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Originally published January 10, 2013 at 7:34 PM | Page modified January 10, 2013 at 10:20 PM

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Yuengling beer sales foam in a flat market

Dick Yuengling bought D.G. Yuengling & Son from his father in 1985 and built it into the maker of the country’s best-selling craft beer brand.

Bloomberg News

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POTTSVILLE, Pa. — As a teenager stacking barrels after school at his family’s brewery in Pottsville, Pa., Richard “Dick” Yuengling Jr. was encouraged by plant workers to avoid a career in the family business. America’s taste for national brands such as Budweiser, Coors and Miller, they said, was going to put them all out of a job.

Undeterred, Yuengling bought D.G. Yuengling & Son from his father in 1985, and built it into the maker of the country’s best-selling craft beer brand. As the company’s value soared in the past decade amid a surge in demand for craft brews, Yuengling became a billionaire.

“We stay nuts and bolts — we make beer,” Yuengling, 69, said in an interview last month at his brewery in Pottsville, an old coal town 75 miles northwest of Philadelphia. “People pick up our products today because they are tasteful and they have character.”

D.G. Yuengling & Son sold more than 2.5 million barrels of beer in 2011, a 15 percent increase from 2010, according to the company. Its flagship offering, Yuengling Traditional Lager, a medium-body brew, was the best-selling super-premium beer and the15th most-popular beer total in the U.S. in 2011, according to industry researcher Beverage Information Group.

The lager and five other beer varietals helped Yuengling pass Boston Beer, the maker of the Sam Adams brands, as the largest U.S.-owned beer maker by volume sold in 2011.

“Dick is an American original,” said Jim Koch, CEO of Boston Beer. “For years, people thought they were smarter than Dick and told him to do things differently. He never did, and for 27 years he has proved them wrong.”

Yuengling said the company has little debt and keeps its marketing and distribution costs lower than most of its peers by having a smaller geographic footprint — its beers are only available in 14 states — and selling more draft beer, which has bigger profit margins and constitutes 30 percent of its business, three times the industry average, according to Yuengling.

Based on the company’s stated 2012 production of 2.9 million barrels and the enterprise value-to-earnings before interest, taxes, depreciation and amortization multiple of Boston Beer, closely held Yuengling is valued at $1.8 billion, according to data compiled by Bloomberg. Enterprise value is defined as market capitalization plus total debt minus cash.

Together, Belgium-based Anheuser-Busch InBev, which sells more than 200 brands, and MillerCoors, a 70-brand joint venture of London-based SABMiller and Denver-based Miller Coors Brewing, control almost 80 percent of the U.S. beer market, according to data compiled by Bloomberg. Imported beer accounts for about another 14 percent of the business. Yuengling and other craft breweries make up the rest.

“The industry isn’t growing so much, so the gains that the Sam Adams and Yuengling brands are making are coming out of someone else’s pocket,” said Kenneth Shea, a beverage-industry analyst with Bloomberg Industries.

While U.S. beer consumption fell 1.3 percent in 2011 to 2.78 billion cases, the super-premium, craft beer and malt beverage segment grew almost 8 percent, according to Beverage Information Group. Wine grew 3.1 percent and spirits grew 3.4 percent in the same period.

To counter the rise of brands such as Sam Adams and Yuengling, beer makers are buying or creating their own craft beers. In 1995, MillerCoors released Blue Moon, a medium-bodied fruity beer often served with an orange slice. Sales of Blue Moon increased 21 percent in 2011 to narrow Yuengling’s sales lead to about 935,000 barrels.

Yuengling’s roots in the U.S. date to 1829, when his German immigrant great-great-grandfather, David G. Yuengling, built a brewery in Pottsville to serve the region’s expanding German beer-drinking population. His first year of production yielded 600 barrels.

Dick Yuengling began working part time at the brewery with his father and grandfather five years later in the 1950s.

During World War II, brands such as Budweiser and Coors began using less grain in their beers as the U.S. government rationed commodities for the war effort.

After the conflict, they didn’t restore their recipes because their customers liked the lighter beers. Yuengling was getting bypassed in the market.

“We were out of business and too dumb to know it,” Yuengling said. “All the breweries in the ‘60s and early ‘70s were going under.”

In 1985, he sold the distribution company and purchased the company from his father for an undisclosed sum.

Two of Yuengling’s four daughters, Jennifer and Wendy, hold management positions at the company. He hopes a third, who clashed with him much like he butted heads with his father, will return to the business too.

“We put ‘American-owned, family-operated’ right on the case. And you know what? It means something to some consumers,” he said, a smile emerging as he pulled a drag from his cigarette.

“It doesn’t mean something to everybody. But they are anti-corporate America, the younger people today, and maybe rightfully so.”

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