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Lithuanian breweries chug on despite hardships

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AFP/„Scanpix“ nuotr. / How many mugs of beer can you see?
Šaltinis: The Baltic Times

If you can’t imagine your life without slurping a heady brew from a thick-glassed mug, enjoying every drop of it down to the very end, there might be some bad news for you ahead: beer prices will unavoidably go up, packaging will become smaller, and some dark kinds of beer are likely to be brought to extinction because of pending state regulations.

A jump ahead

“There has been much talk about an increase in beer prices, but this time it seems very real, as the industry has not seen such a leap in raw prices since 2006-2007. Beer production raw materials have become 20 percent more expensive. Only the price of malt has surged 30 percent. All this will have to be calculated into the final price the customer pays,” says Dainius Smailys, a spokesman for Švyturys-Utenos alus, the largest Lithuanian beer maker.

“While the big beer producers can set off the increase from their profits, small beer makers do not have such luxury. With the prices of raw materials going up, I have no other possibilities than to hike the beer price. However, in this hardship-plagued economy, this means difficulties in finding customers,” says Jonas Morkūnas, owner of Jolus, a micro-brewery.

There has been much talk about an increase in beer prices, but this time it seems very real, as the industry has not seen such a leap in raw prices since 2006-2007.

As with many small brewers in the provinces, he ferments country beer, which has a short shelf life. This means he has to be quick in the logistics and hope that sales go well once the brew canisters end up behind the stalls of country pubs.
Other small countryside brewers also complain about the harder business environment.

“I have kept the prices stable since 2009. However, with the price of malt and hops surging roughly 30 percent in the last half-year, costs of logistics going up twice and diesel prices up 75 percent, I was forced to hike the final product prices,” Vytautas Jokubauskas, a brewer in the Joniškis region, told The Baltic Times.

However, some small brewers, like Vidmantas Daujotas, director and owner of JSC Davra, says that talks about an imminent rise in beer prices are “too exaggerated.”

“I signed at the end of last year most beer sale agreements at the [same] prices I had a year before. If all were to go as bad as predicted, the raw material sellers I deal with every year would have increased the raw prices a long time ago. But they haven’t,” Daujotas told The Baltic Times.

He calls his company “a family business.” It consists of his son and another relative.

He says most people in the business, before making a decision, are well aware of the hardships the average Joe struggles with.

“All market participants are very cautious about the prices, as their rise by a mere cent will, definitely, shrink the sales,” Daujotas says.

Small brewers, however, were among the few business owners who benefited from the crisis, he said.

“We were able to more quickly adapt to the economic reality than the large beer makers,” he said.

Valerijonas Kozemiako, director of JSC Maltosa, is among those who pray for a possible beer price increase.

“As a malt supplier, I can tell that matters can hardly get worse than they are now. Barley we buy and make malt from costs 25 percent more. The gas price has gone up from 1,16 litas to 1,52 litas per one cubic meter just in one month. Therefore, there is a cost increase in the logistics. In addition, large brewers always coax us into giving them big discounts. And at the end, you have nothing left in your pocket,” Kozemiako told The Baltic Times correspondent.

Following the example of large breweries, malt and hop suppliers would also like to sign long-term contracts with grain farmers, but no one would venture to do so because of unpredictable yields and grain market fluctuations.

“It is not us, but Russians and Chinese who pay the piper and call the tune,” the Maltosa director said.

Fermenting salaries

What kinds of beer do the traditionally conservative-minded Lithuanians like gulping down most?

Few goods other than beer can boast so many surveys researching consumers’ habits.

people of larger income are more likely to choose lager than a strong dark beer. Meanwhile, folks with thinner wallets prefer strong dark beer

The newest survey, conducted by Švyturys-Utenos Alus, revealed that 75 percent of all beer lovers prefer classic lager, while 45 percent said they are keen for white wheat beer.

“Speaking on the whole, people of larger income are more likely to choose lager than a strong dark beer. Meanwhile, folks with thinner wallets prefer strong dark beer,” the survey conductors drew the conclusions.

When it comes to fermentation, the level in the largest breweries hovers at 4.5-5.5 percent. When it comes to weaker beer, up to 4 percent in potency, only 15 percent of Lithuanians would be ready to stick their chins in mugs containing it. The survey has effectively whiffled the popular belief that Lithuanians like to get tipsy with booze over 6.5 percent in fermentation as only one in 10 respondents said they liked it. Most of these latter respondents live in the provinces.

Interestingly, Švyturys, a leading national beer producer, has responded to this and other surveys on local beer consumers’ habits and reshuffled some of its old recipes, trimming a bit of their potency and making the brew thicker.

This fits well into the trend of the last several years – demand for weaker alcoholic beverages and brew.

Wonder about the reason? Yes, your gut instinct is right: it’s the price.

“Due to the smaller state-set excises for weak beer, brew producers started offering more kinds of it, investing more into its marketing. This has prompted consumption of the product. And, sure, the price plays a major role here – due to the large competition in the segment, it is considerably less than for more fermented kinds of beer,” said Roberta Kniuipytė, an analyst at Euromonitor International.

Although beer traditionally remains a drink for men, the analyst says more and more beer producers try to target the rising female clientele, coming up with new recipes of women-oriented ale.

According to Euromonitor, despite attempts to popularize non-alcoholic beer, it remains popular only in a very narrow segment of beer consumers.

Belorussian beer

So far the only factor deterring local beer makers from hiking prices is severe competition, which has been boosted by cheap imported booze.

“I am still not aware of the latest beer import data, but the one I possess shows that import has been steadfastly increasing, and took up 12.7 percent of the market by the end of 2010,” says Artūras Urbonavičius, director of JSC CAN Nielsen Baltics, a market research company.

Belarusian beer makers are certainly in a better position, as their raw prices as well as salaries are several times less than in Lithuania.

Though many consumers buying an exotic beer can be driven by the desire to try out a new taste, the propensity for imported beer for most buyers is more down-to-earth – a lower price.

“As a rule, the bulk of cheap beers comes from Ukraine, Russia and, especially, from Belarus,” Urbonavičius says.

“Unfortunately, there is a big amount of beer drinkers who care only about one thing – to get a blast from the smallest price. Even country breweries’ beer, which usually costs less, cannot compete with the booze from Belarus,” Jokubaukas, a brewer in Joniškis, said.

Such import beer makes for big competition even for the largest Lithuanian beer producers.

“Belarusian beer makers are certainly in a better position, as their raw prices as well as salaries are several times less than in Lithuania. Besides, Belarus, with its empty state coffers of hard currency, is promoting its export by all possible means. Alas, our legislators, instead of adopting legislation allowing national beer producers to edge out the Belarusian counterparts, seem to choke everyone in a tight grip,” Smailys said to a media outlet recently.

Saulius Galadauskas, president of the Lithuanian Beer Maker’s Guild, estimates that the import of Belarusian beer has risen twice-over during the last year and takes up 6 percent of the whole beer market.

“Unfortunately for our beer producers, Belorussians’ biggest brew maker, Krinicia, enjoys very significant incentives by the state. Those are ones that Lithuania does not provide to local beer enterprises,” Galadauskas stressed.

For fighting off the cheap booze importers, he says, the introduction of higher duties would do wonders, but this is practically impossible as the entire EU would need to adopt changes into its customs legislation.

Tightening the law

In fact, Lithuanian policy-makers are going in the other direction and plan to make the life of  local breweries more difficult – legislators are expected to pass new regulations banning the sale of 7.5 percent or stronger beer from April, as well as prohibit bottling beer into larger than 1 liter packages.

Lina Šileikienė, head of Lithuania’s Small Brewer Association (SBA) and head of Kaunas Alus (Kaunas Beer), blasts the draft bill, saying “it is a heavy blow to the market segment.”

The ban would trigger alcohol smuggling and the sale of illegal alcoholic beverages.

“Most small brewers bottle their production only in plastic packaging. Therefore, any ban on them would hit them severely, requiring large investments for switching to glass packaging. The ban would be absolutely inconsistent with the EU laws guaranteeing free movement of goods,” says Šileikienė.

“With the ban in effect, local beer importers will possibly cram the local market with imported beer,” she warns.

The association president is convinced that the ban would trigger alcohol smuggling and the sale of illegal alcoholic beverages.

“On the state level, the ban perhaps will not cause any impact on large brewers. The small brewers are to be the most ill-affected by the ban. If the ban goes into effect, it will impact us a lot, as the majority of our beer is strong, over 7.5 percent. To comply with the amended Law, we will have to scrap all packages larger than 1 liter and invest a lot in buying new packaging facilities,” Rimvydas Apačenka, head of the sales department at brewery Biržų Alus, told The Baltic Times.

A kick to Belgian beer

Rimantas Cygas, director of the Biržai-based brewery Rinkuškiai, says the authorities preaching the importance of private business initiatives are employing “double standards.”

“It is getting harder every day to run the business. There are some breweries that make ends meet exceptionally by fermenting 8 percent and stronger beer. Most of them rely on hefty bank loans and leased brewery facilities. How can the brewers switch to another production line within a few months? It is impossible” Cygas said anxiously.

I do not comprehend why good quality strong beer has to suffer.

Vidmantas Laurinavičius, an elder of Lithuania’s Brewers’ Gild and one of the founders of Alaus Namai (Beer House), a Lithuanian beer restaurant, says the Seimas legislators who have proposed the draft banning 7.5 percent and stronger brew are trying to show off before the coming Seimas elections.

Belgian beer, traditionally known for its strong fermentation, is one among the few foreign brews to be hurt by the ban.

“Certainly, the amended law would do only harm to our restaurant. I do not comprehend why good quality strong beer has to suffer. The draft should be aimed at the Lithuanian bambalinis [a brew made in shady local breweries and served in large packages], not famous foreign brands, like our 8 percent Chimay, without which no Belgian restaurant can be imagined,” says Mintarė Smidtaitė, deputy director of Belgai (Belgians), a Belgium-themed Vilnius restaurant. One parliamentary vote scheduled for the spring session remains until the final adoption of the Alcohol Control Law. Lithuanian President Dalia Grybauskaitė will have to sign it before it goes into effect.

Lithuania’s Ministry of Economy predicts that, despite the setbacks, beer consumption will continue to grow over the coming years, with a predicted increase of 3 percent annually.

The Baltic Times
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