Saturday, 17 January 2015

German brewing in the 1970s – production costs

It’s going to be a short one this time. Why? I distinct lack of arsing on my part.

It’s about the production costs of beer. A fascinating subject, I’m sure you’ll agree.

“Table V gives the average costs of beer production in West Germany in DM/hl. Whilst raw material costs declined from 1973 to 1974 by a small amount, all other costs increased with the increase in wages. Two trends are very important: production costs decrease from the smaller to the larger plants but advertising and distribution costs increase from the smaller to the bigger plants and compensate for the difference in the production costs. The large number of small breweries operating successfully without fear of take-over in West Germany is due to the fact that the purchase of another brewery is only good business if it is possible to stop its production as soon as possible. All outlets and distributors must also be tied to that brewery.”
Journal of the Institute of Brewing, Volume 83, Issue 1, March-April 1977, page 73.

I’m not totally sure I follow the reason given for takeovers being unattractive in Germany. A more likely explanation is that the small breweries tended to be family owned. Far harder to buy up than a publicly-traded company, unless the owners agreed. Plus a lot of the small Franconian breweries are just too damn tiny and have too little trade to be a very exciting acquisition.

It makes sense that small local breweries didn’t need to spend much on advertising or distribution. I’m sure there are some that don’t distribute at all, just selling directly from their own pub and shop.

Here’s the table:

TABLE V. Beer Production Costs in West Germany (DM/hl).

1973 1974
Raw Materials 13.23 13.17
Production costs before filling 6.63 7.03
Filling costs:
Draught beer 4.71 4.85
Bottled beer 11.52 11.94
Transport 9.04 9.56
Advertising 4.49 4.75
Administration and Distribution 11.25 12.78
total draught 49.35 52.14
total bottled 56.16 59.23
% difference 13.80% 13.60%

It’s sort of their table. The last three rows I’ve added.

It confirms what an expensive business bottling is. It’s the second largest cost after the raw materials and about 20% of the total cost. And is double the cost of making the beer itself.

There’s one other cost I’d like to have seen: tax. Though this being Germany, that wouldn’t be all that high.

A strange though has come to me. I was in Cologne last weekend and did some shopping in Penny, a cheapo supermarket. I bought a couple of half-litre plastic bottles of Adelskrona Export, a snip at 29 cents each. That’s 58 euros a hectolitre, or about 1.16 DM. Only about double the average production cost of 40 years ago. How on earth can they make beer that cheap?

Raw materials next time.


Pivní Filosof said...

A while ago I've read an interview where a Czech Brew Master, head of the local association of micro-brewers, said that the costs of filtering, bottling, pasteurising and distribution are every bit as high as making the brewing, fermenting and lagering the beer. This sort of proves it.

J. Karanka said...

The takeover thing. Not sure if Germany had as many tied houses, but in the UK it seemed that most of the business and most of the takeovers by breweries were aimed at consolidating a large network of tied houses. At times the brewing business was pretty much secondary to this (bottling and the like). Even recently, when Fullers took control of Gale, they picked up successful Gale pubs. Next, they kept production for a couple of years but then consolidated all the production back to Fullers. There are clear savings from running less breweries keeping up the same volume of production but with less variety of products. If there were less tied houses or more bottled sales in Germany per brewery, the same rules wouldn't apply. In the UK the endgame would be to move towards one massive brewery that produces enormous volumes to supply a large network of pubs that just serve those lines.