International -- European Business: CZECH REPUBLIC
THE CZECHS ARE BEING INVADED--BY BREWERS (int'l edition)
The Czechs are being invaded--by brewers
Every afternoon, Jiri Tuma settles back in his regular chair at Prague's Black Bull Pub for his lunchtime beer. But the burly construction worker isn't a happy man these days. "Czech beer isn't Czech beer anymore," he says. "Westerners are ruining it."
More than taste is changing in the Czech brewing industry. The variety that makes the country a beer drinker's paradise is giving way to the bottom line. Large foreign investors are moving in, buying up struggling small breweries and acquiring a portfolio of beloved brands to export. A cottage industry that is the source of national pride, Czech beer is fast becoming the domain of international corporate giants.
SHRINKING APPETITE. Even though Czechs drink more beer per capita than any other nation, 159 liters a year, consumption is slipping. Forced to turn a profit in the free market, breweries raised prices and lost customers. More than 70 breweries still serve a population of 10 million. "That's just too many," says Jana Tuckova, an analyst with brokerage Patria Finance in Prague. Dozens of small breweries, looking for cash and new export markets, are ripe for takeover.
The foreign invasion has been swift. Already, every fifth beer sold is backed by outside capital. For example, Austria's Brau Union last summer bought 51% of No.1 Starobrno brand. British brewer Bass PLC snapped up 20% of Radegast, the Czech Republic's third-biggest seller, at the end of last month. Now, Bass is negotiating to buy a majority stake.
If Bass succeeds and combines Radegast with its holdings in three Prague breweries and two regional brands, Britain's largest brewer will control a quarter of the Czech market. Bass plans to invest at least $37.5 million into modernizing plants and equipment. The attraction to the Czech Republic is obvious, says Mervyn Childs, Bass' country director: "Low labor costs, skilled brewers, and a worldwide reputation for good beer that is second to none."
The newcomers know they must preserve this reputation for quality. In fact, their marketing efforts back home tend to rely heavily on building up the image of Czech authenticity. Yet the drive for exports means Czech beer now has to travel well and sit on the shelf longer. So venerable brews must succumb to newfangled innovations such as filtering, pasteurization, and kegs with carbon dioxide gas-pressure dispensers that produce a fizzier taste. Backed by a loan from International Finance Corp., Plzensky Prazdroj, brewer of the original Pilsner Urquell beer, sold 50,000 hectoliters of its pasteurized version in the U.S. last year, up 25% over 1994. Now it has plans for licensing agreements in markets such as Southeast Asia and South America.
PUB PATRIOT. The normally laissez-faire Czech government has become a pub patriot. To combat market oversupply, it awards tax breaks to the 30% of Czech breweries that produce fewer than 200,000 hectoliters a year. The government will likely retain a controlling share in the most famous brewery of all, state-owned Budejovicky Budvar--brewers of the original Budweiser. Since the 1930s, Budvar has been locked in a dispute with Anheuser-Busch Cos. over the worldwide rights to the Budweiser trademark. Although the brewery will soon be privatized, "we will never allow it to fall into the hands of the Americans," vows Roman Ceska, the government minister in charge of state-owned properties.
But the Bohemian beer industry has already suffered an even bigger indignity. In July, Bass introduced Czech drinkers to Hooper's Hooch, a lemonade-flavored beer aimed at 18- to 30-year-olds that has been a hit in Britain since it was launched there last summer. The company aims to sell half a million bottles a week by January 1997. Bass also plans to use one of its newly acquired plants to brew it for export to Eastern Europe.
Purists say Hooch will never catch on. "This is the land of beer," splutters Jan Jelinek, editor of Pivni Kurier, a magazine for beer connoisseurs. "We don't need that kind of nonsense here." But Jelinek and fellow traditionalists are fighting a losing battle. The Czech brewing industry is changing too fast for them to stop it.By James Drake in Prague