Experts see hope for Iron City's survival

Friday, December 09, 2005
By Len Boselovic, Pittsburgh Post-Gazette

Pittsburgh Brewing may be bankrupt, but it still has a brand name that
could put it back on its feet, beer industry and marketing experts said
yesterday.

"It's a classic microbrewery masquerading as a big brewery," said Mark
H. Rodman of Beverage Distribution Consultants of Boston. "I would be
absolutely amazed if there isn't a white knight ready to rescue this
operation."

Many regional brewers have been muscled out of the market in recent
years, squeezed between large national and international brewers and
fast-growing microbreweries.

A few of the victims have found a way to compete and Pittsburgh
Brewing, which filed for bankruptcy protection Wednesday, may be able
to do the same, according to Mr. Rodman and others.

Pittsburgh Brewing Vice Chairman Joseph Piccirilli said he intends to
keep current management in place and possibly solicit new investors
rather than sell the company. Mr. Rodman and others said there are
several ways the 144-year-old, 200-employee Lawrenceville brewer could
reorganize.

One option is to become a "virtual" brewer: contract someone else to
brew Iron City and its other brands, leaving Pittsburgh Brewing the job
of marketing and distributing the beer. There is plenty of excess
capacity in the industry to make that possible, although that might
hurt its appeal in its hometown market, the industry sources said.

The model worked for Pabst, once a major national brewer that's found
new life by having SABMiller brew its beer.

"Pabst has managed to do something with Blue Ribbon. Oddly, after they
closed the brewery, it attracted some appeal," said Peter Reid, editor
of Modern Brewing Age, a trade publication.

That option would eliminate more jobs than others. One model for
preserving jobs is offered by City Brewing in La Crosse, Wis. When
Stroh's shut down the former G. Heileman Brewing Co. plant in that
city, its managers enlisted investors who helped them reopen the
brewery, even though they did not own Heileman or other branded beers.

City Brewing began operations in November 2000 with about 35 employees.
Today, it employs between 250 and 300 and produces 1.8 million barrels
annually, said brewmaster Randy Hughes. City Brewing's own beers
account for only 2 percent of production. The rest comes from contract
brewing. The company makes Smirnoff Ice, Mike's Hard Lemonade, Arizona
Teas and energy drinks.

"We're fortunate. It's been tough," Mr. Hughes said. "You have to be
open to be doing contract volume."

Unlike City Brewing, Pittsburgh Brewing has branded products that some
brewer may want to add to its portfolio, said Peter Boatwright, a
Carnegie Mellon University marketing professor.

"Branding in the beer industry is extremely important," Mr. Boatwright
said. "When people are buying beer, it's not simply the taste of the
liquid they're buying. They're getting emotion and image in addition to
the content of the bottle."

Aluminum bottles introduced by Pittsburgh Brewing in 2004 have added to
the value of the brand.

"Iron City is a brand that has some cache, some equity," Mr. Reid said.
"Of all these kinds of defunct brands, Iron City might travel better
than some."

The major obstacle to any plan to continue brewing Iron City -- or
anything else -- at the Lawrenceville plant is its condition. Much of
the equipment is out of date and maintenance has suffered through more
than a decade of financial troubles.

"You'd have to literally rebuild the brewery," Mr. Rodman said.
"There's no way that facility can match up with other plants."

Some of the cost could be covered by reducing other costs, including
terminating a pension plan facing a deficit of more than $6 million.
Pittsburgh Brewing wants the Pension Benefit Guaranty Corp, the federal
agency that insures pension benefits, to take over the plan. Other
concessions could come from renegotiating a five-year labor agreement
ratified in June.

The legacy of financial problems, poor equipment and ill will over the
$2.5 million in unpaid water and sewer bills that triggered the
bankruptcy are major obstacles for Pittsburgh Brewing. But industry and
marketing experts said the brewery still stands a chance because of
regional loyalty to the brand.

"If they can get enough local support and keep workers together, maybe
they can make it happen," Mr. Hughes said.


------------------------------------------------------------------------
(Len Boselovic can be reached at or
412-263-1941.)