On July 13, the top story on The New York Times’ homepage wasn't about the war in Ukraine, the January 6 Committee hearings, or President Biden’s diplomatic trip to the Middle East. It’s about inflation, which rose to 9.1% in June, its highest rate since 1981.
Craft beer prices haven’t risen as sharply as other goods—alcohol or otherwise. With breweries’ cost of goods and freight already high and continuing to increase, though, small breweries would love to raise prices. And their hesitancy to push retail prices in line with the rest of beer may not last. Historically, price increases generally begin with the biggest companies, before national craft brands and local breweries jump on board later.
With bigger beer brands raising prices—and expected to do so again this fall—local breweries may finally have the green light they need to up prices by single-digit percentage points. At Orange Street Food Farm, a grocery store in Missoula, Montana, for example, 12-packs of Modelo and Corona that were advertised for $12.99 in April 2020 were priced at $14.99 a year later. Six packs of New Belgium Fat Tire cost $7.29 in December 2019. In April 2022, those same six-packs cost $8.29.
Here’s how craft beer’s overall chain retail pricing has increased this year, lagging behind increases by overall beer and hard seltzer.
When comparing Q1 2021 vs Q2 2022, a Sightlines analysis of data from market research company IRI shows base prices for packaged craft beer—without discounts or promotions—rose +3.4%. (IRI-defined craft includes Anheuser-Busch InBev- and Molson Coors Beverage Co.-owned brands including Goose Island and Elysian.)
Overall beer base prices increased +5.6% during that time.
Base prices for hard seltzers rose +7.7%.
“Big brewers are the ones to go first. Smaller craft brewers are more hesitant because they're already at a higher price anyway,” says Mary Mills, a consultant with 3Tier Beverages who formerly worked for data analytics company NielsenIQ. “They don’t have the same access to all the data as the big guys … so they feel more comfortable waiting to see how it impacts bigger players. I think they probably are due for it.”
Craft breweries on the whole haven’t raised prices much since before COVID. Today, inflation and price bumps from bigger breweries may give them the permission they’ve hoped for, enabling them to make modest price increases this fall. Price hikes may finally come to craft beer in a noticeable way this fall.
Consumers expect inflation right now, and they’re seeing prices rise across alcohol products, including beer. It could seem there’s no better time for small breweries to consider making the price increases many desperately want to implement.
“We’ve built in absorbing normal increases [to our pricing], but cost increases have been so extreme this time, it’s shocked the system,” says Chip Mulala, director of sales and marketing for Huss Brewing Co. in Tempe, Arizona. He says Huss and other Arizona breweries have wanted to increase their prices to offset those costs, and are likely to do so this fall.
Yet the first six months of 2022 have not been positive ones for craft beer sales overall, giving some breweries pause as they wonder whether it’s smart to raise prices during turbulent times. Higher prices may make for better margins, but they have also have the potential to drive customers toward competing beer brands—or out of beer entirely in favor of other alcohol.
Bart Watson, chief economist for the Brewers Association trade group, which represents breweries it defines as “small and independent,” in mid-July noted that “there clearly is very little momentum behind craft beer at chain retail at the moment,” and characterized off-premise sales for the first half of this year as “underwhelming or even concerning.” As beer inflation trails the inflation rates for both groceries and restaurant meals, Watson calls this “good for beer consumers - really challenging pricing environment for small producers.”
This uncertain period would not strike many breweries as the opportune moment for price increases, especially given competition not only from other beer on shelves, but from hard seltzers and spirits-based ready-to-drink cocktails.
“The indicators for the first half of the year are not telling you should raise prices in October, even as your [input costs] are telling you you should raise prices in October,” says Sean McNulty, former host of the Selling Craft Beer podcast and a current contributor to Brewbound.
The National Beer Wholesalers Association’s Beer Purchaser’s Index (BPI) report for June continues to indicate storm clouds on craft beer’s horizon. (The BPI surveys beer distributors to measure their expected demand for certain categories of beer in the future; a BPI above 50 indicates a category is growing while a BPI below 50 indicates it is contracting.)
Overall beer’s BPI for June 2022 was 46, while craft was just 33.
Craft’s BPI in June 2021 was 53.
Draft beer isn’t helping boost craft’s lagging fortunes at chain retail, either: The National Beer Wholesalers Association notes that craft continues to struggle at bars and restaurants as many have not returned from COVID with as many tap handles as before.
“The trends are already against you, so if you want to raise prices … maybe there’s not room to,” McNulty says.
It may be do-or-die on price increases for some small breweries as they see their costs skyrocket and anticipate continued competition on the shelf.
“Here in Arizona, I believe that everybody is going to be [increasing prices] this fall,” says Mulala. “There’s almost no choice when inflation is going the way it is; costs of goods are exploding; fuel costs are outrageous … We got the sense everyone is doing it.”
Huss produced 25,900 BBLs of beer last year, according to Brewers Association data. Mulala says he’s spoken with other similar-sized breweries and anticipates many, including Huss, will increase the price of their packaged beer by a high single-digit percentage.
Huss beer currently retails for about $10.99 per six-pack; an 8% bump would increase that by almost a dollar. (Retailers ultimately set prices, but brewers can influence this by changing the price they charge distributors for their beer, who ultimately pass those changes along to retailers.) That’s above other mainstream craft prices: At a Walmart store in Phoenix, a six-pack of Anheuser Busch InBev-owned Four Peaks Kilt Lifter Scottish-Style Amber Ale retails for $8.48; a six-pack of Firestone Walker 805 Blonde Ale retails for $9.48.
“In our particular case, we look to the next tier up, the breweries in the 100,000 BBL per year range. Those larger regional breweries, they’re looking at what New Belgium and Sierra Nevada are going to do,” Mulala says. “We try to get a consensus.”
And right now, he says, the consensus is that beer prices have to go up.
“In previous years, we have not seen the need to take price because we’re already a premium product at a premium price,” he says. “But now we’re due.”
Mills agrees that many smaller craft breweries have not increased prices since COVID and are prepared to implement increases that keep up with competitors and with inflation. And to state the obvious, it would likely increase revenues: In chain retail, IRI reports that beer actually sold less volume in 2021 than 2018. Raising prices could create dollar growth those brands need.
Additionally, raising prices when everyone else does can mitigate some of the “sticker shock” that beer shoppers might otherwise experience when their favorite six-pack goes up by a dollar. Grocery stores, beer’s most important off-premise sales channel, have been a locus for inflation this year, with the Consumer Price Index for food-at-home rising +12.2% since June 2021, its fastest uptick since 1979.
“There is something to be said for taking the plunge when everybody does because it feels less noticeable,” Mills says. “I get home from the grocery store now, check my receipt, and it’s like, ‘What did I buy? Oh well, everything’s more expensive.’”
The open question, she says, is how long consumers can absorb higher prices, and for what goods. Axios called the Consumer Price Index (CPI) rise of 1.3% in June alone—9.1% so far this year—“atrocious,” especially given that wages haven’t kept pace. Average pay for non-managerial workers was down -2.7% this year after adjusting for inflation, the largest drop in 32 years. Much of that CPI increase is led by energy prices, with other essentials like rent and food not far behind.
But alcohol has generally proven itself resilient. Speaking at a virtual event hosted by RBC Capital Markets in June, Constellation Brands’ chief financial officer Garth Hankinson said that most shoppers are willing to spend on their favorite alcohol brands.
“Our research would indicate that, if you look across all of the categories inside of grocery, consumers have the least amount of concern around pricing as it relates to beverage alcohol products. So we feel like we are somewhat insulated on that front,” Hankinson said.
Much has been made of strong sales for Busch Light, with some observers citing cost-conscious drinkers swapping it in to replace more expensive beers they’d previously bought. Yet Busch Light raised its weighted average base price above the average for all of beer between 2016 and 2021, and still grew chain retail sales +26% during that time. Its star began rising long before the inflationary pressures hit, and even as its price rose.
Penny pinching may not even be top-of-mind for the core craft beer shopper, who according to BA data is of a higher income bracket than the average U.S. consumer. A 2020 BA survey found 44% of people who say they drink craft beer weekly earn $100,000 or more per year. A shopper who earns this much may feel safer from inflationary pressures than a shopper earning significantly less, and may not have to give up their favorite beer even as prices rise.
People who have disposable income generally make smaller tradeoffs, such as eating out less but continuing to buy expensive groceries and wine. People who have less budgetary wiggle room often look for better deals on necessary products, switching to store-brand staples instead of name brands. It’s easy to imagine a scenario where drinkers who could afford to spend $18 for a 4-pack of a Double IPA continue to do so, even if it increased to $20, and where most cost-conscious drinkers swap a locally brewed and more expensive 12-pack for one brewed by a national craft brand that costs a few dollars less.
Mulala says Huss is ultimately betting that customers who’ve paid a premium for its beer in the past will continue to do so.
“We haven’t increased our price in years. But right now, it’s absolutely necessary,” he says. “Our customers, our colleagues, everybody else I think will come to the same consensus.”
Words by Kate Bernot