7

A Public Company

In 1886, after a decade as the sole proprietor at St. James’s Gate, Sir Edward Cecil Guinness decided to take the Guinness company public, making it the first major brewing firm to be traded on the London Stock Exchange. By now, the company was producing more than a million barrels of beer annually, making it not only the largest brewer in Ireland, but the largest brewing company in the United Kingdom. In his 10 years as sole proprietor, Edward Cecil had grown the company by 56 percent, and in the 18 that he had been with the company, production had grown fourfold. This made the company an attractive candidate for a public stock offering.

Edward Cecil had probably discussed the idea of a public offering with Lord Rothschild of the Rothschild banking family as early as 1880, but finally decided to work with Edward Baring (Lord Revelstoke after 1885) of the Baring Brothers banking firm.

The share capital in the prospectus issued by Baring on October 21, 1886, consisted of 250,000 ordinary shares at £10, another 200,000, 6 percent cumulative preferred shares at £10 and 150,000 5 percent debenture shares redeemable at the company’s option in 20 years. One third of the ordinary shares were reserved for Edward Cecil Guinness, who would become the Chairman of the new company to be known as Arthur Guinness, Son & Company, Limited. Edward Cecil’s second cousin (and his wife’s younger brother), Claude Guinness, would serve as managing director. The corporate headquarters would be in London, rather than Dublin, to be close to the financial center of the United Kingdom.

The response to the prospectus was considerable. “Nothing within the memory of living man had been quite like it,” gushed the Daily News. “On Saturday morning Baring’s place was literally besieged. Special policemen kept back the pushing crowd of clerks, agents, messengers and City men, and pains were taken to have one of the swing doors only partly open, notwithstanding (or because of) whim one of the outer doors of Messrs. Barings’s office was broken.” The Times of London, meanwhile, called the response “extraordinary.”

The Economist, was a good deal more reserved in its careful analysis, observing on October 23, that “If instead of one year, take the average of say 10 years, and also calculate the present market value of the £6 millions of capital asked for, the calculation works out that £8.5 millions (of which £6 millions represents nothing more solid than goodwill) is being paid for a concern whose profits during the past decade have not averaged more than £380,000 per annum, which possesses no monopoly of any kind, and which is engaged in a branch of manufacture that, taken as a whole, has for many years been declining. The bargain, as we have said, seems to be a very dubious one, and it would not be at all surprising to find before many years are over those who have been so eager to embark on it lamenting their imprudence.”

The subscription to the offering outlined in the Baring prospectus opened on Monday, October 25, and was scheduled to close before 4:00 P.M. the following day. On that day, the offering sold out within an hour in London, much to the disappointment of potential customers in Dublin. Estimates of the oversubscription of the issue ranged from 10 to 30 times the £6 million offered. In fact, the amount applied for was £130 million. The £10 shared soared to nearly double and the debentures to £117.

At St. James’s Gate, the brewing staff received shares from Edward Cecil’s personal allotment, and other employees received cash bonuses. John Tertius Purser, on the eve of retirement, declined the shares offered him and took a retirement package totaling £217,196.

Now the richest man in Ireland and one of the richest men in the United Kingdom, Edward Cecil acquired a grand home at Grosvenor Place in London and began furnishing it with antique furniture and great works of art. On the philanthropic side, he provided £250,000 to jumpstart the Guinness Trust for housing of the poor and slum clearance in London’s East End. In Ireland, he founded the Iveagh Trust that funded the largest piece of urban renewal in Dublin, providing housing and amenities for the poor people in the city.

The success of the Arthur Guinness, Son & Company, Limited offering inspired a number of other public offerings by major British brewing companies. Within three years, Allsopp, Bass, and Whitbread had all gone public, although they were only among the first of nearly a hundred brewers to follow suit. The London financial community’s interest in brewers extended across the Atlantic. In 1889, a consortium of British financiers, doing business as Milwaukee & Chicago Breweries Limited, proposed a take-over and consolidation of the big three brewers in Milwaukee, the brewing capital of the United States. Captain Frederick Pabst and Joseph Schlitz, the largest two brewers, rejected the solicitation, but Valentin Blatz, another prominent name in Milwaukee brewing, parted with a share in his company. That same year, a British holding company also succeeded in consolidating no fewer than 18 breweries in St. Louis, Missouri, into an entity that would be called the St. Louis Brewing Association.

In Dublin, meanwhile, Chairman Edward Cecil Guinness was putting together his corporate board of directors, which included Claude Guinness, who succeeded John Tertius Purser as managing director. William Purser Geoghegan, the head brewer since 1880, who was Purser’s nephew and heir apparent, remained on the staff as head brewer. According to S. R. Dennison and Oliver MacDonagh’s Cork University Press study of the company in this era, he resented being passed over for managing director and resigned in 1897.

With the corporate headquarters in London, and with corporate chairman Edward Cecil Guinness resident there, the powerful role of the head brewer in Dublin became even more so. For all of the first two centuries of its operations, the person who held the title of head brewer held the most important post within St. James’s Gate. For the first 61 years, it was one of the two Arthur Guinnesses, and for nearly half a century thereafter, it was a Purser. As the center of gravity for the Guinness family moved to London, especially after incorporation, the power and authority of the head brewer only increased. He was the man in charge because he was on site at the brewery every day.

As Eibhlin Roche points out, “From Arthur Guinness’s time onward, the head brewer was ‘god’ in brewery. Each of the brewery departments, such as malt house, hops, brewhouse, fermentation and so on, had a brewer in charge, whose authority derived directly from that of the head brewer.”

In rare instances, when the head brewer was not on duty, the final authority lay with whomever he designated, with whichever brewer, or “gentleman,” was on duty. And gentleman he was, for the upper echelons of management were drawn from the upper echelons of society. The deification that Ms. Roche ascribes to the head brewer was actually not far from reality. In his book, A Bottle of Guinness Please, David Hughes quotes a pre-1939 foreman’s manual that states, “at crucial points in the process [the brewery staff] were to seek the authority of the Gentleman On Duty to proceed.” The manual, and presumably signs posted at the factory, used the initials for “Gentleman On Duty,” which carried the appropriate acronym: GOD.

This system of the head brewer as the omnipotent figure in brewery operations continued up through the middle of the twentieth century when disciplines other than brewing, such as sales and marketing, became just as important.

With Edward Cecil and Claude on the board were Reginald Robert Guinness, Claude’s older brother, and James R. Stewart, Guinness’s Dublin attorney. Edward Cecil had intended to retire in 1890, and he wanted the skilled and energetic Claude, then only 38 years old, to succeed him as chairman. However, Claude proposed that his older brother take the top job. When Claude resigned because of ill health in 1895, Reginald became both managing director and chairman until his own retirement in 1902 at the age of 60. Edward Cecil Guinness, now 55 and without a family member who wanted the job, resumed the chairmanship. C. D. LaTouche came in as managing director, and Edward Cecil’s younger son Ernest was named as assistant managing director.

One of Claude’s most important initiatives was the introduction of scientific brewing techniques. Phrased so colorfully by Dennison and MacDonagh, “At the time of incorporation, the brewery was virtually innocent of scientific knowledge of brewing, and remained so until 1893 when the recruitment of science graduates as brewers started.”

This isn’t to say, however, that a chemistry degree was an obvious essential for a brewer. The art had been mastered by thousands of brew masters through the centuries who intuitively comprehended the craft well enough to produce excellent beer. The basic chemistry and biology of brewing and fermentation had been well understood since the dawn of civilization. Though this chemistry and biology was not articulated in modern scientific terms, brewers had always followed the scientific method. They developed and documented a procedure by which they could achieve a desired result, and they repeated the same procedure to achieve the same desired result again and again. In the late nineteenth century, modern science had been applied to brewing science by only in a handful of laboratories in places such as Copenhagen and Munich.

The first modern scientist whom Claude brought on board was the Oxford-educated chemist, Thomas Bennett (T.B.) Case, who was sent to Copenhagen to study brewing science. Meanwhile, a second Guinness chemist, Alexander Forbes-Watson, developed a method of recovering beer at the bottom of vats that had previously been wasted. He also undertook studies ranging from drying methods for yeast to understanding the color imparted by malt roasting.

In 1901, Forbes-Watson established the first Guinness research laboratory, an experimental brewhouse, and an experimental malting facility. An important member of his staff was young Alan McMullen, who would head the Guinness research department after World War I. Forbes-Watson, more than anyone else, was responsible for the transformation of St. James’s Gate into a state-of-the-art twentieth-century brewery. He remained an essential part of the team until an accident caused his death in 1909 at the age of 37. One important result of the scientific work early in the century was in the area of malt wastage. While beer production increased 92 percent, malt consumption increased by just 85 percent.

Another important scientific project undertaken shortly after the turn of the century was to work with the Irish agricultural community to develop a strain of domestic barley that would be ideal for Guinness maltings. At this time, half the barley was imported from England, up from 30 percent in the 1880s. From a logistical point of view, Guinness wanted to use Irish barley, but English barley was of a higher quality while barley was a relatively negligible crop in Ireland. Only 8 percent of the acreage devoted to barley in the United Kingdom was in Ireland. To address the barley issue, Guinness consulted with and supported the Irish Agricultural Organization Society, a scientific think tank created in 1894 to promote Irish agriculture. In the end, new strains were developed that revolutionized barley farming in Ireland and reversed the downward trend in Guinness’s purchasing of domestic grain.

By the turn of the century, Guinness directly employed more than 3,000 people, with an additional 10,000 persons indirectly dependent on the St. James’s Gate Brewery. Meanwhile, Guinness was well ahead of other large U.K. industrial firms in terms of wages and benefits. Indeed, salaries were always 10 percent to 20 percent higher than the Dublin average. Among the benefits were a company-sponsored medical plan—there had been a free medical dispensary at St. James’s Gate since 1870—and pensions for widows and orphans. The medical plan was extraordinarily well administered by Dr. John Lumsden for half a century.

During this period, Arthur Guinness, Son & Company, Limited eclipsed all others to become the largest brewing company in the world. Annual output increased to 1.58 million barrels in 1888 and to 2.08 million in 1899. By 1909, the volume was up to 2.77 million, and in 1914, on the eve of World War I, it stood at 3.54 million barrels.

Also during the first quarter century after incorporation, the relative market share of Guinness Extra Stout versus Guinness Porter was increasing. In 1888, Guinness Extra Stout amounted to 42.1 percent of total volume, but by 1900, it topped 50 percent for the first time, reaching 56.8 percent in 1910 and 63 percent in 1914. Around the turn of the century, the market share for Foreign Extra Stout remained between three and 7 percent, a third of which was shipped to Australia and a third to the United States.

In Ireland, meanwhile, a third of Guinness Extra Stout and more than 80 percent of Porter were sold as draught beer, while in England, most Guinness beer sold was in bottles. The largest bottler of Guinness within the English market, Mackie & Gladstone in Birmingham, did nearly £40,000 of business with the company in 1897, more than twice any other English firm and more than four times that of any Irish bottler.

In Britain, Guinness had a unique advantage at the pub level that it would continue to enjoy for more than a century. Most pubs in Britain, were and would continue to be, brewery-owned “tied houses,” meaning that they were “tied” to a specific brewery and sold only the beer brewed by that firm. Guinness had no tied houses of its own in Britain, and therefore it could be a “guest” beer at the tied houses of many different brewers, as well as at “free” houses that were not tied to a brewery. This allowed Guinness to expand to more pubs than other beers, and it could be done without the company having to bother with the business of operating pubs.

After the turn of the century, Guinness exports rose steadily. In 1888, 70.3 percent of Guinness production was still sold in Ireland, but this dropped to 66 percent in 1905 and less than 62 percent in 1910. By 1914, only 57.3 percent of the beer brewed at St. James’s Gate remained to be consumed in Ireland. This was despite the fact that the Guinness market share in Ireland rose from 65 percent to 80 percent during this same period. Meanwhile, Guinness share of the total U.K. trade increased from 5.7 percent to 10.3 percent.

One of the changes made in Guinness marketing after incorporation was the move toward using company-owned stores rather than agents in key markets. This had always been the case in the Dublin metropolitan area (a 10-mile radius from the General Post Office), and John Tertius Purser had long advocated doing it elsewhere. Stores were opened to replace agencies in Cork in 1891, Belfast and Carlow in 1893. The following year a store opened in Glasgow, Scotland, followed by one in Cardiff, Wales in 1896. In the English market, stores in Manchester and Newcastle were opened in 1898.

It is important to note that the growth of the brand during the years after incorporation was accomplished without advertising. Through the nineteenth century, Guinness advertisements had appeared only rarely, and Edward Cecil Guinness staunchly resisted the notion that Guinness needed to advertise. Aside from point-of-sale cards, it was company policy not to advertise in the core markets in the British Isles, and rarely elsewhere.

It would not be until the second quarter of the twentieth century that the company would fully embrace the concept of vigorous self-promotion. As we see in the following chapter, many of the export bottlers of Guinness beer filled the void in Guinness advertising by promoting their own brands, rather than the brewer who actually produced the beer.