Multiple shades of amber

A world of opportunity is opening up for Lebanese beer lovers

http://www.executive-magazine.com/business-finance/business/beer-multiple-shades-of-amber

To many Lebanese, Almaza has been synonymous with beer. Ask for a beer at a bar or restaurant, and it was a chilled bottle of Almaza that you invariably got. But the Heineken-owned Brasserie Almaza’s monopolistic grip over the beer market is over. The omnipresent Almaza is no longer the only large scale brewer in the country, with Kassatly Chtaura’s Beirut Beer having hit the shelves this summer, while a third commercial brewery is in the works.

The craft beer, or microbrewery, scene that has been dominated by Gravity Brewing’s 961 Beer since 2006, also has a new contender with Colonel Beer launched in July. It is boom times for beer drinkers — provided you like lager. 

A lager market

Kassatly’s new beer is a lager — like Almaza based on Czech Pilsner, a type of lager — as is Colonel’s biggest seller. Pale lager, typically drunk very cold, is the most popular and commercially available beer on the planet, although to beer lovers it pales in taste and complexity compared to ale, bitter and stout.

Locally, however, beer is equated with being a thirst quencher to be drunk on a hot summer day, with the bulk of beer sales in the summer months. “Most Lebanese have a low beer culture, that it should be cold and drunk from a bottle or a glass that has been in the freezer, which is why people don’t drink beer in the winter,” says Omar Bekdache, head of operations at Gravity Brewing.

Ironically, ale would be more suited to Lebanon’s moderate climate, from the brewing process, which does not require such a cold temperature, to storage and drinking the ale itself, as ales do not have to be consumed super cold. Brewing costs would also be lower, meaning breweries would have better returns.

However, market demand is not there. “Ale costs half the price of lager [to brew] but that is not the point, as you wouldn’t be able to sell it,” says Jamil Haddad, CEO and brewmaster of Colonel Beer in Batroun.

Almaza’s domination of the market since the brewery began in 1933 — bought out by multinational Heineken in 2002 — is the prime reason. Knowledge of beer is low, driven by consumers being used to primarily one taste, lager. 

Until earlier this year, Almaza had a 74 percent share of the beer market, according to BLOM Bank data (see chart). Coupled with Heineken having roughly a quarter, or 24 percent, of the 21 percent import segment, Heineken-Almaza has approximately 80 percent of overall market share. As a result, any new brewery entering the market has to take popular taste into account. 

“It is pure marketing reasons why lagers dominate the market, and I can’t blame the new breweries for bringing out lager as they wouldn’t get the same return on investment if they brewed ale, so they went the easy route,” says Elie Haber, head of the biomedical department at St. Joseph Hospital and a nano-brewer.

Creating a taste

Haber started brewing for himself several years ago, after sampling ‘real beer’ in Germany and being frustrated by the lack of choice in the Lebanese market. He has since invested around $10,000 to brew a range of beers in a small room at the top of his building in Mansourieh–Bhamdoun. Haber is one of just a handful of craft brewers who import their own ingredients and sup their home brew with friends. They were invigorated when 961 entered the market several years ago, bringing out craft brew lager as well as red and pale ales.

It was 961 that blazed the way for the new breweries today, single handedly creating a buzz around beer. Being the first to take on Almaza was a challenge, and it has been an uphill battle to change consumer behavior. “When we entered the market, people didn’t know about craft brewing. Our lager was considered completely different from what people were used to; a highly carbonated beverage. Some comments we got were, ‘Is this really beer?’” says Bekdache. “We had four beers and people didn’t know the difference, but today people ask for a porter or red ale.”

961’s foray into the market prompted Almaza to react by bringing out a malt beer, and later a light beer to diversify its offerings. Bekdache’s beer, branded as 961, also launched a separate line, Lebanese Brew, or LB, indicative of the continued demand for lager.

Like all locally brewed beers, it is only the water that is Lebanese. The hops, barley, malt and yeast are all imported. This has raised the cost of production, especially compared to Almaza which is able to leverage the economies of scale of the Dutch mother company. The same applies to bottling.

“Shipping costs are a killer. That is why it’s really hard to compare us to a commercial brewery — even the price of buying bottles is totally different,” says Bekdache.

Despite such challenges, 961 was able to corner about 5 percent of the market, according to BLOM Bank data, and go from an initial 400,000 liters per year capacity to 1.8 to 2 million liters at its new Mazraat Yachouh facility. 

Bekdache has welcomed Beirut Beer’s entry to the market, shaking up Almaza’s dominance and the two companies’ aggressive marketing is raising awareness about beer in general. “I am happy Beirut Beer is out, it’s a good thing, as they [and Almaza] can fight each other,” he says. “The market has also grown bigger, and has the potential to grow given the effect of the marketing campaigns both are doing.”

Bekaa brewed

Kassatly Chtaura, which also manufactures juices, energy drinks and wine, opened its $15 million brewery in the Bekaa Valley in July. The facility has an annual capacity of 2 million cases of Beirut Beer. “It is a state-of-the-art German built facility that runs at the push of a button,” says the firm’s export manager Reem Kassatly Ragy.

With Kassatly having the bottling and packaging facilities, half of the brewery was already there, making an annex for the brewing and fermentation of Beirut Beer a relatively limited investment, while the firm has an extensive distribution network already in place to market its beer alongside its other brands. The company was not daunted by going head to head with Almaza, believing the market is growing while having learned from the success of its winery, Château Ka, about taking on the giants.

“We believe there is demand and it is company philosophy to expand into new beverage production endeavors, so beer was a natural expansion,” says Kassatly Ragy. “Average consumption in Lebanon amounts to some five liters of beer per capita per year, whereas average consumption in the US and Europe varies from 80 to 120 liters of beer per capita per year. Our aim is not to eat the market share of our competitors, but increase Lebanon’s average consumption to 10 liters or more.”

That said, Beirut Beer is retailing for LBP 250 less than Almaza, at LBP 1,250 for a 330ml bottle, and has 220 ml and 500 ml bottles, and a 250 ml can on offer to bolster its market presence. Its entry has reinforced the penchant for lager as a beverage to be drunk cold in the summer months, reflected in its ad campaign for the small 220 ml bottle: “Cool till the last drop.”

With Beirut Beer coming out, Almaza introduced a Radler (a shandy mix of lemonade and beer) and Rayes Beer. The company also re-labeled its lager for the FIFA World Cup in different national flags, and in August launched specially-packaged bottles for Iris, a Beirut nightclub, as a way of product diversification (Almaza were contacted by Executive but were not available for an interview).

More competition is in the offing, with Interbrand, which manufacturers juices and soda under license as well as its own brands, planning to follow in Kassatly’s steps by investing $10 million to open a brewery next year.

Craft brews

While Kassatly and Interbrand are using foreign expertise to develop their beer, 961 helped the nascent craft brewing scene to take off. Bekdache and his partner Mazen Hajjar provided guidance and imported ingredients to Haber, in addition to offering support to the country’s smallest brewery, Schtrunz, run by Emile Strunc, as well as to newcomer Colonel. “We’ve worked with Emile and Colonel, they are good friends,” says Bekdache.

Strunc, who is Czech–Lebanese, is a consultant by trade and in his spare time a beer enthusiast with a master brewer diploma. His father had brewed beer at home in the 1970s, and Strunc decided to brew his own in a small room at his home north of Jounieh. Producing under 600 liters a month, Strunc brews different beers throughout the year, ranging from black ale, India Pale Ale (IPA) and summer ale, to Munchen, Vienna, Kolsch and two wheat beers, Weiss and Dunkelweiss.

Initially drinking the beer just with friends, Strunc started to sell to friends of friends, and its popularity spread. This year he has moved into a 75 square meter facility in the Ghazir industrial zone (a government requirement for commercial beer brewing), and plans to double output. “I have a commercial license and am working on the industrial license,” says Strunc. “I’ll soon have one selling point in Beirut, a high quality alcohol store that I can’t name yet.”

Haber, Bekdache and Strunc were all at the opening of the Colonel brewery in Batroun in July, reflecting the camaraderie between the microbrewers. Haddad’s main brew is Colonel Lager, at around 80 percent of production, followed by German Light (a Pilsner), Irish Red and Irish Black, which is sold in 750 ml bottles provided by Strunc. “I did a deal with Jamil [Haddad], I provide the large bottles and he provides the 330ml bottles. There is fantastic cooperation between us,” says Strunc. Haddad invested $2 million to set up the microbrewery, an eco-friendly structure made of recycled plastic bags and eco-board, that is a brewery, bar and restaurant. “What I’ve done is bring the concept of the microbrewery, with transparency between the bar and the brewery,” he says. “Basically, a microbrew is craft beer as it is limited quantity, whereas industrial beer adds corn or sugar and is pasteurized. We only filter. These three ingredients change the whole product, as otherwise you get a full belly from the sugar and corn, and a headache.”

While bringing out four beers, Haddad was careful not to hit the market with too many brews, knowing that while the sector has improved in recent years, it is still predominantly a lager market. “I learned from 961 and their mistakes, which went to the market with several flavors which confused people. You need to build on it,” says Haddad.

Colonel, which is named after a popular windsurfing spot that Haddad and his friends would frequent, has already exceeded expectations. Haddad did no advertising, relying purely on word of mouth, and its success was pushed by his hometown. “People in Batroun are treating it as their product, it is at all the beach resorts and restaurants, and now in Beirut bars. It is getting bigger and bigger,” he says.

The beer has proved so popular that Haddad has already had to change his business model. “The plan was to be on half capacity for three years and then have full capacity. But from the first day, we are at full capacity and selling out, which we didn’t expect in such a short time.”

Haddad has also sent four orders to Syria, and had demand from Iraq, but lacks capacity. “People want craft beer from Lebanon, with many dealers asking me to sell abroad but I’m not ready yet,” says Haddad.

Exports

While beer consumption is increasing domestically, exports are a further boon. BLOM Bank estimates Almaza exports roughly 10 percent, or 2.33 million liters annually, to various destinations such as Syria, the United States, Turkey and the United Arab Emirates. 

Kassatly has export plans and is configuring excess capacity, which can be exported to the rest of the Middle East as well as Africa, a factor in the beer’s name. “Beirut is a city with a rich culture, history and heritage, and is the center of Lebanese lifestyle,” said Kassatly. “What’s more, we are really thinking internationally, so we needed a name that refers to our Lebanese origins, yet has global appeal.”

961 is also exporting, to Europe and Hong Kong, while 60 percent of LB is exported. “We sell in the US, not just to Lebanese expatriates, and have a distributor in Britain, so an English distributor for our pale ale; that is outstanding for me,” says Bekdache. Domestically, Bekdache sees craft beer becoming a sizable niche market, and with a price tag to match. “If we go into a price war, we can’t win. Our strategy from last year onwards is to sell premium beer at a premium price so the quality doesn’t go down,” he says. 

Buoyed by his success, Haddad foresees many more breweries in the future and with more types of beer on offer as the market matures. “The world is changing to craft breweries and there is a new trend for microbreweries. I think there will be 100 microbreweries here in say 10 years time.”