Are Breweries Over Charging or Not?

I love the way you type...

Nahh, but real talk...you're making great points. I agree.

 

It was in Stan Hieronymus's book "for the Love of Hops" (I think that was it), where a farmer talks of the hop selection with a brewery they have sold to for a long time. The head brewer comes in and evaluates the Cascade hops' Brewers cuts on the table in a blind evaluation. Hops are selected from the same field every time. Enough of a difference that it can be selected.

Vinnie Cilurzo has said he used Simcoe from different ranches differently, as he has found he gets different results.

Maybe that aspect of the hops should be played up?

 

Let me start by saying I'm glad for the truth of what I am going to say, but nevertheless...

Beer, generally, is underpriced. In some cases severely underpriced. This is why beer disappears from shelves in a very short interval, and there are huge lines to get an allotment, and all sorts of sh*@shows to get certain beers. Those beers are produced in small amounts, and at the price sold, there is far greater demand than there is supply. The price should rise to meet this until demand and supply are even, at least according to what I understand of economics. That it doesn't signals a certain resistance in the markets that prevents it. That the demand could absorb it, I have a little doubt, because the amount I and other people on this board spend in non-beer costs (time, travel expenses) is considerable.

An example: Beers, when I visited Vermont, were part of why I was there. I spent hundreds of dollars to get there to make it possible to drink Heady Topper and various Hill Farmstead options, among other things. Yes, I enjoyed the mountains and scenery of Vermont, had a great vacation with my wife and daughter, and would have considered it as a destination even without the beer. But probably, without Vermont's thriving beer scene, I'd have gone somewhere else; the beer was what planted the idea in my head. And I spent a lot of money making my plan come to fruition.

So, given the demand of people like me, why does Hill Farmstead not charge more than $10 a bottle and make greater profits? I don't have a good answer, but I am pretty confident they could.

 

My guess is that Shaun Hill is pricing his beer at a point where he is making some money (a comfortable living) and not making it too onerous for 'regular folks' to buy and enjoy his beers.

It is indeed possible that he could price higher and still be able to sell all of the beer he makes but there will be some people who would not have the wherewithal to pay those higher prices and therefore would be excluded from enjoying Hill Farmstead beer.

Cheers to Shaun Hill for being a considerate business owner!

 

I feel people should stop saying "price point"; just say "price". WTF?

 

Hill's heart may be in the right place, but pricing well below market does not really make it available to the regular folks, at least not all of it.

What it does is encourage a black market where the beer DOES sell at market price (apparently the link is censored by BA, so you're on your own with searching skills; but H-F beers are selling on-line at well above $100 a bottle). I wonder: how many of the would-be "regular folks' are crowded out by black marketeers snapping up as much as they can to sell and to thereby grab the money Hill is leaving on the table?

 

So what are his options?
1. Keep the price where it is and be able to serve some of the "regular folks" that want to purchase his beers
2. Raise the price to market levels, which might depress the black market, but likely exclude a bunch of the "regular folks"
3. Raise the price marginally, which would probably exclude some "regular folks" and have little impact on the black market

I fail to see how the existence of a black market is any of his responsibility. It's not his job to police the black market.

 

That's it in terms of how I feel just about beer buying in general.

It's just his business model. It's affordable, and only really available locally. Sort of how Pliny is $7 a bottle but only available in a very small footprint. If it showed up on shelves across the country for $10/bottle people would buy it, then the ratings would fall, then people would stop buying it and it's possible RR would have made no money in the process while degrading their brand. Seems like how Alchemist, Hill Farmstead etc. approach it.

 

I think you are probably spot on for his reasons. And I agree that he deserves kudos for taking that approach. For those people in his vicinity or who can spend the money to be in his vicinity, that works out well. It also creates market solutions, legal or not, that others have described. The swallowing up of significant portions of his inventory by black marketers undermines local ability to get beers, and degrades the joy of heading to his brewery on release days, but it may just be the world we live in. I'm not sure there's an easy answer under current liquor laws.

 

I didn't say (or even imply) that it was his responsibility to police the black market. I just observed that, regardless of the nobleness of his intent, if his intent was to make his beer available to "regular folks" at an affordable price, pricing the beer below market price does not achieve that. I suppose the only way to achieve that would be to ramp up production to meet demand and thereby depress the price on the black market. He chooses to not do that, so, he's stuck. He has conflicting ideals (from an economic sense) ... 1) a small brewery making excellent beer, and 2) affordable prices.

 

This has been said before, but you absolutely can not compare the cost of a home brew batch with an actual brewery. For most commercial beer, the ingredient cost amounts to 10% (maybe 15% at most) of the shelf price. Rent, wages, insurance, equipment upkeep, packaging materials, and countless other costs are involved in running a brewery that a home brewer isn't.

 

But did you invest in big enough equipment that would be required to brew and bottle/can several thousand barrels a year? Try pricing out those costs and how much interest you'd be paying on the loan you have to get to get you up and running.
What were your energy costs? Did you reimburse the family engery bill for the part you used?
And you didn't mention how much you are charging yourself for the time/labor involved. You working for free? Try running a small business on free labor....

 

There will always be a cross section of beer drinkers that think prices are too high and they won't buy it. Others will pay because they want it. No different from most other markets. People thought Under Armour was nuts for selling $35 t-shirts and they continue to mint money.

I think the breweries in my neck of the woods that sell most of their product like Hill, Treehouse, Trillium themselves do it because its more profitable for them and more importantly they can control the quality.

 

Its a mix. Some due to brewing techinques and ingredients are worth the higher cost while other brewers/store owners are just gouging on the wave.

 

I understand there are far more costs that go into running an actual brewery, and maybe my comparison is just way off, but you can't deny the fact that beer is cheap to make and the profit margins are quite large. If they weren't, breweries wouldn't go from micro to regional in the matter of a couple years. And that's exactly what's happening right now.

 

Some people at the beginning of this thread made comparisons to wine...they're different markets, sure. But there's been at least one group of people (see The Wine Trials, The Beer Trials) who did blind tastings and actually found a negative correlation between price and rating. They did not find that pattern with beer as of their 2010 publishing date. But I wonder if we might be creeping away from such a strong correlation between price and quality. Most of the beers I buy feel to me to be worth the price I paid. But then there are certainly some that make me think I could've had something at 1/3 the cost that would've been every bit as good.

 

Yeah, on the other hand I don't any of us except the brewers have any clear idea of what profit margins are for breweries since the prices we pay are set by the distribution chain. Except in the case of self distribution, which isn't all that common, I buy the beer from a retailer who takes profit on the beer. The retailer buys beer from a distributor who takes profit on the beer. The distributor buys the beer from the brewery which also gets their profit. Hard to say that the breweries have a large profit margin in those circumstances.