Marketing: Assess Anheuser-Busch's effort to reach an agreement with the Czechs

Please see the attached files with the questions at the end of each article.

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Bud VS. Bud

What's in name? In the case of Budweiser, the answer is, "Quite a bit." Budweiser, of course, is a registered trademark of St. Louse-Based Anheuser-Busch, the world's largest brewing company. At the present time, however, Anheuser-Busch can't market beer using the Budweiser brand name in every country of the world. The reason is firmly rooted in history: The European brewing industry dates to the fourteenth century. During the days of the Austro-Hungarian Empire, Bohemian was famous for its bee; beers from the Bohemian town of Budweiser were held in especially high esteem. A person from Budweiser would be known as a Budweiser; the same would be true of the town's beer. While traveling in Europe in the mid-1800s, Adolphus Busch, the founder of Anheuser-Busch, became familiar with beers from Budweis-Budweisers, in other words. After immigrating to the United States, Busch married into the Anheuser brewing family; in the 1870s, he registered Budweiser as a trademark. Two decades later, in 1895, the Budejovicky Budvarbrewery was established in Budweis, and its beer was officially named Budweiser, "the beer of kings." Adolphus Busch dubbed his company's Budweiser "the king of beers."

In 1911, representatives of Anheuser-Busch and Budvar signed an agreement that entitled the European company to market Budweiser beer in continental Europe. The American company would have rights to the name in the United States and Latin America. Later, the name of the town was changed from Budweis to Ceske Budejovicky. In several European countries, including France, Italy, and Spain, Anheuser-Busch markets beer using the "Bud" brand name. The American company also won a court decision in Britain allowing it to sell Budweiser in Britain alongside the Czech brew with the same name.
Today, Anheuser-Busch's various brands command a 45 percent share of the U.S. beer market. Although it is the world's largest brewer, nearly 94 percent of its output is consumed in the United States. Faced with slackening demand at home, competition from microbreweries and imported brands, and increased scrutiny by regulators, executives at Anheuser-Busch are looking to international markets for growth in the twenty-first century. In Japan, Anheuser-Busch has established a joint venture with Dirin Brewery, the local market leader. Similarly, the company has acquired a 5 percent share in China's Tsingtao Brewery. After communist rule ended government-owned enterprises were privatized. For example, in 1992 the Czech government sold all but an 18 percent stake in Plzensky Prazdoj, maker of Pilsner Urquell brand that competes directly with Budvar. Anheuser-Busch officials hoped to capitalize on the opportunity in 1993 by investing in Budejovicky Budvar and, at the same time, resolving the trademark issue. August Busch III, the chairman and president of Anheuser-Busch, wrote to Czech officials promising to invest capital in the brewery and share management and marketing expertise.
The Czech response to Anheuser-Busch's overtures was less than enthusiastic. For one thing, Czechs consider Budweiser to be more than a mere brand name; it is a geographic name that indicated a product's origin and is a source of Czech national pride. According to a 1958 agreement signed by the Czech government but not the United States, brand names that denote geographic origin are protected. Strictly speaking therefore, only wine made from grapes grown in the Burgundy region of France can be called Burgundy, Champagne refers only to sparkling wine made from grapes grown in the Champagne region of France, and the Czechs firmly believe that their beer is the only one entitled to the name 'Budweiser."

A second concern is related to the general issue of privatization. Germany's Volkswagen AG bought a stake in Skoda, the Czech automaker, and Air France invested in Czecholslovak Airlines. Many Czechs are uneasy about selling off these industrial crown jewels (or" family silver," as they are known in the Czech language) to Western companies, and there is concern about allowing Budvar to have a similar fate. In the case of Skoda, autoworkers were disappointed that wage levels after the deal were still far below those of workers in the company's plants in Germany. Also, Volkswagen officials scaled back the amount of money that they had originally promised to invest for expansion of Skoda's facilities.

Third, there is the matter of taste. Simply put, the Czechs consider American beer to be markedly inferior to European brews in general and Budvar's in particular. Experts agree. Beer authority and master taster Michael Jackson says, 'Budweiser Budvar is one of the world's truly great beers. It just has a wonderful creamy malt character and a very, very delicate, almost per fumy flowery hop aroma. "As one middle-aged Czech put it," I like American beer doesn't reach the quality of Czech beer. It's much poorer, much weaker."

To help win over the Czechs, Anheuser-busch embarked upon an extensive public relations effort. It spent $1 million on a cultural center in Ceske Budejovice, started a baseball team and equipped it with red and white Cardinals uniforms, opened a café, and began offering English-language lessons-all, apparently, to no avail. The two sides continued to differ as to who would reap the most benefit from a new business arrangement. The sheer size of the American company made its intentions seem more imperialistic than honorable. PetraJansky, finance director at Budvar, said, "Foreign partners need us as a strategic partner to help them. We don't need Anheuser-Busch, they, they need us. "If Budvar began producing American-style Budweiser, Jansky added, "It could end up being the same as asking Rolls-Royce to produce mass cars. " Not surprisingly, Anheuser-Busch representatives took a different view. John Koykka, chief financial officer for Anheuser-Busch International, believes that both companies could benefit. "The consumer base is quite different and the products quite different. We have a younger consumer base. We don't see a direct consumer competition."

Ultimately, the Czech government decided not to proceed with the privatization of the Budvar brewery planned for 1993. At a meeting in St. Louis in September 1996, the parties disagreed on how much Budvar was worth, and Anheuser-Busch broke off negotiations. In a prepared statement, Jack H. Purcell, chairman and chief executive of Anheuser-Busch International, said "Due to our success in selling our Budweiser beer in disputed markets in Europe under the Bud brand name, coupled with recent litigation successes with both the Budweiser and Bud brand names, it is no longer necessary for us to have a trademark settlement to develop our Budweiser business in Europe. "Purcell was referring to the company's new strategy of suing on a country-by-country basis to win the right to the Budweiser name. By the end of 1996, it had won cases in Ireland, Portugal, Sweden, and six other European countries and had another 27 cases pending worldwide. Anheuser-Busch even pulled out of a $145 million proposed joint venture in Vietnam because Budvar had registered the Budweiser name there in 1960. Anheuser-Busch officials believe they will prevail in Vietnamese courts and that country officials will award them the right to register the Budweiser name. In January 1997, the Czech government announced that Budvar's management would have the opportunity to purchase a 10 percent stake in Budvar.

1. Assess Anheuser-Busch's effort to reach an agreement with the Czechs to invest in Budvar. What, if anything should the American company have done differently?
2. Do you agree with Anheuser-Busch's decision to break off negotiations and go to court on a country-by-country basis to assert its rights to the Budweiser name?
3. What are the prospects for Budejovicky Budvar in the future? Do you think the company should reach a settlement with Budweiser? If so, what should the terms be?
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