Czech brewers unlikely to follow price hike lead

Related tags Plzensky prazdroj

Last month Plzensky Prazdroj, the biggest Czech brewer, announced
that it was to hike the price of all of its domestic beer brands,
reversing a reduction made in May. But fears that other brewers
would follow suit appear to be unfounded.

Plzensky Prazdroj said that it had re-evaluated the price of its beer brands to take into account increases in energy, fuel and some raw materials' costs.

As a result, a 0.5 litre bottle of the comapny's biggest selling brand and Czech market leader Gambrinus now costs CZK9.90, some 18 per cent more than in 2000, a year after the company was bought by multinational brewer SABMiller.

Since 2000, the brewery's new owners have increased prices for Gambrinus three times, in 2001 and twice in 2002, but have also reduced prices once (in May this year, to take into account a reduction in the Czech VAT rate).

The current price for Gambrinus is the same as that prior to the May reduction, a level which has remained all but constant since December 2002.

Other PP brands include Radegast, Velkopopovicky Kozel, Primus and Klasik, although the best known of these is Pilsner Urquell, the international premium brand of SABMiller. A 0.5 litre bottle of Pilsner Urquell now costs CZK17.90, some 13 per cent more than in 2000. The company first introduced this price point in March this year, before reducing prices to CZK17.50 in May, only to increase the price again in November.

The company said that the average increase for its packaged beer brands was 2.5 per cent, while draught beer prices were on average 5 per cent higher.

Despite the relative continuity in pricing over the last couple of years, most Czech consumers fear that beer costs are set to grow further in the coming months, according to a recent survey by the CVVM market research agency. Just 3 per cent of respondents said they believed that price hikes were unlikely.

The Czech Republic's beer market is polarised between a couple of large brewers (Plzensky Prazdroj and the state-owned Budejovicky Budvar) and more than 30 smaller, local players, and some observers have expressed their concern that price fluctuations by the larger, international groups, could push some smaller players out of the market.

Most of the smaller brewers are already obliged to sell their beer at a higher price than PP's brands as they do not have the operating efficiencies and economies of scale to keep their margins high, and so any price cuts by the major brewers tend to hit them hard.

Price increases by the big groups are easier to cope with for the smaller players, however, and certainly none of them has felt the need to follow PP's lead and raise prices. Even Budvar, the biggest national rival to PP, is not preparing to lift prices, having already increased its price in May, in line with its annual policy.

In any case, most of the small breweries do not really consider themselves as competitors of the larger brewers, believing instead that other local brews are their main rivals. This sentiment appears to be shared by the majority of Czech consumers, most of whom feel that the smaller companies are not under threat from the larger rivals as they are increasingly focused on the international market.

Czech brewers last year made 18.5 million hectolitres of beer, up by 0.5 million litres on the previous year. Czech beer drinkers guzzle their way through more than 160 litres of beer every year, more than any other nation in the world.

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