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Czech beer is among the oldest beverages in the world and its export potential is quickly being appreciated by the world's modern beer giants. Lyle Frink reports on the country's two leading brands, Pilsner Urquell and Budweiser Budvar - their past, their potential, and the battle for a legal identity.

Czech beer comes with a national pedigree that few countries can match. Back in 993 AD, the Prague archbishop banned the Benedictine monastery from brewing - the monks were making too much of a good thing. But the significance of Czech beer is about more than just history. The derivatives of two city names Pilsen and Ceské Budejovice are pasted on beer bottles around the globe under the Pilsner and Budweiser banners. But unfortunately for the country's two most famous breweries, that heritage is no longer the sole property of their beers.

Make mine a Pilsner

With more than 1.3bn hectoliters (hl) of beer brewed around the globe annually, less than 5m hl are from the Pilsen brewery where the pieces of a modern brew first came together. "The argument is that it was the first really clear beer. All other Pilsners were an attempt to replicate this," said Tony van Kralingen, general director of Plzen Urquell, the producer of the Pilsner Urquell brand.

The predecessor to today's Pilsner Urquell began in 1843 registering the Pilsner name in both Czech and German as "Plzenske pivo - Pilsner Bier." The legal disputes started within a decade as others imitated the style of brewing and appropriated the name. "Unfortunately, it is a common term for a light lagered beer, the classic Czech method," said Ivo Trojan, general secretary of the Czech Association of Breweries.

Out of Africa


"Original Pilsner" is still brewed only in Plzen, thus protecting its geographic claim to the Pilsner name

In October 1999 South African Breweries (SAB) bought the Pilsner Urquell brewery (three combined breweries) giving them a dominant stake (43%) of the Czech market and a flagship brand that could travel.

Beyond taking control of the domestic market, SAB had plans for the Pilsner Urquell brand. The four key markets being Poland, Slovakia, Germany, and the US. Next in line were secondary markets such as Canada and the UK. One year after taking control, the group exports had jumped over 25%, pulling ahead of Budvar in terms of total volume. Exports (including licensed production abroad) rose to 563,000 hl.

The "Original Pilsner" is still brewed only in Plzen, thus protecting its geographic claim to the Pilsner name with a total brewing capacity of 5.3m hl. "There is still room and the ability to expand is not expensive," saysVan Kralingen. Just over 7% of Urquell's total domestic production is exported, a far cry from Budvar's 37%.

SAB therefore has some leeway before it has to decide whether or not to produce this brand abroad as well. The question it will face, however, is how to protect the Pilsner name, both from the damage done should it move production outside Plzen and from its competitors who already use the name generically.

SAB has yet to make a legal effort to force other brewers to replace "Pilsner" with "Pilsner-style". Since Pilsner has long been a generic term for a type of beer, most lawyers believe it is already too late for SAB to gain exclusive use of the name - even if the legal fight would make great advertising copy.


"We don't view common use as a solution...It creates some confusion in the market."

Burrows
Analysts say that the next barrier for Urquell exports is its owner. "The only problem is that Pisner Urquell is under the control of SAB," says drinks analyst Gerard Rijk of ING Barings. "They don't have their own distribution in mature markets." One solution could be a "merger of equals" with Scottish & Newcastle posing as a potential partner. This would give SAB its own distribution in Western European countries such as France and the UK while offsetting its exposure to currency fluctuations in emerging markets and South Africa.

Court Appeal

While SAB has kept a low legal profile, the state-owned Budweiser-Budvar in Ceské Budejovice has not. It is locked in a war in the form of around 50 court cases with the US's Anheuser Busch over the "Budweiser" and "Bud" names.

"Now it is a question for the European Union," said Karel Cermak, a Czech lawyer representing Budvar. Neither has been able to get a European-wide registration and no definitive decision is expected for the next two to three years.

Five years ago, the two were heading for an amicable marriage. But Anheuser's attempt to buy a stake in Budvar, and therefore end 90 years of conflict, ended in failure. Since then, the two have met in court: Anheuser stressing that it was the first to trademark the name and Budvar emphasizing its links to the city once called Budweis.

Whichever side wins, there is substantial value attached to the name. In the August 6th issue of Business Week that ranked the world's top 100 brands, Anheuser's Budweiser was ranked 26 with an accessed value of US$10.84bn.

In the UK, both sides are allowed to call their brew Budweiser. It is the second largest foreign market for both breweries, with Anheuser selling more than 1.5m hl and Budvar selling 89,000.

Both Anheuser and Budvar agree that sharing the Budweiser name is not acceptable. "We don't view common use as a solution," said Stephen Burrows, CEO of Anheuser Busch. "It creates some confusion in the market."

Even without a Europe-wide registration, the mass media will be a long-term element in Anheuser's favour. An EU Directive makes it virtually impossible to keep TV advertising from spilling over state borders. This spring, a German court ruled against Budvar's attempt to keep Anheuser Budweiser advertising out of Germany - even though the Americans can only sell there under the "Anheuser-Busch B" label. This decision will be a favourable push to Anheuser sponsorship in international events such as the World Cup, said Burrows.

Two for the road

Top 5 Export Markets of Czech Beer 1990 & 2000
1990
'000 hectolitres
2000
'000 hectolitres
1 Slovakia
863
Germany
437
2 Hungary
300
Slovakia
306
3 Germany
291
Hungary
238
4 Russia
137
Great Britain
170
5 Poland
85
Poland
71

The path abroad for Urquell and Budvar is heading towards the West. In the last decade, Czech beer exports to the UK, Germany, and the US soared. Those to the East plummeted being the victims of hard times, the fall of the Russian Ruble and tariffs.

But each brewery's path to market is set to diverge in the coming years. "The potential for Urquell is much bigger," said Rijk. "In the Western world, it is the model of all beers." The key issue for Urquell is finding the right partner to take it to market. And then there is state-owned Budvar, both defined and limited by its David and Goliath struggle with Anheuser.

Unless a major hole in the Czech state budget forces the government to sell it to a brewer in St. Louis, the battle of the Buds is set to continue.


Beer - Czech Republic 2001
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Companies: SABMiller, Allied Domecq

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