German brewers have long been wary of price increases.
When King Ludwig 1 raised the ale tax to 8% in 1844, riots broke out between the workers and the army in Munich that lasted for three days. But Johannes Faust and his 1,500 partners scattered across the country may soon have little choice.
Faust has been brewing beer on the banks of the River Main in northern Bavaria, hidden among half-timbered houses in the historic center of the small town of Miltenberg, for 30 years. The CEO has never seen his expenses skyrocket on this scale.
The malt family-owned brewery Faust has acquired from local German producers since it started brewing in 1654, will soon double its prices. Russia’s invasion of Ukraine has affected grain supplies from the two countries, which together produce more than a third of the global barley market.
The brewery also pays at least a third more for its glass bottles, along with 50% more prices for plastic containers and more than three-quarters for metal bottle caps. Energy, transportation and staff costs are also increasing. “I’ve never seen inflation like this,” Faust said.
This brewery, like many in the country, has been able to protect customers from higher costs thanks to long-term supply contracts. The double malt price he just agreed to is for supply next year, while its two-year energy contract means its electricity prices won’t rise until 2024.
However, unless costs fall rapidly in the coming months, higher prices for the country’s beer drinkers look likely to follow. “For many companies, this is becoming an existential threat,” said Holger Eichele, head of the German brewers association.
Across the eurozone, producers are under pressure from rising costs – producer prices rose at an all-time high of 37.2% in the year to April.
But the spike in costs is just the latest shock to hit German breweries. Only a few countries drink more beer than the average German consumption of 83.8 liters last year. However, as more health-conscious consumers choose other beverages, this number has steadily declined since the 1970s, when they drank 150 liters per person.
If inflation means Germans pay more for their beers, that could reduce demand for the national currency even more.
The spike in costs has been the last straw for some, such as the 558-year-old Frankenwälder brewery in northeastern Bavaria, which filed for default this year after many local beer festivals closed. for two years because of the pandemic. “I fear some of the breweries in our size range will have problems with higher costs because they don’t have market power,” says Faust.
For now, the average German beer drinker will barely notice a price increase, rising only slightly to 2.9% in the year to April, according to the German statistics agency. This is far below consumer price inflation of 8.7% in the year to May. This moderation, like a pledge of sanity at the Oktoberfest in Munich, is likely to be overcome by circumstances.
This month, Faust has raised the price of 10 cents per liter of beer, or a 6.5% increase over usual, bringing the price of its best-selling 20 bottles of Pils to €16.49. “But that was decided last October, long before Ukraine, and it doesn’t even come close to covering our higher costs,” Faust said.
Rhineland-Palatinate’s Bitburger said its own “moderate” price hike, decided last year, wouldn’t do much to offset “exploding energy and raw materials prices”.
The Berlin Brandenburg Brewery Association, a regional trade group, says beer prices for beer drinkers could rise by up to 30% this year. Radeberger, Germany’s largest brewer with headquarters in Frankfurt, said it was also worried about the “increasing scarcity of ingredients and leading to further price increases”.
Economists agree that the capacity for factories to handle high input costs without raising prices for consumers will not last. “Just delays in pricing policy mean there is still a lot of inflationary pressure left over the next few months,” said Carsten Brzeski, head of macro research at Frankfurt-based ING.
Oliver Rakau, chief German economist at Oxford Economics, said what started out as primarily an oil and gas price shock is expanding to fuel inflation in many other products and services. “There’s no denying that higher energy and commodity prices will affect other products, like food and drink prices, and that can lead to higher restaurant prices, pushing up inflation,” he said. service up.
Improving market conditions could also help German brewers pass on many of their high costs to consumers, who are currently paying far lower prices than their counterparts in places like the UK.
Faust Brewery is paying more for glass bottles, plastic containers and metal bottle caps. Energy, transportation and staff costs are also increasing © Ben Kilb / FT
Beer sales have rebounded in Germany recently – up 5.1% in the first four months of this year from a year ago, according to the German statistics agency – and the reopening of many beer festivals including Both Oktoberfest after two years of Covid closure, likely to drive demand. Beer prices at this year’s Oktoberfest will be 15% higher on average than last time three years ago, at €13.37 per liter of foam.
However, those who know their history still want to stay away from the country’s drinkers. When asked if he would raise prices even higher for his customers next year, Faust offered a distressed look. “We have to be very careful,” he said. “We have to think about that, but maybe we can avoid it if things change in Ukraine.”
