New tales in the land of lager

An upstart brewer is betting that it can burnish the Czech and Bohemian name with a dose of Western style marketing technique and some boutique non-lager brews. The new company’s dreams, at least on the surface, fly in the face of declining Czech exports to Germany and the United States. But, the Two Tales brewery says that trends are moving its way. “No one has ever taken Czech craft brewing and matched it with Western-style marketing,” argues Se Padilla, co-owner and co-founder of Two-Tales.

Mr Padillo entered the brewing business from the hospitality side. A native Californian, he came to the Czech Republic 14 years ago, owning or operating several bars after his arrival.

Five years ago, he started the Beer Museum, a restaurant near the centre of Prague with 30 local and imported beers on tap. “This was at the time when the small, local Czech breweries were starting to rebound,” remembers Mr Padillo. “And I noticed that even Czechs were willing to pay 68 crowns (around EUR 2.50) for a half-pint of an IPA.”

This was an eye opener from both a product and a pricing perspective. Czechs are notoriously fussy about their beer. After all, theirs is the country that put Pilsner, Budweiser and Michelob beers on the map. Czech beer consumption, now averaging 144 litres per capita, is almost all lagers, clocking in between 10 and 12 degrees Plato.

Only 4.7 percent of the local beers consumed last year weren’t pilsner-style lagers – and most of this segment was made up of dark beers. But Mr Padillo found that Czechs were not only willing to try a beverage with a decidedly different taste profile than their traditional brews. They were also prepared to swallow a hefty premium. Paying 68 crowns five years ago was easily double what a Pilsner Urquell – the primary A level beer in the Czech Republic – would have set the punter back at that time.

The dream came out during a midsummer 2011 BBQ with Mr Padillo and his friend and business partner Jan Martásek. “We were outside drinking IPAs, then we thought … we should make this … we know brewers, we know marketing...” he remembers.

What the two did not have – and still do not have – is their own brewery. Two Tales’ promotional material gives an upscale Prague Vinohrady address for the brewery. But, this is just the head of their business operations. The beer is actually produced under contract at the Konrad brewery, 110 km to the north of Prague in Liberec.

“We are what Czechs call a flying brewery,” explains Mr Padillo. The Konrad connection has financial and operational benefits for nascent brewers. On the financial side, it gives them low cost access to essentially unlimited brewing capacity: “The brewery facility was working at 30 percent of capacity and they had room.”

Then he mentioned the operational advantages: “The facility had been recently renovated and their copper tanks refurbished. They had the space so we could do the top and the bottom fermentation in separate buildings, which meant we didn’t have to worry about cross contamination.”

Two Tales has six beers in its portfolio: three lagers, two ales, and one non-alcoholic beer. “It took us about a year and a half to plan and get the recipes right,” says Mr Padillo. That process included finding the right selection of local Saaz and imported hops and tweaking the process of brewing IPA beers in the traditional open lager tanks at a slightly higher temperature.

They also tapped the expertise of Jan Suran, President of the Czech and Moravian Association of Microbrewers and operator of two microbreweries in Prague, to oversee their brewing.

Industrial brewing started in mid-2013 and both exports and local sales have started. In the first operational year, split between 2013 and 2014, beer production was around 30,000 hl. About 95 percent of sales are abroad with exports headed to Thailand, Sweden, Hungary, and Slovakia. The next big step is the U.S. market, following approval from the U.S. Food and Drug Administration starting in November. The first U.S. stop will be Miami, followed by San Francisco and Chicago.

“It’s a lot more difficult than we thought. The administration takes about 90 percent of the time and we’ve already hit a few walls,” Mr Padillo points out. “On one hand, there is a lot of hard work, while on the other hand we have had a phenomenal response.” Their goal is to reach the 70,000 hl mark within four years and sell upwards of 10,000 hl in the Czech market.

They aim to be a boutique brewery only – not a location. This sets them apart from the nearly 250 Czech microbreweries that sell most of their production on site or have limited distribution around the smokestack. “The customers are different. And we are not looking to open restaurants or bars,” Mr Padillo adds.

Two Tales is, perhaps, a symbol of where Czech beer exports could be heading. In 2013, Czech beer exports grew 9 percent to reach 3.54 million hl – an increase of 291,000 hl according to data from the Czech Association of Brewers.

While the EU market grew, its share of exports dipped three percentage points to 77.7 percent. The biggest increase was in nearby Slovakia, the largest decrease was in Austria, and the largest market of Germany was slightly down.

Outside of the EU, the Russian market was up 30 percent year-on-year and the U.S. dipped 19 percent. The most interesting growth was, apart from Russia, in countries such as Moldavia that have been traditionally off of the Czech breweries’ export map.

While exports are still dominated by lagers (74% share), the share of specialty beers grew during the year by 17 percent to take an 8 percent slice of the market.

Where Two Tales might find a bigger challenge is in its home Czech market. Czech drinkers are going back to the basics with their beer – and they are increasingly drinking it at home. On-premise consumption has dropped to 41 percent, the lowest level recorded. For a country with an established pub culture, this is a huge change. And Czechs are going back to basics also, returning to 11 and 12 degree lagers. Hence the biggest losers were specialty beers (down 18%) and radler mixes (way down by 40%).