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An opportunity to talk candidly about beer pricing! How delightful; a thread.
The first thing that determines price is scale: beer made from smaller breweries will always beer more expensive. Larger brewers have more negotiating power on ingredient cost, can spend more on equipment that enhances labor efficiency, and can survive on thinner margins.
These things are key for so many breweries, because at the small end it makes such a big difference. The labor difference between a 10bbl and a 20bbl brewhouse is 100% (though they may make the same amount of beer!) and that cost goes directly into how much you pay for the beer.
A second place tie for the next factor: where you’re drinking it and out of what. Draft beer at breweries can be anywhere between $800-1500/bbl in revenue for the brewery, compared to $200-500/bbl for draft beer sold wholesale (depending on style, format, distributor, etc).
For most breweries in 2019, all their profit come from the tasting room and prices there will reflect the scale of the operation and how much of a wholesale business it has to subsidize.
Package format: also supes important. As the 16oz can has become the coolest format, mobile canning services have sprung up to meet demand. Less money up front, but more money per can, so higher prices.
Again, scale matters. Printed cans cost the same as blank cans, so you completely remove label costs if you’re moving enough cans to order them by the truck load and have the space and cash to hold that inventory. While not quite as stark for bottles, the principle holds true.
To give you some perspective on that, for HenHouse 98% of the cost of a 1/2bbl of IPA is the beer itself. For cans of IPA, 74% of the cost is the beer. The rest is packaging expense. Said another way, putting an IPA in cans adds the same amount to the price the hops do.
This gets to another factor related to scale, but important to separate: cash. Having more money makes things cheaper. Yes I know, capitalism is cruel. You can’t get bulk purchasing discounts if you don’t have the cash for the purchase.
Same goes for equipment, you can’t buy the efficient stuff without cash and, tragically, not getting the efficient stuff makes you spend more on labor which keeps you from being able to buy the efficient stuff! This is a problem I call Money Hell and it’s why most businesses fail
Let’s talk about tank time. Rent, utilities, equipment and insurance are all costs that are significant in pricing beer and that do not linearly increase with the number of batches that go through a tank.
A fermenter that turns out two batches a month reduces the overhead in a beer by 33% compared to one that only turns 1.5 times a month. When overhead can be as much as 25% of cost, that matters a ton! (Side bar: everyone buy a centrifuge)
So let’s add up: first is how big the brewery is, second is where you’re drinking the beer and in what format, third the cash position of the brewery, and fourth tank time. We’ve not yet talked about recipe. Part of that is to prove the point, but this is really how pricing goes.
In recipes, scale and cash are still important because they determine ingredient costs in a big way. That said, for our IPAs, labor, malt and hops all contribute about the same cost. We got our silo operation this week and that will change the dynamic, but you see the point.
We make hoppy beers in the 3-5lb/bbl realm, and for just beer cost (no packaging) it’ll be around 30% hops, 30% malt, and 30% labor. For not hoppy beers it’ll be 10/32/35. (Just invested in a ton of effiency, someone remind me of this tweet in 6 months)
Labor is the big one across the board. Production labor represents 30% of beer cost so far this year for us. (Also just invested a ton in better cost allocation, so this also needs a six month follow up). Simply put, humans cost more than grain most the time.
I’d like to spend more time talking about setting margins, perception of value and competing with market price, but I’ve run out of time. Those are important also!
In summation, when thinking about pricing, think about the size of the brewery first, their business practices second, and the beer third.
This has been an earnest attempt to talk about beer pricing. I’m going to start drinking now.
