Size matters — small is big

I bumped into the head brewer of a renowned and respected family brewery in the south-east last week and asked the inevitable question: "How's business?" "It's good," he replied, "but the one thing that amazes me is the steep decline in sales of premium lager."

The following day the landlord of a large pub on the tourist trail in my home town of St Albans had the same story to tell. As I approached the bar I got that tingle of anticipation at the sight of a pump clip announcing Black Sheep Best Bitter, a beer from North Yorkshire not often seen in my part of the forest.

"Sorry," the guv'nor said, "it's finished. I can't get enough of it. A cask is drunk dry in a few hours." His lager taps have diminished in number since I was last there. "I've chucked out Carling and Foster's," he said. "I've still got Grolsch but sales are slow. My biggest seller is Staropramen."

Those five words — "my biggest seller is Staropramen" — neatly sums up the reasons for the tumultuous events in global brewing in recent weeks. Staropramen is a Czech beer brewed in Prague and owned by InBev. In common with most Czech lagers, it's a full-bodied, rich-tasting beer with good malt and hop character. It's a million miles removed from most of the so-called premium lagers produced under licence in Britain, which have little in common with a true-brewed central European beer.

It will not have escaped your notice that InBev has just bought Anheuser-Busch (A-B), the giant American brewer that owns the world's biggest beer brand, Budweiser. It's difficult to believe that A-B, with its brash all-American eagle symbol, has sold out to a company owned by Brazilians and Belgians. But the sale has been driven by two key factors: the decline of mainstream lager beers in western countries and the rich pickings to be had in the emerging markets of the Far East, Russia and the Baltic States.

The United States, in common with Britain, is experiencing a downturn in sales of mainstream lagers. In the US, there are now 1,200 small craft breweries and they account for more than 10% of the beer market.

In both countries, drinkers increasingly are looking for beers with flavour and character. The result here was that sales of InBev's Stella Artois fell by 10% last year, while members of the Society of Independent Brewers (Siba) recorded average increases of 11%. No wonder the family brewer I spoke to had a smile on his face.

The response by giants the size of A-B and InBev is to huddle together in the belief that sheer size will start to drive their sales up again. I have grave doubts that such a strategy will work. InBev has said Budweiser will be its main brand but Bud, with the best will in the world, is a beer that takes blandness to new heights — or depths, depending on which direction you are going. It's not the beer to stimulate jaded palates.

But I write that from a western perspective. In the eastern regions of the world, western beers — however bland — are seen as iconic, part of the promise of a better future.

In Russia, where beer was an also-ran to vodka during both the 19th and 20th centuries, western beers are seen as a vital element of the new, modern society emerging from the drab days of the Soviet period.

Earlier this year, Carlsberg and Heineken carved up Britain's last large national brewer, Scottish & Newcastle (S&N), with the main aim of taking over and building on S&N's major presence in Russia, Finland and the other Baltic States. Both InBev and A-B, which have been slow out of the blocks in the Far East, will now aim to battle with Carlsberg and Heineken in that major market.

The importance of the A-B/InBev merger can be seen in one simple statistic: the new group's power leapfrogs it to number one in China, up from fifth place. Within a year or two, China will become the biggest brewing and consuming nation on the planet and A-B/InBev wants to remain the biggest producer there.

One company that can rest content on its collective bar stool these days is the Czech brewer Budweiser Budvar. As a result of its long-running and insanely expensive legal battle with A-B over the trademark rights to the name Budweiser, it seemed certain that when Budvar is eventually privatised by the Czech government it would be bought by A-B. No other brewer would wish to take on the ruinous legal costs of contesting the trademark dispute.

InBev now owns American Bud but is unlikely to buy Budvar as the Czech Government would almost certainly block the sale. As InBev already owns Staropramen, the addition of Budvar would give the group too much dominance in the Czech market.

So Budvar can breathe more easily and bask in the knowledge that its domestic sales rose 4.7% last year, further evidence of the way in which consumers are switching from the insipid to the flavoursome.