Is the End of the German Beer Industry Near?

 

EuropeThis article was written by Helay Fazel, Xavier Torras Flaquer and Venkatesh Saha, members of the Lauder class of 2014.

Germany is inextricably associated with beer. Indeed, one is prompted to envision pictures of Oktoberfest, where high-quality beer is served in steins by waitresses wearing the traditional dirndl. However, the beer industry, one of Germany’s oldest, is under threat. Germans, for whom beer is a part of tradition, are now drinking less beer than ever — a development which coincides with a centuries-old, self-imposed reinheitsgebot (“purity law”) which dissuades breweries from experimenting with new types of beer to cater to 21st century beer aficionados. Breweries in Germany also have not expanded abroad — the result of a preference among promoters to remain small, family-owned businesses.

According to Walter Koenig, managing director of the Bavarian Brewers Federation, more than 41 large- and 182 medium-sized breweries have closed since 2000, resulting in job losses. According to the online magazine slate.com, Berlin, which sustained some 700 breweries in the early 19th century, now counts only about a dozen firms. An Ernst & Young report states that 27,570 people were employed in German breweries in 2010, with another 414,000 hospitality jobs and 17,400 retail sector jobs attributed to the sale of beer. This represents a decline of 11,000 jobs, compared to 2008. A further decline in this industry can have significant consequences for the German economy.

Furthermore, beer is no longer the core business for many of the surviving breweries. Promoters are building golf courses, renovating castles and opening beer gardens to sustain and, in some cases, even subsidize the brewing business. Despite the decline, this industry remains highly competitive, with more than 1,300 breweries nationwide catering to a population of just over 80 million. Consolidation, which has already occurred globally, has slowly begun in Germany, as foreign players acquire German breweries. Today, five out of the six producers in Munich are owned by global majors. Looking ahead, changes in demographics, more serious penalties for drinking and driving, and a focus on better health are expected to contribute further to the decline in consumption.

Beer-brewing is perhaps one of the oldest industries in the world. Originally produced by monks as a religious drink, beer was actually preferred to wine because it tasted less sour and was easy to store in barrels. It was also cleaner than water and helped prevent illness. The philosopher Plato once allegedly said, “He was a wise man who invented beer.”

Beer gradually became the drink of the masses, with microbreweries present in each town. According to Koenig, in the 1970s Germans consumed 150 liters per capita annually. Current consumption is 106 liters per capita, a 30% decline. (The world leader is the Czech Republic, which reported 159.3 liters per capita in 2009.) “This number is still declining,” Koenig adds. Today, as in the U.S., the trend of microbreweries and craft beer is catching on, putting the larger producers in jeopardy.

Originally published by Knowledge@Wharton January 2, 2013 as part of The Lauder Global Business Insight Report 2013: Building Blocks for the Global Economy.

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