Reinventing the Humble Beer Keg

(Bloomberg) -- In the cellar underneath the Frederik VI bar in Copenhagen, owner Jimmy Streit showed off the innovation that's enabled him to boost his earnings by 5 percent in a declining business—a line of plastic kegs racked side-by-side like bowling balls against a concrete wall.

Streit switched from traditional steel storage more than a year ago at the behest of his supplier, Carlsberg A/S. Because the new vats keep beer fresher longer, the change enabled him to increase the number of taps running at the bar to 22, adding more expensive brews like Jacobsen Yakima India pale ale and Somersby apple cider.

Bad news for steelmakers is good news for the alcohol industry, which is getting squeezed by the decline of traditional pubs and a shift in consumer tastes away from beer toward wine and mixed drinks. One way for brewers and bar owners to boost profits is to sell a greater variety of premium and craft beers such as those that Streit now offers alongside Carlsberg's namesake lager.

The company is marketing the plastic kegs as the most significant innovation in draft beer in 50 years—or since the switch from wooden barrels to steel cylinders. Other brewers, including Anheuser-Busch InBev NV and Heineken NV, have developed similar technology, but Carlsberg has rolled it out most aggressively, signing up 2,500 pubs in its domestic market. Other territories include Italy, Sweden, Norway, France and some of China's largest cities.

In some of those markets, all sales of beer on tap will be from the plastic DraughtMaster system by 2020, the company says. “Draft is a seriously tough environment, but this is a win-win for bars and for us,” said Kaare Jessen, who leads Carlsberg's DraughtMaster team.

Plastic kegs might seem anachronistic at a time when consumer-goods companies' use of the material for packaging is under fire from environmental groups. Carlsberg's focus on sustainability includes initiatives such as doing away with the plastic ring holders that bind together six-packs of beer cans and replacing them with little bits of glue. But the new canisters are recyclable and lighter to transport, cutting fuel consumption, the company says.

They also keep beer fresh for about 30 days, compared with about a week for their older steel cousins. Metal kegs expose the contents to external gases as soon as they're tapped, while the plastic ones seal the brew inside a separate internal container that's compressed to release beer to the tap.

Carlsberg produces its DraughtMaster kegs in-house, while the majority of Europe's brewers rely on third-party manufacturers such as Schaefer Container Systems and NDL Keg for their steel casks.

Carlsberg isn't alone in revamping the engine room of the global beer trade. With demand for mainstream draft beer declining, brewers are taking their battle for market share into more obscure but valuable back-end segments of the business.

“It's clearly important to make these kinds of systems,” Danske Bank analyst Jonas Guldborg Hansen said. “You're pushing the high-end part of your portfolio, and you're effectively locking in your customer,” since adopting the new kegs makes it harder for pubs to sell beers from more than one supplier.

Budweiser maker AB InBev and Dutch brewer Heineken are locked in a legal dispute over patents tied to their own new storage methods. Earlier this year, AB InBev filed complaints with the International Trade Commission to try to block imports of Heineken's BrewLock into the U.S., contending that the Dutch brewer infringed on AB InBev's patents. Heineken fired back in August that AB InBev's Nova countertop cooler infringed on a patent of its own.

“We are confident in our position as the owner of the patented technology,” AB InBev said. Heineken declined to comment.

While Carlsberg estimates that the industry is shrinking at a rate of about 3 percent a year, the new kegs are helping the company and the bars it supplies maintain profitability, Carlsberg Chief Executive Officer Cees 't Hart said.

“For us and for the customer, it's margin-enhancing, and we see a significant decline in churn,” the CEO said in an interview, referring to beers that are added on tap only to be removed a week later based on insufficient demand.

Carlsberg declined to detail its investment in DraughtMaster. The company cut off funding to develop the technology a few years ago after suffering losses tied to a weakening economy in Russia, one of its most important markets. The Carlsberg country manager in Italy was a believer, and used his own market's purse to fine-tune the product.

About 95 percent of bars that sell Carlsberg beers in Italy have switched to DraughtMaster and now the brewer is pushing the system elsewhere. Italy chief Alberto Frausin's services to one of Denmark's biggest companies were deemed so valuable that he's set to receive a medal of honor from Crown Prince Frederik.

To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net

©2018 Bloomberg L.P.