German Beer Goes Flat

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But if the global players are poised to take over the German beer market, why haven't any German brewers become global players? Bavarian monks formalized and perfected the art of brewing in the Middle Ages. Yet even a German giant like Holsten is dwarfed by Heineken — which produced 11 billion liters in 2002 and is awaiting regulatory approval for its purchase of Austria's 2.6 billion-liter-per-year BBAG brewery for €1.9 billion.

Shackleton explains that when Dutch and Belgian brewers began seeing their local markets shrink in the late 1980s, they responded by beefing up their exports, hammering the "premium" theme and buying up other breweries. German brewers, by contrast, were protected by the beer purity laws — which lost their teeth when the European Court declared them protectionist in 1987, but still act as a seal of approval — and ensconced in family and village tradition. They responded by lowering prices to stimulate demand, cutting back production and staying resolutely local. Thus, while a country like the Netherlands exports more than half its production, Germany exports just over 11%.

That leaves German brewers not only too small to dominate the global game, but too short on cash to even get in the game. Beer is so cheap in Germany that a mid-'90s law designed to cut down on drunkenness forced pubs to price at least one nonalcoholic drink cheaper than beer. And German consumers watch their wallets: when Beck's (550 million liters) raised prices in 2000, its sales fell 20%. Last year, brands like Warsteiner (570 million liters) and Radeberger (880 million liters) did manage to lead prices in the premium segment higher by advertising their quality, but beer inflation still trails other products.

For many years, German price sensitivity and fierce loyalty to domestic beer — just 3.3% of beer consumed in Germany last year was imported — functioned as a keep out sign for foreign brewers. As Coen Thönissen, from Dutch brewer Grolsch puts it: "The common wisdom was that beer in Germany isn't business. It's culture."

That perceived impenetrability is evaporating. In 2001, Heineken entered into a joint venture with Munich-based Schörghuber Group to share control of BrauHolding (820 million liters), which brews, among other brands, Germany's No. 2 wheat beer, Paulaner Weissbier. Heineken said it was primarily interested in adding Paulaner to its global offering, but it also hatched a plan to use Schörghuber's connections to spread Heineken around Germany. A year later, Interbrew bought Beck's — the only German beer to have leveraged Germany's brewing reputation to its own global advantage. The price was a staggering j1.7 billion. Again, that deal was done primarily to harvest the Beck's brand for use outside Germany, but it also gave Interbrew a platform from which to sell its other premium labels, such as Stella Artois, within the country.

If Germans begin quaffing imported beers in any substantial numbers, it will increase the pressure on domestic brewers to grow or sell. In July, Eisenbeiss hinted that he'd be willing to sell his shares to anyone interested in having Holsten as a "strong partner" in the German market. Another one of the nation's top five brewers — Brau und Brunnen (750 million liters), which makes 19 different beers including Jever and Dortmunder Union — also went on the block this year.