A Beer Tale: Pilsner Urquell's formula for success

July 22, 2013: 8:28 AM ET

How the iconic brand won back U.S. fans by making the product more exclusive -- and better tasting.

By Beth Kowitt, writer

ImageFORTUNE -- The Pilsner Urquell brewery in the Czech Republic is a regular stop for beer aficionados. Visitors make their way down to the cellars to drink beer out of wooden barrels. It's a place where people fall in love with the beer, says Pilsner Urquell brand manager, Chad Wodskow.

The problem for SABMiller (SBMRF), which owns the brand, is that people would come back to the U.S., buy a Pilsner at their local bar, and accuse the company of bringing over a different brew. SABMiller is one of the parent companies of MillerCoors, which imports the beer into the U.S.

The very qualities that made Pilsner Urquell easy to drink made it hard to export. The balance between the malty sweetness and the bitterness of its locally grown Saaz hops gives the beer its unique flavor. But the properties that create that malty sweetness make it a delicate beer and therefore difficult to transport. In the 90 days required for shipping to the U.S., the beer developed a bitterness that the beer sampled at the brewery in Pilsen, the beer's namesake city, didn't have.

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Three years ago, Tom Cardella, president of MillerCoors's craft and import division, Tenth and Blake, gave Wodskow and his team the mandate to fix Pilsner Urquell -- a storied brand that had lost some of its luster. According to folklore, in the 1830s the citizens of Pilsen got so upset with the quality of the beer that they dumped it in the streets in protest. The city built a new brewery, brought in a new brewmaster, and drank the first batch of Pilsner Urquell in 1842. The same formula has been used ever since.

Cardella's team understood it had to act if it wanted to prevent the modern day equivalent of the 1830s beer-dumping episode. "We knew we needed to look at the supply chain process differently," he says.

Wodskow had a breakthrough when he met with the management group opening up Hospoda, a Bavarian restaurant in New York City, that wanted serve Pilsner Urquell -- but only if it tasted the way it was supposed to. With Wodskow they came up with the idea of shipping the beer in refrigerated containers. They decided if you could ship meat that way, why not try it with beer? "There was no deep scientific method," Wodskow says.

The company also tested brewing Pilsner at the brewery in Pilsen, putting it in a tanker, and letting it age during transport, so it would be fresh, finished beer by the time it reached the U.S. The team ultimately found that the quality wasn't as good as when using the refrigerated-shipping strategy.

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The beer shipped through the revamped system began selling inĀ 2011 in New York as a test market. Sales improved 25% without advertising the changes. With that evidence in hand, Wodskow asked Cardella if he could redesign the entire supply chain with the refrigerated shipping, which would cost 50% more.

The alterations would also mean distributors would have to refrigerate the beer in their warehouses and change the levels of inventory in stock. They'd move to a just-in-time model, ordering beer more frequently and keeping less beer in the warehouse at any given time.

Wodskow wanted to make sure customers were getting the freshest beer possible, which led to his other big request of SABMiller management: to let him remove Pilsner from accounts that weren't going through a keg a week and switch them to cans or bottles. In the end the team closed about 25% of the on-premise accounts, leaving them with about 1,500 draft accounts.

Wodskow acknowledges that the strategy was counterintuitive. "We're going to spend more on the beer and sell a lot less of it, which is really the worst idea," Wodskow says. "It was a little bit controversial," Cardella adds with a laugh.

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To get the word out, quality managers drive around in three Mercedes Benz Sprinter vans fashioned inside with old beer kegs as tables and the Pilsner Urquell signature fountain. The vans drive around to different retailers to tell the Pilsner story, demonstrate how to correctly pour the beer, and show off the improved product. Account managers now make sure bars are cleaning the lines to the keg properly, serving the beer in their glassware (a proper Czech mug), and using a glass rinser.

Because of the account closures, the company isn't selling as much Pilsner Urquell as it did a couple of years ago, but the velocity has picked up in its existing accounts. The changes also allowed it to up the price of the beer between 10% and 30% depending on the market. "We're selling a little bit less beer," Wodskow says, "but making more money off of it."

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