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Brewers handcuffed by cheap beer prices

One of the most notable differences between Slovakia and more developed economies the western first-time visitor to Slovakia comes across is the comparatively cheap cost of goods and services. From taxi fares and eating out to simply travelling on public transport, the price differences can be dramatic. But within all the bargains to be had, possibly the most striking is that of one of the nation's most popular drinks - beer.
Although taxes play a large part in Slovakia's comparatively low beer price - Slovak beer is taxed 400 crowns ($11) per hectolitre, a rate half of what is charged in Poland and an average of a quarter as much as in the west - added costs from tariffs don't account for the entire price differential. On a deeper level, the local discount can be traced back to both tradition and the availability of locally produced ingredients for brewing.

One of the most notable differences between Slovakia and more developed economies the western first-time visitor to Slovakia comes across is the comparatively cheap cost of goods and services. From taxi fares and eating out to simply travelling on public transport, the price differences can be dramatic. But within all the bargains to be had, possibly the most striking is that of one of the nation's most popular drinks - beer.

Although taxes play a large part in Slovakia's comparatively low beer price - Slovak beer is taxed 400 crowns ($11) per hectolitre, a rate half of what is charged in Poland and an average of a quarter as much as in the west - added costs from tariffs don't account for the entire price differential. On a deeper level, the local discount can be traced back to both tradition and the availability of locally produced ingredients for brewing.

History plays its part

Ján Bunčák, assistant sociology professor at Bratislava's Comenius University, explained that historically, beer is a relatively modern drink in Slovakia, having only really caught on in the region at the turn of the 20th century. Before this, wine was the drink of choice, with towns such as Spišská Nová Ves and Kežmarok being major suppliers throughout the region. Vodka too had its place as the influence of the Soviet Union extended and the favourite tipple of the Russians became more popular during Slovakia's communist years.

But the communist tradition also held a place for beer, Bunčák said, and the drink came to be seen as a working-class beverage, a label that it still carries today, keeping its price low.

"Because beer is a workers' beverage, this has consequences in [its] prices - this is the reason beer is so cheap in Slovakia. Beer was seen by the communist party as sort of a 'liquid bread' for the workers. Beer was necessary for the working class under communism. And now, it has a long-term tradition," Bunčák said.

Peter Vendelin, director of the Topoľčany-based Topvar brewery, agreed that beer had a strong heritage in Slovakia, but believed its cheap price was rooted in the ample supply of ingredients for the brewing process, not in its history.

"The price has been cheap for so long because manufacturing costs are rather inexpensive. Slovakia is an agricultural country, so all the ingredients needed for beer production can be grown and produced here," he explained.

A local view

Relaxing with a beer at Bratislava's Umelka pub on March 31, economy students Juraj Vogrinčič, 20 and Tomáš Pospišil, 21, explained that low beer prices were a luxury they enjoyed.

"It's tasty and inexpensive and I prefer to drink beer rather than wine or spirits," Juraj said.

Both social drinkers who said they drank only once a week, they explained their fondness for beer had its foundations in society's acceptance of the drink as the natural one of choice.

"I drink beer because it's the first thing that comes to my head if I'm at a party or I go for a drink with friends. It's also stylish to drink beer and I believe that it is part of the Slovak tradition," Tomáš said.

The students' sentiments echoed those of the many beer producers, including Vendelin. The Topvar chief said that beer consumption was becoming more popular throughout the whole of Europe.

"Compared to other forms of alcohol, beer is the most universal drink - it completely sweeps away one's thirst and its effects on a person's health are medically proven. Beer is a suitable drink for all kinds of social gatherings," he said.

But while the likes of Juraj and Tomáš can take advantage of the cheap prices to prevent their meagre student budgets from disappearing down their throats, the brewers themselves have been bearing the brunt in tiny profit margins.

Jean-Paul van Hollebeke, managing director of Heineken Slovakia, said breweries were finding it difficult to survive with such low profit margins, and that it was nearly impossible to make a quick profit in any beer market in the short-term. He added that producers needed to see brewing as a long-term investment, especially in Slovakia.

The Heineken director explained that between Heineken's four acquisitions in Slovakia - Gemer, Martiner, Corgoň and Zlatý Bažant (see related story, this page) - the gross profit margin (the amount of money earned over production costs, not including marketing and promotion) was about $5 (230 crowns) per hectolitre in Slovakia. In a western country such as Australia, the gross margin per hectolitre for Heineken totalled around $180 (8280 crowns). These figures equate to a profit margin of 2 cents (1.15 crowns) per one half litre beer in Slovakia and 90 cents (41.5 crowns) per beer in a western country such as Australia.

Opinions differ on the future of beer prices in Slovakia. Producers concede that inflation, increased taxes and government regulations may all play their part in influencing the cost of beer. However, if wages increase correspondingly with the price hikes, brewers believe that they shouldn't encounter major problems in keeping their market shares.

But Bunčák said that price would remain the most influential factor for most Slovaks when choosing a beer, rather than a beer's quality or brand name.

"I believe that beer will be cheap for a long time in Slovakia compared to western Europe. The reason is that the price of beer has a place in the structure of consumer prices, and I think if bread is so cheap here compared to western countries, beer will also remain cheaper."

Price rises would be a blow to the likes of Juraj and Tomáš, who both said that if beer prices were to rise their consumption would probably drop.

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