Thursday, 18 June 2009

Turmoil in the east

Global brewers turn their backs on
small countries in quest for profits

Brewers in Central and Eastern Europe face an uncertain future as two global giants plan to cut back on their presence in the regions.
A-B InBev, the world's biggest brewer, said today (18 June) it will seek private equity firms to buy 11 breweries in seven countries, including Bulgaria, Croatia, the Czech Republic, Hungary, Montenegro, Romania and Serbia. The breweries produce a total of 15 million hectolitres a year and A-B InBev says they are worth $2.5 billion.
At the same time, Heineken has announced it will sell two breweries in the Czech Republic, Kunta Hora and Znojmo, both part of the Dutch giant's subsidiaries Drinks Union and Starbrno. The best-known brewery within the groups is Krusovice.
Significantly, both A-B InBev and Heineken have said they will not reduce their commitments to Russia and the Ukraine. The reason us simple: those two countries, Russian in particular, are such vast markets that they offer a big return on investment.
The problem for the global brewers is that they snapped up many breweries in the post-comnmunist bloc without realising that people's incomes there were too low to afford the prices that western drinkers expect to pay for beer.
A-B InBev, for example, owns Prague Breweries, which includes the Staropramen brand, the third-biggest selling beer in the Czech Republic after Gambrinus and Pilsner Urquell. But the group is willing to sell the brewery and the brand as it's unimpressed with the profits it makes.
This problem is compounded by the fact that the group sells impressive volumes of Staropramen in Britain but has built those sales by undercutting other imported Czech lagers, such as Budweiser Budvar. This activity means it makes only marginal profits on the brand.
It's not known whether there are companies with sufficient funds to buy the breweries A-B InBev and Heineken are anxious to sell. The result could spell closure for several breweries and reduced choice for consumers.
And it means the future of Budvar is even more uncertain. The state-owned company is performing well and has beaten its targets in both the Czech Republic and in Britain. But opinion polls suggest a right-wing coalition could win the Czech general election in October, which is likely to result in Budvar being privatised.
In the current climate, who would buy Budvar? Its bitter American rival Anheuser-Busch once seemed the only likely suitor as brewer of the rival Budweiser. But now A-B is part of InBev, a great cost-cutter anxious to quit central Europe. Budvar may be sold off by the Czech government but there will be few willing partners to take it to the altar.


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