they’re getting close. In 1893, along comes the World’s Fair in Chicago. Now, there’s lots of times where I’ve heard references to this fair, and I decided, “What was the big deal about this fair?” This fair was a huge event. It was set on 690 acres of land and 27 and a half million people visited this fair.

Dave Young:
It was a huge deal.

Stephen Semple:
And when you look at what the population was in 1893, that was massive. There was a one day record attendance of over 750,000 people. 751 026 people, a one day record, which again, for that time is just unimaginable numbers, just huge. And of course, when you’ve got 27 and a half million people, there’s going to be beer.

Dave Young:
Somebody’s thirsty in that group.

Stephen Semple:
There was 87 beer stands and of course a beer competition. So Pabst submits the beer with a little blue ribbon around the bottle.

Dave Young:
Already won.

Stephen Semple:
And that was the idea. Show them the one that’s going to win. Pabst does well, but no beer actually wins the competition, but Pabst declares themselves the winner.

Dave Young:
With their blue ribbon.

Stephen Semple:
Ironically, the beer that did the best was Guinness, but they keep the blue ribbon on the beer. Pabst has a parade back in Milwaukee to commemorate their victory, and even today, on the bottle, there’s the claim, “Selected as America’s Best in 1893.”

Dave Young:
Oh, that’s funny. But they weren’t.

Stephen Semple:
Well, they did win most of the American beers. There was no declaration of, “This is the best beer,” so they kind of stretched things a little bit.

Dave Young:
It’s undisputed though.

Stephen Semple:
It was.

Dave Young:
For the most part.

Stephen Semple:
For the most part, yeah. They just basically named themselves the winner and had a parade and put it on the bottles.

Dave Young:
Somebody over at Schlitz is saying, “I call bullshit.” Yet the PBR people are like, “Hey, bragging rights.”

Stephen Semple:
Too bad. Exactly. And that’s also why that beer is now called Pabst Blue Ribbon because of that. Now, in 1908, Captain Pabst dies and at the time when he passes away, he is one of the richest men in Wisconsin, and in 1985 Pabst is bought by Paul Kalmanovitz. I’m butchering that because it’s a Russian name because he’s a self-made real estate baron. They buy it for $63 million, but it’s now owned by Blue Ribbon Intermediate Holdings, which is a partnership between another Russian American beer entrepreneur, Eugene Kashper and TSG Consumer Partners, which is a San Francisco based private equity firm, and it suggested that they bought it for a price of around $700 million. There was a time where it was a really big, big deal. The story of Pabst is amazing. They were the largest brewery until 1902 when they were passed by Schlitz, and then in 1957, Budweiser became the largest. But the really interesting part to me was how this is really about the story of the birth of American lager.

Dave Young:
It’s such a capitalistic move too. We built this empire by saying, “Okay, we need a product that we can ship farther and will last longer on shelves.” It wasn’t even a quest for, “We need a beer that’s going to be way better than all the other beers.” It’s more of, “Hey, if they don’t have beer in Colorado, let’s send them some.”

Stephen Semple:
Yeah. And you’ve often talked, Dave, in past podcasts about how challenges often lead to innovation. So here he went out and he bought this brewery, and the only way he could make the numbers work is, “I have to sell a whole bunch more beer, and the only way I can do that is I have to move outside of this market,” which led to the shelf life challenge. But it was that challenge that led to the innovation, right?

Dave Young:
Yeah. And this was also at the point where you could really ship a lot of things by rail by then.

Stephen Semple:
Yes.

Dave Young:
And so you could move this beer to lots of far away points in a fairly short amount of time, and I think the interesting thing too is that he established this and then everybody followed suit. It’s not just that Pabst became the beer that everybody drank. It’s, “This type of beer became the beer everybody is drinking because it can be shipped.”

Stephen Semple:
Yeah, it can be shipped, and it turns out also very popular because it’s light and it’s refreshing and it’s cold, right?

Dave Young:
Yeah.

Stephen Semple:
It was able to be ship warm, cooled down, served cold, but the other part that I found interesting, and again, we see this so often, that big change is brought by people who come from outside of the industry. He wasn’t a brewer. He was a ship captain. This problem was sitting in front of brewers for a long time, but it’s this ship captain who comes along, does this thing, says, “Holy crap, here’s this challenge,” and I could just imagine the meeting at the brewery. “We’re going to change the recipe.” “You’re going to what?”

Dave Young:
Yeah.

Stephen Semple:
There’d be this immediate, “But oh my God. We’re brewers. This is the recipe. We brought this from Germany. We’re very proud of it. This is authentic.”

Dave Young:
Yeah, and his outside view was of somebody, even if he wasn’t a very good steamship captain or a not very lucky steamship captain, because he lost his ships, but he knew that horizons were not your limits. If you’re just in the brewing business and you’re sitting in Milwaukee and you’re looking around going, “How do we sell more beer?” You need more people, and as a steamship captain, his point of view would’ve been, “No, you can steam by lots and lots and lots of towns in a day and we need to be able to get beer to those towns and have it last long enough for them to drink it.”

Stephen Semple:
I hadn’t thought about that, Dave, and that’s a brilliant observation because when we think about the 1890s, people didn’t travel much.

Dave Young:
No.

Stephen Semple:
So the world view would be very small where he, as you said, has this traveler’s view, and look, even today, I think it’s real important to have a traveler’s view and look outside the world and see the other things that are going on and get different perspectives and look outside of your industry and outside of your city and to other places. It does change your perspective. This is even one of the reasons why, when we do our one days with people where we set that business growth foundation, that we have customers travel to us. Because even if it’s a place they visited before, that act of being in a different geography changes your perspective on things.

Dave Young:
It really does. It really does. And honestly, it also helps being an outsider. So it’s like if… I’m trying to think of a category I’ve never worked in. Let’s say plastic surgery, right?

Stephen Semple:
Okay.

Dave Young:
So if you’re looking to market your plastic surgery business, and if you’re thinking is, “I gotta find somebody that’s really good at marketing for plastic surgeons,” what you’re looking for is a recipe of sameness, right?

Stephen Semple:
Yes.

Dave Young:
You’re going to get marketing that’s just the same as all the others. If you’re looking for innovation, man, find somebody that’s never marketed plastic surgeons and can look at things differently and can say, “We think it has these parallels with this other business, this other industry that we’ve worked on,” or, “We just know how to implement innovation and can come up with something new for you.” I use that as an example because I see so much of it happening in medical fields. There are dentists that only believe that dental marketing companies started by a former dentist, that’s the only way to market a dental practice.

Stephen Semple:
Right.

Dave Young:
And sure, it probably works most of the time, but you’re going to look and sound like all the other dentists.

Stephen Semple:
Yeah. We’re going to be now north of 70 podcasts, and how many of those, the core of the story is somebody who is an outsider? Almost all of them.

Dave Young:
Almost. That’s even advice I give business owners is, “Man, don’t go to your national convention, your industry convention to look for innovation. Go to something else,” right?

Stephen Semple:
Well, exactly right.

Dave Young:
If you’re a plastic surgeon, go to a roofing convention. Go somewhere in some place that you have no idea what they’re talking about. You will find something that you can apply.

Stephen Semple:
Absolutely. Ask yourself this question. When you see something that someone else is doing in another industry, using your example of, “I’m a dentist and I go to a roofing convention,” it’s really easy to look at that and go, “Well, I’m not a roofer, so I can’t do that,” and that shuts the brain down.

Dave Young:
Yeah.

Stephen Semple:
The more interesting question to ask yourself is, “Given I’m a dentist, how can I apply that?” And that opens the brain to going, “Well, I could use this and I could use this and I could do that,” and that’s where innovation comes from. It’s asking yourself that question, “Given that I am this, how can I apply that?” Or, “Given that I’m in this town, how can I apply that?” The moment you go, “Well, I can’t do that because of this,” it’s like the brain goes, “Okay, don’t have to think about that any longer. Done. Shut down.”

Dave Young:
Yeah. Pabst Blue Ribbon.

Stephen Semple:
There you go.

Dave Young:
I was going to say, “I may have to go grab a cold one right now,” but we’re recording this at eight o’clock in the morning. I don’t know.

Stephen Semple:
Great way to start the day.

Dave Young:
I suppose. Thank you, Stephen. I enjoyed this one.

Stephen Semple:
Thanks David.

Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review, and if you have any questions about this or any other podcast episode, email to questions@theempirebuilderspodcast.com

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