The Business of Beer: Innovation and the Reinheitsgebot

Alex Fossi, January 21, 2014

Site founder and peerless captain-for-life Eno Sarris wrote a few days ago about a recent case of several German brewers who conspired to raise prices. He argued that if they really wanted to earn more for their beer, there was an easier way: just make better beer. They wanted to charge more for the same beer, and that's tough to do without cheating the system.

Of course, "make better beer" is easier said than done. This is especially true in Germany, where since 1487 the Reinheitsgebot (Bavarian Purity Law) has stipulated that beer can only contain the ingredients absolutely necessary for beer: water, barley, yeast, and hops. Later on, this was modified to allow wheat and cane sugar, and more recently, it was changed again to allow a wider variety of malts and sugars, though it still restricts brewers from using most adjuncts. The penalty for failing to follow these rules? Either you can't call it beer, or the government can show up and make you destroy your product.

This has created a German beer scene where many brewers brew very similar beers, with taps dominated by pilsners and a few other styles that fit the law. There seems to be a Platonic ideal of German beer, with brewers trying to eliminate imperfections in the beers they make, all striving to create the best versions of the same styles. This is even echoed by the spokesman for Germany's Brewers' Association, who said, "We have excellent beer in Germany. This tradition is a competitive advantage because people know exactly what's in it." The people know what they'll get with a German beer -- a high-quality beer that will be a lot like the other high-quality beers they've had.

On the other hand, American brewers, freed from the restrictions of the Reinheitsgebot, can compete and collaborate to come up with new, never-before-used combinations of ingredients new and old. Sure, we get some duds. We've learned that doughnuts, bacon, and maple is perhaps not the best combination of adjuncts to use. It doesn't always work out well, that much is true.

Still, think about beers you've had and enjoyed recently -- how many had fruit in them? Spices? An unusual malt? A souring agent? Americans have access to a remarkable variety of beer, in no small part because brewers can try whatever they please. A company like Dogfish Head couldn't exist in Germany -- nearly all of their beers would break the rules. You don't have to love everything they release to recognize that the opportunity to innovate with new ingredients moves the whole brewing community forward as brewers compete and learn from each other.

Given all this, it might not surprise you to learn that Germany, with its strict domestic production laws, is importing more beer every year. In 1995, just 3% of the German beer market was made up of imported beers; that had increased to 8% by 2012. Of course, 8% is still a relatively low proportion, but Germany isn't used to importing beer at all. The deleterious effect on German breweries is all the more significant because German per capita beer consumption has dropped about 25% in the last two decades. Germans are drinking less beer, and the beer they do drink is increasingly coming from abroad.

How are German brewers reacting to this shift? Some are simply leaving for countries with less restrictive regulation. Others choose to label their product as something other than beer, which might damage their reputation among some traditional beer drinkers but allows them to reach out to those who aren't fans of the older German styles.

There is, of course, another option -- after all, there's a lot you can do with just the basic ingredients. Most German beers don't use flavoring hops much -- they use clean, low-flavor hops designed to impart bitterness without making much of an impact on the flavor. Many German microbreweries have started using the same hop varieties that Americans have been using for a decade or two, producing beers with a fruity, citrusy hop profile more akin to our West Coast IPAs than to a German pilsner.

It it illustrative to hear the concerns raised by brewers and drinkers as this happens. American brewers of a couple decades ago faced an uphill battle to convince the public that strong, hoppy beers were worthwhile; today, German brewers have to sell new drinkers on these amped-up, flavorful brews, but they also have to make sure that they maintain their reputation among old-school German beer fans. Elisabeth Seigner, head of hop breeding research at the Bavarian State Research Centre for Agriculture, reported that "the classic German beer drinker was almost alarmed, they said 'We don't want juice, we want beer'." One German beer drinker went so far as to spit out his first sip of a hoppier American-style beer, citing concerns that the beer might force him to seek medical attention.

As exposure to these new beers increases, though, these are becoming more isolated incidents. By and large, German drinkers have been excited about new, locally-brewed beers that German brewers are starting to experiment with. As German brewers work to find new formulas, though, many of the more creative beers are still being imported. As Eno wrote last week, some of the bigger brewers seem to be focusing more on ways to raise the price on their traditional offerings than on creating new beers to meet new demands.

There's no doubt that Germany's beer industry is suffering. They've even created a term for their situation, brauereisterben. Literally translated, it means "brewery death" -- a fitting term, given that nearly half of all German breweries have closed in the last thirty years alone. A country whose beer was once considered the pinnacle of the international industry has been slowly losing its dominance for decades.

However, this is starting to change, albeit at a snail's pace for now. The Germans are learning from us. Eno was right to point out that Germany's largest brewers aren't making much progress towards creating a craft beer scene. Still, let's not ignore the smaller brewers that are finding ways to innovate under the Reinheitsgebot and treat German drinkers to interesting new beers. As long as Germans continue to demand new beers and greater variety, there will be local brewers trying to find a way to compete with imports, even if that means finding ways to work around the restrictive laws of the land.

You can follow Alex on Twitter @AlexanderFossi.

Thanks to wiki commons user Gamsbart for the header image.