Brewing industry under great pressure
Beer could be more expensive
01/28/2022, 12:14 p.m
Expensive raw materials, rising energy prices, closed inns, the Oktoberfest has recently been cancelled: the brewing industry is suffering an immense drop in sales during the pandemic. While prices will initially rise compared to major customers, it could soon become more expensive in retail as well.
Rising prices could also reach beer drinkers in Germany in the coming months. A number of large breweries have announced price increases for major customers in recent weeks. This not only affects the upper price range, but in some cases even the lower ones. The high-yield draft beer business of the breweries in particular is suffering badly in the pandemic. Meanwhile, in the brewing industry, there is talk of an explosion in costs, not only for energy, but also for raw materials, including crown caps. At the same time, beer sales continued to fall last year, as estimated by the German Brewers’ Association. The decline does not even begin to reflect the extent of the crisis, said CEO Holger Eichele. He only expects a slow market recovery.
According to Eichele, the hope of having bottomed out in the 2021 pandemic has not been fulfilled for many companies. A few days before the Federal Statistical Office announced the figures for alcoholic beer, the Brauer-Bund is assuming a further decline in sales of 3 to 4 percent last year. This means that 200 to 300 million liters less alcoholic beer was sold than in 2020, when there was a record minus of 5.5 percent.
High material and energy costs
With their draft beer sales, the brewers depend on the bar in the catering trade, which had to close for months. In addition, folk and rifle festivals were cancelled. “The historical slump in sales on the beer market is met with an unprecedented price explosion – for many companies this is becoming an existential threat,” explained Eichele. The costs for transport pallets have doubled within a year and the prices for malt, an important brewing raw material, have increased by up to 60 percent.
The price increases for electricity and gas were even more extreme. So far, there has not been a wave of bankruptcies among brewers, but there have been individual operational closures that could be followed by others. According to the association, many brewers had to draw on and use up their reserves. So the industry is under a lot of pressure. However, it is unclear to what extent retail giants will accept price increases and pass them on to consumers. Because especially with large Pilsner brands, the trade sells a large part in the weekly promotions.
Among other things, Krombacher has also announced price increases for Schweppes soft drinks from April. Veltins also wants to raise prices in April. The Bitburger brewing group is pricing various products higher in May. Oettinger is also planning price increases without giving details. Head of Sales Peter Böck emphasizes at the same time: “The German beer market is and will remain highly competitive.” The competition in the retail sector has intensified even further as a result of the Corona crisis.
Non-alcoholic beer is becoming more popular
In addition to shadows, however, there is also light, in addition to many losers there are also some winners. Non-alcoholic beer, which is not recorded by the Federal Statistical Office, is gaining in popularity. According to calculations by the Brewers’ Association, the production of non-alcoholic beers in Germany has more than doubled since 2007 to around 680 million liters last year. Exports picked up earlier than expected. According to the association, the export share of the industry is twice as high as at the turn of the millennium with a record high of 18 percent. However, the growth in exports to third countries such as China and also in non-alcoholic beer could not compensate for the decline in domestic draft beer.
According to the beverage magazine “Inside”, three of the ten largest beer brands in Germany recorded sales growth in 2021, including Veltins with a record value. According to Veltins calculations, a two-year loss of sales of 1.8 billion euros burdens the German brewing industry. “It will take a long time for many breweries to regain their limited financial strength and liquidity,” says Chief Representative Michael Huber. For his own business, he does not expect to reach draft beer sales again until the end of 2023. The German Brewers’ Association expects the situation to improve slowly at best in the current year.
Uncertain consumers, tightened access rules for the catering trade and the cancellation of many events almost had the effect of another lockdown for the brewing industry, which is characterized by medium-sized and artisan businesses, said Eichele. According to the information, many innkeepers have already closed their restaurants voluntarily due to a lack of profitability. As a result, more and more breweries had to register short-time work again in January and had to slow down the bottling of draft beer.
Even before the pandemic, the per capita consumption of beer in Germany had slipped below the 100 liter mark per year. The trend has intensified during the Corona crisis. Less beer was also bought in the shops, although the retail trade lured with high discounts, explains “Inside” publisher Niklas Other. For many years, the aging society with less beer consumption has been a problem for the German brewing industry. In addition, there is growing health awareness and that young people drink more moderately, as a representative of the industry lists.