Image means everything.
MBA: So much has happened in Germany over the past year. What has the unification process meant to Warsteiner?
KOLREP: When talking about the breweries in Germany on the other side, in the East, the western breweries have picked up nearly 60 percent of that area's production by supplying it from the west. And that is just in the first 12 months.
Prior to the unification of the two Germanys, the West German brewing industry produced approximately 95 million hectoliters, now 120 million hectoliters are brewed in both the West and East, so it really was a tremendous jump forward for the German breweries. But one has to admit that a lot of smaller breweries saw a chance, went over and moved in to the newly-opened East. However, those people [East Germans] learned very fast and recognized they had been overcharged. At that point, those breweries went out of business very fast. With Warsteiner, on the other hand, we have set up wholesalerships in both the West and the East, so we control what we are doing on one side and control the distribution on other side. Due to this, we have become the number-one beer in the East as we are in the West because we are able to control distribution there.
In the beginning, we made some mistakes because there were a lot of distribution companies popping up. But after a certain time you recognize the good companies and those that are not so good. According to the agreements we have set up - to protect the customers in the East - there's a direct link from the Warsteiner Brewery to the wholesaler to the individual outlet.
MBA: In terms of total sales, how has Warsteiner's performance been in the past year or so?
KOLREP: The situation for Warsteiner has been very bright during the last year. We are up 1.2 million hectoliters, and fortunately, only 40 to 50 percent of that growth is in East Germany. We do not know the exact figure of what we are shipping over, though, as a lot is going through channels from West to East. What is significant is that when seeing the growth rate that is involved, we have produced a total of 4.88 million hectoliters, and that is just one brand.
MBA: What would you say is Warsteiner's business philosophy or strategy in the marketplace?
KOLREP: A tremendous difference that you'll find in Germany is that the brewing industry is classified as either a premium brewer, a less premium brewer or an average one. With Warsteiner, there's a good conjunction between the brand, the price positioning, and the image - all are very high.
If you look around, you see the Hyatt here is all covered in gold, and a certain image is evoked. That's the same idea of utilizing the gold packaging on Warsteiner.
Additionally, our philosophy in Germany is that we look more toward quality instead of quantity. We select our pubs very deliberately and also say |no' to a lot of establishments. We want to maintain the position we have. In the retail trade, we average about a 10- to 15-percent higher price than our closest competitors.
We produce around 4.9 million hectoliters and the next closest brewer would be around three million by brand. You have some German brands in the United States where the consumer might think are quite large, but they are only fourth when compared to what we do in Germany.
Already this year, through the first two months of '92, we show a growth rate of 24 percent. So we're predicting reaching 5.5 or 5.6 million hectoliters if everything goes smoothly - that growth rate is for the brewery as a whole. What is important, according to market research, is that most of our clientele is between 21 and 40 so there's a future there for our brand. Those people also like the image of our brand.
On the other side, in East Germany, our strategy is to go even deeper. Germany is only one part of Europe, so if you want to make any impact, you have to have muscle and recognition. That means muscle with financing and size. We are thinking of going into France and Great Britain, which will give us the market we need to really make an impact in Europe.
We are very interested in those countries that are interested in trade and a very classy brew.
MBA: Of those countries you've mentioned, which are open to foreign beer imports?
KOLREP: When you look at it, the open countries are those where you find the money. Nevertheless, there are some countries which do have money, like Sweden, but have an alcohol policy which makes freedom of marketing very difficult, if not impossible.
When looking for a good market situation, or market policy, you have to look for one like the United States. There, if you want to go in you may. True, you have to consider legislation. That is a problem, but you have the freedom of any advertising and movement of what you do.
When thinking globally, beer marketing would be best in Europe, North America - with some problems in Canada due to their legislation - Singapore, Japan, Hong Kong, and those areas. That's the strategy we've tried to use.
When operating in other markets outside of Germany, we try to use the same system we use there. We're really looking for a niche of the niche market.' The niche market itself, I would say, is the super-premium beers and on up to the microbrewery products.
That niche is targeted by the imports and, of course, Warsteiner. That niche has a very high image and recognition position, so we are happy to be in that category.
That image is reflected in the fact that we are very on-trade oriented. That 4.9 million hectoliter figure includes a 34-percent draft share, so it shows the thinking that is involved.
We feel that when dealing with the on-trade sector, you build the market through price-positioning plus consumer recognition. From there, you arrive in delicatessens, and then, as in Germany, into supermarkets. But, as I mentioned before, you go in with a price difference of 10 to 15 percent. We feel such pricing will be recognized by the consumer who will say, |Warsteiner, oh, that's the price.' Those consumers will not be looking for a strict price band. We think we've reached this point, so we're happy about it.
MBA: In the United States, Warsteiner has seen a great amount of growth in the past three years. To what do you attribute such rapid growth?
FALL: I think it's a process of being in the market a long time and people beginning to believe in us. We're beginning to get our name out, and have continued to focus, just as they do in Germany, on on-premise sales. Almost 40 percent of our sales this year are on-premise draft sales. That's a big number. It's nothing that any other beer is doing, I don't believe, at least not in those kinds of numbers.
We maintain the philosophy that we're not a great price promoter. We're not trying to compete with Beck's or Heineken in the marketplace. We want maintain our image. We don't do any advertising. I think it's just our ability to focus. Then, once establishments try the product, just like they have at the Hyatt here, customers tend to like it and the brand stays.
It's taken years and years to get the thing going, but now we're just on fire.
MBA: When did you start importing Warsteiner?
FALL: We brought the first beer to the U.S. in 1983. That first year was spent getting licenses. We got one container in and that was a disaster, so we sort of backed up and started over. But really, the first beer started coming in '83.
MBA: When did Warsteiner begin arriving in New York City?
WAHLE: We started in New York with the Brooklyn Brewery, which acts as our distributor here, and actually got started last July. As of this week, we have about 45 draft accounts in Manhattan alone. The thing that is interesting is our retention rate. The draft market out there is a constant battle, and our retention rate, I would guesstimate, would be in excess of 95 percent.
Because of the brewery and its point-of-sale materials, and the backup and marketing expertise provided to the accounts, our draft is doing extremely well.
MBA: Draft is an expensive way to get into the market. It must be difficult to maintain the flow-through with the kegs and all.
KOLREP: That's certainly a very important part of it. We have to be plausible when saying we want to be a premium or super-premium brand. You have to be realistic with yourself from the quality of product in the keg up through the service we provide. If there is only one point missing in the process, then things are going to backfire on you. We are very careful in regard to this approach.
In that sense, we are selective, sophisticated, using slow but step-by-step penetration. In the end, however, we are looking for volume as well.
Finally, if everything is in line, mouth-to-mouth advertising would start, and I think things are at their best when you have achieved such a situation. That is what we are looking for, especially in New York, where the market is so tough. But I agree with what Frank Sinatra says: |If we can make it here, we can make it anywhere.'
MBA: Your success at on-premise draft accounts is also interesting because, originally, part of the import market's cachet was having that imported bottle on the table. With draft, however, it is just the glass on the table.
FALL: One thing that we do try to do in accounts that will work with us, is to get them to use our glassware, and then that's our identification. Also, through our pieces of point-of-sale and through our posters, you get people to identify with the brand. Although, at a place like Gallagher's here in the city, where we're on draft, they won't use anything like that, and then we do lose a little bit of identity. But it comes back to working with the account, and making sure that the waitstaff knows about the brand.
WAHLE: Back in the '80s, Erich and I both worked for one of our competitors, who had a volume of 70 percent on-premise and 30 percent off-premise trade. They had a great identity with their bottle, and that's what we're trying to capture with our P-O-S and that quality image.
We're fortunate now to be in the same growth pattern that they were in from perhaps 1981 through '85. Instead of retrenching, and trying to capture discount sales, we're expanding. There's still a point where people will go into an establishment and order a green bottle, but will go home and drink a popular-price beer.
KOLREP: Our focus of on-trade doesn't mean that we have neglected the packaged-beer market, however.
FALL: Our bottled business is up perhaps 35 percent so far in the first quarter this year, compared to last year. Draft is up almost 70 percent, which is a number that I could never have projected. Overall, we're about 60-percent up in this first quarter compared to last quarter. We're just not experiencing the decline that a lot of the other imports have seen lately. I guess this might be our year. Our bottles are doing very well, and the half-liter bottle is doing well, as is the five-liter can.
All of our packages were up way over double-digits and it's continuing. Already, our reports for the first part of April show that we've already bypassed what we did last April, and we're only 10 days into the month. Our depletions are certainly there because we don't have any beer around the country. We can't seem to keep enough on the water because we couldn't project that kind of a growth.
The last thing we want is old beer, so we're very careful about our inventories. There's no old beer out there. It hits the shore, goes into the accounts and moves very well.
MBA: Is the Warsteiner packaging design the same in the U.S. as it is elsewhere?
FALL: We have a different six-pack carrier. A wrap-around carrier is sold in Germany, but we'd been experiencing some problems with that package. Instead, we have the basket-carrier. But the labeling and everything else on the bottle is the same.
MBA: You are now marketing the five-liter can in the U.S.?
FALL: Yes, we are. It's an interesting package. It's very popular in certain markets - the South, and the Northeast.
WAHLE: I have regions in my territory - Virginia and Maine - that the five-liter can is has equivalent sales with the 12-oz. bottle.
FALL: A lot of people have pulled that package out, but we've just kept it available. That's certainly helped to sell that package. America is a tough market, though. You can go into any market with a particular package, but you can never be certain about how the consumer is going to respond.
MBA: How has the brewery been able to keep up with all of the demand? It seems as if there a great deal of demand in Germany, the United States, and elsewhere.
KOLREP: That's a good question. Last year there was an investment of 240 million Deutch Marks to add new bottling lines and a new brewhouse. Now, the brewery's capacity is up to six million hectoliters. If we hit 5.5 million hectoliters this year, we'll have to think about enlarging even further, but that's a nice problem to have.
You can be sure that Mr. Kraumaier, the sole proprietor of the company, loves his brewery. Everything that comes in is put back into the brewery - from the technical aspect of the brewery to marketing penetration.
One of the opportunities that you have with a privately-held brewery is that you can make steps very quickly. Getting back to your question on how you can keep up with demand: the answer is heavy investment. This year, there is a plan to put approximately 170 million (DM) into the company to make that extra production possible. It is a nice task. When you do not make positive steps through investments, through open-mindedness, then you are going to be stuck in just a tiny part of the market.
The brewery's growth is like when a farmer takes a seed and plants it in the earth. With patience and a good growing climate, you will have a good harvest. I think that's what's happening for us in Germany and on the international side, where we see the response coming also. Now people recognize the brand, but 10 years ago people might have asked, What is that?'
We're not recognized as a mass-produced volume beer. This is a brand with high volume and high positioning. All of that has made those investments possible.
MBA: At this point, what are Warsteiner's short-term goals? KOLREP: Most of what we do is in Germany, but we're also starting to pick up those countries in the West that I mentioned, and in the East as well. However, in the East, such as Poland and Russia, things are still very limited because there is a problem with being able to finance the imports.
Still, we have to decide where we think our future will be. Right now, our long-term future will be oriented in the rest of Europe, the United States and Canada.
Short-term steps to be made are those into neighboring countries in Europe, as well as those countries that have just opened up, and, due to the positive market conditions, the United States. There's no problem with regard to our brewing production, there's just the matter of going even further into Germany and the other countries. That's what we're doing now.
MBA: Are you currently selling any of your product in Russia?
KOLREP: Yes, we are, but it's very selective. In Moscow, there are several outlets and a very big exhibition center. Because people from the West are going there, as well as those on the Russian side, there is more money available to buy the product, though not a great deal. Again, we use the approach of step-by-step introductions. We're also building up some on-premise, Warsteiner restaurants, in Leningrad, where we will have a platform to gain the interest of consumers.
MBA: You've said that you do not push volume sales. How, then, do you get the Warsteiner name out to the consumer?
KOLREP: It is a very exciting situation where we now find ourselves. Unlike other brewers, we do not believe that we should go in with a great deal of volume. Instead, we want to open a market in a more personal way by supplying draft accounts, then by the bottle. We try to use our label as an ambassador.
There is also a question of whether to use cans or not. In our strategy, we don't want to make the can a cheap part of our business, but instead an addition. In Germany, our cans are priced up to 20-percent higher than other cans on the market. Still, there is a tremendous demand.
MBA: Has Warsteiner gained complete national recognition in Germany?
KOLREP: It's very difficult to gain national exposure of a brand for many reasons. If you take a little Bavarian village, a farmer may live there who will drink the same brand of beer that has been brewed next to his house for his entire life. But, to someone else who might go to a club and wants to show off, they will go not with his father's brand but with a brand name that is know. People want to be connected with that name.
Another example would be a bluecollar worker in Germany who drinks an average beer, price-wise, during the week, but then would show off with a higher-class beer during the weekends or when friends visited. There is an attitude involved. It's the same with young people in Germany who don't just buy a regular Volkswagon Rabbit - it must be a GTI.
MBA: The trend toward more brand names seems to be the way things are heading.
KOLREP: Yes. At one point several years ago, there was a push by the big retail stores to go with |no-name' products. But that has faded out, and things are back to premium brand names. However, there is a problem with those brands caught in the middle price brand in Germany, and in the U.S. as well. They want to go up, but are caught in competition with those premiums that are falling down. They also have to fight against those which are also trying to move up.
I like to describe the whole system as a pyramid model. The imports share the top portion of that pyramid. Those brands have to be careful not to fall down into the middle part of that pyramid because at that point, you're getting into a pricing situation, which is also brings down the image of the brand.
Price is a big part of the image. In Germany, if you drop your price, people tend to think that you've dropped the quality, too.
MBA: Do you foresee Warsteiner brewing under license in other countries?
KOLREP: One of the reasons why we do not plan to brew anywhere else in the world is that same question of image. We feel that if you have a licensed brewer, using different factors and raw materials, you will have another product. We think that we have to justify things by doing it only in Germany. It's the same thing as if you have a German suit, but if you put an American inside that suit, he's not going to become a German.
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|Title Annotation:||Warsteiner Brauerei Haus Cramer Gesellschaft mit beschraenkter Haftung und Company KG; interview with Erich Kolrep, vice president of sales|
|Publication:||Modern Brewery Age|
|Date:||Jul 13, 1992|
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