German Beer Goes Flat

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And there are plenty of buyers. The U.K.'s Scottish & Newcastle will soon have up to €3.25 billion to spend after selling off nearly 1,500 of its pubs later this year, and a year ago, South African Breweries (SAB) bought America's Miller Brewing Company to create SABMiller — now the world's second-largest brewer, and a company hungry for European expansion. That may have awakened Anheuser-Busch — No. 1 in the world, which has fat profit margins in the U.S., where it gets more than 80% of its sales. At one time, the company had ruled out European acquisitions, but rivals think they'll get involved and the company is no longer adamantly denying it. A-B has been fighting with the Czech Republic's Budvar brewery over the name Budweiser for years; in recent weeks, courts in Japan, Lithuania, Spain and Taiwan have all found against A-B. Analysts say a German acquisition wouldn't come as a surprise. And Denmark's Carlsberg has been nibbling around the German market for more than a decade.

While the big get bigger, the small will get smaller. "Microbreweries, meaning small operations generating less than 500,000 liters per year, and especially the new generation of brew-pubs, are still a healthy business in Germany," says Ralf Knabe, an analyst with Dresdner Kleinwort Wasserstein. "They account for most of Germany's breweries in number terms and can probably maintain their independence, but they generate just 2% of the volume."

The real crunch is on mid-sized breweries like Sailer's. They got a temporary reprieve this year when the government implemented a hefty deposit on cans — which affects big brewers who sell in shops more than little ones who sell barrels to beer houses. Still others have used creative marketing to pull themselves back from the brink. The million-liter-per-year, 180-year-old Härle Brewery in Königseggwald went public this year and offered five cases of their flagship Walder Bräu as an annual recurring dividend. The strategy brought in €800,000 — which was enough to both keep the company afloat and lock locals into a uniquely German type of loyalty program. Another brewer, Iserlohner Pilsner, launched a "Save Iserlohner" campaign geared toward the villagers of its namesake town. Production rose enough to entice local businessmen to buy the brewery in the hope of making it a premium brand.

Still, there's little doubt that a massive shakeout is on the way. "For consumers, it will mean less choice, but it won't mean no choice," says Credit Suisse First Boston analyst Andy Bowley. "We had a consolidation like this in the U.K., when lager elbowed aside things like bitters and ale, but you can still find quality niche products." That's good news for Sailer and perhaps a few hundred like him. But for those who can't change with the times, the future looks as inviting as a mug of stale brew.