Critical Drinking

Critical Drinking — "What Beer Costs" — Why we need more flexibility in the market

Since the moment Goose Island announced their new Rare Bourbon County Stout, there’s been a lot of rigmarole about pricing for high-end beers, especially since this new bottle of Rare at 16.9 ounces will clock in at $60 retail. That’s no small number in the beer world, even for craft which fetches higher and higher premiums every year based on exotic ingredients, experimental processes, and demand in the market. That price tag has motivated people in the media to break it down to a price-per-ounce comparison to the last Rare from 5 years ago, and compare it to other fantastic stouts on the shelf that go for far less. But does that makes sense? Is a $60 price tag unreasonable? Is that even the point?


 

It's worth noting that I have an ongoing relationship with Goose Island, with whom I do strategic and creative work that we're both very proud of. That means I have a financial, emotional, and intellectual interest in their well-being. It also means I'm in the room when a lot of important discussions occur. So my bias can also be seen as a well-informed understanding of their decision-making process. That's also true of dozens of breweries around the country with whom I do this kind of work. So while this story is inspired by the recent conversation about Goose Island Rare, here it serves as a door into the larger issue of pricing that I think is very misunderstood by consumers and professionals alike. My goal is to educate and show the implications of narrow thinking on an industry I love. Of course, you'll decide what's right for you. 


 

Pricing in beer has always been far more accessible than its comparables in wine or spirits. And a lot of that has to do with the “workaday” perception of beer, even as we transition our culture from the six-pack macro lagers to beers that are fruited with local farmers' crops, fermented in puncheons for 1-2 years, and produced on scales that don’t even register a blip on same charts. It’s still all “beer” in our minds, and I think that’s holding us back from being able to appreciate what some of these products actually are.

Brewers have been slowly increasing the prices on high-end beers—largely because they’re not just exceptions to their larger production schedules anymore. In fact, for some producers, like Side Project, they’re the entire identity of the brewery itself. For breweries making a couple one-offs a year, it’s easy to minimize a margin and cut your losses on something special because the rest of your operation makes up for it. That’s how pricing gets balanced across a larger portfolio. But for smaller producers with a more narrow focus, that’s not viable. Each beer has to earn its keep or get killed.

A few years ago, Founders Brewing Co. decided to raise the prices on the lower-cost portion of their portfolio, those workaday six packs, in order to subsidize Cerise, a very expensive fruited beer. Their goal was to get the beer into the hands of more people, and actually connect with the target audience for that beer, which is a mix of beer geeks (who are attracted to its uniqueness and quality), and decidedly-not-beer-geeks (mainstream consumers who just thought of it as a great fruited beer with a phenomenal flavor). They had to choose between making a more efficient fruited beer—either sourcing less interesting, less quality fruit—or raising prices somewhere else. They chose the latter.

Each brewery has to balance pricing in their portfolio against their own goals, against their through-put in a competitive market, and where the market is telling them they have the most flexibility. And that’s the key for me. It's not about high or low prices. It's about flexibility.

The lower end of the beer pricing market was established long ago, and it still haunts craft beer to this day. Any craft brewer trying to move a Lager or a Pale Ale has to compete, in some ways, with the cost of a Budweiser or a Miller Lite. Because if they separate too far from that benchmark, they’re no longer making “beer” in a way that a mainstream consumer will recognize. They’re making some sort of specialty product that belongs in its own world.

Craft beer has always battled with this reality of the market, and over time, it’s been able to successfully increase prices for a core six-pack beer into the $10 range in most urban markets. To Lagunitas founder Tony Magee’s point, he’s never charged more for his beer than he does right now. And for other craft brewers, his prices are still low enough that it’s serving as a bit of a new perception blocker for craft drinkers who look at a $7.99 Lagunitas six-pack and compare that to a $9.99 four-pack and wonder why they’re paying more. There will always be a low-end benchmark for pricing, but thankfully that low-end continues to creep upwards (slowly), and at least craft is being compared to other craft at this point. It’s keeping the lights on.

Now, let’s talk about the high-end. There have been some seemingly crazy price points for beers lately, but really, this is a sign of the market correcting itself from being held back for too long. Compare beer to the wine world, and you see a much narrower tolerance for pricing tiers in beer than you do in wine. Wine has producers that range from Three-Buck Chuck to the $10 sweet spot for a decent wine, hitting every increment into the hundreds of dollars on most larger retailers' shelves. We’re not even talking about the after-market exchanges here.

The argument can be made that wine deals in much more defined ingredient costs than beer. After all, wine comes from grapes, which grow on a hill somewhere with confined lots and characteristic terroir, and there’s only one vintage a year. In that way, it's a much less manufactured product than a beer, which can be made anywhere at any time, to some degree. But again, that’s looking at “beer” as a fairly narrow concept. That’s commodity beer—Lagers, Pale Ales, Ambers. Beers that, regardless of their quality, have a fairly understandable cost structure to them, which is what I mean by “commodity." That’s not a value judgment on the style’s worth.

However, the higher-end market of beer is made up of an entirely different set of factors much more akin to wine, whether they’re Wild Ales, beers made with estate-grown fruit (similar to wine grapes), barrel-aged and/or fermented, or any number of harvested (timely) or exotic ingredients. Consider the costs of limes last year when the cartels in South America were holding them hostage. Or the cost of using a local micromaster’s grains compared to super sacks of malt from a commodity producer. Or the timeliness of harvesting hops for a fresh hop beer. And, of course, the costs of the aging process and the barrels they're in, which are more competitively shopped around than ever before. These are the kinds of beers being haunted by the old commodity definition of “beer” when it comes to pricing. And these are the breweries that require a new kind of tolerance and flexibility in the minds of the consumer if they’re going to survive.

Consumers are a funny bunch. They often demand two opposing ideals at the same time. People want the best things in the world, and they want them for cheap. The more we demand that things costs less, the harder it becomes to meet consumers' quality requirements, and the harder it is to produce the beer a brewer really wants to make.

There are trade-offs. And many of them are sheltered from the consumer in order to avoid the other side of the unreasonable argument—quality and craftsmanship. Lagunitas, for example, has been using hop resin—large, Juicy-Juice-style cans of bittering hop liquid—instead of hop cones or pellets for a long time now. The reason is because it's a cost-efficient way of using hops that wouldn’t live up to their aromatic standards, or it’s a failed crop that they guaranteed they’d buy from the farmer in the pursuit of a new hop variety worth the risk of failure. There’s nothing wrong with this method, but it’s not something most consumers would be interested in when compared to the platonic ideal of what an IPA is in their heads. To the casual consumer, this method might feel grotesque, or like an abomination to their demand for a fresh, beautiful IPA, but up against the pricing demands from the same consumer, something has to give. You can’t have your cake and eat it too. Unless we’re talking about "hop cake," like SweetWater uses as an efficiency ingredient. Leave no hop residue behind.

And the more retailers start to align with those consumers because they’re the frontline of the market, the bigger the squeeze gets on breweries to perform and make trade-offs. That could be a trade-off in the quality, ingredients, or process of the beer.  Or worse, that beer might not be viable at all given the pricing limits in the market based on an outdated perception. And that beer won’t get made. For retailers, it’s easier to push back on the costs of goods than it is to educate the consumer and build an understanding and appreciation for a new kind of product. It takes multiple engagements with consumers to help them see something like “beer” in a new light. Consumers need encouragement to take risks and learn from their experiences. And they need strong retailers who are able to encourage them on that journey.

Pushing back on producers to keep prices down is a tactic more suitable for Walmart than craft beer retailers. Walmart forces their will back up the value chain—in terms of pricing, of course, but also production schedules, features, packaging, and pretty much anything that helps increase their effectiveness at selling a product and making a profit. Likewise, larger retailers, such as Binny’s, as well as big-box retailers, have been pushing their needs back up the value chain, forcing breweries to adapt to the market rather than have the market adapt to the brewers. Some of this is extremely helpful input that helps brewers plan better. But some of it potentially creates a ceiling under which brewers must operate in order to have access to market. And none of that has to do with creating new and interesting beers that are worth paying more for.

Right now, we have more beers available at lower prices and higher quality than at any point in our nation’s history. This means that production of those beers will eventually outweigh demand, and a pricing evolution is one way to solve for that. Pricing has to consider demand and velocity (the rate at which beers move through the market, ideally before they’re out of code). As the market gets more crowded, and shelf and tap spaces gets more limited, brewers will need to sell less beer at a higher margin in order to maintain viability. It’s a simple equation. And it’s the opposite of what many breweries are doing, where they make more and more low-to-mid-range beers, and try to fill the market with as much volume as possible, hoping they can make the same or slightly more money based on volume alone.

What we have, then, is a schism in the market. We have the low end engaging in price wars, slashing the prices of kegs and six-packs in order to get volume. And we have the high-end trying to break through the perception limits on what beer should, and can, cost. And if you’re a brewery like Goose Island, you’re big enough that you have to play both ends at once. So you get cheaper and cheaper 312, and more and more expensive Gillian and Bourbon County. It’s a portfolio balancing mechanism that creates flexibility across a large number of beer brands.

Of course, $60 for a beer might not be in your budget. Anyone would be perfectly sane to weigh their options depending on their personal priorities. But the chatter that I see, from consumers and retailers alike, who are associating a $60 beer with some sort of money-grab and exploitation, are severely hindered by their perception of what “beer” costs and ignorance of the many factors at play outside of the direct costs of ingredients. Commodity pricing has no place in a beer of this sort. It’s a one-and-done beer that challenges even the most experienced and efficient brewers in the creation of a viable product for the market. Without the 35-year-old Heaven Hill barrels, or the aging process, or the custom-blown glass bottles, or the 20+ years of continuous experience making one of the best Imperial Bourbon Barrel-Aged Stouts in the world, the product simply doesn’t exist. Like anyone who seeks out a 23-year Pappy, no one is paying a straight cost per ounce—they’re paying for the ride. And that’s either something you care about, or you don’t.

But I, for one, find the price tag to be perfectly reasonable and hope that it’s indicative of a future where brewers can price their products against ingredients, process, packaging, and market demand accordingly, without being labelled greedy or exploitative. Brewers should have the freedom to experiment, show pride in their beers and the packaging that accompanies them, and generally explore new territory without fear of consumers and retailers cynically suggesting that they're doing it for the wrong reasons.

Not every beer needs to be accessible. Sometimes that’s the price of making new things at extremely limited scale or with major risk of failure. And I’m not lobbying for beer across the board to be more expensive, not for that sake alone. I’m arguing for a greater tolerance among consumers and retailers toward the costs associated with certain beers, or the revenue opportunities they legitimately represent for those breweries in a wider spectrum of considerations. Otherwise, this industry you’re claiming you have passion for and want to see grow is being held back by your own narrow idea of “what beer costs."

I mean, most breweries I know are just excited to be able to afford health insurance.

Words + Photos by
Michael Kiser

Michael Kiser

Michael is the founder of Good Beer Hunting. He travels the globe — writing, shooting, and collaborating with breweries of all shapes and sizes. This site is his chronicle of a life in beer as he witnesses the cultural explosion first-hand and finds the people, places, and products with amazing stories.

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