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Czech Republic: Sacrilege! The Czech Beer Industry Is Changing

By Mark Huntley

Prague, 19 September 1996 (RFE/RL) -- Brewing has been a part of the Czech national identity since the Middle Ages and the country has a reputation for producing -- and consuming -- high quality beer. But the Czech beer industry is entering a turbulent period. With the days of state subsidies over, the industry is brewing not only beer, but also competition.

The Czech Republic now boasts the highest annual beer consumption rate in the world -- 159 liters per capita in 1995. Until the fall of communism in 1989, there were only two state-sanctioned export brands -- Pilsner Urquell and the original Budweiser, Budvar. Budweiser has made headlines over the last few years by resisting a buy-out by its behemoth American namesake. Pilsner Urquell has made its way onto store counters all over the world.

International sales of Czech beer brands, Urquell foremost among them, are growing, but the bulk of production serves domestic consumption, which is shrinking. New alternatives such as Western soft drinks, juices, and imported alcoholic beverages, as well as increased health-consciousness among Czechs, all play a part.

Yet while the Czech market is contracting, Urquell's share of it is on the rise. Jaroslav Pomp, spokesman for Plzensky Prazdroj, Pilsner Urquell's parent company, says the brewer currently holds 18 percent of the domestic market and is aiming for 25 percent. Pomp says the company is improving its market positioning by maintaining quality while introducing new brewing techniques.

Plzensky Prazdroj recently obtained a 12-year, $40 million loan from the International Finance Corporation to modernize production facilities and expand marketing. It doesn't hurt, of course, that it has one of the most recognized names in international brewing to help it maintain its position on top of the Czech market.

Smaller breweries are not so fortunate. Under the old system, brewers were assigned geographic regions and were assured distribution monopolies. Now that state control has given way to the free market, regional breweries are fighting bigger competitors. Their survival options include maintaining low production as niche- or micro-breweries, or finding larger domestic or foreign partners with cash to invest in plant upgrades and major marketing campaigns..

One of the most successful joint ventures to date is that between Germany's Binding Breweries Group and the Czech brewer Krusovice. In business since 1581, Krusovice was on the edge of bankruptcy just three years ago. Now it is building a new plant, with Binding's support, next to the old Krusovice plant west of Prague.

Pavel Gregoric, Krusovice's director, says Binding's investment was absolutely crucial to his company's jump from 21st to fifth largest Czech brewer. Aggressive marketing is one major reason for that jump. Krusovice's red, gold, and black logo -- on tap heads, mugs, and posters -- now adorns pubs across the Czech Republic. But for all the new customers that Krusovice gains, weaker breweries are pushed closer to extinction.

Overcapacity is an issue in Czech brewing, with more than 70 breweries serving a country of just 10.5 million people. Mervyn Childes, Czech country director for Britain's Bass Breweries, maintains that the decline of the domestic market will inevitably mean consolidation in the industry.

Bass entered the market in 1994 and now owns major stakes in two of the largest Czech breweries. Its flagship Czech brand, Staropramen, is now available in the United States, the United Kingdom, and Western Europe. Childes foresees 30 to 40 brewers surviving the industry shake-out. He believes that there will eventually be two or three major brewing groups controlling the bulk of the market, with Bass a major shareholder in one of them. Childes thinks consolidation will make for a healthier industry.

Czech beer purists, led by the Friends of Beer, a nonparliamentary political party, dispute the idea that anything regarding Czech beer needs to change. Last year, they won passage of state tax breaks for smaller breweries. But industry analysts are convinced that even such protectionist measures and other proposed subsidies won't prevent the coming revolution in Czech brewing.