Glass half empty for Germany’s proud beer industry

Europe’s biggest beer producer has fallen on hard time young peole turn to spirits and fruit drinks

Visitors toast with their one-liter beer mugs during the opening day of the Munich Oktoberfest beer festival. Photograph: Michael Dalder/Reuters

Visitors toast with their one-liter beer mugs during the opening day of the Munich Oktoberfest beer festival. Photograph: Michael Dalder/Reuters

Fri, Apr 18, 2014, 10:08

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 per cent 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 said. “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 “Beer risks becoming an outdated product,” it warned earlier this year.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.

Although 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 US 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.