Posted Oktober 2009
Avanti Popolo
Italian beer market Knowst thou a country where a former starlette is rumoured to
become a minister in the next government; where shop stewards at
their company’s expense visit brothels in far-flung places and
where a music-loving media tycoon controls 80 percent of his
country’s tabloid newspapers? Indeed, knowst thou a country,
where the bureaucratic hurdles for start-ups are higher than in
Rwanda or Kazakhstan; where managers can bring down their
companies but still receive a government bail-out; and where the
public prefers to ignore the current economic crisis and
pretends it’s dolce vita time?
When the German magazine Der
Spiegel some weeks ago taunted its readers with these questions,
many of them would have replied without hesitating: “Do I know
this country? Ach ja, it must be Italy!” And they would have
chuckled to themselves and asked Mario at their local coffee
shop for “due Kapputschino, bitte.” Mr Berlusconi’s antics, his
controversial relationship with a teenage girl from Naples and
his very public marital problems became this summer’s most
entertaining political story and confirmed suspicions that in
Italy politics is a kind of incomprehensible opera buffa.
Although the answer to Der
Spiegel’s questions seemed obvious, it was still wrong. The
country in question is --- Germany!
Rest assured that this
realisation would have made most Germans choke on their
cappuccini. Because what does this mean? Is Germany becoming
more like Italy? Or is Italy becoming more like Germany? And
where will this leave us with our long-cherished cultural
stereotypes that in Europe heaven is where the police are
British, the cooks French, the mechanics German, the lovers
Italian, and all is organised and run by the Swiss?
Puzzles and more puzzles. This
calls for something strong. “Mario, dammi una birra, per
favore.”
Perhaps the simplest
explanation to these vexing questions is that sometimes things
are not what they seem. Especially in Italy, where appearance
and reality often do not coincide. Ever since European
aristocrats and bourgeois began travelling to Italy on their
Grand Tour in the 16th century, “Italy has been and will always
be the land of sun and song; and neither storms, nor rain, nor
snow will ever cool the enthusiasm that the word ‘Italy’ sparks
in every poetic soul” (Henry W. Longfellow, poet).
Ours may not be a poetic soul
like Mr Longfellow’s, but to this day, “Italy” is the shorthand
for the profound knowledge that it has everything that makes
life worth living – think of Verdi and the Vespa, Gucci and the
Godfather trilogy, Carrara marble and Chianti wine, Pavarotti
and Prosciutto, La Loren and Lamborghini, Raffael’s paintings
and Eros Ramazzotti’s music… (to be continued ad infinitum!)
Actually, beer is not on that
list.
No matter how much they may
have tried, Italian brewers still have not managed to convince
their countrymen that to be seen with a glass of beer in their
hand when out dining will not ruin their “bella figura”, their
“beautiful figure”. Italians abhor the prospect of a “brutta
figura” - beer belly and all. Because cutting a “bella figura”
is the epitome of being, the essence of the Italian way of life:
the dominance of aesthetics, good image, and proper behaviour
over everything else.
If beer in Italy is still
struggling with the prejudice of “brutta
figura”, which loosely means you cannot take it anywhere nice,
it does not fare any better outside Italy. For the most part,
Italian beer hasn’t gained much respect among gourmands,
gastropods and epicures. If they go for Italian booze to
accompany pasta dishes and pizza, they chose Italian wine, wine
and more wine.
But as with most aspects of
Italian style and culture, there is more to it than meets the
eye. The same is true for Italian beer. And perhaps this is the
time to straighten out some of the most die-hard misconceptions
concerning beer and Italy.
1. Italians don’t like beer
Well, it would be more to the
point to say that Italians have gone off alcohol full stop.
Although Italy is a wine-drinking country like Spain and France,
over the past 40 years or so wine consumption has declined
dramatically. On a per capita basis, wine consumption has
dropped to slightly more than 40 litres from over 100 litres in
1970. During the same period, beer consumption has gone up.
While it was only 11.5 litres in 1970, it reached almost 30
litres in 2008.
But as you will have read
often on these pages: “Beware of mean values”. This warning is
even more pertinent when dealing with Italy, where appearance
and reality often do not coincide (see above). Actual beer
consumption varies widely. Like every beer drinking country,
Italy has its fair share of so-called heavy users, who knock
back quite some volume. Many of them will be found in the north
of Italy, in Alto Adige (also know as South Tyrol), where per
capita consumption is supposed to be 100 litres – even though
locals are quick to point out that it’s thirsty German tourists
who come to Alto Adige for skiing in winter and mountaineering
in summer that contribute to this relatively high figure.
However, there is little
dispute over the fact that many Italians will never touch beer,
women among them. Which allows us to conclude that working out
per capita beer consumption figures is a pretty pointless
exercise south of the Alps. Still, the mean value is held
against Italian beer drinkers who continue to bring up the rear
in Europe. Only the French drink as little (or as much) beer as
the Italians.
Now this is a dubious honour
if ever there was one. And pointing fingers is no use if you are
up against a formidable adversary like non-alcoholic beverages.
If Italians like to drink anything, it’s bottled water. The
consumption of mineral water stood at over 200 litres per capita
in 2008 – the highest in Europe. That gives water a share of
throat of more than 60 percent.
In the past, brewers in Italy
used to brush aside their animosities and fund generic beer
campaigns to promote beer consumption. Nonetheless, they always
stopped short of Italian consumers getting the idea that beer
was a soft drink by another name. Privately, insiders say that
this seems to have fuelled beer drinking in Spain – large
swathes of the Spanish population living under the
misapprehension that beer and pop are all the same.
Probably brewers in Italy knew
only too well that nothing can be taken for granted when dealing
with the powers-that-be. Previously, Italians would have
considered laws and regulations a mere suggestion rather than a
command. Traffic lights, speed limits, driving under the
influence (DUI) – all was personal and open to discussion. Now
things are changing. Non-smoking laws, widely predicted to be an
absolute failure, have been accepted without a fuss. The same
with speed-limits and blood alcohol concentration limits:
Italian drivers, for the most part, try not to go over them.
It must be said, though, that
the reason for Italians’ new found “will to obey” are draconian
“booze it and lose it” laws. Your correspondent has been told
that if you are caught over the limit, the police will first
slap a fine of about EUR 6000 on your bonnet, before they will
confiscate your car and your driver’s licence. Just to make sure
you have learnt your lesson well, your car will then be
auctioned off and proceeds will go to the state.
Obviously, DUI penalties have
made normal Italians reluctant to go out for a liquid lunch so
much so that Italy’s vintners are already beginning to feel the
pinch. Alas, brewers have no reason to feel smug. If their
countrymen change their tipple, it’s from wine to water and not
to beer.
2. The recession will hurt
beer consumption
Funnily enough, this does not
seem to be the case. Beer consumption this year is expected to
be flat even though the economy will have shrunk significantly.
The Economist newspaper in its most gloomy analysis yet
(September 2009) put the likely shrinkage of the economy this
year at 6.0 percent – a bigger drop than in Britain, France or
Spain.
However, on the face of it,
Italy is having a good recession. This year again, more than 40
million tourists will throng Italy’s cultural sites, clogging up
narrow streets and pavement cafés, thus doing their bit to keep
up beer consumption levels.
Part of the explanation is
that, after more than a decade of underperformance relative to
the European Union, Italians are used to economic distress. Or
as the Italian columnist Beppe Severgnini puts it in a recent
book: “Controllers and controlled have an unspoken agreement:
‘You don’t change, we don’t change, and Italy doesn’t change,
but we all complain that we can’t go on like this.’”
As for Italy’s brewers, if
they need a culprit for their market’s lacklustre performance,
they have always got the Germans.
3. German beer bears the
blame
France and Italy not only
trail Europe when it comes to average beer consumption, their
consumers also show the greatest predilection for imported beer
brands. One in every three beers consumed is an import.
Imported beer brands have
risen steadily in importance. While in 1980 they only
represented 11 percent of Italy’s beer consumption, their share
had increased to 25 percent in 2000 and to 33 percent in 2008.
That translated into more than 5.8 million hl out of a total of
17.6 million hl beer.
The majority of imported beers
continue to be sourced from Germany which accounted for almost
60 percent of all imports (2007). One reason for German beers
growing in popularity south of the Alps is their low price.
Lower excise duties coupled with excess capacity allow German
beers to be exported at prices with which Italy’s producers have
difficulty competing.
In 2008, estimates say 3.5
million hl beer from Germany crossed the Alps, followed by
700,000 hl from the Netherlands and 500,000 hl from Denmark.
That seems like a lot of volume, until you are told that Beck’s
alone sold more than 800,000 hl. This makes Beck’s (owned by
AB-InBev) the fifth most popular beer brand in Italy after
Peroni, Moretti, Heineken and Dreher.
Considering that ten German
beer brands represent almost half of all German beer sold in
Italy, readers will begin to understand why the German brewing
industry as a whole does not brag about its beer exports. Most
of them only sell a few thousand hectolitres.
A few decades ago, the
conquest of the Apennine Peninsula would have been very much to
their heart’s delight. In the 1980s and 1990s, when there was
consensus among German tourists that the Alps should be torn
down so that they could reach Italy’s beaches in less than no
time (Achtung: this was a joke!), Germany’s national beer brands
– Beck’s, Warsteiner, Bitburger, Krombacher, Paulaner et al –
did their utmost to outpace each other in their race to the
Mediterranean, fearing that their German countrymen would drop
their brand loyalty as quickly as they drop their pants if they
did not find their favourite beer on Italy’s beaches.
Today, except perhaps for
Beck’s and a few other German beer brands, Italy’s brewers have
been able to stem the northern onslaught. Unluckily, they are
now faced with a much more dangerous intruder: Germany’s
discount brewer Oettinger. All over Italy you can find
Oettinger’s range of beers in supermarkets, selling for as
little as EUR 0.60 for a 0.5 litre can.
Italy’s brewers may scratch
their heads and wonder how the privately-owned Oettinger does
it: shunt its beer to Italy, covering a distance of several
thousand kilometres and still sell at such a low price. And, by
the way, we have been told that Oettinger’s beers are not bad.
Oettinger may not spend any money on marketing and advertising,
but at least the brewer does not stinge on the quality of its
raw materials.
Oettinger’s high visibility in
the Italian off-trade sector, where 55 percent of all beer is
sold, has had several effects already: While Oettinger has not
expanded the share of the discount segment (5% of total), the
brewer has nevertheless cemented the price of discount beer
brands and mainstream brands on offer at below EUR 0.70 per 0.5
litre.
In thus doing, Oettinger has
prevented domestic premium beer prices from taking off too high
and forced mainstream brands like Peroni, Moretti and Dreher to
defend their volume and share through the introduction of
attractive (but costly) new packaging and aggressive promotional
activity.
Which beggars the question: do
brewers in Italy make any money? Or is it the distributors who
do?
4. Foreign brewers call the
shots
There must be something to the
Italian beer market that four global brewers try very hard to
defend their share of it. Having suspended the rule of thumb
that each market only warrants two international brewers, you
will find Heineken, SABMiller, Carlsberg and AB-InBev (combined
share: 69%) variously stepping on each others’ toes, while
making some awkward bedfellows.
Carlsberg Italia (Tuborg,
Splugen, Carlsberg) is the smallest of the international
brewers, not having made any acquisitions apart from raising the
stake in Poretti to 100 percent and changing its name to
Carlsberg Italia. The Danish have two breweries and a market
share of 6 percent.
SABMiller is the last of the
global brewers to enter this market. They bought Birra Peroni in
June 2003 for reportedly EUR 560 million, snatching it away from
InBev that had hoped to re-enter the market they left when
Interbrew (the forerunner of InBev) sold Birra Moretti to
Heineken (1996). Confusing? No, call it economics. Moretti,
which came into Interbrew’s fold accidentally when the Belgians
took over Canadian brewer Labatt in 1995, had been deemed too
small by Interbrew and not worth keeping as it had a market
share of only 9 percent.
Birra Peroni with a market
share of 25 percent and Italy’s number two brewer behind
Heineken Italia (31%) offered the kind of scale InBev wanted but
the company went to SABMiller which left InBev with a 1.2
million hl beer import business (mostly Beck’s and Stella
Artois) and – since the acquisition of Anheuser-Busch last year
– a licensing agreement for Budweiser with Heineken Italia.
You see, relationships among
Italy’s foreign brewers are complex.
And as to the above question:
yes, most international brewers are making money, not least
thanks to a strict cost management which has led to the closure
of quite a few breweries over the years. There were 31 breweries
in 1980 which had a total output of 8.6 million hl beer. Their
number has decreased to only 15 in 2008, yet with a total output
of 13.3 million hl beer.
In case you wonder what has
happened to the Italian brewers: well, there is more than 280 of
them, the majority being microbreweries and brewpubs, plus a few
second generation regional breweries and the privately-owned
Forst (4%), Menabrea (1%) and Castello (5%), whose combined
market share adds up to 11 percent.
Italy’s microbrewers are an
eclectic lot. Some have weathered the winds of change very well
like Hops! in the seaside town of Riccione, which was founded in
1997. Others have come and gone, for reasons well-known to
observers of the U.S. craft brewing scene: they were financially
over-stretched, yet under-skilled when it came to running a
restaurant business. Add to that a highly variable beer quality
and you know why the Italian craft brewing scene resembles that
of the U.S. circa 1995.
How shall we put this
politely: in Italian craft brewing, a lot of passion is still
required to compensate the lack of professionalism. As in the
U.S., this is not a recipe for business longevity. But while
these Italian microbrewers are at it, they will do their best to
generate an interest in beer – not as wallop, but as an
interesting tipple which does not spoil your bella figura.
More promising in this respect
are what we have termed the “second generation regional brewers”
like Theresianer, which are fairly recent start-ups but whose
owners have the funds and the business wherewithal to go for a
certain size without having to compromise on quality or on
prize.
The industrialists behind
Theresianer and newcomer Bergner Bräu probably do not want to
emulate the example of celebrity wine makers like film director
Francis Ford Coppola, who proved right the old adage that if you
want to make a small fortune out of wine, you need to start out
with a large fortune.
Italy’s new brewers have to
get things right the first time round because chances are slim
they will be given a second chance. Or a new lease on life
should their businesses sink.
Which brings us to Birra
Castello – and one of the most exciting rescue stories in the
brewing industry.
5. Resistance is futile
Readers does it not strike you
as odd that the story of market consolidation always ends with a
duopoly firmly established? It does not matter which industry
you look at, when you close the book there are only two players
left that have stamped out all opposition.
For this reason it is worth
studying the Italian beer market. It shows that challenging this
ostensibly inevitable pattern is worthwhile and can be crowned
with success. Take Birra Castello, which has two breweries in
northern Italy and is owned by a cooperative of some 40
distributors called BSE. They donned the hat of brewery owner in
1997, when the antitrust authorities told Heineken Italia to
sell off one of their seven breweries – which was the one
million hl erstwhile Moretti brewery in San Giorgio. Perhaps
Heineken Italia was even glad to see this brewery go. Imagine
running seven breweries in a market that small. In any case, to
sweeten the purchase Heineken Italia gave the buyers three years
of contract brewing but took the brand - Moretti - with them. In
sum: the buyers got plenty of capacity but only one brand,
Castello, which had been dormant for years.
Perhaps this agreement served
the distributors right at the time since they had set their eyes
on providing themselves with DOBs (Distributors’ Own Brand) for
the on-trade. As Managing Director of BSE, Eliano Verardo,
explained, his distributors do not want to depend on just three
global brewers for their beers. Mr Verardo himself comes from a
family of distributors. His own company distributes 65,000 hl
beer annually.
While it may be easy to view
the purchase of the San Giorgio brewery as a straightforward
business transaction with a longterm perspective – the
distributors needed an on-trade beer brand and Italy’s
supermarkets a brewery which would produce private labels for
them – it’s much harder to see that in BSE’s next purchase, that
of the Pedavena brewery.
In retrospect, it looks like
Heineken Italia wanted an elegant exit from a plant which was
doomed. Companies often seek the assistance of private equity if
they intend to leave a business for good but fear a scandal. The
investor, prepared to take on the task of grave-digger, usually
has his palms lined by the seller and picks over the bones
before he flogs off the remaining valuables and, after a time
lag of a few years, brings the job to an end.
Heineken Italia initiated
closure procedures (read: stopped investing) at the 600,000 hl
Pedavena brewery in 2003. Apparently, Heineken’s management was
aware that ticking off the Pedavena brewery with the loss of
about 250 jobs would not go down well with the public. Three
times over the years they asked Mr Verardo whether he was
prepared to buy this brewery too. But Mr Verardo was reluctant.
Another brewery with a dormant brand, but this time without the
contract-brewing treat? Where was the business rationale?
When in 2006 he finally agreed
to take the Pedavena brewery off Heineken’s hands the plant had
been down for a year. But what a year it had been for Heineken
Italia. First there was only local public protest, yet this soon
turned into a nationwide popular movement for the rescue of the
brewery. And all was covered by national television. Heineken’s
management cannot have been pleased with the course of events.
The search for a buyer, initiated by Pedavena’s very vocal
major, was not without its opera buffa elements: At some stage
the Swedish brewer Kopparberg was wheeled out as a prospective
buyer but quickly returned to the wings.
Ultimately, a domestic
solution was found to Heineken’s problems. Pedavena brewery
joined Birra Castello. To everybody’s surprise, the distributors
did not act like pathologists: they did not close down the
brewery and shift production to the larger and more modern San
Giorgio brewery, which is only some 150 km away from Pedavena.
No, they had a sustainable business plan. They have since spent
EUR 10 million on kitting out the brewery and introduced
marketing in order to push the Pedavena as well as the Dolomiti
brands. Although they still produce private labels and bottle
soft drinks, Mr Verardo says that in 2008 Birra Castello
produced over 900,000 hl of their own beer brands, aiming for
one million hl – provided the economy improves and Italy’s major
brewers cut back their aggressive price promotions in the
off-trade.
The rescue of the Pedavena
brewery, it seems, was so stereotypically Italian: grande drama,
unpredictable dynamics, shrewd plotting and everybody trying to
cut a bella figura. But more than 60 jobs were saved in a town,
which has only two employers of some size: the local hospital
and --- the brewery.
To wrap it all up, here are
some questions for our readers:
Knowst thou a country, where
it took the entry of an international brewer to breathe life
into the beer category and touch the aspirations of the younger
consumers? Knowst thou a country whose beer brands write their
success stories on foreign soil rather than at home? Indeed,
knowst thou this country?
If you think the answer is
“Germany” – think again. It’s Italy. SABMiller and the Peroni
brand are currently undertaking just that. Does this mean we
have to rethink some of our assumption about beer in Italy and
Italian beer brands? Perhaps. But in another report.
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