Three crisis years with the microbreweries hurt, but did not put them down. On the contrary. Although a number of small breweries are on the brink and dozens of craft breweries had to close, their total number increased year-on-year and jumped over five hundred. There are three times more than ten years ago. As a result, the Czech Republic has become a paradise for microbreweries and now ranks among the countries with the biggest number of small beer producers per capita.
Behind the gradual increase of microbreweries – which, by definition, is a business whose displays do not exceed 10 thousand hectoliters – is the interest of consumers in specific beer and the desire of individuals and companies to invest. nonetheless, the founder of Jarošovského pivovar Miroslav Harašta says that after an era of expansion, the industry is now entering a period of consolidation. “It will be difficult for all microbreweries. We have to work hard not to fall into a microbrewery recession,” he adds.
Concerns are justified. The president of the Czech-Moravian Union of Microbreweries, Michal Voldřich, says that microbreweries face unstable business conditions for a long time, mainly due to government decisions. In the past, for example, it was about the step-by-step introduction of a smoking ban in pubs, and more recently about dances around electronic records of sales. “Every year some government gives us some unexpected change. It’s one pointless step after another. Try to take a loan and develop a business under these conditions,” says Voldřich.
How to stand out from the big guys
Now with representatives breweriessmall and large, are most afraid of the planned increase in VAT on draft beer from 10 to 21 percent, which is part of government consolidation package. A June survey of members of the Czech Association of Breweries and Malthouses showed that more than four-fifths of breweries are worried about the acceleration of the outflow of guests from pubs and restaurants and their closing, especially those in villages. According to a survey by Plzeňské Prazdroje, five percent of pubs want to close after the VAT increase, and another tenth are considering it.
Roman Havlík, chairman of the Czech Association of Breweries and Malthouses, says that in order to support gastronomy and Czech beer culture, it would be positive to maintain a lower VAT. “Three years ago, the government reduced the VAT rate on draft beer in order to support the gastronomy affected by covid. The situation of pubs and restaurants in smaller towns and villages has not significantly improved since then. They are no longer closed, but the increase in costs and the outflow of guests have a similar effect,” says Havlík.
Czechs are still among the world’s top drinkers of golden juice, even though last year they drank an average of 34 pints less than in 2009. The place where they drink it has also fundamentally changed. In the mentioned year, almost half of the beer was still consumed in pubs and restaurants, last year it was only 31 percent. Even the microbreweries themselves perceive the change in consumer buying behavior and new consumer habits as a big threat. Increasing the price of draft beer by ten percent or more will further strengthen the change in consumer behavior.
People are already limiting their visits to pubs and restaurants and often try to spend as little as possible. And the breweries feel that. “Most of the restaurants to which we supply beer show an organic decline of between 12 and 15 percent. Unless something unfathomable happens, this year will be similar to last year for us. It will be mainly due to the increase in awareness of the Cvikov beer brand and a positive balance in the acquisition of new customers ,” says Jan Brusch, director of operations at Cvikov Brewery.
Brewers point out that the pub is gradually losing its social dimension, and this is poor for them. They tend to have higher margins on kegs than beer sold in stores. “Social networks, festivals and clubs are enough for younger generations. Older people have become accustomed to garages, carriage houses and fire stations in the two years of covid measures. Beer bars with a wide range of beer styles are a bit more interesting for young people,” says Jan Charvát, founder of Prague’s poor Flash brewery.
This is one of the possible ways that small breweries can differentiate themselves from the big players. It was not possible to compete with them on price even before, let alone at a time of extreme price fluctuations in costs. “Big breweries will always be more efficient, but we supplement the market with specialties and regionalism. There are beers that cannot be produced on a large scale, and at the same time there is a group of brewers who love and demand these specialties. That is why I think that beer from microbreweries he will find his enthusiast,” says Voldřich.
nonetheless, smaller brewers rate their current situation a bit better compared to last year. After cooler weather in May, June and July were followed by warm, true “beer” weather, and a number of microbreweries are reporting decent wholesale sales. Gone is last year’s griping uncertainty as to whether there will be enough gas and how high energy prices will climb. The imaginary winner was microbreweries, which maintained their fixation during last year. Those who had to switch to spot prices were bleeding.
Energy is a key cost item for a brewery, and according to Harašta, it will be difficult to reduce energy consumption in breweries. “In our operations, energy costs are around 500 crowns per hectoliter. Any savings in this area are very important for profitability, on the contrary, the increase in the price of energy inputs has a fundamentally negative effect on it,” he says.
Some breweries obtain part of the necessary electricity from renewable sources, for example from their own photovoltaic power plant, or heat using heat pumps. But that is not enough. “You still have to cook somehow, and steam is and will be key for the brewery,” says Harašta. Microbreweries approach this in different ways, for example, they even started brewing beer at night. They brew several batches in succession so they don’t let the kettle cool down. The most energy is consumed during heating. Then they take a break and start again in a few days.
“When we designed and built the brewery, we tried to keep energy and water consumption as low as possible. nonetheless, at today’s prices, energy and water account for the biggest share of all beer production costs. For example, our best-selling beer costs twice as much energy compared to the cost of raw materials,” says Robert Franěk, head brewer of the Libertas joint-stock brewery in Úvaly near Prague. Regular lager is usually brewed for 90 to 120 minutes, then the entire volume is cooled and left to sit in tanks at near-freezing temperatures for several weeks.
nonetheless, even the raw materials for beer production are becoming more expensive. Malt prices rose the most during last year. They increased by 80 percent in a few steps. “So far this year, prices are stable, but at last year’s level. Most likely, the price of hops will rise, it will depend on the outcome of the approaching harvest. But I don’t think the increase should be dramatic. For malt, I expect a drop in prices in the fall, although probably only a slight one.” says Charvát from poor Flash.
Making production cheaper is now only possible thanks to investments in more modern technologies, using better materials for boilers or tanks or pumps with lots of new measuring elements. Brusch from Pivovar Cvikov says that the success of the brewery directly depends on investments. “Two years ago we acquired a professional bottling line, we are currently starting up our own yeast promotion station and soon we will start our own laboratory to keep everything under control,” says Brusch.
Industrial breweries have it a little easier thanks to the higher exhibition. They reach for lower unit prices and have a better chance that, for example, the investment in the use of residual heat will return to them in a reasonable time. Nevertheless, even large breweries, such as Prazdroj and Budvar, raised prices by around ten percent last autumn. Some smaller breweries raised prices more, but in gradual steps.
Microbrewers generally agree that replacing raw materials with cheaper ones is out of the question. “We don’t want to speed up the maturation of the beer, or even use substitutes for raw materials during brewing, i.e. hops for extracts, malt for sugar, or even brew a stronger beer and then in the finished stage, to put it simply, dilute it with ‘soda’,” says Volt Martin, the brewer of the Jablonec Brewery Palouse.
Complete article you can read in the current edition of the weekly Ekonom.
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