In Germany, Beer Is Toast

In this land of Oktoberfest, quart-size mugs and midmorning breaks for pilsener instead of coffee, it would be natural to assume that Germans are the biggest beer drinkers in the world. Natural, perhaps, but wrong.

The Czechs and the Irish have nudged the Teutons into third place in the global guzzling contest. What’s more, Germans’ thirst for the brews for which they are famous is forecast to keep on falling.

Wine and soft drinks are gaining ground on Deutschland’s traditional tipple. Environment-friendly packaging requirements are driving up costs even as oversupply is forcing brewers to sell their products for less. A recently lowered blood-alcohol limit, to .05%, is having the intended effect among drivers who love their Porsches and BMWs more than a beer buzz. And even here, health-consciousness is gaining a foothold, as younger Germans eat less, drink less and head to the gym.

These forces have combined to unsettle an industry that employs 40,000 people and accounts for three-quarters of the breweries in Europe. The 1,270 German businesses putting out 5,000 beer brands are literally drowning in their overproduction, dumping 30% more beer into the country than its citizens now want to consume. And as demand is expected to dwindle further over the next decade, market analysts warn that hundreds of the breweries are doomed to go under.

“Until very recently, no one in Germany had ever heard of iced tea or an energy drink,” says Erich Dederichs, business director of the German Brewers Assn. in Bonn. “Beer has been the main drink here for so long that any new beverage that comes into fashion takes away from our market.”

In addition, shifting demographics mean that the proportion of Germans in their beer-drinking prime--from the early 20s to the late 50s--is getting smaller each year, while the number of their more abstemious elders is growing. And wine consumption, already on the rise, shows promise of winning over more of the educated, white-collar sector, says Klaus Rueckrich of the German Vintners Assn.

“Worldwide, there is a more friendly atmosphere for wine drinking than for other alcoholic beverages,” says Rueckrich, noting the emerging evidence of health benefits from moderate alcohol intake. “Wine consumption has doubled in Germany over the last decade.

“But that’s not why beer consumption is down,” he maintains. “It’s not a cause-effect relationship. Beer is falling because it was at this tremendously high popularity level in Germany, and now people have different behaviors.”

Dederichs points out that in terms of volume, beer still outsells wine by 5 to 1, and he insists that it will remain the drink of choice in the huge consumer sector that associates beer with sports, whether as spectators or participants.

“Wine is not a thirst-quencher,” he argues. “The propaganda put out is that wine makes you healthy while beer makes you fat. But the first claim is relative, and the second is simply untrue.”

Still, by the late 1990s the industry had recognized that it was in trouble, and it commissioned the Arthur Andersen accounting and consulting firm to conduct an extensive analysis of the market.

The result of that two-year study is a recently released report urging intensive consolidation and an end to the overproduction that is driving prices below break-even levels.

The social changes that have reduced consumption are here to stay, the analysts concluded, so only the very big and the very special will still be around in a decade.

“People’s lifestyles are changing, and there are big generational differences. Beer is seen as old, dead, uncool, while other drinks are more chic. And anyone who thinks this is going to turn around is a dreamer,” says Rudolf Boehlke, a project manager at Andersen’s Frankfurt office.

Boehlke notes that the number of factories offering beer to assembly line workers during their breaks is declining and that the economy has shifted toward employment that puts more demands on brains than on brawn.

“There’s more intellectual work today, and alcohol hinders this,” he says. “Even in blue-collar fields, people are beginning to see the connection between even moderate alcohol consumption and accident frequency.”

After work, beer remains Germans’ favorite refreshment, but it is steadily losing ground. And, increasingly, the beer being drunk is of a specialty or microbrew variety, as young consumers show themselves to be more experimental than their elders in trying new concoctions that mix beer with fruit juices or flavorings.

Per capita beer consumption in Germany has fallen nearly 20% from its 1970s peak of 156 liters to today’s 125 liters--though that’s still an amazing quantity, equal to 354 12-ounce cans per year for every man, woman and child in the country. That compares with about 238 cans per person in the U.S.

The consultants advocate consolidation to reduce the huge promotional spending needed to make a brand successful. But mergers are not a magic solution, they conclude, because the industry is too big for the market. Many of the mid-size players will have to cease production and let their tiny followings drift to the handful of big groups that can afford to advertise nationally, as well as to the microbreweries that can survive on a loyal local following without big promotional outlays.

Consolidation also could make a few German breweries attractive to foreign partners and give them better prospects on the export market, Boehlke says. Currently, even the biggest single brand, Warsteiner, has less than 5% of the national market, and most breweries produce for only small local regions.

Heineken of the Netherlands, Europe’s largest brewing group and the world’s No. 3 behind Anheuser-Busch and Interbrew of Belgium, recently disclosed that it was negotiating to buy a stake in Bavaria’s Schoerghuber, which wants an export channel for its popular wheat beer. Heineken hopes to broaden its presence in Germany, which imports only about 3% of the nation’s consumption.

Arthur Andersen (now known as Andersen) predicts that there will be about 200 fewer German breweries by 2010 but that the majority of those surviving will shrink to microbrewery output levels of 5,000 hectoliters (130,000 gallons) a year or less--as much as giants like Warsteiner or Bitburger produce in one hour.

The German Brewers Assn. applauds the flexibility lately being shown in an industry renowned for being stuck in its centuries-old ways.

“Those who survive this upheaval will be the ones who pay attention to what the customer wants,” Dederichs says. “There are people who want green beer or beer in a paper container. Every brewer has the right to say: ‘No way. I won’t do that!’ But someone else will be bold enough to try it and capture a new market.”