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Posted January 2018

The German Sonderweg

Beer in Germany | Have a guess: how long do you need to work for a bottle of beer in Germany? Even on minimum wage it’s only four minutes. Our spectacularly low beer prices in the off-premise are great for consumers, but catastrophic for brewers. Nearly all battle with declining volumes, aggressive retailers and dwindling profits. Premiumisation would be a way out but few have the courage to go down that path.

Whenever I am asked to explain why beer prices in Germany are so low, I am at a loss. What shall I say when visitors point at posters outside supermarkets screaming “two crates of beer for only EUR10”? Yep, that’s 20 litres of beer for 13 USD including all taxes. Unbelievable, really. A litre of beer is half as expensive as a litre of petrol. No wonder German tourists nearly faint when they buy beer abroad. The blunt truth is that, for the price of two crates in Germany, they will only get two six-packs of Bud in the US, or just one six-pack of Victoria Bitter in Australia.

Only in China will you find beer that is as cheap as in Germany. So why are beer prices in Germany at rock bottom? Is it because German brewers prefer to act like charities, rather than like money-grabbing capitalists? Or is it because they are honest-to-god manufacturers, who like to best their peers at rabid cost-cutting?

Not wanting to resort to psycho-babble – who can read the minds of firms anyway – I have since come up with the explanation that German brewers have long followed a sort of Sonderweg (a special path). Let me point out the most obvious ways in which Germany begs to differ. One, there is the Purity Law. It’s been obeyed for over 500 years. Two, until a few years ago a value brand – Oettinger – was the market leader. It has since been relegated to second rank behind Krombacher. But the eponymous privately-owned company is still one of the country’s major brewers. Can you please give me another rich country – emerging markets don’t count – where a no-frills value brand is the market leader?

On other counts Germany sticks out too. Its brewing industry has failed to conform to a general theory of how beer markets evolve over time to end up with six different price segments. Germany knows only three. What’s more, the industry has resisted nearly all efforts at consolidation. In total numbers, there were roughly 1300 breweries in 1995. Today there are slightly over 1400. On the face of it, the craft beer boom, which has boosted the brewery count elsewhere (the US has 6000, the UK 2000, Italy over 600) seems to have passed Germany by. Still, there is no denying that start-ups have compensated the loss of plenty of medium-sized breweries over the years as beer consumption per capita dropped 40 percent between 1990 and 2016.

How cheap can it get

If anything, it’s Germany’s beer price development that supports my argument of a Sonderweg. In the rest of the world brewers have consistently hiked prices, either because they sought to pass on rising input costs or because they wanted to improve their bottom lines. Not so in Germany. Here brewers have doggedly lowered theirs in the off-premise where four out of five beers are sold. In 2017, the big national pils brands like Beck’s, Bitburger, Jever, König, Krombacher, Radeberger, Veltins and Warsteiner, which consumers condescendingly call “TV beers” because they advertise heavily, flogged 80 percent of their volume on promotion at EUR 10 per crate.

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