Fighting for survival?

Talk of consolidation in the German beer market has been going on for many years now, and while a certain number of major brewers have invested in the country – notably Interbrew and Heineken - the beer market remains essentially fragmented.

And that is not surprising, given that Germany currently has 1,291 breweries, three-quarters of all the beer makers in the European Union, with even the largest operators having nationwide market shares in single figures.

But is this fragmentation necessarily a bad thing? Market observers have suggested that the only way Germany’s brewers will be able to compete successfully in the future is by joining forces with foreign companies which have much more experience of export markets, but is this really the case?

Food and Drink Europe.com spoke to Erich Dederichs, managing director of the Deutschen Brauer-Bund or German Brewers’ Association​ to try and assess the current state of play in the German market and understand whether the future is likely to be gloomy or rosy.

“Is the arrival of international brewers such as Heineken and Interbrew a selling out of the German beer industry? I don’t think so,”​ said Dederichs. “Beer is an international product, and we have to expect that German beer will attract the interest of foreign companies, in the same way that German companies in other industries have invested in their foreign counterparts. The beer industry is no different to any other industry in that respect.”​

He continued: “We have over 1,200 breweries in Germany, and maybe 10 of those have foreign shareholders, so the German industry can be said to be in crisis in that respect. I personally think that interest from foreign companies is a good opportunity for many of our local and regional brewers to make their beers known to the rest of the world. It is an opportunity that should be embraced, not ignored.”​

Declining consumption​

Despite this upbeat attitude, Dederichs admitted that consumption in the German market had seen a decline in consumption in recent years, although this had more to do with changing demographics than with problems of over production or too many brands.

“Per capita consumption has fallen in recent years, mainly due to the fact that the population is getting older, and older people drink much less beer than those in the core 18 to 25 age group. There are other factors, too, of course. The drinks market is a mature market, and that means that any new products or companies have to get their market share by taking it from other drinks, and that includes beer. The health issue has also played a part - consumers have been swayed by claims that drinking beer makes you fat – as has the drinking and driving issue.​

But let’s not get overly concerned about this – per capita consumption in Germany is still 123.1 litres per annum, which puts Germany right up there with the Irish and the Czechs as the leading consumers of beer in Europe. Life is not getting easier, but there is no need to order the coffin quite yet.”​

Dederichs said the industry had reacted well to the decline in consumption, introducing new products in a bid to attract more younger drinkers. Pre-mixed ready-to-drink (RTD) products had been particularly successful, he said.

“These RTD products have been around for the last three years, although the idea of mixed drinks has existed for a lot longer than that. The idea of a wheat beer and lemonade [or radler] was first thought up in the 1920s, but until 1992 we were not allowed to sell these as pre-mixed products – barmen simply mixed the two drinks separately.​

A change of regulations in 1992 meant that the following year saw the launch of a number of pre-mixed products such as Altbier and cola or Kolsch and cola, depending on which region you were in. But 1998 was the first year we saw really new products, beer and other mixers, hit the market.​

“Most importantly, many of these products have been successful in bringing younger people back to beer, especially in the 18 to 25 age group. RTD products are really easy to drink, right out of the bottle, and younger people like that kind of convenience. Figures show that 70 per cent of the people drinking RTDs in this category did not drink beer before, so the rate of cannibalisation with existing beer drinkers is only 30 per cent. It is still too soon to tell whether these people will stick with beer as they grow older, but that is obviously what we hope.”​

There are other innovations which brewers have introduced to try and entice people back to beer, such as packaging and labelling designs, although Dederichs said that PET bottles were yet to take off in a major way. “They are perhaps safer and more convenient than glass bottles, but it is still hard to convince consumers that the beer in a plastic bottle will taste as good as it does in a glass one. Some companies have limited PET beer sales, but it is still only a marginal part of the German market.”​

While these measures have gone some way towards restoring the pride, if not necessarily the market share, of the German beer industry, there is still more than can be done.

“The RTD products show that German brewers can adapt to the demands of the market, but we need to do more of that in the future,”​ Dederichs said. “One of the major plus points about the fact that many German brewers are small local or regional players is that they are very close to their customers. If someone wants a relatively small quantity of a certain type of beer, then they can usually fill that order, and this adaptability could be a major advantage for our industry.”​

Co-operation needed​

But Dederichs continued that many of these smaller brewers could fare even better if they buried their traditional rivalries and worked together.

“If one small company needs a new bottling line, then that is a major expense. But if another company nearby also needs a new line, then there is no reason why they shouldn’t join forces. They might be rivals in terms of products but at the packaging level they are not. In any case, many brewers’ markets are so localised that they might not even compete with the brewer in the next town, because that is a different market, so there is no reason why they should not co-operate to the greater good of everyone.”​

More co-operation is necessary if German brewers are to make more a name for themselves on international markets, too. “The major brewers can help push sales of German beer worldwide, but while greater awareness of German beer as a whole is great, the only real beneficiaries will be the brands marketed by these brewers. We are working constantly to persuade our members to push the idea of exporting their beer. There are many Irish pubs in Germany which sell a range of Irish products which would perhaps be rivals in their home market. Why shouldn’t companies here do the same thing?”​

The most important thing is for these smaller brewers to have a clear strategy, Dederichs said. “This does not have to involve a full scale launch of a new product in a new market. A simple thing such as changing to swing top closures for bottles can have a major impact on sales, and brewers need to realise that they only need to change a few things to get major results.​

“Selling their beer to another regional market might be one option, but even within their home market, brewers can do much to improve their performance. They have the skills, they have the products, but now they need to be brave enough to push them further. We have concentrated too long on maintaining volumes when what we need to do is concentrate on growing profits. Does it matter if you sell less as long as you make more money? With the right products targeted at the right market, this could be a reality.”​

He concluded: “It is our job at the DBB to educate companies about this way of working, and we certainly do not need to rely on major foreign companies buying our breweries in order for German beer to have a future.”​

Only time will tell whether he is right or not.