How the East Was Won: Supply Chain Restructuring in the Eastern European Beer Market

Abstract

Like all markets in the former communist countries, the Eastern European beer market has been strongly affected by the economic reforms in the beginning of the 1990s. In the first years after reforms, there was a substantial decline in the production of barley, malt and beer. However, the brewery sector soon attracted interest from foreign investors, who faced problems in sourcing sufficient high quality malt in order to produce high quality beer. Therefore, they reintroduced vertical coordination in the supply chain to obtain malt and barley that consistently met their quality requirements. The associated change in beer quality has been one of the drivers behind the spectacular growth of beer consumption in several Eastern European countries. Most remarkable was the growth in the Russian beer market, where beer consumption more than quadrupled over the course of a decade. In this paper, we describe and analyze the dramatic restructuring of the beer industry and the changes in the industrial organization of its supply chain over the past two decades. In addition, we document how the drastic improvement in the quality of beer has been an important driver behind rapid growth in beer consumption in Russia. In den letzten beiden Jahrzehnten hat in der Bierindustrie in Osteuropa eine dramatische Umstrukturierung stattgefunden. Die Wirtschaftsreformen in den frA¼hen 1990ern fA¼hrten zu einer Abnahme der Produktion von Gerste, Malz und Bier. AuslA¤ndische Investoren, die Schwierigkeiten hatten, genA¼gend hochwertige Gerste und Malz zu finden, fA¼hrten zur Sicherung der QualitA¤t vertikale KoordinationsmaAŸnahmen ein. Die daraus resultierende Steigerung der BierqualitA¤t war eine der Hauptursachen fA¼r das spektakulA¤re Wachstum des Bierkonsums in vielen osteuropA¤ischen LA¤ndern und insbesondere in Russland.