[MGSA-L] Greece in the Suds ? <g>

June Samaras june.samaras at gmail.com
Sat Jan 29 21:34:53 PST 2011


What’s Broken in Greece? Ask an Entrepreneur
By LANDON THOMAS Jr.
Published: January 29, 2011

KOMOTINI, Greece

http://www.nytimes.com/2011/01/30/business/30greek.html?partner=rss&emc=rss


DEMETRI POLITOPOULOS says he has suffered countless indignities in his
12-year battle to build a microbrewery and wrest a sliver of the Greek
beer market from the Dutch colossus, Heineken.

His tires have been slashed and his products vandalized by unknown
parties, he says, and his brewery has received threatening phone
calls. And he says he has had to endure regular taunts — you left
Manhattan to start up a beer factory in northern Greece? — not to
mention the pain of losing 5.3 million euros.

Bad as all that has been, nothing prepared him for this reality: He
would be breaking the law if he tried to fulfill his latest — and, he
thinks, greatest — entrepreneurial dream. It is to have his brewery
produce and export bottles of a Snapple-like beverage made from herbal
tea, which he is cultivating in the mountains that surround this lush
pocket of the country.

An obscure edict requires that brewers in Greece produce beer — and
nothing else. Mr. Politopoulos has spent the better part of the last
year trying fruitlessly to persuade the Greek government to strike it.
“It’s probably a law that goes back to King Otto,” said Mr.
Politopoulos with a grim chuckle, referring to the Bavarian-born king
of Greece who introduced beer to the country around 1850.

Sitting in his office, Mr. Politopoulos took a long pull from a glass
of his premium Vergina wheat beer and said it was absurd that he had
to lobby Greek politicians to repeal a 19th-century law so that he
could deliver the exports that Greece urgently needed. And, he said,
his predicament was even worse than that: it was emblematic of the web
of restrictions, monopolies and other distortions that have made many
Greek companies uncompetitive, and pushed the country close to
bankruptcy.

“Why do you think no one is willing to invest in Greece?“ he asked.
Greek leaders say they welcome business, he said, adding: “Yes, they
are trying — but they have to back it up.”

For decades, Greece has been a wonderful place to be a lawyer, a
pharmacist, an architect, a university president or even a truck
driver— all occupations protected by an array of laws that have
shielded them from local and foreign competitors. Greek pharmacists
are guaranteed a minimum profit on their sales and charge some of the
highest prices in Europe. And because they have fixed minimum fees,
the 40,000 or so lawyers in Greece receive more for their time than
their peers in many other European countries.

It has been very profitable to be a brewer in Greece, too — if you
control 72 percent of the beer market, as Heineken now does.

The Greek economy is riddled with distortions — the number of trucking
licenses has remained unchanged in Greece since 1971, for example, and
the country is among the world’s leaders in lawyers per capita. It has
one lawyer for every 250 people, compared with about one for 272 in
the United States.

The effect on Greek competitiveness could not be more pernicious.

The cost of labor in Greece from 2005 to 2010 has been, on average, 25
percent higher than in Germany, according to a recent analysis by
Variant Perception, a research firm based in London. (Ireland,
Portugal and Spain also have relatively high labor costs.) Quite
simply, Greece has had trouble producing goods and services that
people want to buy — a result being a persistently high trade deficit
that even now, amid the deepest of recessions, has hardly budged.

This pricing distortion helps explain why Greece required a 110
billion euro ($150 billion) bailout last spring in order to keep it
from defaulting on its debts. The problem kick-started the financial
crisis that is still shaking the euro zone. Seeking to restore
competitiveness, Greece, because it is on the euro, cannot devalue its
currency and, like other nation’s on the zone’s periphery, has instead
had to impose what economists call an “internal devaluation.”

Instead, the difference in labor costs between countries like Greece
and Germany is to be closed by sharply reducing public-sector wages —
a move that is a hallmark of the Greek government’s reform effort. But
improving competitiveness by cutting salaries is not only politically
painful, it is also time-consuming.

The International Monetary Fund and the Greek government agree that
lasting progress can be made only by instituting reforms that would
make it easier for Greek companies to produce export-quality goods.
Such measures include cutting taxes, easing the path for companies to
win investment permits and — as entrepreneurs like Mr. Politopoulos
hope — scrapping outdated laws that restrict business production.

Although the company has grown, it is still hard to find its beers at
major hotels and restaurants in Athens. Cans were stacked in its lab.

George P. Zanias, the top economic adviser to Greece’s finance
minister, George Papaconstantinou, said: “Historically, the supply
side of the economy has been neglected — it was just a question of
increasing demand. Vested interests built up and economic distortions
increased.”

Companies in Greece had grown fat and lazy by selling their products
in a protected local economy that was forever stimulated by government
deficit spending, Mr. Zanias said. Over the years, Greek companies
felt little need to emphasize exports, and the country became one of
Europe’s most closed economies, with exports accounting for just 20
percent of economic output — about half the average for the euro zone.

Now, with the hard-pressed government unable to borrow and spend as
deficits shrink, companies are obliged to sell their wares abroad — if
they can.

Mr. Zanias points to the positive, like a 40 percent surge in exports
in November. He also notes that a law has been passed to speed along
large-scale foreign investment projects, and that the Greek cabinet
has approved legislation to open the closed professions to competition
and thus force them to lower their prices. But the economist in him is
mindful of the long-term damage already done to the capitalist
initiative here. “Greece has never been an easy place to do business,”
he conceded with a sigh.

None of which is news to Mr. Politopoulos.

ALONG with his older brother and business partner, Michael, Mr.
Politopoulos came to the United States in the early 1980s to get an
education — and, perhaps, to make his fortune.

He received a degree in chemical engineering and business at the
Stevens Institute of Technology in Hoboken, while Michael went to
Columbia. The older brother set up and still runs a specialty
chemicals business in North Bergen, N.J., while Mr. Politopoulos says
he embraced a young man’s life, working hard for his brother and
playing equally hard off-hours in Manhattan.

In 1995 he persuaded his brother and father — an independent
businessman who owns a Best Western hotel in Athens — to stake his
conviction that Greece “would be an excellent spot to start up a
brewery.”

“Frank Zappa once said that if you want to be a nation you need to
have an airline and a beer,” he said. “Well, we had an airline.”

Not to mention the fun he would have.

“I have always loved beer,” he said. “We just figured that all we had
to do is drink less beer than we sold.”

He stopped working for his brother, studied brewing in Chicago and
bought a one-way ticket to Greece in 1995 — choosing an industrial
park in Komotini, a midsize town a few hours’ drive from the Turkish
border, as the site for his factory.

Mr. Politopoulos, 47, is a bachelor, and at times he acts like an
aging frat boy on spring break, as when, for example, he suggests a
night of partying with college girls in Komotini. But there is no
mistaking the intensity of his business drive and his commitment to
make good on the 11.5 million euros his father and brother have
invested in him.

“I would rather die than lose that money,” he said. In emerging
economies from Brazil to Turkey, South Africa and Mexico, beer
companies have spun extraordinary profits. Mr. Politopoulos hoped to
replicate this pattern.

In Greece, however, Amstel created an early and dominant stronghold in
1963 via a local company called Athenian Brewery, establishing tight
control of the country’s beer distribution channels. When Heineken
acquired Amstel in 1968, Heineken took over this position, which, in
effect, included a huge barrier to entry for anyone hoping to
establish a local brewery.

By the time Mr. Politopoulos set up his company, called Macedonian
Thrace Brewery, Heineken’s grip on the market — then close to 90
percent — was so all-encompassing that the green color of its
signature bottle had become synonymous with beer. (Instead of ordering
a Heineken in a cafe, people would often ask simply for a “green.”)

When Mr. Politopoulos first announced his plans, the response in
Greece was often one of bemusement.

As he recalls it, he would say, “We are going to make a great local
beer,” only to have prospective customers respond, “But Greece already
has a beer — its called Heineken.”

“Well, yes, but ours will be called Vergina,” named for the town in
Macedonia where Alexander the Great’s father was born. “It will taste
great and be cheaper — give it a try!”

“But such a beer does not exist,” he says people would then reply, and
he would have to start all over again.

“It was like the twilight zone,“ Mr. Politopoulos recalls with a shake
of his head. (For the record, Vergina’s premium wheat beer is quite
delicious — sharp and full in taste.) Heineken’s hold on the Greek
beer drinker, however, is more than psychological. It is rooted in the
profits that Athenian Brewery — 98 percent owned by Heineken
International and run by a Dutchman — produce for the parent company.

Outside of a 99 percent market share in Egypt, Heineken’s current 72
percent share of the Greek market is the largest listed in the
company’s annual report. (It does not list shares for all the
countries in which it operates.) With the price of a Heineken in
Greece 30 percent more than in the Netherlands, the Greek business
represents 7.1 percent of Heineken’s total operating profit — a
significant ratio relative to the small size of the Greek economy,
albeit one that has declined in recent years as Vergina and other
small brewers have made inroads.

Although Vergina now has a 5.5 percent share of the market — ranking
behind only Heineken and Carlsberg, and ahead of about 12 smaller
microbreweries — it is still hard to find the beer in a major
restaurant or hotel in Athens.

MR. POLITOPOULOS says his problems began when distributors refused to
take Vergina and the other brands that he produced. Then, he would
contend in a complaint letter he filed with the European Union in
2006, things became worse: his car tires were slashed, threatening
calls were received at the brewery, employees were offered money to
resign, and trucks carrying his beer were tampered with.

He said in an interview that he responded by selling his beer at a 50
percent discount and soon established a toehold.

In a written statement, Heineken said that consumers in Greece now had
many beer choices and that its business practices are above board. As
for Mr. Politopoulos’s accusation that it resorted to dirty tricks to
protect market share, the company says that the contentions are
“ungrounded, slanderous and fabricated.” It says it is cooperating
with an investigation of the beer market being undertaken by the Greek
competition authority.

In 2007, Mr. Politopoulos agreed to drop his complaint and to let the
competition commission in Greece — which already had an open
investigation into the local beer market — take the lead on the
matter.

The Greek competition authority has been investigating antibusiness
practices in the beer market since 2002, and a spokesman for the
commission said that a decision should be forthcoming within the year.

Mr. Politopoulos said: “This is not about money; it’s a matter of
principle. There are laws — you cannot just kill the small guy because
you are big and powerful. We make a good beer and we just want the
consumer to be the judge, and not our competitors.”

He adds that politicians in Athens — both conservative and socialist —
seem to understand that the old culture that allowed a dominance of
such size and scope is no longer acceptable if Greece is to generate
the type of growth it needs to eventually pay down its mountain of
debt.

And he has no doubt that once the right people in Athens are made
aware of King Otto’s law, as he calls it, it will be erased — allowing
him to produce his bottles of Greek mountain tea.

Evripidis Stylianidis, a former high-ranking minister in the New
Democracy Party that lost out to the current socialist government of
George Papandreou in 2009, said, “These types of monopolies are not
healthy for Greece.”

Mr. Stylianidis hails from Komotini and has been one of Mr.
Politopoulos’s staunchest political backers. He is also a student of a
vast array of old laws that, he says, harm businesses in Greece. One
favorite example: a decree that protects donkeys, giving them the
right of way on Greek roads.

COMPARED with Turkey, Greece has had an extremely poor record in
attracting direct foreign investment. And while a bill for putting big
investments in Greece on the fast track is now law, there has been
little sign that investors are responding in large numbers to this
declaration from Athens that Greece is open for business.

Still, there has been some improvement lately, in the view of Achilles
V. Constantakopoulos, a shipping industry scion. He is in the process
of investing 1.5 billion euros in a series of high-end tourist resorts
on the underdeveloped coastline of the southwest Peloponnese region.
But this plan was first conceived a good 25 years ago by Mr.
Constantakopoulos’s father and founder of the family fortune, Vasilis,
who died last week. The plan has suffered numerous legal setbacks.
Only recently did Mr. Constantakopoulos complete the first of four
planned resorts, Navarino Dunes.

“There is a problem in Greece,” he said. “In order to do something it
has to be provided for in law,” and that can take decades.

But he says he believes that things are changing — and that he expects
that the fast-track law for large investments will benefit not only
his family’s project, but others as well. “The laws that are in place
encourage investment,” he said in his office in Athens, as he nibbled
from a plate of figs and nuts. “These days it is easier to get things
done.”

Nonetheless, the grinding work of scrapping old laws and creating an
open, commercial climate that attracts foreign investors cannot be
completed overnight.

And the clock is ticking.

If current trends continue, by the time the I.M.F. rescue program runs
its course in 2013, Greece will be burdened with a debt-to-G.D.P.
ratio of close to 160 percent (second in the world, after Japan) — and
a requirement to keep its deficit at just 3 percent of G.D.P.

Without a major restructuring of its debts, Greece can reduce this
ratio rapidly only if the economy grows at a rate approaching the 4
percent it averaged before the crisis hit in 2008. Absent government
pump-priming, though, Greece must rely on its moribund private sector.

Can Greece reinvent itself and become globally competitive?

The question goes to the heart of the euro’s future. Beyond the drama
of debts and deficits, Greece’s growth prospects are indeed dim if it
cannot offer high-quality, competitively priced goods and services.
Much the same is true for Ireland, Portugal, Spain and even Italy.

In a recent report, Bank of America Merrill Lynch projects that
Greece’s growth rate over the next five years will average 1 percent —
a rate that could force the country to stop paying a portion of its
debt.

In the meantime, the struggles of the Politopouloses continue. Sitting
in an outdoor cafe on a rainy weekday afternoon in Athens earlier this
month, Michael Politopoulos, the elder brother, considers the losses
the family has absorbed because of the many years it took to bring
Vergina to the market — to say nothing of the heartburn they have all
endured.

Sipping from a glass of Chivas Regal — predictably, the establishment
does not stock Vergina — he says he once considered giving up on the
business entirely. Now, with visions of millions of bottles of green
mountain tea dancing before him, he is ready to double-down in Greece
— as soon as King Otto’s law is reversed, that is.

“The ills of the past are crumbling,” he continued.

“Greece has no choice but to rebuild — and the only way to do it is to
roll up our sleeves and start over.”

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