Budweiser Budvar, National Corporation

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Budweiser Budvar, National Corporation

Karoliny Světlé4
370 21 České Budějovice
Czech Republic
Telephone: 420 387 705 111
Fax: 420 387 311 135
Web site: http://www.budweiser.cz

Government-Owned Company
Incorporated: 1895 as Český akciový pivovar
Employees: 651
NAIC: 312120 Breweries; 424810 Beer and Ale Merchant Wholesalers

Small but feisty Czech brewer Budweiser Budvar, National Corporation has been battling mighty Anheuser-Busch (A-B) for nearly a century over the right to use the famed Budweiser brand. Budweiser Budvar National Corp., which remains wholly owned by the Czech government's National Property Fund, hails from the town of České Budějovice, also known as Budweis, leading to the company's claim as the brewer of the "Original" Budweiser—and not the A-B version, which, despite being the world's largest-selling beer brand, remains what many consider a pale imitation of a full-bodied beer. On the other hand, the Budweiser Budvar version is recognized by many beer experts and consumers as among the world's finest lagers. Since the beginning of the 1990s, Budvar has succeeded in winning its case in a number of markets, and especially in Eastern and Western Europe, and now holds the exclusive trademark to the Budweiser name in more than 50 countries. In North America, however, the company is forced to market its beers under the Czechvar name in accordance with an agreement made with A-B in 1939. Since emerging from Communist domination, during which period Budweiser Budvar existed primarily as one of the country's three authorized export beers, the company has successfully gained a strong share of its domestic market as well, and by the beginning of the 2000s ranked as the country's number four brewer, producing more than 1.3 million hectoliters per year. Budweiser Budvar operates sales and marketing subsidiaries in a number of countries, notably in the United Kingdom—the only country where both Budvar and A-B have the rights to the Budweiser brand name—as well as in Germany and Croatia. In these markets, and others such as Austria, Budvar ranks among the top-selling imported beers. In the Czech Republic, Budvar operates its own chain of retail stores, which sell wine and other alcoholic beverages, in addition to its Budweiser Budvar, Budweiser Free (non-alcoholic), and Bud Super-Strong brews. Budvar is slated for possible privatization, but remains under control of the Czech government; the company is led by Jiří Boček.

Czech Beer History 101

For many beer enthusiasts, the history of "real" beer began in the region known as Bohemia, later known as the Czech Republic, and the development of the "lager" style of beer. This brewing style, which owed as much to its recipe and to the use of the region's Zatec (Saaz) hops, centered on a number of small towns, such as Pilsen, which gave its name to a whole class of beers, and the small village of Budějovice—formerly known by its German name of Budweis. That village was established by royal decree in 1265 and was given a license to brew beer by King Přemysl Otakar II.

At first, beer brewing rights were granted to a broad spectrum of citizens, but by the early 18th century, the town's beer-making activity had come almost entirely under the province of a small number of professional brewers, with the exception of a "public" brewery owned by the town council and operated in the town center. Political struggles between the town's rival Czech and German populations, however, resulted in the public brewery being transferred to a group of "burghers," or citizens, who, under the control of the Austro-Hapsburg empire were to enjoy a great deal of political and economic control in the region. The citizens group finally won out, taking over the brewery in 1795 and founding Měštʾanský pivovar ("Burghers' Brewery"). In German, the new company's name became Die Budweiser Bräuberechtigten Bürgerliches Bräuhaus gegründet 1795.

The new Budweiser brewery soon became the town's dominant brewer, as the fame of the Budějovice brews spread throughout the region. Under the Austro-Hapsburg empire, brewers were restricted to selling beers only within their own regions. Nonetheless, the Budweiser brewery production grew strongly. In 1847 a new, larger facility was built outside of town. By the 1870s, Měštʾanský had begun exporting its beers, including to the United States starting in 1872.

Political tensions between the German and Czech populations in Budějovice began building during the late 19th century, exacerbated in part by the empire's system of attributing voting rights according to wealth—thereby giving the wealthier, but smaller German population in town control of its political structure. The abolition of the brewing laws restricting breweries to sales in their region in 1860 opened the prospect for new growth in the Bohemian brewing industry. Yet the German control of the town's main Budweiser brewer, as well as the two other major breweries in the region, effectively cut out Czech brewers and investors from entering the field.

In response, a group of Czech brewers began preparations to build their own brewery in the early 1890s. In 1894, the group organized its first meeting for prospective shareholders in order to gather the funds necessary to launch a new business. Over the next year, the group succeeded in raising the funds—and over-coming the political obstacles—needed to create and build their brewery, and Český akciový pivovar, or the Czech Joint Stock Brewery, was founded in 1895.

The new brewery, built using then modern, industrial techniques, was an instant success, producing more than 51,000 hectoliters of beer in its first year, with sales fueled in part by nationalist sentiments—as the region's Czech population became the company's first customers. Yet the new brew proved to be more than an exercise in national pride—by the end of 1896, the company had already won its first awards, the Gold Medal at the Prague trade fair and the Silver Medal at the Industrial and Pharmaceutical Exhibition, also in Prague. By the following year, the Budějovice brew's fame had already begun to cross borders, with a new Gold Medal at the Stuttgart food and drink exhibition. At the same time, the company's sales expanded throughout the Austro-Hapsburg empire, becoming a popular brew in Trieste and Vienna and other European capitals.

By World War I, the Budějovice brewery's production had already doubled that of the Měštʾanský brewery. The beer had by then achieved worldwide fame, far beyond the empire, as beer drinkers around the world embraced the so-called Bohemian style beers. Yet that fame was soon to lead both the Czech Joint Stock Brewery and the Měštʾanský into conflict with a new and fast-growing international rival, an American company called Anheuser-Busch.

Trademark Battles in the 20th Century

German immigrants to the United States had been responsible for bringing over many beer recipes from the European continent, yet none proved as popular and enduring as those that originated in the Bohemia region. Among the newcomers to the United States was Adolphus Busch, who became the son-in-law of a struggling St. Louis brewer, Ebehard Anheuser, joining the business in 1957. Busch steered the Anheuser brewer toward the production of Bohemian-styled beers, and the business flourished. In 1876, Busch teamed up with another German immigrant, Carl Conrad, who had been working as a drink salesman, and the company began marketing its Bohemian lager under the Budweiser (which, in German, meant "from Budweis") brand name.

Conrad himself registered the Budweiser trademark in the United States in 1878, although A-B remained the beer brand's brewer. The new brand caught on quickly, leading the company to add other Bohemian brands, including Michelob, among others. In 1881, Conrad's company sold Anheuser-Busch the rights to its Budweiser trademark. Nonetheless, A-B's brand was not the only Budweiser available in the United States in the late 19th century. In addition to the Měštʾanský Budweiser, there were a number of others, including one brewed in Pennsylvania and another in Brooklyn, New York, the former of which continued production into the 1970s.

A-B, which through its aggressive marketing strategy had emerged as the United States' dominant brewer by 1900, went a step further, registering the Budweiser trademark as its own in 1907. This led A-B into direct conflict for the first time with both the Měštʾanský brewery and its Budweis/Budejovice hometown rival Český akciový pivovar. The three parties worked out an agreement in 1911, whereby A-B retained the right to use the Budweiser brand name in the U.S. market and elsewhere, with the exception of Europe, in exchange for a financial consideration. As part of that agreement, however, both Budweis breweries retained the right to market their beers using the Budweiser name worldwide. This agreement also allowed the company to market its beers in the United States, with the provision that it state clearly that the beer originated in Budweis/Budejovice, and not in the United States.

Following World War I, the town of Budweis officially adopted the Czech variant name Budejovice. Český akciový pivovar, which had suffered during the war due to a lack of ingredients and from being cut off from its export markets, once again resumed its exports, enabling the company to rebuild quickly in the postwar years. By the late 1920s, production had risen past prewar levels, and the company had completed a modernization and expansion of its production site, including sinking its first Artesian well in 1922. This well was followed by the sinking of two more wells by 1930, ensuring the company a good supply of clean water. In that year, the company registered its own trademark, Budvar.

Company Perspectives:

Budweiser Budvar pays as much attention as possible to the way its beer is made, it uses the very best home ingredients and the beer is made by the best brewing experts. For more than one hundred years, many generations of ordinary customers as well as renowned experts have valued the wonderful taste, aroma and body of the original Budweiser.

Budvar, as the company came to be called, needed its expanded water supply for its growing production. The company had become especially successful on the export market, selling its beers throughout Europe and into the Middle East, Africa, and as far away as Japan. During the 1920s, the company added a number of new beer brands, including Český Budějovický granát, launched in 1922, a newly named Budweiser Bier in 1925, which was followed by Budbräu in 1934, and the Crystal beer brand in 1935, targeting the export market. The company formally adopted the Budvar name in 1936, becoming Budvar - Český akciový pivovar České Budějovice.

In the meantime, the Prohibition era had cut off the company from the U.S. market. The repeal of Prohibition, however, encouraged the company to resume exports to that country, and in 1937 Budvar registered a U.S. trademark, Imported Original Bohemian Budweiser Beer from Budweis City. Although the somewhat bulky name allowed Budvar to remain within the terms of the 1911 agreement with A-B, it quickly brought the two companies into new disputes.

By 1939, however, A-B had history on its side. As the Nazi government began claiming portions of the then Czechoslovakia as part of Germany itself, and following the Munich Agreement, which allowed the Germans to proceed with full annexation by the end of the year, Budvar came under increasing pressure from threats to confiscate its U.S. assets. As a result, Budvar was forced to agree to a new settlement with A-B, this time granting Anheuser-Busch the exclusive right to the Budweiser brand name in North America and the right to use it elsewhere in the world as well.

Budvar was taken over by the Nazis during the war, and exports were halted. Following the war, the company enjoyed a brief period as a private enterprise, but was soon after nationalized by the new Soviet-controlled Czech government. In 1948, Budvar then absorbed the Měštʾanský brewery, and its name was changed, to JihoČeské pivovary, národní podnik, or South Bohemian Breweries, National Corporation.

Under the Communist government, South Bohemian became one of three breweries picked to represent the country on the export market—virtually ending the brewery's domestic sales. In support of its export sales, the brewery launched an ambitious expansion program in 1964, designed to increase its production from 300,000 hectoliters to more than 830,000 upon completion in 1982. In 1967, the company was renamed Budweiser Budvar, National Corporation as work got underway. Yet the expansion stalled, and by 1982, production had barely climbed to 360,000 hectoliters. Nonetheless, Budvar continued to win its share of medals, including the Gold Medal in Leipzig in 1982, a Bronze Medal in England in 1985, and a Gold Medal in Paris in 1989.

Renewing Growth for the New Century

That year marked the end of Communist domination in Czechoslovakia (soon to separate into the Czech and Slovak republics) and the return to a free-market economy. While still a government-controlled business, Budvar began making fresh plans for expansion. Yet the company once again bumped up against Anheuser-Busch—except, by then, the St. Louis-based company had grown into the world's largest brewer, and its Budweiser brand, backed by one of the world's largest advertising juggernauts, had become the world's number one selling beer brand.

Litigation between the two companies had in fact resumed in the late 1970s, when both A-B and Budvar had begun expanding in the United Kingdom. The result of that litigation in 1984 led to a ruling that both companies were allowed to use the Budweiser trademark in the United Kingdom, a situation that was to prove unique in the world. Both companies appealed the decision, leading to a legal battle that would not be resolved until 2003, when Budvar received a ruling in its favor.

In the meantime, the collapse of Communism offered the prospects for a lasting truce, as the new Czech government indicated its willingness to privatize Budvar. Anheuser-Busch immediately began positioning itself as a candidate to take over its smaller rival, attempting to woo the Czech government by, among other initiatives, setting up a St. Louis Centre in Budějovice. The two sides agreed to a truce in their legal battles, starting in 1990. Yet popular support for maintaining Budvar's independence, including intervention from the United Kingdom's Campaign for Real Ale (which claimed that A-B would reduce the Budějovice site to little more than a museum) swayed the Czech government, which ruled against any sale to A-B. In response, A-B once again took up litigation.

Key Dates:

1795:: Měštʾanský pivovar ("Burghers' Brewery") is founded in Budweis, in Bohemia (Czech Republic).
1872:: Měštʾanský pivovar begins exports of its Budweiser brand to the United States.
1878:: Carl Conrad registers U.S. trademark for Budweiser brand, which is brewed by Anheuser-Busch.
1895:: Český akciový pivovar, or the Czech Joint Stock Brewery (Budvar), is founded in Budweis.
1911:: Anheuser-Busch and Budvar sign their first agreement.
1922:: Budvar expands and modernizes production, including sinking first of three Artesian wells.
1939:: Second trademark agreement is signed by Budvar and Anheuser-Busch, barring Budvar from U.S. market and giving Anheuser-Busch the right to market Budweiser worldwide.
1948:: Budvar is nationalized and absorbs Měštʾanský brewery.
1967:: Name is officially changed to Budweiser Budvar, National Corporation.
1989:: Collapse of Communist government in "Velvet Revolution" enables Budvar to resume expansion.
1994:: Trademark "truce" between Anheuser-Busch and Budvar ends after Czech government refuses to allow U.S. company to acquire Budvar.
1996:: Budvar expands domestically with opening of first retail outlets in Czech Republic.
1999:: Company forms subsidiary partnership in Germany to support its exports to that country.
2001:: Company launches subsidiary in the United Kingdom, company's second largest export market.
2003:: The company successfully defends its right to use Budweiser and Bud trademarks in the United Kingdom.

Budvar, however, found support in the recently signed GATT agreement, also signed by the United States, which provided protection for local products and trademarks. From the mid-1990s, Budvar was increasingly successful in arguing that the Budweiser brand qualified as a locally based trademark, and, especially in many European markets, successfully established itself as the sole Budweiser in town.

By the beginning of the new century, Budweiser Budvar had imposed its brand on more than 60 countries worldwide. While exports remained a significant share of the group's sales, the domestic market became, for the first time in 60 years, the company's primary market. As production topped 1.3 million hectoliters per year, the domestic market had come to represent some two-thirds of the group's total sales. Supporting its Czech expansion, Budvar began opening its own retail outlets starting in 1996, with ten in operation at the beginning of the 2000s.

Budvar also took steps to expand its export business in 1999, setting up a partnership with its two main German distributors, to be named Budweiser Budvar Vertriebgesellschaft Deutschland and held at 70 percent by Budvar. That subsidiary supported the company's growth as a leading export brand in the world's second largest beer market. Its creation was followed by subsidiaries in the United Kingdom and Croatia as well. In 2003, the company's legal case was strengthened when it successfully defeated the latest attempt by Anheuser-Busch to claim sole ownership of the Bud and Budweiser trademarks in the United Kingdom.

Meanwhile, the company had marked a new historic moment in 2001 when it returned to the United States for the first time in nearly 70 years—marketing its beer under the name Czechvar to skirt continued trademark restrictions in that market. Although it appeared unlikely that Budweiser Budvar would be able to overturn brewing giant Anheuser Busch's hold on the Budweiser trademark on its home turf, many Americans welcomed the return of what many in the world consider the world's finest lager.

Principal Subsidiaries

Budweiser Budvar, d.o.o. (Croatia); Budweiser Budvar Vertriebgesellschaft Deutschland GmbH (Germany; 70%); Budweiser Budvar UK.

Principal Competitors

Altria Group Inc.; Philip Morris USA; Anheuser-Busch Companies Inc.; Groupe Danone; Kirin Brewery Company Ltd.; Madhvani Group; Asahi Breweries Ltd.; Interbrew SA/NV; Carlsberg A/S; Orkla ASA; Dr. August Oetker KG; Allied Domecq PLC.