A native of Italy, he managed the activities of Dutch Heineken in Nigeria and later in Canada. He has completed his first year at the head of the Czech branch of the third largest brewing group in the world. One of his hardest. At the same time, however, he realizes that next year will be worse.
“We are watching developments now with concern for what will happen in 2023 and beyond, as oil and natural gas prices rise uncontrollably. We also expect a substantial increase in the price of glass in 2023,” he says in an interview for SZ Byznys.
Heineken must respond to inflation now. In the fall, prices will increase, similar to other large domestic breweries. Starting in October, the prices of beer for retail will increase, later pub visitors must also expect to pay extra for Krušovice, Starobrno, Zlatopramen and other brands from the portfolio at the tap. By how much, it is not yet clear.
You managed the Czech branch of Heineken for exactly one year, but it was very wild. How do you feel?
Any time you come to another market where you want to sell beer, it’s a challenge. You have to learn a new strategy and understand the beer culture because beer is a cultural thing. If you don’t understand people, it’s very hard to sell beer. The fact that we are living through a crisis makes it even more interesting and complicated.
What surprised you the most?
I was pleasantly surprised by the enormous abilities and talent of people in the Czech Republic.
All companies today have a common problem – expensive electricity and gas. Some are going bankrupt, industrialists and economists warn of a loss of competitiveness because the Czechia has higher electricity prices than neighboring countries. How does it work for you?
In general, concerns about loss of competitiveness are justified. However, the beer industry is at an advantage. Today, the industry is in an unfortunate situation, because not only expensive energy, but also expensive raw materials and packaging have a hard impact on the economy of breweries. On the other hand, they can withstand the situation better thanks to the ability to export Czech beer. Compared to foreign competition, Czech breweries have low production costs, modern technology and good production and storage capacities, and are therefore very competitive.
However, the production of beer in the Czech Republic is logically more expensive than abroad due to energy costs. Doesn’t export fall because of this?
We haven’t noticed it yet. We don’t see any big swings in demand for our brands abroad because of prices.
Large domestic breweries, led by Plzeňský Prazdroj, have announced significant price increases of almost two crowns per pint in recent days. Will you follow them?
We are part of a group that negotiates prices and input costs internationally, and we have not yet decided how much we will increase the price of beer. What is certain, however, is that we cannot avoid it. We will increase the prices of beer delivered to retail from October 1st. Later, we will also raise the price of draft beer for pubs and restaurants. From the point of view of costs, brewing today is more vulnerable than other fields, because the costs of energy, glass and aluminum packaging, the production of which was badly affected by Russia’s invasion of Ukraine, as well as transport and labor costs, enter into beer prices very significantly.
How did the production of a pint of beer become more expensive?
Compared to the period before the pandemic, our packaging costs have risen by roughly thirty percent. Barley prices increased by one percent. For energy, the estimate is more complicated, because we have taken some measures in the breweries to reduce the energy intensity of beer production, but I think that compared to 2019, we are paying about 30 percent more.
These are substantial extra amounts. We are now watching developments with concern for what will happen in 2023 and beyond as oil and natural gas prices rise uncontrollably. We also expect a substantial increase in the price of glass in 2023.
We have enough material, we are not in danger of a shortage, even though, for example, European factories have reduced their aluminum production capacities. We also have ample supplies of malt, barley and all packaging materials.
Are you dependent on supplies from the spot market?
We have a guaranteed price for part of the deliveries, but the part already follows the current market offer. Some of our suppliers are concerned that they will have to purchase electricity or gas from the spot market. We comprehensively evaluate the situation in order to have not only satisfied customers and a viable company, but also healthy suppliers, of which there are thousands.
According to a survey by the Chamber of Commerce of the Czech Republic, over 20 percent of large companies plan to lay off workers by the end of the year. Do you count yourself among them?
We are in a situation today where we are even brewing slightly more beer in volume than before the pandemic in 2019. A more significant restructuring than during the pandemic would not really solve anything at the moment and would not be a good way to reduce costs.
How do you want to face expensive energies?
Even before the war, we started investing in energy from renewable sources, because as a society we want to prevent global climate change. Our group is committed to reducing carbon dioxide emissions by 50 percent by 2025 and to have zero CO emissions in our production by 20302. We invest in biomass processing, biogas production and heating using recuperation. We process our own waste. The measure will take effect in two to three years.
Are you going to pass the entire cost increase on to customer prices?
We have to find a balance to do that. In this situation, it is extremely difficult. Our company has a long tradition and we want to stay on the market for a long time, so it is important that we retain customers. We have to work hard to reduce costs, maintain revenue and sell the right products with higher margins.
During the pandemic, pubs emptied and consumption shifted to gardens and apartments. Is there a danger that beer will start to be saved?
The Czechia still has the highest beer consumption per capita in the world. Beer is part of the national culture. During the pandemic, the amount of beer consumed in the Czech Republic did not change, but the categories did. More bottled beer was drunk and less draft beer. Even in 2022, more premium beer, lagers and less draft beer were drunk. There is more beer in tins. The market is changing dramatically.
We believe that the trend towards more expensive beers will continue. At the beginning of the pandemic, we thought that Czechs would limit consumption and start saving on beer. It did not happen. We hope it doesn’t even happen. On the other hand, however, covid is only now hitting household budgets, and we must therefore be able to react promptly to the situation, which was made worse by the war in Ukraine.
Have you lost restaurants and pubs due to covid?
Yes, as a result of the pandemic, some restaurants and pubs really had to close. Lockdown was a challenging period for them and we therefore supported our partners to the maximum. During the pandemic, we allocated 120 million crowns for them. The operators could use those for reconstruction, equipment, but also perhaps to pay off debts. We invested additional funds, a total of 12 million, in communication, with the aim of helping operators with the return of customers. I believe that thanks to this, we only recorded a low percentage of those who really had to close.
What happens if the gas supply is cut?
We have a team of people working on a plan just in case that happens. However, we think that we are in a good position to withstand the situation and continue to supply the market even in this case. We are more concerned about the impact on the entire economy, industry and also consumers during 2023.