The Czech brewing industry’s annus horribilis

Czech Republic | As if the first lockdown had not been bad enough for the country’s brewers, the lack of foreign tourists over the summer and a second lockdown in the autumn will prove an unmitigated disaster for everyone.  

“Mr Vaněk, how about a beer?” is the introductory sentence of Audience, a play from 1975 by the Czech author and first President Václav Havel (1936-2011). It is set in the brewmaster’s office where two men – the brewmaster and Mr Vaněk (originally played by Mr Havel) – are having a beer-fuelled discussion about life’s futility. Among the conversation topics, the brewmaster requests for Vaněk to write the secret police report on himself and two others. This absurdist drama is based on Mr Havel’s own experiences of working in a brewery.

The current reality in the Czech brewing sector is even more absurd and financially tragic than the dialogue in Audience. While Audience is a one-act play, reality in the Czech Republic is more like a four-act drama where the last act is still being written in December.

Prior to the covid-19 pandemic, Czech beer culture had been slowly emerging from its pub-centric past. Per capita consumption was around 142 litres and the majority (65 percent) of domestic beer went through the off-premise. Beer sales were dominated by the major brewers and the big chain grocery stores. The importance of pubs as a social institution declined. Meanwhile around 500 microbreweries had sprung up, giving Czechs a taste for beers other than pils-type lagers and taking a 2.5 percent share of national beer production (2019). What is more, Prague as a tourist destination for an estimated 8 million people annually (out of 10.8 million for the whole country in 2019) provided a considerable boost to the capital’s hospitality venues.  

Then came covid-19

Immediately, international travel, both coming and going, dropped. In the first quarter of 2020, the number of foreign visitors to Prague declined 30 percent to 870,000 – a drop that came ahead of the country’s shutdown in mid-March. 

The first shutdown began mid-March with restrictions only easing in May. During these three months, revenue in the hospitality sector plummeted to EUR 70.2 billion (USD 85 billion) per Nielsen data – a mere 40 percent of the revenue from the previous year. Not enough that restaurants and microbreweries took a direct hit, the global shutdown of the on-premise also affected Czech beer exports.

As severe as the drop was, brewers and publicans were able to partially compensate it with take-away sales of both food and beverages. Off-premise beer sales rose an estimated 15 percent. “We tried to help those with a take-away window by giving them free PET bottles and discounts on their purchases of canned beer,” said Denisa Mylbachrová, spokeswoman of Molson Coors’ Staropramen, the country’s number two brewer. Besides, the major brewers worked with pubs to remove any unsold beer and get refunds on the excise taxes. Luckily, brewers managed to shuffle their finances, while government relief programmes helped to protect jobs. “In the spring, out of four non-drunk beers in the pub (due to the forced closure), we managed to have one ‘spill over’ into the off-trade,” added Tomáš Mráz, sales director of Asahi Breweries’ Plzeňský Prazdroj, the country’s largest brewer.

Pseudo normality of summer

The easing of restrictions during the summer – travel, restaurant, and life in general – led to a boom in local tourism as Czechs took their vacations closer to home. A warm summer and open beer gardens saw an increase in both on- and off-site beer consumption. While this boosted local beer sales, international tourism remained substantially down, which foremost hurt Prague’s hospitality sector. Ultimately, it was only a pseudo normality. The Czechs may have largely escaped from the first wave of covid-19, but a second wave was building up and led to the country shutting down again in October.

Shutdown II

The second shutdown bit hard, with the complete closure of restaurants on 14 October. “For the second time in a year, we had practically the complete closure of one of our two sales channels,” said Ms Mylbachrová. As bad as the first wave of restrictions was, brewers are unanimous that the second wave is having an even more damaging economic impact. The Czech Association of Breweries and Malthouses, an industry body, estimates that the shutdown has cost up to EUR 150 million (USD 180 million) – even after pubs reopened in early December. With each week of shutdown, breweries’ losses in the on-premise increased by EUR 13 million.

There is a general agreement that the earlier hike in bottled beer consumption will be smaller during the second shutdown. “Even though demand for bottled beer is actually higher, it’s not possible for this to cover the losses from the sales of kegged beer,” said Martina Husková, Marketing Manager at Lobkowicz, a group of seven smaller regional breweries.

The second shutdown came with two additional snags: a ban on the consumption of alcohol in public and the autumn weather, making an outside beer, even if allowed, less of an enjoyable experience. “The mood is different. People are more worried about their jobs and their savings,” corroborated Michael Pomahač, Director of the Kytín microbrewery, 25 km southwest of Prague. “Business is always difficult and with the darkness and winter, covid-19 will prove deadly.”

Czechs are strung between covid fatigue and the legal restrictions. “Some people really don’t care, they know it’s a kind of influenza, so they are not that scared anymore,” explained Lucie Tkadlecová of the Únětický microbrewery and restaurant. “On the other hand, they cannot consume that much alcohol in public.”

Looking into the red

Brewers of all sizes are staring at phenomenal losses. “For medium-size and larger brewers, the drop in sales will be ranging from 20 percent to 40 percent; smaller breweries and micros could lose 30 percent to 50 percent in sales, while one in six mini-breweries expects a drop of more than 50 percent,” a release from the Czech Beer and Malt Association claims.

Brewers are also facing a wave of pub closures. “After the spring closures, just under 3 percent of our on-premise customers did not reopen,” said Staropramen’s Ms Mylbachrová. Her colleagues in the industry estimate that another 15 percent of outlets could close in the coming months.

According to Jan Šuráň, President of the Czech-Moravian Association of Mini-Breweries (ČMSMP), there has not been a wave of bankruptcies among his members yet. “There have been many sales and changes in the ownership structure. However, about 20 percent of restaurants have already gone bankrupt and mini-breweries have nowhere to sell their beer to.” He forecasts that production at the mini-breweries (with an output of less than 10,000 hl beer annually) will decline by about 30 percent (Prague 75 percent, countryside 10 percent). Of the 500 mini-breweries, 50 are in serious trouble, with 25 having already suspended their activities.

Covid ingenuity

Beyond the take-away windows, mini-breweries are ramping up their e-commerce efforts to make the last mile to their customers’ doors. “But each has its own e-shop, beer delivery and direct contact with the customer,” said Mr Šuráň. “It is expensive and insufficient.” So the Zachranpivo.cz (“Rescue beer”) initiative was launched by the Kytín microbrewery during the spring shutdown. 

“We had full tanks and we needed a way to tell people that we needed help,” explained Mr Pomahač. The project lists breweries wanting to sell beer with locations where the beverages can be picked up or shipped to.

After Kytin’s project proved a runaway success in the spring, the brewery registered another 350 microbreweries on the site. Despite high demand, Mr Pomahač is more guarded about its future. “It was our leisure time activity. In the end, it just became too much to administer it ourselves.” The site has been adapted so that microbreweries can manage their own offerings and services.

Alternative packaging might also get a boost from covid-19. Czechs have traditionally drunk their beer from returnable glass bottles or kegs. Now microbreweries are helping to make PET bottles, usually one litre in size, become an acceptable package for high-end beers. The same applies to cans. Both PET bottles and cans already have a market share of 12 percent. The Únětický brewery has added a canning line to its rudimentary PET bottling line. “PET bottles have become our standard container, now we are trying cans,” announced Ms Tkadlecová.

“Tear down those laws”

The closure of pubs and restaurants is problem number one for the brewers’ trade body. As the pandemic wore on, the association has worked on a list of changes it has submitted to the government. It includes compensation for unsold beer, support for restaurants and pubs, and a VAT cut on take-away services. In addition, they have joined forces with other industry and health groups for “The Safe Restaurant” initiative, which seeks to unify hygiene standards so that pubs and restaurants can fully reopen.

These protests may have been heard. As of 3 December, the Czech Republic switched from the strict Level 4 (on a 1-5 scale) shutdown to the more moderate Level 3, where restaurants and pubs can open in restricted mode with a maximum 50 percent of capacity, 2-metre distance between customers, and shut down early at 22.00. Brewers had less than a week to resupply the pubs.

But less than two weeks later, the government mulled changing back to the stricter Level 4 shutdown, meaning pubs and restaurants will only be allowed to serve take-away.

As 2020 draws to a close, the final sentence of Havel’s drama could equally summarise the year for Czech brewers: “It’s all fucked up.”