German Beer Goes Flat

Christian Eisenbeiss has beer in his blood. So does Bernhard Sailer. Both are third-generation members of German brewing families, both love their work, and for now, both are brewing up heady profits. But if you had to choose which man represents the future of the troubled German beer industry, it would have to be the New York-born Eisenbeiss (his parents emigrated to the U.S.). He and his sister share a 48% stake in the company that sells more beer to Germans than anyone else — Holsten, on Germany's north coast. Eisenbeiss believes a modern brewer needs to be big — Holsten already serves up 1 billion liters a year — and international. Sailer and his brother, Dietrich, by contrast, own and operate the small but thriving Hofbräuhaus Traunstein in southern Germany, which brews 10 million liters of beer annually. For centuries, such local breweries have been the backbone of this most German of industries. But Sailer is not optimistic about the future of family-owned breweries. "Some don't have the money to continue, and others don't have a new generation willing to take over," he says.

Here comes the great German beer shakeout. At last count, the country had 1,279 breweries, or nearly 75% of all those in the E.U. But Sailer estimates, based on conversations with peers, that one-third of those in his home state, Bavaria, only manage to crank out beer because they subsidize production costs with income from their real-estate holdings. He's managed to survive by repositioning Traunstein as a trendy regional "premium" brew, and by partnering with several tiny brew-pubs.

For most German brewers, however, the rule seems to be get big or die. The problem begins with the fact that Germans, like most northern Europeans, are getting older and drinking less beer. "The average has dropped from 140 liters per person in the early 1990s to 120 now," says Sailer. "I figure it will hit 100 in the next 10 years." This takes its toll on the brewers. The German Federation of Brewers says the number of mid-sized breweries — those generating between 500,000 and 100 million liters per year — has shrunk from 610 in 1995 to 466 today, mostly through closure. Analysts see the next decade being dominated by even more mergers, closures and acquisitions. Credit Suisse First Boston analyst Ian Shackleton sees 70% of Germany's beer flow ending up in the hands of just a few global players by 2010. He points out that thirsty outsiders like Heineken in the Netherlands and Interbrew in Belgium have already taken over 18% of Germany's production since 2000; big brewers like them have the resources to suck up the rest as well.