In 1907, Valentine Merz founded the Dixie Brewing Company in New Orleans. Merz permitted a few dozen—which soon grew to a few hundred—investors to join in his original enterprise. After getting through Prohibition by selling “Dixie near beers”, Dixie began an aggressive post-WWII marketing campaign in which it described itself as New Orleans’ friendly, slow-brewed made in New Orleans’ beer. This advertising campaign gave Dixie Beer (the signature brand) a peak market share of 32.1% of the New Orleans market in 1962.
Like many brands that rise from nothing more than mere start-up capital to occupying a niche in a city, this brand repaid it and then some. For those early investors in the closely held corporation that held their shares or otherwise kept them in the family, the distributions in the 1960s and 1970s alone were capable of paying for whatever they wanted out of life—new model automobiles, new construction houses, private school tuition, gilt-edged medical care, you name it, the dream could be fulfilled.
However, Dixie Brewing’s management made two mistakes during the 1970s and 1980s. They completely underwhelmed in their response to the infiltration of mass-produced beers, in particular Bud Light, and instead of ramping up their ad campaign that focused on local roots, they continued to make ever-growing distributions to its investors even as its market share in the community began to wane.
Eventually, borrowed money was used to pay the shareholders, and as Dixie’s market share waned, the company had to file for bankruptcy in 1989, had its intellectual property sold to Joe and Kendra Bruno, and then launched three new beer brands—Jazz Amber Light, Blackened Voodoo, and Crimson Voodoo.
The Brunos managed to not only rebuild the Dixie brands, but invested heavily to add the above-referenced new brands as well.
The problem? All of the brewing took place at a single facility on Tulane Avenue in mid-city NOLA which was flooded when the levee broke during Katrina and was looted in the aftermath. To this day, there is no Dixie Brewing Co. in New Orleans, though some of the Dixie brands are still sold via a contract arrangement in which a Wisconsin craft brewer makes Dixie Brewing products and ships them to New Orleans to sell under the Dixie label. This generates a fraction of the growth and profits that would be available if Dixie had a production facility.
When I study companies for investments, one of the things I pay attention to are the “points of failure.” In recent years, as large companies are run largely by executives with textbook MBA experience rather than lifelong operational experience, there has been a shift towards consolidation of operations because producing 1 million widgets at a single location costs less than production 500,000 widgets at two locations.
But when operations are consolidated, the risk of harm that can occur is greatly increased, to the point where an entire business can be destroyed if all of its production is tied to a single geographical location. With something like Anheuser-Busch, there are 12 breweries throughout the United States. If disaster struck two of them, the other ten could ramp out production and stabilize the business during the period of tumult.
Physical disasters, both human and nature driven, will always be with us. In the short term, and even in the long term, a lot of money can be saved via consolidated operations. But it comes with a heightened risk profile. Dixie Brewing made so much wealth it changed lives of all of its investors throughout most of the 20th century. With a few tweaks, that story could have continued unabated throughout the 21st century as well.