Wealth bears a resemblance to the changing seasons—fleeting and unpredictable. One generation may accumulate vast riches while the next squanders them away. The key to long-term prosperity often lies in one’s perspective: whether they plan for the future or indulge in the immediate moment.
Consider whether one preserves the essentials for future growth, or consumes everything in a lavish celebration. Naturally, those who save for the next harvest will likely see their wealth flourish, though many are tempted by instant gratification.
Some individuals take reckless risks with their family fortunes. Instead of safeguarding their assets, they invest in dubious schemes aimed at rapid gains. These cautionary tales of failing fortunes often captivate us the most.
The June 21, 2014, issue of Forbes Magazine recounts the rise and fall of the Stroh family in the brewing industry. “It took the Stroh family over a century to build the largest private beer fortune in America,” reads the opening of the Forbes article titled, How to Blow $9 Billion. “And it took just a few bad decisions to lose the entire thing.”
How could a family, once blessed with luck for over a century, fall into such a predicament? This question prompts further reflection.
A Singular Insight
Mean reversion and the importance of sticking to proven strategies are vital lessons from the Stroh saga. Below, we explore some key anecdotes and takeaways.
Bernhard Stroh arrived in Detroit in 1850 with more than just hope and ambition; he brought along a prized family beer recipe from Germany along with the know-how to market it effectively. His sons carried on this tradition.
“In its first century, the Stroh beer business flourished by adhering to fundamental principles: respect your customers and your employees. Catering to the tastes of the Midwest working class at fair prices earned customer loyalty, while treating each employee like family fostered a committed workforce.”
Crucially, Stroh operated with a long-term perspective, steadily building wealth through the cultivation of a devoted regional customer base. Yet, inexplicably, when Peter Stroh became CEO in 1980, he opted to abandon this successful formula in favor of national expansion through acquisitions.
Stroh acquired Schaefer in 1981, followed by Schlitz the subsequent year. Although these moves seemed promising, “Forbes valued the company at $700 million in 1988, acknowledging the Strohs as one of America’s wealthiest families, shared among 30 relatives.” Sadly, these acquisitions sowed the seeds of their downfall.
Success Can Be Deceptive
The peak of the Stroh family’s fortune occurred in the late 1980s. The major flaws in the Schaefer and Schlitz deals were that they were financed through substantial debt rather than saved capital. Peter Stroh had, it seemed, overreached.
After servicing debts and operational costs, little marketing budget remained. An awakening moment for Peter came early one morning: attracting national customers can be costly, and unlike their regional counterparts, national consumers tend to be unpredictable.
The Stroh Brewery Company found it challenging to compete with the advertising budgets of mega-brands like Anheuser-Busch and Miller. In 1989, layoffs began, leading to a decade of relentless efforts to revive the business. Yet, each attempt to salvage the company only brought on more losses. By 1999, the 150-year-old Stroh family beer legacy was sold off at discounted prices.
Today, the Stroh family’s business empire has vanished. “While the fifth-generation Strohs still enjoy some comfort, it seems history is destined to repeat itself, potentially leading to a shirtsleeves-to-shirtsleeves scenario within six generations.” In other words, the Stroh family has reverted to the mean…
“While establishing a lasting family business is a daunting feat, it can be surprisingly easy for successors to dismantle it.”
This principle applies to nations as well.
Sincerely,
MN Gordon
for Economic Prism
