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Czechs Buying Once Unthinkable Alternative to Pilsner Urquell Beer: Retail

In Pilsen, the Czech city that lent its name to a style of beer, computer programmer Jan Blazek prefers to try something new.

Pilsner Urquell, now brewed by SABMiller Plc (SAB), is “a great beer, but it’s been around forever and is everywhere,” Blazek said, seated among friends from a floorball club for a weekly meeting at Klub Malych Pivovaru, a weather-beaten pub that rotates a selection of specialty beers from small domestic breweries. “What I get here is fresh and different each time,” he said. “It’s almost like wine tasting.”

Czechs, whose historical preferences for Pilsner-style lager once sparked efforts to make it a protected trademark like Champagne, are turning to brews including ales and stouts, some flavored with banana or nettle. Market leaders SABMiller, Heineken NV and StarBev, owner of Prague-based Staropramen, are responding with new products to keep market share.

Though Czechs remain the heartiest beer drinkers in the world, breweries are giving them more choice to protect the industry at a time of lower demand and changing lifestyles.

“We launched Staropramen Lemon and also an unfiltered version of our lager in summer and we’re very happy with the performances,” StarBev Chief Executive Officer Alain Beyens said. “The lemon one especially helped us to grow our market share in a falling market.”

Lower Production

Total beer (CP2BCZ) production in the Czech Republic fell 8 percent to 15.7 million hectoliters in 2010, the biggest slump since 1989, according to the Czech Beer and Malt Association. Annual per-capita consumption declined to 144 liters in 2010 from 159.3 liters a year earlier, the association said. In 2009, Germany ranked second with 109.6 liters, according to the data from the Brewers of Europe. The consumption in the U.K. amounted to 75.8 liters in 2009, the data showed.

The three largest breweries in the Czech Republic, SABMiller’s Plzensky Prazdroj AS, Pivovary Staropramen AS and Heineken CR, produced together about 72 percent of the country’s total beer output of 17.7 million hectoliters in 2010, including beer for export.

With a lower alcohol content and citrus taste, Staropramen Lemon is designed to reach a younger generation that prefers soft drinks, mixed spirits and wine, Beyens said.

“To say now that Czechs don’t like anything else than the traditional lager is wrong,” Beyens said. “A new generation of consumers are open to new tastes and flavor.”

New Beers

Pivovary Staropramen, which has 16 percent of the Czech market, sold 2.8 million hectoliters of beer in 2010, excluding licensed brands, down 7 percent from a year ago. Domestic sales dropped about 7 percent and sales from exports fell 9 percent, Staropramen said in July.

StarBev, which operates breweries in six other eastern European countries including Romania and Serbia, plans to introduce a variety of beer every year in the next five years, according to Beyens. It’s also plans to step up sales of an unfiltered version of Staropramen and tank beer for pubs.

Producers across the country are following a similar strategy.

“We expect the Czech beer market to return to growth for the next few years and then I think it’s going to stay around that level,” SABMiller Managing Director Doug Brodman said in an interview in Prague. “But we do have to improve the experience surrounding beer.”

Pub Breweries

SABMiller’s Plzensky Prazdroj plans to roll out as many as seven new beer varieties starting next year to attract drinkers by offering a wide range of products and tastes, Brodman said.

During the economic crisis, which hurt tourist-focused businesses, pub-sized breweries were the only part of the market to grow, said Jan Vesely, head of the beer association.

The number of small establishments producing beer on their own premises, representing 1 percent of annual beer production by volume, could more than double in the next three to four years in the Czech Republic from about 120 now, Vesely said.

“What we offer with beer drinking is similar to a fine- dining experience,” said Jan Suran, the owner of Pivovarsky dum, a Prague brewpub that sells beer flavored with nettle, sour cherry and banana. “The beer is more expensive than the one from the supermarket, but you get to see the brewing process, smell it and chat with the chap who brewed it.”

Freshest Brews

Suran is the head of the newly established Czech and Moravian Association of Small Breweries for producers that make less than 10,000 hectoliters of beer annually. He estimates that every year as many as 15 new facilities appear on the market.

“In a large brewery, it’s an honor to taste a fresh beer from the cellar,” Suran said. “With us, this is what all guests get. That’s our big advantage.”

The number of large traditional Czech breweries declined to 52 from 90 since the 1990s because of consolidation or bankruptcy, according to the Czech Beer and Malt Association.

For Milos Hrabak, the operator of the state-owned Vyskov craft brewery, the trend for “hand-made” products will help competition with larger brands like Heineken (HEIA)’s Starobrno.

“Lots of people prefer hand-made soaps to mass-produced types,” said Hrabak, who last month offered a limited brew of Jubiler India Pale Ale. “It’s same with beer and we can profit from that.”

In Pilsen, Jan Blazek downed a fresh unfiltered lager in the Klub Malych Pivovaru.

“In the old days I never drank beers like stouts or ales and I just stuck to local lagers,” Blazek said. “It would never occur to me that one day I could be enjoying even a lemon beer.”

To contact the reporter on this story: Lenka Ponikelska in Prague at lponikelska1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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