HOFBRÄUHAUS IN THE UNITED STATES



HOFBRÄUHAUS IN THE UNITED STATES

HISTORY

Hofbräuhaus is a 400-year-old royal brewery that is still owned by the Bavarian government. The brewery and the famous beer hall are located in Munich, Germany. HB beer was sold to the U.S. since the sixties and enjoys high brand recognition. Holterbush, which is one of the largest beer distributors in the United States, imported HB beer until 1990.

A considerably smaller company, named after its owner Bernard Greenberg, started to import HB beer in spring 1991. Greenberg, whose company is located in Tampa, Florida, was importing other foreign beer brands as well. He bought the HB beer on a FOB (Free on Board) basis in Munich. FOB means that Greenberg had to arrange the shipment and was responsible for the cargo as soon as it was picked up at the warehouse in Munich. In fall 1992 he shipped between ten and fifteen twenty-foot containers every two months to his warehouse in Tampa. One twenty foot container contains 1000 cases. One case holds 20 bottles. One bottle contains 0.5 liter. At this time Greenberg had only 20% of the sales volume which had been achieved by Holterbush five years earlier. After negotiations with HB's management failed, Greenberg ceased doing business with HB in spring 1993. Since then HB beer has not been sold in the United States at all.

Greenberg explained that importing HB beer was no longer profitable. HB beer would bind capital, manpower and space in his warehouse which can be better used for other brands. Despite the extraordinarily high brand recognition of HB beer, sales decreased continually. HB beer was considerably more expensive than other import beer in the U.S. The Bavarian brewery accepts only German Mark. The currency exchange rate of the German Mark increased by 125% in the last decade. HB did not offer any support to Greenberg and did not adjust the price of its beer to the fluctuating currency exchange rate. Greenberg assumed in his calculations an exchange rate of 1.65 DM for 1$. After the US dollar dropped considerably under this mark, Greenberg tried to increase the price in order to recoup his higher cost. This was not well received by the customers. Greenberg did no advertising for HB beer because he could not receive a formal exclusivity contract from the Bavarian brewery. Therefore, he felt that it is too risky to invest in promotional activities, which presumably amortize only after a long period of time.

THE BEER MARKET IN THE U.S.

The United States is the single largest market for beer in the world. Historically the typical U.S. beer drinker has a low income and a limited education. Males engulf significantly more beer than females. Beer has had the reputation as being a beverage for lower social classes.

This traditional perception of beer has been changing over the last ten years. The tremendous increase of micro breweries and import beer can be seen as a sign for the changing image of beer. Nowadays beer is increasingly accepted as an alternative beverage for wine or even cocktails. For the young upwardly mobile professional it became fashionable to drink expensive import beer.

The market for import beers in the United States follows a three-tier system. The importer who receives the beer from the foreign brewery delivers it to beer distributors in the single states. The distributor delivers it to retailers, bars and restaurants. Large-scale marketing campaigns are usually financed by the brewery or the importer.

THE COMPETITIVE ENVIRONMENT

HB fits right in the niche of expensive and fashionable import beer. Its high brand recognition and its distinctive taste predispose HB beer for this market segment. The immediate competitors are the Bavarian breweries Spaten, Hacker and Ayinger. Spaten and Hacker have their own subsidiaries in the U.S. These subsidiaries import the beer from Germany. Ayinger sells its beer to an American importer. The price a distributor is willing to pay for one case of beer varies between $18 and $22. Usually, the distributor requires a 20% margin (mark down). The retailer (grocery stores) requires a 37.5% margin (mark down). The competitive price for this kind of beer at grocery stores is $2 per bottle.

HB is looking for an importer who would be able and willing to distribute its beer. The importer will not receive any formal exclusivity rights. However, on an informal basis HB agrees not to sell the beer to any other party. Also, the importer is self responsible for marketing and distribution in the U.S. HB will not grant any support for marketing or advertising. The beer will be sold on an FOB basis in Munich for German Mark 17.90 per case (1$ = DM 1.60 ). Due to the different labeling for the U.S., the production has to be interrupted when producing beer for the U.S. Therefore, the required minimum order is five twenty foot containers per order. The cost of transportation for one twenty-foot container from Munich to a major port on the East Coast is approximately $1500. The cost for customs and other fees sums up to another $1500 per container.

HB also might consider opening its own subsidiary in the U.S.

STUDY QUESTIONS

1. How do you assess the market attractiveness of the U.S for Hofräuhaus?

2. Given the required margins of 20% for the distributor and 37.5% of the retailer, at which price should the importer offer one case of HB beer to the distributor, if the consumer is expected to get the beer at $ 2 per bottle in grocery stores?

3. If the importer sells the beer for $ 20 to distributors, what is his gross margin?

4. What are potential problems the importer has to face? What are possible solutions?

5. Is HB’s approach to the U.S. market viable?

6. Which marketing strategy would you suggest to HB?

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