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Yuengling says Pennsylvania business climate not so friendly

| Tuesday, Oct. 9, 2012
Bloomberg News
Bottles of lager move through the assembly line at the Yuengling brewery in Pottsville, Pa. (Bloomberg News)

Despite Yuengling's double-digit growth rate, a slew of unserved states still clamor for its beer.

Soon, some states could be competing for the honor of hosting the Pottsville beermaker's next brewery.

Last year, America's oldest brewery became the nation's largest American-owned brewer. With a move into Ohio last year, D.G. Yuengling & Son's sales rose to about 2½ million barrels — enough to eclipse Boston Beer Co.'s Samuel Adams brands.

Owner and President Dick Yuengling Jr. said he intends to keep growing the seven-beer brand.

Sales could approach 3 million barrels by year's end.

To keep growing, it's all but inevitable that Yuengling will have to build another brewery, perhaps within two years. “We feel very fortunate, and we just want to keep growing,” Yuengling said.

The once-foundering, family-owned company turned out just 137,000 barrels in the first year following Dick Yuengling's 1985 purchase of the brewery from his father.

Unfortunately, Yuengling said he doubts he will build the brewery in Pennsylvania, even though a Western Pennsylvania location would be perfect for the brand's continued westward expansion.

The decision comes down to taxes, incentives and the state's business climate, Yuengling said. Yuengling hinted that there are far more business-friendly states.

And while he didn't directly criticize any Pennsylvania administration, past or present, he said he can never be certain which way the state is leaning in terms of its tax and business policies.

He said enticing incentives offered by other states might be too good to pass up. He declined to cite any states he might be considering

As for the Keystone State, which remains home to Yuengling's original Pottsville brewery as well as a second, much larger facility opened nearby in 2002, he said: “Pennsylvania is a great location. But it's not very business-friendly. You look for fair tax breaks, fair taxation. And the bottom line is more jobs.” That's what it's all about.”

A new brewery would solve a familiar and recurring problem for the company. Namely, too much demand and too little beer.

Yuengling's rapid growth created severe beer shortages in the 1990s.

The company remedied the situation, if only temporarily, by building the Mill Creek brewery near Pottsville and purchasing a former Stroh's brewery in Tampa around the same time.

In 2010, the company competed to buy a vacant brewery in Tennessee but couldn't reach a deal for what Dick Yuengling considered the last viable existing facility available.

Instead, the company expanded the Mill Creek facility and the Tampa brewery, upping capacity to nearly 3.5 million barrels.

That's probably enough to serve Yuengling's current 14-state footprint fornow. But sales are growing at 17 percent annually, and Yuengling's market share remains in the single digits in every state but Pennsylvania, meaning the company has plenty of room to rise.

Beer wholesalers in surrounding states continue to clamor to carry its product. In other words, the upside is huge.

To meet some of this relentless demand, Dick Yuengling said he would begin to look seriously at building a brewery later next year.

His overriding concerns are to feel comfortable that the company's sales trajectory can be sustained and to become convinced that a new facility can be adequately staffed and properly managed.

“Show me success,” Yuengling said of the factors influencing his decision. “Then we'll take a look. I'm willing to do it if I'm convinced I could get the workforce. You've got to make sure you have the personnel to run it. That's the big challenge.”

What seems nearly unlimited is Yuengling's growth potential.

“We have a long way to go,” Yuengling said, noting the 30 percent to 40 percent market shares still commanded by the likes of internationally owned Anheuser-Busch and Miller-Coors.

Meanwhile, Yuengling barely breaks 13 percent of the market in its own backyard and single biggest market — Pennsylvania.

“But the trend lines in all markets are up,” he pointed out.

As long as the company can make enough beer.

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