Bud buddies up to Budvar
Call this the first sign of a political thawing between Anheuser-Busch and the state-owned Czech brewer Budejovicky Budvar? Or are they both seeing sense – economic sense, that is? Whatever their reasons, both rivals have come to an agreement which focuses on the U.S. beer market. The terms of the deal, which went into effect on 5 January 2007, were not disclosed.
The agreement over the Czechvar brand, which Budejovicky Budvar launched several years ago for sale in the U.S. market, seemingly out of desperation as they cannot sell their brand Budvar in the U.S., does not have any impact on existing litigation or trademark disputes between the two brewers in other countries.
As if to prove this point, a few days after the deal was announced, Europe’s top human rights court rejected a bid by Anheuser-Busch to wrest control of the Budweiser brand name in Portugal from Czech brewer Budejovicky Budvar.
Market observers in the U.S. have argued that the agreement is the latest example of the St. Louis-based brewer’s aggressive push into the high-end and import beer category, whose sales are growing faster than domestic beers such as Anheuser-Busch’s Budweiser and Bud Light, which is the top-selling beer in the United States.
Anheuser-Busch already imports Grolsch from the Netherlands, Tiger from Singapore, and Kirin from Japan. It recently announced a deal with InBev, which gives them exclusive rights to distribute InBev brands such as Stella Artois, Beck’s, Bass Pale Ale and Hoegaarden in the United States.
What is the game plan of the Czech Budvar Budweiser brewery? That is what Czech consumers, on the other side of the Atlantic, are wondering about, writes Lyle Frink from Prague.
To them, the no-fee agreement has been presented as a win—win on both sides. “We have accessed a large distribution system on the market, which is sure to substantially grow in the following years. Moreover, we are going to take advantage of our partner’s knowledge and experience regarding the market conditions in the individual states,” said Budvar’s spokesman Petr Samec.
From the marketing side, the deal has its logic. The Budvar brewery is dependent on exports. Of the 1,151,000 hl of beer brewed in 2006, 48 percent were exported. Export growth of 8 percent also outpaced total growth of 5 percent.
The unclear logic comes with the historical baggage. The two breweries have had a transatlantic legal war over rights to the Budweiser name since 1911. And, the deal only applies to the U.S. market, and does not impact any other of the ongoing trade disputes between the two brewers.
“The agreement represents an historical turning point between our companies. We have managed to move away from discussions between lawyers and towards a practical dialogue, which is going to be beneficial to both sides. Our corporation has therefore gained the best importer in the USA,” said Budvar director Jiri Bocek
Absurd as it may sound - perhaps both sides have learned that the trademark dispute is good business for both of them.
Budvar itself is a historical oddity. Nationalised during the communist period, up to 80 percent of output was exported, creating a brand that the Czechs knew about but could not find on the shelves. The brewery is owned by the Czech Ministry of Agriculture but has been managed since 1990 by the same internal group that once tried to buy it. The trademark dispute with Anheuser-Busch is a huge component to the Czech brewery’s local and international identity. A recent Czech slogan states: “The most exceptional value we have.”
Even Randal Dillard, the mastermind behind Nomura’s consolidation of a 50 percent share of the Czech beer market, remembered Budvar management once having a protest outside of the Ministry in the early 1990s as they attempted to privatise the brewery to themselves.
When it comes to privatisation, Budvar management has helped thwart at least two attempts by Anheuser-Busch and one backdoor attempt by a Nomura-controlled bank to buy a stake in the brewer. CAMRA, the UK beer advocacy organisation, also helped strengthen Budvar’s management’s position that no privatisation – to outsiders - was really needed.
Unlike most businesses, where owners set visible goals in terms of profitability, market share, or sales, the Ministry keeps their hands off Budvar. “The targets are settled by the Supervisory Board but they are not public,” said Samec. The Ministry also put the kibosh on any privatisation of Budvar as long as the trademark dispute with Anheuser-Busch was not solved.
This creates an unusual collection of management incentives. To retain their position as the holders of a national treasure, they need to deliver profits to the state treasury, buttress the brand’s market position, keep the dispute with Anheuser-Busch alive, and, and of course, be in a position to buy the brewery.
Budvar management has fought a defensive battle. They have never challenged the agreement with Anheuser-Busch signed in 1939 that booted Budvar out of the North American market. Neither did they try to buy Budějovický měšťanský brewery, the “other” brewery in Ceske Budejovice with rights to brew a Budweiser lager. Bocek said at the time that Budvar was not permitted to go and buy another brewery.
Even with the American market opening up, Budvar still has ongoing litigation to worry about. The Budvar “Hokejiáda” campaign with two British beer louts is still in the courts. While this Olympic parody managed to pass local scrutiny by both the Trade Office and the Radio and TV Council, the Czech Olympic Committee has been less amused and has filed suit against the brewer.
Then there is the ‘trifle’ issue of distribution in Germany. Budvar yanked distribution from its former partners in Germany and established a subsidiary Budweiser Budvar Importgesellschaft mbH (BBI) in Erfurt. This led to court action. Nevertheless, Budvar defends its decision by pointing out that exports to Germany grew 5 percent last year to reach almost 190,000 hl of beer.
And finally, there is the problem of the state budget. Despite record economic growth expected to hit 6 percent in 2006, the Czech consolidated budget deficit is 3.5 – 4 percent. “It’s too high, but similar to France or Germany,” said Patria economist David Marek. This could be enough to make some legislators wonder why the government is selling bonds instead of a brewery.
Could this be why the Budvar recently selected Weber Shandwick as its local PR agency? At least in the local market, this is an agency better known for governmental lobbying than for accelerating the sale of FMCGs (Fast Moving Consumer Goods).
