A Busch brews again

Billy Busch wasn’t crying in his beer. He was crying for his beer — his family’s beer, to be specific.

Busch, the great-grandson of Anheuser-Busch founder Adolphus Busch, had never even worked for the family business — he’d only visited the brewery a few times as a child. His half brother August Busch III was the one who had run the company for nearly three decades. But in 2008, after AB sold itself to Belgian brewer InBev, Busch, 54, recalls feeling deeply troubled by the fact that for the first time in some 150 years the family would not be brewing beer. “I realized this could be it unless I stepped up to the plate and did something about it — that this would be final,” he says. “It was something I could not accept.”

So he did what you might expect someone named Busch to do: He started his own brewery. In 2009 he launched the William K. Busch Brewing Co. In a sudsy twist, he used part of the proceeds from the AB buyout to fund the venture — he’d inherited 400,000 shares from his father, August Jr. (known to everyone as Gussie), and didn’t sell any of them until the InBev deal. And because he had never been an employee of the family business — or what he refers to as “the company my family used to be associated with” — the merged enterprise (now called Anheuser-Busch InBev, or AB InBev for short) never asked him to sign a noncompete agreement. That freed Billy Busch to go head to head with the corporation that still bears his family’s name. In 2011 he and his team unveiled Kräftig Lager and Kräftig Light, premium lager and light beers that aim to take market share from the likes of Budweiser and Bud Light.

The Kräftig beers are not a vanity project, and this is not the story of a famous scion lending his name to a product for marketing clout. Busch is attempting to repeat history, growing a small local brewery into a dominant national brand, just as Adolphus and his heirs did more than a century ago. “We’re starting basically chapter two of the Busch brewing legacy with our company,” he says. One of the goals? For a new generation of Busches to reclaim their standing as the first family of beer. Busch declined to disclose the size of his investment in the venture, which is housed in a St. Louis office about 10 miles from AB headquarters.

From the outset Busch understood that pedigree was not enough. (Though he had never been a brewer, Busch wasn’t an industry neophyte: With brothers Adolphus and Andrew, he owned and operated two beer wholesalers.) He knew he’d have to do something different if he wanted to stand out. The number of U.S. breweries grew 15% between 2012 and 2013, driven by the surge in craft beer. But while craft — characterized by small batches and bold flavor — has generated a lot of hype, it’s still a small pour from the overall industry keg. Fighting with some 2,800 other U.S. craft breweries for 7.8% share, by volume, of the total market would never give Kräftig a chance of reaching the scope of the Budweisers of the world.

Rather than brew ales, which dominate the craft market, Busch decided to follow in the tradition of his family by going after the premium lager and light categories. Although those segments are shrinking, they are part of a category that makes up nearly 50% of the beer sold in retail by volume, according to IRI. If you want to have the biggest revenue potential, you have to compete in the biggest revenue segment, says Mike Brooks, the company’s executive director and a former longtime AB executive. Budweiser’s retail sales, after all, are bigger than the entire craft market’s combined. Brooks believes that a lack of flavor has driven people away from lagers, so he and the team wanted to develop a beer that had all its benefits — very drinkable, lower alcohol content, and lower calories — while having a stronger taste profile. (Kräftig means “strong” in German.)

Beer snobs often dismiss lagers as unsophisticated, but brewing that style of beer is incredibly demanding. Lagers must be kept cold throughout the fermentation process and cost more to produce, tying up the brewing system to the point where you can brew four times more ale than lager using the same equipment. Busch needed a brewmaster who had conquered these challenges, so he hired Marc Gottfried from local Morgan Street Brewery, which specializes in lager. Kräftig follows Reinheitsgebot, the German beer-purity law, which allows only four ingredients: hops, barley, yeast, and water.

Today Gottfried brews Kräftig in La Crosse, Wis., at a contract facility — he equates it with cooking out of a borrowed kitchen — but once the demand is there, Busch wants to build a brewery in St. Louis, a city the family has long called home. An accomplished polo player, Busch grew up riding horses at Grant’s Farm, the family’s 281-acre property some 12 miles southwest of the city, which Billy’s father opened to the public in 1954. The 12-bedroom home, which is off-limits to visitors, reflects the family’s glory days: Tiffany windows, a gun room decorated with mounted animal heads, photos of such regular guests as Frank Sinatra, John Wayne, and Yul Brynner. Until his parents divorced, Busch used to eat dinner with his family every night around the formal dining room table, where his dad regaled them with the daily happenings at the brewery. It was at the farm that Busch met his wife, Christi, who was working as a monkey trainer — he was in the elephant department. Today the Busches have seven children, ages 8 to 22.

St. Louis residents were among the loudest voices protesting AB’s sale to InBev. While some of the rhetoric displayed concern over a foreign buyer taking over an iconic American brand, locals were mostly worried about losing an important corporate citizen. AB “was so powerful in the city, they supported the city,” says Bill Schierman, Billy Busch’s head of marketing, who worked at AB for 29 years. “It was like our company. Then it all went away overnight.” Known for extreme cost cutting, InBev wasted little time in implementing layoffs.

The changes rattled locals so much that John Hummel, a St. Louis distributor of non-AB brands (now including Kräftig), noticed an uptick in his sales after the InBev deal. Of course, for all the nostalgia and lore about AB, not all was frothy at the beermaker at the time of its sale. Top brands had lost market share, and the stock had been stagnating when InBev swooped in with its $52 billion takeover offer. Counters AB in a statement: “Anheuser-Busch’s investment in and love for St. Louis is an immense source of pride for both our company and employees.”

St. Louis is still one of the most challenging markets in the beer business because of AB InBev’s dominating presence. In some ways that makes the city the perfect test case for the brewery. In the St. Louis area, the Kräftig brands now have 1% share overall by volume of beer sold in retail and 2.3% share in premium, according to IRI data, provided by Busch. Brooks believes that Kräftig is growing share at the expense of Bud. The company declined to disclose annual revenue. Busch and his team think that they could eventually hit 1% nationally if they can surpass 3% share in the St. Louis market.

Busch is a private man, one who has avoided the limelight. He knew he’d have to give that up if he was to become the public face of a brewery. “It was a little bit of a stretch for me, honestly,” he says. Busch says he’s willing to put himself out there to rebuild some of the family’s brewing legacy. “I think my forefathers — my father, grandfather, great-grandfather — would be very proud of what we’re doing with this company and where we’re going with it,” he says, “because I think all of them probably rolled over in their graves when the sale happened.” He’d love it if one of his children eventually got into the (new) family business. But for now there is, once again, at least one Busch running a beer company in St. Louis.

This story is from the May 19, 2014 issue of Fortune.

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