Political Revolution, Emigration, and Establishing a Regional Player in Brewing: August Krug and Joseph Schlitz

Introduction

Brewing is surely the business most closely associated with German-American immigrant entrepreneurs, and the Joseph Schlitz Brewing Company was one of the most prominent and best known examples. This biographical case study, however, stresses that the success of immigrant entrepreneurs was not only related to a new type of (lager) beer and an intense knowledge transfer from Germany to the United States. Entrepreneurial success was also a result of a specific form of social organization among immigrants: while the dominant trend in late-nineteenth-century U.S. business favored managerial enterprises and corporations, German-American immigrants still used the family as a resource for managerial personnel. The Joseph Schlitz Brewing Company was the result of the work of three different families, closely connected by regional origins, marriage, and kinship. When Georg August Krug opened a saloon and a small brewery in Milwaukee in 1848–1849, he offered a service like that provided by hundreds of other German immigrants. Upon Krug’s death, in 1856, Joseph Schlitz, his bookkeeper, took over the business and eventually married Krug’s widow Anna Maria. Schlitz built the brewery into one of the larger local and regional players over the years before his accidental death in 1875, when it was taken over by his nephews, the Uihlein brothers. By this time it was a mid-sized firm, similar to dozens of others in the country, but Schlitz was poised to become one of the leading breweries and beer brands in the world.[1]

The First Movers: Krug and Schlitz in Germany and in the U.S.

At the beginning was the German revolution of 1848. Georg August Krug (born April 15, 1815 in Miltenberg, grand duchy of Hesse-Darmstadt; died: December 30, 1856 in Milwaukee, WI) was born the son of Georg Anton Krug (1785–1860) and Anna Marie Ludwig (1784–1864), who owned the brewery “Zum Weißen Löwen,” the predecessor of today’s Faust brewery, in Miltenberg.[2] This was a small and contested town at the River Main, which belonged until 1803 to the Electorate of Mayence (Mainz), became part of the grand duchy of Baden in 1806, was transferred to the grand duchy of Hesse-Darmstadt in 1810, and finally became part of the Kingdom of Bavaria in 1816. Georg August Krug worked in the family business but also became a member of a group of revolutionists surrounding a local doctor and farmer, Jakob Nöthig, who later emigrated to the U.S. after he was accused of being a ringleader (Rädelsführerei) of a local band of political agitators and other offenses against the Bavarian authorities.[3] Krug and his father were among the petitioners in Miltenberg on March 8, 1848 who demanded liberal reforms.[4] On the following day Miltenberg was shaken by protests and turmoil, and Bavarian armed forces reestablished order. Facing official prosecution, the younger Krug became part of the first wave of politically-motivated emigration.[5] He arrived in the United States in May 1848, where he used only his second name and where he was naturalized on December 15, 1854.[6]

In Milwaukee, at that time a preferred destination for the 48ers, August Krug established, probably with his savings, a saloon and restaurant on 4th and Chestnut Streets.[7] Far from Bavaria, he still managed to receive additional support from his family. First, his fiancée Anna Maria Wiesmann Hartig arrived from Miltenberg (Oct. 9, 1819–Jan. 20, 1887) and they eventually married—likely in 1849.[8] She was the daughter of Michael Wiesmann and Christina Schlohr, both from Miltenberg. Her presence allowed an expansion of his business activities. While Anna Maria Krug managed the restaurant, August Krug started a small brewing business at a nearby building at 420 Chestnut Street in 1849. Second, his father Georg Anton Krug arrived in the United States on October 25, 1850, accompanied by his grandson, 8-year-old August Uihlein.[9] Such visits were not without risk: the visitors travelled on the Helena Sloman, the first German steamship on the transatlantic route. It encountered distress at sea on November 28, 1850 and sunk. Nine people were killed, but the vast majority of the crew and the passengers, in total 175 persons, were rescued by the American ship Devonshire.[10] Georg Anton Krug lost a Bavarian beer pump, which went down with the wreckage, but he rescued $800 in gold (or $23,000 in 2010 dollars). This capital was invested into the brewery of his son and used to hire three additional employees, including a bookkeeper named Joseph Schlitz.

August Krug became a respected citizen. In 1850, his real estate property was valued at $1,600 ($46,100 in 2010 dollars).[11] His household consisted of five people: himself and his wife Anna Maria, two brewery workers (both from Bavaria), and a young 18-year-old women, probably a servant.[12] Krug was apparently a respected voice in his neighborhood, as his name was invoked in a newspaper advertisement for a local fireproof tile maker.[13] He could afford to visit Germany in 1855, where he was able to meet with his relatives again.

By the mid-1850s, Krug already saw himself as a competitor for preeminence with other German immigrant brewers in Milwaukee in particular the Best family and Miltenberg-born Valentin Blatz (1826–1894). However, he was injured in an accident late in 1856, when he tumbled down a hatchway, and passed away several days later.[14] The value of the eleven lots of real estate he owned was estimated at $20,050 ($532,000 in 2010 dollars). There were a total of $15,296.76 in claims and demands against the estate, including $276.50 owed to bookkeeper Joseph Schlitz (in 2010 dollars, equivalent to roughly $406,000 and $7,330, respectively).[15]

Anna Maria Krug became the sole owner of the Krug Brewery after her husband’s death. Two years later, in 1858, she married Joseph Schlitz, who at age 27 was twelve years her junior. While a later biography claimed that August Krug “had left definite instructions for the continuing of the business under the active supervision of his valued friend and employe[e], Mr. Schlitz,” there seems to be no direct evidence of this intention on August Krug’s part. Instead, this seems to have been a pragmatic decision reached by the couple together. Joseph knew the business, and he invested his savings to finance the small but steady expansion of the firm and received a free hand to operate it.[16] The “son-in-law” or “widow/faithful employee” relationship mechanism was and is quite typical for ownership transfer in family businesses, and had already been practiced in Milwaukee’s brewing business: when Johann Braun, the owner of the City Brewery, died in 1851, Braun’s widow Louisa married Valentin Blatz. The widow’s capital and the new husband’s business skills enabled the business to continue operating without disruption.[17] Although women played an important role in small businesses in the middle of the nineteenth century, such social mechanisms guaranteed that active management of mid-sized or larger firms by women was rare.[18] Nevertheless, Anna Maria Schlitz seems to have been independent: for example, in 1863, she visited Germany without her husband escorting her.[19]

Anna Maria Krug’s marriage to Schlitz allowed the brewery to retain a capable manager for the business. By the terms of her first husband’s will, after her death her share in Krug’s estate would pass on to his blood relatives, including his nephew August Uihlein. Anna Maria’s childlessness had been one reason for Uihlein’s migration.[20] Her property rights were to become important for strengthening the Uihlein dominance in the Schlitz Brewing Company. After Schlitz’s death in 1875, she lived a modest and reclusive life at the home they had shared on 11th Street in Milwaukee, attended by only one servant, a young woman from Prussia.[21] Like other Milwaukee elite members, she supported the Milwaukee Töchter Institut, founded by German immigrant social entrepreneur and early feminist Mathilde Franziska Anneke. However, not being active in business did not mean living without means: when Anna Maria Schlitz died in 1887, her estate was valued at $500,000 (or $11.8 million in 2010 dollars).[22] Anna Maria Schlitz was buried at Forest Home Cemetery in Milwaukee.

Joseph Schlitz (born May 15, 1831 in Mainz, Rhenish Hesse, Kingdom of Prussia; died: May 7, 1875 at sea), the namesake of the Schlitz brand, has often been presented as a successful visionary whose career as an American industrial titan was tragically cut short before accomplishing his greatest potential achievements. In this narrative, August Krug is often relegated to the role of an unimportant precursor. It is difficult to push back against such narratives that have been critical in shaping perceptions of nineteenth-century U.S. business history as a saga of intrepid leadership. Joseph Schlitz was indeed an important brewer and entrepreneur. But in fact the nationwide fame of his name owes more to the development of the brewing business under his successors, the Uihlein brothers, rather than his own accomplishments.

Schlitz was born on May 31, 1831, in Mayence (Mainz), as the son of Johann Schlitz, a cooper and wine trader, and his wife Louisa.[23] He was trained as a bookkeeper but also learned the basics of brewing in his parents’ milieu. With this he surely had good preparatory skills for a business career but it is highly doubtful that he received “an excellent mercantile education and decided financial ability.”[24] Joseph Schlitz arrived on June 15, 1849 in New York after a journey from Le Havre on the Charleston-based 600-ton sailing vessel Noemie.[25] He described himself as already a merchant and told the officials that he planned to stay in New York.

Instead, he went to Harrisburg, Pa., where he was probably engaged in managing a brewery.[26] He moved to Milwaukee and joined the Krug brewery in 1850. After his marriage to Anna Maria Krug in 1858, he renamed the brewery after himself in 1858. Well-known and respected as a shrewd businessman, he was able to enlarge his company and his private fortune. In 1860, with real estate valued at $25,000 and additional assets of $50,000 (roughly $675,000 and $1.35 million, respectively, in 2010 dollars), Schlitz was already one of the richest men in Milwaukee.[27] At that time, his household included his wife, two 26-year-old servants from Austria, and four young male immigrants from Bavaria, Hesse, and Baden, working as barkeeper, bookkeeper, brewer and in a beer hall. This was not a typical upper-middle-class household. Instead, Schlitz maintained the traditional German model of the Ganze Haus, in which an artisan and his apprentices lived under the same roof.[28] However, the success story was not a linear one. The 1870 census valued Schlitz’s real estate at $34,000 ($626,000 in 2010 dollars), while his additional assets had declined to $28,000 ($586,000 and $483,000, respectively, in 2010 dollars).[29] The Schlitz home now accommodated no fewer than sixteen people, fifteen of them of German descent, with only one U.S.-born servant. August Uihlein, at that time bookkeeper of the brewery, also lived under the Schiltzes’ roof.

Schlitz lived a scandal-free life. He tended to support the Democratic Party but was never a party man. He was a Catholic, a Mason, and a member of various lodges and associations, but these connections were apparently more important for business than for individual enlightenment.[30] Schlitz registered for military service at the beginning of the Civil War, but never saw active duty.

His growing wealth, together with his reputation as a trustworthy businessman, was crucial for attaining business positions that both aided his core brewing business but also provided opportunities for investing his profits. When Milwaukee’s Second Ward Bank was reorganized in 1866, Joseph Schlitz became a director alongside other brewers like Philip Best and Valentine Blatz, and it became known as “the Brewers Bank.”[31] The directorship carried innate prestige; indeed, in the first reports of Schlitz’s death he was described as “the President of a Banking Association in Milwaukee.”[32] Other business endeavors were closely related to his German-American community. Schlitz was a director of the “Northwestern gegenseitige Kranken-Unterstützungs-Gesellschaft,” a life insurance company initiated by some of the city’s most prominent German-American businessmen.[33] Such business endeavors were necessary as a civic answer to the severe lack of social insurance and public social subventions in nineteenth-century America. Citizens had to take care of their own risks, and ethnic communities and businesses strove to provide responses to such concerns. Schlitz was also secretary of the Brewer’s Protective Insurance Company of the West, which eventually became the Brewers’ Fire Insurance Co. of America.[34] Realizing the immense number of fires in general and in the brewing business in particular, this was a self-help solution that was necessary for both risk management and to protect a company’s capacity to grow.[35]

Schlitz died in one of the largest shipping disasters of the late nineteenth century. After an absence of 26 years, he was planning to visit his town of birth, Mayence.[36] The loss of the steam ship Schiller on May 7, 1875, off the coast of Cornwall, caused 335 casualties, including several prominent Milwaukee residents, and it was “painfully interesting to thousands of Milwaukee people.”[37] The Milwaukee Board of Trade passed resolutions out of respect in memory of Joseph Schlitz and German-immigrant merchant Hermann Zinkeisen, head of the commission house Zinkeisen, Bartlett & Co.[38] His body was never recovered, but a cenotaph was nonetheless erected at Milwaukee’s Forest Home Cemetery. His wife offered a $25,000 reward for the corpse, but it was never found. In 1880, a rumor that the remains had been discovered caused a sensation but in the end, it was discovered to be a hoax.[39] Schlitz had a life insurance policy of $50,000 (just over $1 million in 2010 dollars), a sum helpful for the further expansion of his brewery.[40]

Joseph and Anna Maria Schlitz remained childless, and in accordance with the unwritten laws of family businesses, the proprietor encouraged several relatives, in this case August Krug’s nephews, to join the brewing company and to be part of a profitable success story. Joseph Schlitz apparently accepted that his brewing enterprise would eventually pass to the heirs of his wife’s first husband, and in the early 1870s, Joseph Schlitz offered the Uihlein brothers co-proprietorship of the quickly growing business.[41] At the time of his death, Joseph Schlitz’s worth was estimated at $500,000 (or approximately $10.2 million in 2010 dollars).[42] He owned 3,250 of 4,000 shares in the Joseph Schlitz Brewing Co., which controlled the property that had once been August Krug’s brewery. His widow, Anna Maria, received a 50 percent stake in the brewery—or 2,000 shares—to be held in trust by the will’s executors. He bequeathed 550 shares to various friends and relatives. Seven hundred shares were left to his nephews by marriage, the Uihlein brothers, who already owned the other 750 shares.[43] (Although the Uihleins were not the blood relatives of Joseph and Anna Maria Schlitz, Joseph referred to them in his will as his nephews, suggesting that he had come to view them as family members.) Anna Maria Schlitz’s passive role was taken for granted and responsibility for the brewery passed to the Uihleins. More than three decades later, in 1907, the Uihlein family’s combined wealth was estimated in the millions.[44]

Business Development

Family businesses—and not anonymous corporations—were the most important institutions in the rise of modern industrial capitalism and for the creation of the modern world. Long before the emerging state and professional bureaucracies made business more or less predictable, families provided solutions to the most pressing problems of transferring power from one decision-maker to the next.[45] Family businesses generally have a quite simple hierarchical structure, which facilitates risk-taking and flexibility. Ties between family members are less formal and they are more likely to value cooperation, enabling the mobilization of capital and the creation of trustworthy relationships among the company’s decision-makers. The social dimension of the family creates trust and creates inherent sanctions which reduce some of the principal-agent problems found in managerial corporations. Reputation is a crucial factor for the self-esteem of the family, and product quality and good relations with customers are likely to be highly prized. Family businesses tend to strive for good relations with their employees, who are often encouraged to perceive themselves as members of the proprietors’ “extended” family. Finally, families act as socializing and educational agents, and the transfer of not only economic but also social and cultural capital is relatively easy within families.

American business historians, namely Alfred Chandler and his supporters, have argued that family enterprises lost ground during the late nineteenth century and were eventually displaced by modern managerial enterprises.[46] According to such arguments, the ever-growing need for capital, the increasing complexity of business, and the need for more neutral decision-making processes led to declining relevance for family businesses after the second half of the nineteenth century. Chandler’s analysis, however, was limited to the rise of a particular form of business organization, specifically large-scale industrial companies, and unfortunately he did not consider immigrant entrepreneurship as a variable of analysis (although he analyzed some companies founded and run by immigrant entrepreneurs).[47] In fact, the brewing industry in general and the Joseph Schlitz Brewing Company in particular are good examples of how important family businesses were in the nineteenth and in the twentieth century and how they helped families maintain a distinct cultural identity.

In the case of the Schlitz brewery, Chandler’s still-essential question: “Why did business firms change their basic strategies when, and in the way, they did?” must be answered not only by examining markets and technology but also by examining generational changes in company leadership.[48] The deaths of the brewery’s two dominating proprietors, Krug and Schlitz, made the transition easier and were—as a kind of creative destruction—helpful for the growth of the Jos. Schlitz Brewing Co.

Three Steps to Market Leadership

Until the 1870s, brewing business in Milwaukee was characterized by small, family-owned breweries, most of them founded by German immigrants: according to one account, “by 1860, two hundred breweries operated in Wisconsin, with over 40 in Milwaukee alone.”[49] Beer was either sold directly, in a saloon or restaurant, or delivered within a small local radius via horse-drawn wagons. The alleged higher quality of “German” beer was surely not the reason for so many German immigrants entering into the beer business—high-quality lager beer requires cooling and pure ingredients, and on a broad scale, this was not possible without innovations of technology and chemistry mainly in the 1870s and 1880s. The high percentage of Germans resulted first from the pre-modern legal structure of beer brewing in German towns: house ownership typically included the right to brew beer for private consumption, and thus a large number of citizens acquired the necessary craft skills. Second, the entry barriers for brewing were relatively low.

August Krug exemplifies this pattern; there was nothing special about his business. Milwaukee was founded in 1846 and grew quickly. The town’s first brewers were three Welsh immigrants who produced English-style ale, but Milwaukee quickly became a destination for German immigrants who established their own small breweries, including Jacob Best (1842) and John Braun (1846). Brewing was a way of making a living and was not yet an entrepreneurial pursuit. In 1850, Krug produced about 250 barrels (7,875 gallons or 29,810 liters), or approximately 21.5 gallons (or 82 liters) per day. His father’s subvention of $800 enabled larger production, but even five years later, the output was only 1,500 barrels, with an annual turn-over of around $1,500 (or $39,000 in 2010 dollars).[50] A report that Krug built the city’s first storage and cooling cellars at Third and Walnut Streets, the place where the later firm was erected, may be true, but he was just one among many other brewers and had neither a product nor a company distinguishable from others.[51]

The brewing business produced enough income for Krug to maintain a household for himself, his wife, and one employee, but not enough profit for him to make the large investments necessary to reduce his fixed costs and enable him to deliver throughout his potential urban market. However, Krug benefited from changes in the neighborhood. In 1852, a concert building was erected next to his establishment, where “for years concerts were given on Sundays with a glass of beer costing 5 [cents] while the music lasted and 3 [cents] after it had finished.”[52] It is highly unlikely that he made his profits from the brewery alone, but without reliable sources, it is impossible to determine exactly. Krug’s achievements were to establish a brewery, to enlarge it with the help of his father’s capital, to improve the storage facilities, and to broaden the company’s human capital by attracting talented young men from Germany, but he could never have anticipated anything like the later Jos. Schlitz Brewing Company, the world’s market leader in the early 1900s.

Joseph Schlitz took over the management of the brewery after Krug’s death in 1856. Although he invested his savings in the brewery, the scale of the business did not change drastically. Krug’s storage and lagering capacities of 2,000 barrels remained sufficient through 1862, when sales aggregated 1,605 barrels.[53] Schlitz’s brewery benefited from changes in demand during the Civil War and the rapid growth of Milwaukee’s population from 45,246 in 1860 to 71,440 in 1870. In 1865, 4,400 barrels of beer was sold, an amount sufficient to allow a significant profit to accumulate to fund new capital investment.[54] This wealth allowed Schlitz to become a bank director, giving him access to bank loans that could fund additional expansion and enabled the brewery’s transformation from a prosperous living into an industrial business with large profits. This took years—production in 1867 reached 5,578 barrels of beer—although Schlitz managed steady growth and capital accumulation. In 1871, Schlitz completed a new brewery at the corner of 3rd and Walnut Streets. While the building was relatively small—measuring no more than 40 feet wide and 100 feet long—it enabled a dramatic expansion in production capacity, from 8,700 barrels in 1870 to close to 50,000 barrels in 1873 and more than 70,000 in 1875.[55]

The standard explanation of this remarkable growth is that Schlitz donated “trainloads of beer” to the survivors of the October 8, 1871, Chicago fire and that this gesture enabled him to capture the Chicago beer market. This is nothing more than a marketing myth—although it is possible that the company sent hundreds of barrels of beer to Chicago for free.[56] The fact is that neither the Milwaukee nor the Chicago newspapers of 1871 and 1872 mentioned such a noble gesture, and the scale of its production was far too low for it to have made a significant contribution towards the city’s beer supply. Edward G. Uihlein, the brewery’s Chicago agent, did not mention any such support in his memoirs. Instead, he emphasized that the company found new business opportunities in Chicago after the fire, as the city had lost no fewer than nineteen breweries, and indeed the company sent him to Chicago in January 1872 in order to take advantage of such opportunities.[57]

The main reason for the brewery’s remarkable growth was its strategic decision to establish a shipping brewery with a large network of depots and agencies in the Midwest and far beyond. Other Milwaukee brewers had already made similar decisions: in Chicago, a large potential market with nearly 300,000 inhabitants in 1870, Fred Miller had already established an agency in 1867, while Blatz and Jung & Borchert both went to Illinois in 1870.[58] Chicago was not only a large beer market but even more importantly a railroad gateway.[59] The establishment of Schlitz’s Chicago agency in January 1872 recognized the marketing opportunity, but a drop in prices after many of the destroyed Chicago breweries had been rebuilt and the relatively small Milwaukee beer market demanded further market expansion: “We remained dependent on the establishment of further agencies all over the United States,” Edward Uihlein later recalled.[60]

Such expansion had to be financed: the incorporation of the Jos. Schlitz Co. was therefore a logical consequence of the decision to become a shipping brewery. Shortly before Christmas 1873, the Jos. Schlitz Brewing Company was incorporated with a capital stock of $400,000 (roughly $7.5 million in 2010 dollars), effective January 1, 1874. August, Henry, and Alfred Uihlein became board members and directors, accounting for their shares with a combination of cash and promissory notes.[61] With this move, Schlitz secured experienced executives and co-proprietors for the expansion of the business and gave the firm a more flexible capital structure. His will, in which he referred extensively to his wife, his brothers, and his nephews, clarified that he understood his firm as a family business.[62] Schlitz, who in the same year moved into his new $19,000 town residence, did not survive to harvest what he had sowed. However, together with the Uihlein brothers, he had created a business structure for the future. Schlitz’s achievements were the construction of a new large brewery, the establishment of a far-reaching distribution concept, and the formation of a group of high skilled executives from his own family who were able to manage the changes related to the corporation’s rapid growth. Krug and Schlitz were significant entrepreneurs, both as examples for other immigrant and as creators of a mid-sized brewery of regional importance. The third step to national and international market-leadership, however, was made by other family members, the Uihlein brothers.

Conclusion

August Georg Krug and Joseph Schlitz were significant immigrant entrepreneurs who managed to find not only a living in their new fatherland but made a fortune. They came to the U.S. for different reasons—as a political refugee and an economic fortune seeker, respectively—and were able to establish themselves in a new German-American environment. The brewery’s success story was possible because Anna Maria Krug Schlitz managed the transition of the brewery after Krug’s accidental death. Based on his training, Krug established a brewery sufficient for making a good living and served the ethnic niche by producing predominantly for his fellow German-Americans. Schlitz, by contrast, used his more developed organizational skills to upgrade Krug’s brewery into a midsized firm and sought out new customers among a larger American public. In turn, the business he established generated a fortune that provided a living to a larger number of other German immigrants. As representatives of chain migration from Bavaria, Krug und Schlitz are good examples for the potential of immigrants in circumstances friendly for business development and the introduction of new products, like lager beer.

Notes