On-trade sales slide as the country goes micro

The Czech brewing industry is a mix of good and bad news. First the bad news: Czechs are drinking less beer and more of it at home. And now for the good news: they are still the world leader in beer consumption and they are drinking a larger variety of brews as microbrews move into the hospitality sector.

Overall per capita consumption has dipped to 144 litres and the on-trade’s share of beer consumption has slid to a historic minimum of 41 percent.

But, there are now an estimated 230 microbreweries in the Czech Republic. More are coming with the Czech and Moravian Microbrewers Association forecasting the numbers to reach 250 in the next year or so.

In the Czech scheme of things, a microbrewery is typically combined with a restaurant, has an average annual production of 750 hl, and has almost all sales on site. With a total estimated production of 160,000 hl, microbreweries have a tiny 0.84 percent share of the country’s annual 19 million hl of beer consumption. While they may be virtually invisible in the overall beer statistics, they are becoming more visible in the restaurant sector.

Interestingly, microbreweries are growing in a hostile environment. An increase in consumption taxes is blamed for a major change in beer consumption habits: Czechs are cutting back on pub visits with more brews consumed at home in front of the TV. While Czech beer consumption is still at the top of the world, the 41percent consumed in restaurants is far below the nation’s longtime 50 percent average. Blame it on the price difference between pubs and supermarkets. Prices have split dramatically in recent years even for mainstream beers. A beer that costs CZK 15 (USD 0.72) at the local grocery store can easily cost CZK 30 (USD 1.44) at the local pub.

Nevertheless, Czechs began developing a taste for different beers a few years ago when mainstream brewers introduced radlers, Czechs traveled more, and microbreweries pushed the glass so to speak. “When we started about 15 years ago, our mix was 70 percent light pilsner type, 20 percent dark, and 10 percent specialty beers such as banana and cherry. Now it is 50 percent light, 20 percent dark, and the specialty beers have grown to 30 percent,” pointed out Jan Šuráň, head of the Microbreweries Association and operator of the Pivovarský dům restaurant/microbrewery. “People are capable of change.”

Overall, specialty beers had a 4.7 percent share of the total market in 2013, with their share dipping from the all-time high of 5.3 percent in 2011. In the Czech context, a specialty beer is everything but a 10-12 degree plato pils type lager.

There is a lot of room between the tax code definition of a microbrewery and the actual microbrewery production average: Less than 10,000 hl versus 750 hl, respectively. This difference shows the go-to-market strategy of the Úneticky microbrewery/restaurant located just outside of the northwest corner of Prague. The small historic brewery/restaurant site was revived in 2011. “But, the majority of our beer is sold in Prague -- this is our market,” pointed out commercial director Miroslav Papík. While still under the 10,000 hl limit, they are available in over 90 Prague pubs and restaurants.

If a microbrewery’s success depends on getting a consumer to pay more per half litre, this leads into the next microbrewery issue: is this consumer going to be a Czech or a tourist? At first glance, the Czech microbrewing scene is driven by thirsty tourists. Each year, the country is “invaded” by over 12 million visitors -- split almost evenly between the EU and the rest of the world -- according to Eurostats. This invariably has a sizable influence on beer consumption. It is estimated that tourists are responsible for about 10 percent of the country’s beer sales.

The epicentre of tourists’ interest is the capital city of Prague. Some of the more famous Prague microbreweries are tourist driven, if not outright tourist traps: Novoměstský pivovar, Pivni dum, U Medvídků, Sv. Norbert Strahovský monastery, even U Fleků dating back to 1499. Tourists may be able to more easily swallow the price differential of a microbeer. “Yes and no,” says Mr Šuráň. “Balancing the flows is important. No tourist wants to sit in an empty restaurant, so you really need local customers.”

Some microbrewery owners have also combined tourist businesses with their beer interests, bringing in tour groups or providing accommodation. Off the record, some microbreweries will admit that the tourist segment is what keeps them afloat.

Fortunately, some microbreweries demonstrate that microbrews are not just for tourists. Slaný (Salty in Czech) is a small city, a 30 minute drive northwest of Prague with 15,000 inhabitants and almost no tourist traffic. It’s a blue-collar mining town, which means its people are price sensitive and resistant to innovation. Now there is Antos. Located within the former medieval brewery, Antos sports its history on the label: Established in 1536, reopened in 2010. They serve a large range of beer types. This is a remarkable change for a town where 12 years ago it was almost impossible to find anything but Krusovice (now part of Heineken) or Pilsner Urquell on tap.

Antos shows that the success of a microbrewery is not just the brew, it is in what goes along with it: food, service, and music. For food, Antos has a meat-heavy menu popular with carnivorous Czechs. Its Facebook page lists daily menu changes and product promotions. The restaurant exudes good service and charm -- a missing feature in much of the Czech service sector.

This combination is continuing as Antos’ managers leave to set up a new restaurant in town -- Továrna Slaný. Its beer now comes from the Únětický microbrewery/restaurant but there are long-term plans to install a microbrewery inside -- after the outside beer garden and upstairs dancing hall have opened.

The future plans of Továrna Slaný show the promise and the potential issues for microbreweries in the Czech Republic. From the consumer side, a microbrewery needs to have food, an inviting environment, and perhaps even social events. One could even say that these accompanying elements are more important than the beer.

Then there is the operational issue. Is it better to set up one’s own microbrewery with all of its operational demands and headaches, or just to get beer made by another microbrewery that is far enough away to not diminish the marketing appeal?

So there you have it. With the freedom of choice -- and a new awareness of the options -- Czechs are drinking different beverages than their beloved pilsner-type beers. And as disposable income slowly rises, they are willing to pay more for a microbrew -- provided it comes in an attractive environment.