Heineken Drives On Deep Into the Czech Market

Heineken announced yesterday that it is taking over the four great brands of the Czech Republic’s Drinks Union brewery group (Zlatopramen, Velké Březno, Louny and Kutná Hora), which have an overall market share of 4%. The takeover will make Heineken the third-largest player in the Czech market after SAB-Miller and InBev, bumping Budvar to fourth place.

It’s not exactly a surprise — news of the proposed sale was floated last autumn — but it still caused ripples across the small pond of the beer world: within a few hours I was contacted by friends at CAMRA about the purchase, and EBCU members apparently all got the message via email. Back here at home, Pivní deník reported the story, posing some interesting questions.

To paraphrase: If Heineken decides to close some of its newly acquired breweries in the name of streamlining and efficiency, who will be the first? Louny, which is closest to Krušovice, which already has plenty of unused brewing capacity? Or Kutná Hora, which Drinks Union doesn’t actually own but only rents from the town? Or one of the twinned breweries of Zlatopramen and Velké Březno? Would two breweries in the same town really survive a takeover by such a major international brewing group?

No one in the know has breathed a word. Here’s what we have so far: Heineken’s market share just jumped to around 12–14%. Newspapers have quoted Jiří Fusek, head of the association of Small and Independent Breweries, as saying that Heineken is likely to seek more acquisitions here, according to Prague Daily Monitor’s Czech press review (subscription required). Heineken already owns Krušovice, Hostan, Starobrno and Zlatý Bažant in Slovakia. They’ve been pushing their own beer in local supermarkets, which are conveniently owned by a company back in Holland.

We also know what happened to the Starobrno brewery after Heineken’s purchase there: a lot more money was invested in image, creating new logos, cleaning up the premises and renovating the on-site bars and restaurants (including a new, upper-level Heineken bar, pictured above — metaphorically suggesting that Heineken exists on a level above Czech beers, apparently in a place with lots of plants). Beyond the new paint and furniture, some believe that the taste of Starobrno has improved under Heineken’s ownership, though that’s hardly an achievement, considering that beer’s reputation before the sale.

Perhaps a more important question is this: Why does it matter? What difference does it make if foreign conglomerates purchase small Czech brewers?

One reason has to do with economics: foreign companies tend to do something called repatriation of profits, which is to say that if people here spend their money on a beer that is owned by a foreign company, the profits from that purchase are distributed and reinvested somewhere else far away. (Multiply this by enough beers and a large enough market share and you end up with the entire Czech nation sending a not-insignificant part of its income straight to Holland. I’ll take pains to point out that this is still a transitional economy — if you’ve seen the roads in the Czech lands, you know that our money is needed here.)

Another reason is that many significant decisions for these breweries are going to be made at the head offices in the conglomerate’s home country. That means that the decisions about how to brew a Czech Pilsner-style beer are going to be made by a company that thinks Heineken is a Pilsner-style beer. And Heineken doesn’t really compare.

A related reason has to do with the vitality and variety of our beer culture. Will those who have purchased Heineken’s shares on Amsterdam’s Euronext exchange really want the company to keep brewing oddball lagers like Velké Březno’s excellent Doppel-Doppel Bock? The name of the game for large brewing groups is increasing profit through larger market share and greater efficiency. Diverse product lines and redundant breweries with excess capacity are inefficient. Invariably some breweries and some unusual beers will be shuttered. The winners will be the shareholders, who will see more profits. The losers will be the consumers, who will have fewer choices.

At one of the recent tastings at Pivovarský klub, Aleš Dočkal mentioned a scenario whereby every Czech town of any size would have a brewpub — and in the entire country there will be only four or five large brewers distributing a handful of similar beers in kegs and bottles. That scene hasn’t arrived just yet. But we might have just watched the opening credits.