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Business

The Dark Cloud over Oktoberfest

Shortly before Oktoberfest kicked off in Munich this month, the Begium-based brewing multinational Interbrew acquired two of the annual festival’s most famous brews: Spaten and Franziskaner.

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Some of Germany's favorite Oktoberfest beers now belong to a Belgian multinational.

Germans love beer – and each German seems like a different kind. In fact, there are 1,200 breweries spread out across the country, and nearly half are based in the southern German state of Bavaria.

But even Germany’s biggest beer brands are midgets compared to their international competitors. And nowadays, the world’s greatest beer companies are on a shopping spree to snap up Germany’s most reliably profitable beers. Anheuser Busch, SAB Miller, Heineken and Interbrew are among the most competitive bidders – and depending on a the view of a specific German companies, name dropping those global players will either lead to fear or joy.

Belgians now dominate German beer market

In mid-September, the Belgian Interbrew Group announced it would acquire the majority shares in wheat beer brewer Spaten-Franziskaner, making the combined company the largest brewer in Germany. The buyout served as a tough pill to swallow for many Germans – after all, for 600 years, the Munich company, which made Spaten, Franziskaner and Löwenbräu beers, remained independent. But in times of decreasing beer sales – be it from health worries, increasingly popular wine or trendy alcoholic mixed drinks – German breweries are losing financial steam and many increasingly see the global players as saviors rather than predators.

"A partner would be a huge boost for our export opportunities," Jobst Kayser-Eichberg, CEO of Spaten-Löwenbräu, told Deutsche Welle. "The brands we have, such as Franziskaner and Löwenbräu, have tremendous international potential, but we need capital. But Germany has a particular problem in this respect because the German market is too competitive. You can't describe it as a lucrative market."

Brands, brands and more brands

Interbrew kauft Beck's

Beck's Brewery

Interbrew first entered the German market two years ago when it acquired Diebels, a popular brewery in the state of North Rhine-Westphalia. Afterwards it swallowed up Becks and Gilde, which owns the Hasseröderer label. Taken together with Spaten, the acquisitions will now give Interbrew an 11 percent share of the German beer market, with annual production volume of 15.6 million hectoliters of beer.

But buyouts don’t come cheap, and Interbrew’s been throwing around considerable sums as it shops up Germany’s most beloved traditional brands. For Becks, the company had to fork out €1.8 billion. It spent another €477 million to bring Spaten under its fold. By comparison, Germany’s largest brewer, Holsten, has a market capitalization of €650 million. As part of its deal to acquire Spaten, Interbrew also gets the majority shares in the Baden-Württemburg-based Schwabenbräu-Dinkelacker, which it will now put under the care of Interbrew subsidiary Becks.

Many believe the Spaten buy will spur further sales of German breweries to foreign companies. The next target is likely to be the Dortmund-based Brau and Brunnen, which ranks high on the list of interesting properties for the multinationals. But Interbrew executives say they aren’t interested in the company it is focus on already profitable brands that will continue to make money in a shrinking beer market. That also fits in with Interbrew’s global strategy of snatching up strong brands in a number of countries.

And the company is doing so in many markets. After all, Western Europe only accounts for one-third of its revenues. The rest come from Eastern Europe and the United States, where it owns brands including Rolling Rock and Labatt’s.

Generally speaking, in order to become a global player in beer these days, a company needs to produce on the order of 50 million hectoliters per year. By comparison, Holsten, as Germany’s largest brewer, produces only 11 million hectoliters annually. And more than half of all German breweries produce less than 5,000 hectoliters per year.

Acquisitions as a model?

Under current market conditions, only the strongest have much chance of surviving, and brewmasters must now consider whether they should remain independent despite over-capacities and disappearing revenues. Many are deciding against the avenue.

"It's going to get even tougher, because the process of concentration is just beginning," said Spaten-Löwenbräu's Kayser-Eichberg. "You see it with the Holsten and Brau and Brunnen companies. Two large German conglomerates
want to buy them. And my idea was, I'd prefer to dictate the terms myself rather than be steamrollered later when prices are low."

Cooperative agreements are another alternative that will spare famous German brands from falling into foreign hands.

But there are some winners these days. With all of the talk of a possible acquisition, Holsten has seen its share price rise from €20 to €50 per share in 2003. And, of course, with the powerful distribution channels of companies like Interbrew or Heineken -- beer lovers in far off destinations, like, say, the United States, could get access to premium brands previously the stuff of Oktoberfest myth.

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