Trouble brewing for Perła beer
Most breweries would love to have Perła-Browary Lubelskie's problems. The Lublin-based beer maker followed last year's record profits with steady sales growth so far this year. But the numbers belie shareholder disagreements and an inability to make decisions that would ensure the company's future prosperity, according to analysts. Since 1998, the brewery's sales have swelled from 320,000 hectoliters to 585,000 hectoliters last year, taking the national market share of Perła's brands from 1.6% to 2.8%. Despite last year's gloom in the brewing sector, which saw industry-wide growth of just 0.27%, Perła's sales skyrocketed 23.2%. In the first five months of this year sales increased by 20% with the firm forecasting sales of more than 600,000 hectoliters and sales growth of 6-7% by year-end. "Last year we were the only brewery besides Kompania Piwowarska that made money on beer," Szczepaniak said. "We made profits of zł. 2.5 million ($625,000), which isn't much but it's in the black. The majority (of breweries) were significantly in the red."
In generating profits and growth, Perła stands virtually alone among small and medium breweries, analysts said. "In general, Perła's results are very good in the current market conditions," said Bogna Sikorska, analyst at CDM Pekao brokerage. "Small and medium breweries can rarely boast a positive result - even at the operating level." Small- and medium-sized breweries are also getting hammered by last year's tax increases on beer. Since smaller brewers compete primarily on price and cannot rely on the scale of their production for savings, the 16.5% additional levy has severely dragged down profits, Sikorska said.
Price competitive Perła, like the majority of succesful small breweries, has prospered by mastering its local market, where it has a 40% share, and by adopting a fierce pricing policy toward national brands. "Nobody would enter a price war with us because we still have plans for deep price cuts, all the more so because we still have cost reserves - we are still restructuring the brewery so things are fine on this front," Szczepaniak said. Szczepaniak, who has headed the brewery since 1998, attributes Perła's success to a turnaround in marketing which saw it cast off its image as a working man's beer in favor of a more youthful clientele. The company's 1998 market research signaled the future decline of the brand since it was favored by an elderly, and therefore diminishing, group of drinkers, he said. "We had to work very hard to retain this segment since it is characterized by the greatest consumption - the largest number of heavy users," Szczepaniak said. "We had to retain them and also bring in the young." The company is set to invest zł. 4 million ($1 million) this year in redesigning its bottles and labels, but Szczepaniak also sees Perła's exports to the United States, which amount to around 2 million bottles a year, as having a positive effect on the brand's image.
Tough decisions But Perła's ability to sustain growth in difficult economic conditions has made it tough for its shareholders to agree on the best course for the brewery's future. Private investors Hubert Gierowski (51%) and Adam Brodowski (24%), the co-owner of Kraków-based Strzelec brewery, cannot agree on Brodowski's plan to merge Strzelec with Perła or to sell Perła to a strategic investor. This year Perła's owners have been courted by Kompania Piwowarska, owned by South African Breweries, which needs a low-priced beer brand to fuel sales during the current economic downturn, Sikorska said. "Any solution that would help decision-making at the brewery, for example to increase investment, would be beneficial," she said. "Unfortunately, the trouble with these gentlemen is that their relationship is very emotional and has become so frayed that they will find it difficult to agree. This is definitely not a good situation for Perła." Paweł Kwiatkowski, spokesman for Kompania Piwowarska, would not comment on the company's plans for Perła.
Last month's appointment of Szczepaniak as chairman of Pepees Łomża, based northwest of Warsaw, in which Gierowski is also a shareholder, has fueled market speculation of a merger between the two breweries. Although the final decision lies in the hands of shareholders, Szczepaniak sees sound business arguments for the merger as the breweries operate on similar markets and are well-established brands in their regions. He said they are in favor of combining the breweries. "The synergies are evident," Szczepaniak said. "Mutual purchasing is something that we have already collaborated on and there are evident savings on scale. Our combined production is over a million hectoliters, which is substantial. We could combine our logistical facilities and production capacity."
