FEATURE-Glass half empty for Germany’s proud beer industry

(Reuters) – Behind the pale
yellow walls of a former Benedictine monastery on a wooded hill
near Munich, the master brewers of Weihenstephan are still
perfecting their art after nearly 1,000 years of making beer.
Since Saint Corbinian and his monks first created a golden,
nourishing beverage from local hops, the world’s oldest brewery
has withstood fires, plagues, plundering foreign armies and
secularisation.Weihenstephan’s cosy brew house, dominated by four steel
vats of foamy brown liquid and infused with the sweet smell of
malt, embodies a proud beer culture that culminates every year
in Munich’s Oktoberfest folk festival – a 16-day homage to beer.Yet for many German brewers, the good times are over.A slump in consumption of more than a third in the last 25
years has hit Germany, Europe’s biggest beer producer,
triggering intense competition and price discounting.With young Germans turning to spirits and non-alcoholic
fruit drinks, beer sales fell 2 percent last year alone.Traditional family breweries, also under pressure from
double-digit rises in energy, glass and malt costs, are
struggling, some dying.”We’re in an extremely tough market,” Weihenstephan boss
Josef Schraedler told Reuters. “You can’t grow here unless you
lower prices or .. develop a cult brand and charge a premium.”Weihenstephan is shielded by its rich history and ties to a
prestigious brewing academy next door that helps innovation, but
Schraedler says the deteriorating market has become a threat to
small-to-mid sized brewers in towns across Germany.In a sign of how dire the market is, five domestic brewers
were fined this year for price fixing. In a bid to lift weak
exports, the sector is trying to get the famous purity law, or
Reinheitsgebot, put on UNESCO’s world heritage list. The law
prescribes beer’s four ingredients: malt, hops, yeast and water.Germany’s DBB beer association has sounded the alarm.”Beer risks becoming an outdated product,” it warned earlier
this year. Nowhere in the world is beer as expensive to make or
cheap to buy as in Germany. Nowhere does brewing make so little
money, the DBB says.In a country where songs praising the golden brew are part
of national culture, that hurts.Germans still drink more beer per head than anyone else in
the world, bar the neighbouring Austrians and Czechs.It is not uncommon, especially in southern Germany, to see
older men savouring a large beer at breakfast. Until recently it
was sold on factory floors. It was easy for breweries to grow
complacent.BRUTALAlthough craft beer is a growth market for small start-ups,
traditional family breweries have been hit hard.The number of mid-sized breweries, producing 5,000 to
500,000 hectolitres (roughly equivalent to a U.S. barrel), has
fallen significantly in the last 20 years, says the DBB. Among
those to shut in the last few years are Torgauer Brauhaus,
Schlossbrauerei Schwerin and Hofbrauhaus Bad Arolsen.Its fragmentation makes it a difficult market to dominate, a
deterrent for global majors. Of Germany’s almost 1,350
breweries, more than 900 produce just 5,000 hl a year or less.Only two international giants have a significant presence
here: ABInBev, which owns Beck’s – Germany’s top export
brand – and Carlsberg, which owns Holsten.Germany’s Radeberger Group, which owns Jever, Berliner
Pilsner and the Radeberger brand brewed near Dresden that was
considered the best pilsner in communist East Germany, sells the
most beer in Germany today.ABInBev is next, followed by Bitburger, whose domestic sales
are falling along with other lager producers like Warsteiner,
according to data from online trade publication Brauwelt.Two decades ago, German brewers were thriving amid booming
demand. But they missed trends, such as developing flavoured
beers, and did not invest heavily in emerging markets, says
Trevor Stirling, beverages analyst at Bernstein.”Day-to-day survival is so brutal that lifting your eyes and
looking at the rest of the world is hard. It’s not a trait that
comes easily to German brewers,” he said.Global players have struggled due to the complexity of the
domestic market and have been put off.ABInBev has no plans to invest further in the German beer
market. Sales of some of its German brands, including
Loewenbraeu and Spaten – big Bavarian labels linked to Munich’s
Oktoberfest – are stagnating.Beer’s allure is fading with the young. Bottled water
overtook beer as the most popular cold drink in 2002.”The image of beer in Germany has not been nurtured. Here
beer is something you take for granted,” said Schraedler of
Weihenstephan.An attempt by brewers to win world heritage status for the
Purity Law, issued at Weihenstephan’s doorstep in 1516 by Duke
Wilhelm IV of Bavaria, may help exports but is no panacea.”Achieving heritage status isn’t going to make an 18-year
old German drink a Veltins beer over a Bacardi,” said Stirling.NICHES AND EXPORTSIn a bid to move upmarket and charge more, some breweries
are trying to tap into growing demand for speciality beer.Stoertebeker, a producer in the Baltic port of Stralsund
named after a pirate who legend says walked past 11 men after
being beheaded in 1401, changed course eight years ago and
relaunched in 2011.Marketing chief Karsten Triebe told Reuters that the company
is now focused on higher-priced beers that “look, smell and
taste different” and go well with food.”We realised we wouldn’t survive in the long run without a
new concept,” he said.Helped by brands like Atlantik Ale with a citrus aroma, the
strategy seems to be working. Since the shift, sales are up 25
percent compared to a 12.5 percent fall for German brewers.Future success depends on the speciality beer niche which
could grow to some 10 percent of overall demand from 1-2 percent
now, says Triebe who wants others to help expand the market.Given weakness at home, exports are another option. But many
brewers missed that boat when times were good and there was no
incentive to look abroad.”The complacency ended 10 or 15 years ago when breweries
realised the market was deteriorating. Now companies are turning
to exports but it is too late,” said Schraedler.Weihenstephan near Munich is an exception. Over the past 14
years it has expanded into 43 export markets, up from six,
allowing it to avoid the fate of struggling rivals. Growth last
year was down to exports, which now comprise 60 percent of
sales.The company, owned by the state of Bavaria, sees most growth
in the United States, especially in New York where its
traditional wheat beer is viewed almost as a speciality brew.
Other big foreign markets include Italy and Austria.Innovation has been another key to success since 1040, when
Abbot Arnold obtained a licence to brew and sell beer.Weihenstephan is home to a world centre for brewing
technology. Researchers at the institute, part of Munich’s
Technical University, work on finding high-quality hops and
yeast. They have even improved the taste of alcohol-free beer by
extracting the alcohol at the latest possible stage.”Who knows, but I hope we’ll still be brewing in 1,000
years,” said Schraedler.

(Reporting by Madeline Chambers; Editing by Noah Barkin and Tom

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