An Unlikely Alliance

May 1, 2007 By Roger Protz

When the news broke that Anheuser-Busch had agreed to market its Czech rival’s Budweiser Budvar brand in the United States, one grizzled observer of the beer scene in Britain observed: “This is the Hitler-Stalin pact of the 21st century.” A tad over the top, perhaps: beer is unlikely to be the catalyst for World War Three.

But this is the agreement nobody expected. It comes after more than a century of bitter recriminations and costly legal battles over who has the rights to the trademark Budweiser.

The attitude at the London offices of Budweiser Budvar UK—where the beer is one of the top imported lagers—was simple as well as jubilant: “A-B needs us more than we need them.” The facts bear this out. Imported specialty beers form a growing sector of the American beer market. A-B has enjoyed considerable success with such brands as Bass Ale, Grolsch, Kirin and Tiger. Sales of Kirin in the U.S. have grown by 147% since A-B took control of distribution.

Using the brand name Czechvar to avoid clashes, Budvar has been on sale in 30 states for several years. But the deal with A-B will give the beer—which will continue to be labeled Czechvar—far wider distribution, turning it into a national brand.

Both sides were at pains to stress that the legal battles in other countries will continue. To prove the point, a few weeks after the American deal was agreed, the European Court of Legal Rights ruled that A-B cannot use the full Budweiser name in Portugal, upholding Budvar’s claim to the trademark.

Merger Mania

Nevertheless the deal in the U.S. has prompted many commentators to suggest not only that the legal battles could soon be a thing of the past but might also herald a merger of the two companies. Take a cold shower—nothing will happen for some time. The Czech brewery is still state owned. Coalition governments in the Czech Republic tend to fall apart quickly. There is no effective government in Prague at present and privatizing Budvar is not on the agenda.

Successive governments since the collapse of communism have made it clear Budvar will stay in state hands until a “suitable partner” is found. For “suitable partner,” read “anyone but Anheuser-Busch.” The Czechs are proud of Budvar. They feel strongly that, while A-B may have been brewing its Budweiser several decades before the Budvar brewery opened in 1895, the trademark Budweiser, meaning in German “of Budweis,” is a generic one that goes back to at least the 14th century. The older Citizens’ Brewery in the town now known as Ceské Budejovice also brews under the Budweiser name.

If and when Budvar is sold off by the state, it may remain a successful independent company. But the history of brewing in Central and Eastern Europe since the fall of communism shows that stockholders are open to offers. Global brewers have big check books. The biggest players in Czech brewing today are SABMiller, which owns Pilsner Urquell, along with Gambrinus and Kozel; and InBev, which controls Prague Breweries, best known for its main Staropramen brand.

It’s unlikely either group would be allowed to buy Budvar, as the sale would give one or other too big a stake in the Czech Republic. But the likes of Baltika—a consortium of Carlsberg and Scottish & Newcastle that is the biggest brewer in Russia—or Heineken might be keen to buy such an iconic brand as Budvar.

They would be deterred, however, by continuing legal wrangles between A-B and the Czech brewery. As well as taking on the brand, they would also have to pick up large lawyers’ bills as A-B fights for its trademark rights throughout the world.

There is only one giant brewery that could buy Budvar and end the legal battles at a stroke. You guessed it—Anheuser-Busch. As the captain of the Titanic observed, “stranger things have happened at sea.”

Back in the Czech Republic

Two weeks before the A-B and “Czechvar” deal was announced, I was in Prague for the annual awards given by the newspaper Pivni Kuryr—Beer Courier. The awards are the results of votes by the paper’s readers and Budvar has won the top prize more times than any other beer.

Beer lovers in the U.S. can get ready to drink a beer that is brewed from Moravian malt, Saaz hops and pure water—not a grain of rice to be seen—and which is lagered (cold conditioned) for 90 days. Enjoy!