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Tapping into America

What Budvar's historic deal with Anheuser-Busch means for the Czech brewer

By Paul Voosen
Staff Writer, The Prague Post
January 17th, 2007 issue

KURT VINION/THE PRAGUE POST
Anheuser-Busch and Budvar have brewed an unlikely alliance.
Joe Sixpack is bored. Savvy to marketing and unimpressed with traditional domestic beers — and large brewers' attempts at innovation — Americans are increasingly looking to imported beer to slake their thirst, with a 10 percent growth in that market segment in the first three quarters of 2006. Domestic brewers are getting the message, and Anheuser-Busch, maker of Budweiser and the world's largest brewer, is aggressively expanding its portfolio of imports.

Still, it came as a surprise to many in the beer industry when Anheuser-Busch and Czech brewer Budějovický Budvar announced Jan. 8 an agreement naming Anheuser-Busch the exclusive importer of Budvar beer in the United States, under the American import name, Czechvar. For almost a century and all over the world, the two brewers have had legal squabbles over ownership of the name "Budweiser" — German for beer originating from Budvar's hometown of České Budějovice, South Bohemia — with some 40 disputes ongoing.

"No one saw this deal coming," said Olly Wehring, managing editor of Just-Drinks.com, an industry watchdog. "But it's a sign of the way that the brewing industry is progressing. The brewers are starting to think, 'It's better if we keep our enemies close.' "

COURTESY PHOTO
Called Czechvar in the United States, the beer from České Budějovice will benefit Anheuser-Busch.

Indeed, in this case, it seems contempt has bred familiarity. Because of their ongoing entanglements, the two companies have had "a thousand points of contact," said Harry Schuhmacher, editor of Beer Business Daily, an industry journal. "They know each other and that definitely came into play" when Anheuser-Busch went looking for import partners.

The companies signed an agreement Jan. 5 and did not disclose its terms.

They stated Anheuser-Busch will throw the full weight of its nationwide distribution network and its 600 associated independent wholesalers behind the beer, which it will market as a "super-premium" product.

Prices will run between 50 U.S. cents (10.70 Kč) and $1 higher for a six-pack of Czechvar than that of Heineken, for example, Budvar spokesman Petr Samec said.

The Deal
  • What: Anheuser-Busch and Budějovický Budvar signed a pact making Anheuser-Busch the exclusive U.S. importer of Budvar beer
  • Why: U.S. sales of domestic beer are stagnant, while imports have grown 10
  • percent. Anheuser-Busch gains a "super premium" import, and Budvar increases sales
  • What won't change: The brewers have stated the deal doesn't end 100 years of bickering over the trademark "Budweiser." Lawsuits will continue

Budvar began exporting to the United States in 2001, its disputes with Anheuser-Busch long keeping it on the outs. Marketing itself as "Czechvar" was one compromise the company made to get itself into the enormous and growing U.S. market.

The brand is seen as a connoisseur's beer, with sales limited to U.S. Czechs, Schuhmacher said.

Budvar exported 900,000 liters (234,000 gallons) of beer to the United States last year, far less than rival Pilsner Urquell did.

"Anheuser-Busch hires the best people in the industry," Schuhmacher said. "They have plenty of experience importing beer over the years, in particular taking smaller brands to the next level."

"I would think that Anheuser-Busch would have no problem increasing Czechvar's sales volume 30 percent in the first year, or maybe more," he said.

Promotion could come from increased signage at U.S. restaurants and liquor stores. But don't expect ads, Schuhmacher said, as they could hurt the beer's super-premium image.

From a global perspective, the Budvar deal gives Anheuser-Busch a foil against SABMiller, which owns Pilsner Urquell and is one of the largest brewers in the world.

Competition between the titans will play itself on a smaller scale, between leading Czech exporters.

This is the second unexpected importing deal Anheuser-Busch has made within a year.

The company recently struck a deal with InBev, maker of Stella Artois and one of the world's largest brewers, to become the exclusive U.S. importer of InBev brands.

Play nice

The new spirit of cooperation that led to the import agreement will not affect ongoing litigation or copyright disputes between the two brewers in other countries, the companies said.

There are disputes in about 40 of the 50 countries Budvar exports to, and "each lawsuit is an individual and strictly territorial case," said Petr Samec, Budvar spokesman.

An EU court banned Anheuser-Busch Jan. 11 from selling Budweiser in Portugal, citing a 1986 treaty that gave Budvar the trademark.

Despite this, industry experts say that the agreement signals a turning point in what has been, since 1906, a testy and fraught relationship.

"This could be the beginning of the end to their argument," Wehring said. "Anheuser-Busch isn't keen on saying this because it might annoy their business partners. They spent a lot of time and money fighting Budvar."

Because of the time and money spent, if the end of the copyright dispute is near, it will come as a fizzle and not a pop.

"You won't see a photo of them hugging in public," Wehring said.

"I think they'll still fight tooth and nail for the Bud name," Schuhmacher said. "But it may open the door down the road for a closer relationship, maybe an acquisition or a merger."

Anheuser-Busch attempted to purchase Budvar in the 1990s, but those talks had stalled by 1996.

Budvar is owned by the government, and there are no plans for privatization; the state removed Budvar from the roll of companies to be privatized back in 2001, Samec said.

Companies and management change in a decade, and Schuhmacher notes that the relationship between August A. Busch IV, president and CEO of Anheuser-Busch, and Jiří Boček, CEO of Budvar, has been "cordial" for years.

Some of the cordiality may have warmed the litigious freeze.

Indeed, some in the industry wonder whether the two have anything worth fighting about anymore.

"I still don't know why Budvar wants to call itself Budweiser," said Rob Neuner, the first importer of Budvar to the United States, who sold the beer there from 2001-2004.

"When they weren't known internationally, the name definitely attracted attention," he said. "But, now, why would Budvar want to associate itself with a $4.99 six-pack?"

Paul Voosen can be reached at pvoosen@praguepost.com


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