Cheap beer paradise

It’s a miracle. In 2015, German brewers are estimated to have sold as much beer as in the previous year (95 million hl), without there having been a special “beerable” event like the World Football Championship in 2014. Actually, it’s not a miracle at all. German brewers just did what they have been doing for long: they notched up the promotion rate. During the first half of 2015, Germany’s top 10 pils brands sold 76 percent of their volume on offer. In 2010, only 60 percent of their volume was sold at a discount.

Promotion figures for the second half 2015 are not out yet, but any shopper will confirm that throughout the month of December all beers were sold at a discount, which probably allowed German brewers to collectively limp into the black.

Limp indeed because how much profit will they have made as the average promotion price was only EUR 10.35 (official retail price EUR 12.76) for a 10 litre crate of beer? (EUR 10.35 = USD 11.21)

With pils beers dominating the market, German pils brewers have chronically suffered from “discountitis”. But it looks like brewers of wheat beer have caught the bug too. Almost 57 percent of the country’s major wheat beer brands were sold at the bargain price of EUR 12.18 (USD 13.20) per 10 litre crate, compared with the official retail price of EUR 14.28 during the first half of 2015. That’s up from 34 percent of promotion volume in 2010.

Low pricing was one of the means that allowed German brewers to cosmetically improve their volume sales: pushing canned beer into the discount channel was another.

Gone are the days when German brewers did “qualitative distribution”, aka avoided selling beer to the discounters at rock bottom prices by setting their wholesale price at such high levels that the discount kings Lidl and Aldi walked away blustering. These days all the major German brewers seem to have embraced the push strategy, even if it means subsidising their own sales.

Consumers will have been pleased. Weighted average retail prices for pils beers have declined since 2007, despite two rounds of “official” price increases. These price increases only temporarily hiked the price of beer, as the chart shows.

Insiders say that German brewers need annual price increases to run their business sustainably. But will German brewers heed their advice? They did not do so in the past.

Average retail price for German pils (10 litres) in EUR

*after an official price hike

Source: GH estimates