Czech Republic: Molson Coors buys majority in local brewery

Pivovary Staropramen, a fully owned subsidiary of Molson Coors has acquired at an undisclosed sum 89 percent of the shares in Pardubický Pivovar, a local brewery from the namesake city of Pardubice, about 100 km east of Czech Republic’s capital Prague. The remaining 11 percent of the shares will stay in the hands of small shareholders including former chairman of the board of directors Leoš Kvapil.

According to Petr Kovařík, CEO of Staropramen, the new owner has no intention to acquire the rest of shares and to squeeze out minority shareholders. Pardubice brewery will retain its autonomy in order to preserve its craftsmanship. It will remain an independent joint-stock company with its current employees and management.

"We will only make three necessary changes. The change to the position of director, subsequent changes in the Board of Directors and we will start to cooperate in business," said Kovařík.

Leoš Kvapil, who bought in 2010 together with a partner a majority stake in the brewery, will be staying as a member of the board. New chief financial officer and chairman of the board of directors will become Zdeněk Havlena, Cluster Finance Director for Czech Republic, Slovakia and Hungary at Molson Coors. The position as commercial director of the brewery will be filled by Petra Chovancová, currently Senior Brand Manager at Pivovary Staropramen who has been with the company for seven years.

Besides of the brewery, Staropramen has also bought 100% stake of Porter Slovakia, a distribution company active in the beer trade in Slovakia.

Pardubice Brewery, which was founded in 1871, had a chequered history. Since being privatized in 1993 after the fall of the socialist regime, the production of the brewery has fallen by about 75%. Between 2009 and 2012, the brewery reported a loss of between roughly CZK 2 million (USD 80,000) and CZK 7.5 million (USD 330,000) per year. This was also the time when the two entrepreneurs Michal Friday and Leoš Kvapil acquired stakes in the company of 41 percent and 40.5 percent respectively. In the last years the brewery again had to report losses in between CZK 1.7 million (USD 75,000) and CZK 3 million (USD 132,000). Last year Pardubice Brewery reported total sales of CZK 134 million (USD 5.9 million).

"Our resources have been limited," Kvapil explained the reason for the sale. In order to achieve nationwide distribution, the brewery would need an investment of CZK 100 million (USD 4.4 million). In addition, some urgent investments are need. "The global trend is beer in cans, we cannot avoid it, but a new production line would cost us tens of millions," Kvapil added.

Negotiations on sales began about a year and a half ago. “We were also approached by buyers from Russia or China, but we did not want to sell the brewery. When we discussed the acquisition, it was crucial for us to remain autonomous. The brewery will thus continue to grow while maintaining its current operation,” Kvapil said.

The former owner finally accepted the offer of Staropramen which could guarantee a maximum amount of independence while also helping with further investments and a broader distribution network.

Staropramen has been looking for possible acquisitions for more than two years. “We must constantly move and adapt to market trends. Demand for regional beers is now rising, traditional breweries are stagnating. The variety of the offer plays a crucial role, it is not enough to offer one or two beers in a pub anymore,” Petr Kovařík, CEO of Pivovary Staropramen said when asked why he bought the regional brewery.

“We believe there is a great brewmaster who brews excellent beers. We really like the portfolio of the local brewery. For example, Porter is unique on the Czech market,”said Kovařík.

Pardubice Breery produces three main brands. Pernštejn is the strongest in terms of sales, accounting for around eighty percent. A growing brand is also Porter, a strong and dark beer made from four types of malt, which has been successful among others in Russia. Taxis is a beer with 6 percent alcohol by volume. The brand was created in 2010 but has not achieved a lot of attention so far because of limited sales support.

Staropramen’s CEO intends to roll out a nationwide distribution of all three brands by September. He also sees a huge potential in export especially to markets like Slovakia, Russia or Great Britain, where Staropramen has already a strong foothold. "The consumer wants a variety of choice; we want to give it to them. The absolute standard in restaurants is five to six beers," said Kovarik.

Another important reason to buy the brewery was also the fact that Pardubice Brewery is very strong in the restaurant segment, which contradicts the market trend. “It is stronger in pubs than in retail, which is attractive for us and we want to further develop this position,” said Kovařík. Staropramen sells only every sixth beer in the gastro segment.

The Pardubice brewery produces with 93 employees 79,000 hectoliters of beer per year. Due to various investments in recent years, production capacity was increased to 200,000 hl. The goal is to double sales to about 160,000 hectoliters within 10 years.

Staropramen operates two breweries in Smíchov and Ostravar Ostrava. Since 2012, the company has been part of Molson Coors. The American brewing group bought Staropramen which were sold in 2009 from AB InBev to CVC Capital Partner for EUR 2.7 billion.

Staropramen is exported to 33 countries. The most important export markets include Slovakia, Sweden, the United Kingdom and Germany.

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