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The Corporate Threat to German Beer

Corporate takeovers threaten German beer

Recent corporate buyouts of German brewers are casting a dark cloud over German beer and raising fears of a meltdown in the world of German beer.

Germans have a strong history of loyalty to their local brewer. Most breweries in Germany have historically been small, family-owned businesses serving mainly their local town and the nearby areas. Most of them still are. Almost every town has at least one brewery. This has meant that small brewers have been insulated from significant competition and takeover by larger conglomerates and multinationals who regard the German beer "market" as too "fragmented" to easily penetrate. The typical, small, German brewery has enjoyed a virtual local monopoly, shielding it from outside competition.

In 1990, Germany had 1178 of the 1378 independent breweries in EU member countries (over 85% of the EU's total), compared with 37 in France and 105 in Great Britain [1]. The German brewers were typically much smaller, each producing on average 78,800 hectolitres per year compared with 571,600 hl in GB, 565,000 in France and 731,100 hl in Ireland. Heineken and Kronenbourg alone produced 70 million hl per year compared with 93m hl for the whole of Germany. [2]

In recent years, however, this has begun to erode, with increasing concentration of ownership. German breweries are increasingly being bought out by larger German companies and by foreign multinationals.

In 2001, the Dutch brewing corporation Heineken formed a new joint company called BrauHolding International AG, in conjunction with Bayerische BrauHolding AG, a member of the Schörghuber Corporate Group, with the new company owning 50% of Paulaner Brauerei and 62.66% of Kulmbacher Brauerei, which had already merged with all the other breweries in Kulmbach [3]. Together with Paulaner they got the brands Paulaner had already swallowed: Hacker-Pschorr, Thurn und Taxis and AuerBrau.

BrauHolding International also owns a slice of the Karlsberg Brauerei in Homburg. Heineken CEO Karel Vuursteen expressed the group's predatory instincts, saying "Currently the German beer market is fragmented with a large number of small breweries. This situation will not continue in the long term" [4]. The threat is clear: an increasing loss of German local brewers to international corporations. Heineken also acquired a majority holding in Austrian brewing group BBAG in 2003.

Interbrew, the huge Belgian brewing corporation that owns Stella Artois and Hoegaarden, followed Heineken into Germany and now owns a significant slice of the German beer market. In 2001 they aqcuired Diebels in Düsseldorf, the leading producer of Altbier, and Becks of Bremen. In 2003 they bought a majority share in the Munich-based Spaten-Franziskaner brewery group, which includes Löwenbräu.

This is in line with their strategy of buying leading brands in each country. Their strategy in Germany shows they want a big slice of the market in North German pils, Altbier, Weissbier and Munich lagers. Their German brands also include, Gilde Ratskeller, Dinkelacker, Hasseröder, Haake-Beck and St. Pauli Girl. In 2004, Interbrew merged with the South American brewing corporation AmBev to create a new multinational monster with the delightful moniker of InBev.

Concentration of ownership is happening within Germany as well as from foreign invaders. Brau und Brunnen, the largest brewing group within Germany with a capacity of 5.9m hl, lists as its brands: Berliner Pilsner, Brinkhoff's No. 1, Dortmunder Ritter, Dortmunder Union, Freibeuter, Gilden Kölsch, Jever, Küppers Kölsch, Kurfürsten Kölsch, Reudnitzer, Rostocker, Schlösser Alt, Schultheiss, Sion Kölsch, Sternberg, Tucher Bräu and Wicküler Pilsener.

German food group Oetker bought HVB bank's 62% stake in Brau und Brunnen in February 2004 for €220m. Oetker already own Radeberger Gruppe AG, previously known as Binding, which includes Dortmunder Actien-Brauerei (DAB), Berliner Kindl Brauerei, Radeberger Exportbierbrauerei, Krostitzer Brauerei, Binding-Brauerei, Henninger-Bräu, Erbacher Brauhaus and Allgäuer Brauhaus. Their brands also include Schöfferhofer.

Should we be worried about this? There might, at first sight, seem to be positive aspects. The move away from the fragmented, localised nature of German brewing is one of the reaons it is now easier to get Paulaner and other German beers in the UK, but if corporate German beers are crowding out independent German beers in Britain, choice will be narrowed. You can see a similar process in Belgian beer. A pub wanting to join the Belgian beer bandwagon is far more likely to opt for the usual inBev brands Leffe and Hoegaarden than interesting, quality beers. There is a similar situation for German drinkers. A friend of mine told me that when he visited Berlin shortly after unification, Berlin-based brewers were overwhelmingly dominant there. When I visited in 2003, the city was peppered with signs for Paulaner, Spaten, Franziskaner and many other non-local brewers. I saw more Berliners drinking Bavarian Weissbiers than Berliner Weisse.

In fact, the effect for consumers is likely to be a restriction of choice. Large corporations spend a lot of time worrying about shelf space. They want their beers to occupy as much of the shelf or bar as possible and in order to do so they need to have a range of beers rather than just one or two. The more beers you have in your portfolio, the more shelf space your beers occupy, the more likely it is that they'll end up in the customer's basket or glass. One of the reasons for Interbrew's purchase of Spaten-Franziskaner is that Interbrew (now InBev) can now occupy part of the shelves previously occupied by other companies' Weissbiers. Their next job is to expand their brand, and this means taking market share from other Weissbiers, inevitably putting some of them out of business, taking their slice of the market and reducing the range of beers available.

Large corporations care only about profit margins, expansion and market share. A quick scan of their press releases when they make new acquisitions makes this perfectly clear. They are not interested in the innovation that small brewers take pride in. We can see an example of this in the revival of the near-extinct Gose beer style around Goslar and Leipzig. A small number of breweries have started brewing this unique and quirky beer again after it nearly sank into oblivion in the late 20th century. Would a multinational have taken a risk on reviving a small local beer brewed with coriander and salt? It requires a great deal of imagination to picture it. The Belgian beer Hoegaarden is now owned by Interbrew, but it was Pierre Celis, an independent and skillful brewer, who created it and made it a success, kickstarting the rebirth of Belgian Witbier. To the CEO of a corporation, a brewery and its beers represent only another part of the company's brand portfolio.

Quality is another cause for concern. Smaller brewers usually have a pride in their product and in the art and craft of brewing. As an example, the modern-day descendant of the Wittelsbach royal family of Bavaria, Prince Luitpold, inherited a family castle at Geltendorf and the brewery that accompanied it. Roger Protz credits him with reviving the Bavarian Dunkel style of dark lager that "seemed on the brink of extinction". Roger's description of the meticulous brewing process and quotes from Luitpold on the relative merits of different shaped fermenters [5] are ample evidence of a commitment to quality rather than an unthinking devotion to the balance sheets of the accountants and economists.

The diverse nature of German beer production can be a mystery to foreigners. Jared Diamond, whilst not an economist by profession, follows the economist's myopic line of thought and completely misses the point, describing German brewing as "inefficient" because "The United States has 67 major beer breweries, producing 23 billion liters of beer per year. Germany has 1,000 major beer breweries [we might quibble with the definition of "major"], producing only half as much beer per year as the United States [so] the average brewery in the U.S. produces 31 times more beer than the average brewery in Germany." and "the German beer industry cannot profit from economies of scale." [6] This might be a reasonable argument if you ignore questions of quality. What use is high efficiency and productivity if the result is a bland, soulless beer?

It is true that "there is no national brand of beer in Germany, analogous to [Anheuser-Busch] Budweiser or Miller or Coors", but anyone who appreciates the quality of beer can only see this as a good thing: do we really want German beer to sink to the level of Anheuser-Busch "Bud"? The enormous growth in recent years of small-scale American craft brewers, brewing diverse, top-quality beers shows that quality will find a market. The best American beers come from brewers with relatively few economies of scale. Diamond should understand this, as he admits "the Germans make wonderful beer. Whenever my wife and I go to Germany, we take along an extra suitcase specifically for the purpose of filling it up with bottles of German beer, which we take back and dole out to ourselves for the year after each of our trips to Germany." Surely, therefore, it is worth paying more for a higher quality beer from breweries that don't sacrifice quality for economies of scale?

We shouldn't assume that beers owned by large companies are bad. The brewers are often the same individuals who ran the breweries before takeover, with the same knowledge, skills and pride in their beer. However, most people who work in part of a large organisation will know that the needs of the organisation as a whole, or the shareholders, will filter down into pressure on the smaller parts of the organisation. The accountants at the corporation's headquarters will have an eye to cutting costs to fund further expansion. Cutting costs usually means either paying lower wages, using cheaper ingredients or cutting down on lagering time. Either way, it's bad for the beer.

On the other hand, small and medium brewers are subject to their own economic constraints and there are certainly examples of independent brewers who cut corners or compromise the quality of the beer to pander to popular tastes and there are plenty now that list hop extract (Hopfenextract) as an ingredient instead of real hops. A recent article by Thomas Perera furnishes more examples of both independent and larger breweries cost-cutting to produce cheap, poor-quality supermarket beer [7].

Interbrew (InBev) has given recent evidence to worry about the future of the beers it owns. Despite their claim to be "the world's local brewer" they announced in September 2004 that their Boddington's Strangeway Brewery in Manchester is to be closed, with production of their keg beers moved to breweries in Wales, Scotland and Lancashire. The cask Boddington's is to be contracted out, probably to Hydes. The beer they heavily promoted as the "Cream of Manchester" is reduced to the state of a wandering nomad. Moving production of a beer can change the character of the beer because of differences in local water and local hop and malt suppliers as well as loss of staff and the expertise they take with them.

The same is happening in Germany. In 2004, the Danish brewing group Carlsberg bought Holsten Brauerei, giving it a huge slice of the North German beer market including Holsten's Astra, Lübzer, Feldschlösschen, Landskron and Duckstein "brands". As part of the deal, they sold König-Brauerei in Duisburg and Licher Privatbrauerei Jhring-Melchior in Lich to Bitburger. Carlsberg also own, since 1988, Hannen-Brauerei in Mönchengladbach. Carlsberg announced in July 2003 that they would sell the Hannen brewery to Oettinger Brauhaus GmbH and move the brewing of Hannen Alt and Gatz Alt to "another Carlsberg Breweries production facility" as "part of Carlsberg Breweries' strategy of concentrating production in fewer, more effective breweries", stating that it will increase Carlsberg's "ability to take part in the future consolidation in the German market " [8].

There is also an environmental cost to the concentration of ownership of breweries. When a small brewer distributes beer to the local area, the environmental impact is relatively low. Large distribution networks typically involve the transport of the beer from the brewery to a warehouse or depot from where they are sent on a further journey to the point of sale. This can involve the transport of a keg or case of beer to a warehouse 100 miles away then transported 100 miles back to a bar just down the road from the brewery where the beer started life. The distance travelled by beer from production to consumption is referred to as "beer miles", and is a significant indicator of the environmental impact of beer production because of the greenhouse gas emissions produced by the transporting of the beer [9].

What is to become of the small, local, German brewer? With these new megacorporations prowling the land, they can expect increasing competition from heavily advertised beers from a large company's "brand portfolio" to start making foothold in the towns and villages that have hitherto provided a secure base for them. No doubt these corporations will employ the same tactics we have seen elsewhere, cutting prices to drive out local brewers and increase market share. The huge brewing companies also tend to have a stranglehold on distribution networks. Small brewers are forced to rely on the brewing corporations to get their beer onto the shelves and into the bars, giving the corporations another stick with which to beat the little brewer. The vast majority of beer sold in Germany is in the take-home sector and this is where the small brewer is most vulnerable. Cheap supermarket beers can undercut quality local brews where consumers put price over taste.

Cheap, foreign invaders add to the threat. Beers such as Damburger Export, with its faux-German name and German-looking packaging claiming adherence to the Reinheitsgebot have an increasing foothold in the German take-home market. A closer look shows that it's actually from Martens in Belgium. A quick taste reveals it to be a cheap and nasty lager that's best avoided.

The decline of the British brewing industry throughout most of the 20th Century should serve as a warning. Between 1900 and 1939 the number of British breweries fell from 6,477 to less than 600 [10]. Although this was a period when there were moves toward prohibition, severe restrictions on pub opening hours and heavy taxes on beer, it illustrates the potential for decline.

German beer faces new threats, but it still has many excellent beers, and they won't all be swallowed up or pushed out of business by the big invaders; but the new threats mean there's a lot of work to be done. Germans will be faced with more beer choices as corporation "brands" arrive in their shops and bars. The only meaningful choice is an informed choice. Faced with a cut-price, cheap beer on the supermarket shelf, the German drinker will need to know why it's worth paying a few cents more for the craft-brewed beer sitting next to it, and why they should order a local Kellerbier instead of a heavily-advertised imitation Pilsner.

This seems an uphill task, when one considers that "the beer market continued its decline in 2002, dropping at its highest annual rate in more than a decade " and "Brewers marketing beer-based mixed drinks saw a 30 percent increase during the year " with a shift from beer to water, fruit juices and coffee [11]. The phrase "beer-based mixed drinks" refers to such things as Radler, Diesel and Weisse-Mix: bizarre and revolting mixtures of beer with industrial fizzy drinks such as cola, soda and orangeade — Germany's version of shandy and alcopop — a travesty of the much-vaunted Reinheitsgebot. This shows that Germany faces the same long, but enjoyable struggle as in the UK and USA to foment an informed appreciation of beer in the mind of the German beer drinker. Ron Pattinson provides a more detailed description of the gap in appreciation of quality beer [12].

The German beer world has not experienced the depths of degradation that precipitated the foundation of The Campaign for Real Ale in Britain, but the new threats to German beer and the new choices for drinkers mean the time for a German equivalent can surely not be far off.


[1] Deutscher Brauer Bund. 1990. 19. Statistischer Bericht 1990. Bonn. Cited in Pamela Camerra-Rowe (2004) Changing Patterns of Business Representation in the European Union. Paper prepared for the Biennial Meeting of the Council for European Studies, Chicago, IL, March 11-13, 2004. [http://politics.ucsc.edu/faculty/rschoenm/Camerra-Rowe%20Lobbying.pdf, accessed 27/09/2004]

[2] "Flucht nach vorn". 1990. Wirtschaftswoche, April 20, 1990, p. 224. Cited in Pamela Camerra-Rowe (2004) Changing Patterns of Business Representation in the European Union. Paper prepared for the Biennial Meeting of the Council for European Studies, Chicago, IL, March 11-13, 2004. [http://politics.ucsc.edu/faculty/rschoenm/Camerra-Rowe%20Lobbying.pdf, accessed 27/09/2004]

[3] Heineken N.V. (2001) Partnership with BBH. (Press release, 22 February 2001) http://www-nl.heinekeninternational.com/press/releases/nv/heineken_nv_with_bayerische_brauholding_ag.jsp, accessed 27/09/2004.

[4] Realbeer.com (2001) Heineken moves into German market. News article, 22 Feb 2001, http://www.realbeer.com/news/articles/news-001466.php, accessed 27/09/2004.

[5] Roger Protz (1998) The Taste of Beer. London: Weidenfeld and Nicholson, pp 210-213.

[6] Jared Diamond (1999): How to Get Rich http://www.edge.org/3rd_culture/diamond_rich/rich_p9.html accessed 28/09/2004

[7] Perera, T: Germans need CAMRA spirit. In CAMRA (2001) What's Brewing? September 2001, reproduced on http://www.xs4all.nl/~patto1ro/wbger.htm, accessed 27/09/2004.

[8] Carlsberg A/S: Carlsberg Breweries sells German production facilities. Press release, July 1, 2003 www.carlsberg.com/Info/frameset.asp?pUrl=%2FInfo%2FMedia%2FNews%2FPress%2BReleases%2F2003%2FHannenUK%2Easp , accessed 27/09/2004.

[9] Vaughan, A (1999) Bitter Harvest, Bitter Beer. London: Sustain (http://www.sustainweb.org/publications/downloads/ff_beer.pdf, accessed 28/09/2004).

[10] Brian Glover (1997) The Complete Handbook of Beer and Brewing. London: Southwater, p24.

[11] Probrewer.com (2003) German Beer Market: Slow Decline To Continue http://www.probrewer.com/news/news-002019.php, accessed 28/09/2004

[12] Pattinson, R: The Trouble With German Beer. http://www.xs4all.nl/~patto1ro/gersbeer.htm Website: accessed 29/09/2004.

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Last updated: 6th November 2004

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