Source: Irish Business Post – Post.ie
Sunday, 25th Sept, 2011
As Irish beer consumption continues to decline, Germany’s Erdinger is targeting growth in the market despite tighter margins, according to chief executive Werner Brombach.
Germany’s largest private beermaker is up against higher input costs and more frugal consumers, but management is betting that the Irish appetite for the kind of speciality beer Erdinger makes hasn’t gone flat in the recession. ‘‘We are growing slowly,’’ said Brombach.‘ ‘We have found more and more friends for Erdinger. We have very good partners here. We think we can continue to grow.’’ The 125-year-old family business is not a high-volume producer it makes 1.5million hectolitres of beer each year, most of it for sale in Bavaria but is targeting the discerning, upmarket beer-drinker in its 80 export markets, including Ireland.
‘‘We want to serve a good beer in the right market,’’ said Brombach. ‘‘We are a niche product, and we are not cheap. It’s very difficult to make volume, but we are content.’’ The premium brewer first brought its floral, top-fermented weissbier to Ireland in 1998 and distributes in select pubs and off-licences. The expensive brew will never challenge the mass-market brands like Heineken and Carlsberg, but Brombach is wary of getting sucked into a scrap with competitors that can underprice his product. ‘‘Every big player is all marketshare and volume,’’ he said.‘ ‘The price goes down and nobody is earning anything. We want to make a nice business and brew good stuff.
‘‘It’s hard work. The pub owners know Erdinger is not cheap in the supermarkets, and its customers are accustomed to a certain level of quality. It costs a lot, like good wine.’’ Erdinger is expensive compared to the big brands, but Brombach has kept prices frozen since 2008, even as the price of agricultural commodities has soared due to supply shocks and emerging market demand. But this has affected margins, and Brombach said prices would have to go up next year to compensate for high input costs.
‘‘Next year, we will have to correct [prices] a little,’’ he said.‘ ‘[A price rise of] 2.5 cent per glass is on the table. In the last years, the costs have been increasing. It’s a big challenge for us because net profit was going down, but we were increasing the volume.’’ The company thinks it canmaintain and even increase market share in Ireland and is betting that its Irish customers are not as price-sensitive as the typical beer drinker. ‘‘The speciality segment is normally not affected by economic problems,’’ said export director Waltraud Kaiser.‘ ‘We are at quite a high price level, so there is a certain clientele we are approaching. This is why we’re not a mass product. It’s not as affected by economic forces. We’ve seen this in other markets.’’ Erdinger is actually trying to occupy the same niche for beer as unpasteurised cheese ororganic grassfed beef in other words, the ultimate brew for foodies.
Brombach carefully sources wheat and barley from producers in Germany and France, and specifies fertiliser limits in his contracts with the farmers. He also has the benefit of Germany’s traditional brewing laws, which restrict chemical additives and preservatives. ‘‘Everybody is searching for more natural products, and this is one of the most interesting laws for food,’’ Brombach said.‘ ‘I am convinced we are offering a healthy product.’’
Brombach jealously guards the quality and will not allow Erdinger to be licensed all the weissbier is made in the town of Erding, 20 km outside Munich.But the company is intent on bringing it to the rest of Germany and the world beyond. Exports have grown to 15 per cent of revenue. When most people think of successful German companies, names such as Siemens and Mercedes come to mind.
But the real backbone of the country’s economy is so-called Mittelstand companies such as Erdinger, with its 500 employees and strong local market. Brombach said this kind of industrial development held lessons for Ireland and the rest of Europe.
‘‘In a free market, we must support above all the middle industry,’’ said Brombach. ‘‘About 65 per cent of Germany’s national income is from the Mittelstand, not from Mercedes and Siemens and so on. Many people are employed there, in their own towns they can’t just move to the next country and start producing there. This is the strength of Germany but, for Ireland, it’s a long way away.’’