Other Half March 2018!

At Ginger Man now, listening to suit and tie midtown guys bragging about reselling OH cans via Instagram. LOL

Bizarro world man.

 

Really? Again, not a practice I participate in, but I could certainly understand why someone would want to sell at that kind of mark up, especially if they have plenty left over for themselves.

 

You should've started talking really loudly on your phone near them pretending to be an agent from the Alcohol and Tobacco Tax and Trade Bureau with your latest case assigned to crack down on illegal distribution of Other Half beer without a proper permit.

"Hello? Hello? Yes this is Tom from the Alcohol and Tobacco Tax and Trade Bureau. Yeah I just landed in NYC to work on that Other Half case of illegal reselling of their beer. Yes I took screenshots of all the Instagram handles and Facebook profiles with posts of reselling as evidence. I'm working GingerMan now to see if anyone in here matches their profile pictures on Facebook or Instagram. Boy they'll be in for a nasty ticket if I see them!"

 

It was just strange. Four seemingly normal guys sitting at a table towards the back discussing beer reselling. And they didn't seem to know too much about beer either.

 

I mean it's both strange and not surprising at the same time. If people catch wind of the fact that some limited/niche product can be resold for large mark ups, they’re probably going to take advantage of it without batting an eye if they’re not ingrained in the culture.

In a typical 4 beer / full case release then it sounds like the going rate would equal to $240 profit. When you add in the really limited stuff / tekus etc it’s a lot more.

What would have been worse/stranger would be if the 4 guys were talking super knowledgeablely / passionately about beer, yet still discussing their reselling

 

Drinking a DDH Oh and wow, what a difference a week makes. Last week I lamented that it had almost no flavor and was just kind of bitter. Tonight the can I’m drinking is completely different, full aroma and flavor of melon, mango, peach and stone fruit. The beer is full and almost creamy with a hint of sweetness. An absolutely delicious beer.

I sometimes think some of the posts about waiting a week or two on OH beers because “they are green” are overblown, but apparently I was wrong. Consider this my mea culpa.

And if you have any cans of DDH Oh left, now might be a good time to have one.

 

The craft beer secondary market of today is pretty unique in how the various parties behave. In most markets, when demand for a good and its corresponding secondary market price skyrockets, primary prices adjust so as to find a more tenable equilibrium. But unlike coveted wine or rare spirits, beer prices have largely remained low. If I were working at Other Half, I'd be super frustrated to see a can that cost me $2 to make sell for $25 on a secondary market. Assuming I sold it for $5, the investment I put into it (from the rent on my brewery to brewery equipment to staff to ingredients to recipe formulation etc. etc.) netted me $3 profit, while the investment the reseller put into it (waiting on line for a few hours, posting a listing on a reseller site, packing + shipping a box) netted him $20 profit. The value creation vs. profit margin ratio seems incredibly skewed. A natural response would be to increase primary price--which, to be fair, may be slowly happening in the former of never-ending 'collabs,' 'DDH', etc.--to either 1) cut into the resellers profit, or 2) hike up the secondary price until a ceiling is hit.

I understand that there is something of an everyman's connotation with beer vs. other alcoholic beverages, one that insinuates affordability and modesty. It's likely a big reason why breweries haven't tested the waters of higher primary pricing, and why those who have faced significant backlash (see: Toppling Goliath and J.Wakefield), albeit not enough to actually stop a sellout. But I just can't wrap my head around how a dude like Sam from OH can affably mingle with known resellers--or how a brewery could dedicate a beer to the abused pet of one--without being at least a little ticked off...

 

And following that rant, a question: how much would you pay for a 4-pack of Other Half? Let's take something like DDH All Citra, for instance. For just one 4-pack, what would be your ceiling price, beyond which it would no longer be worth it?

 

I'm sure they've looked at it. The question is, how many people are willing to buy a can of beer at $25 directly from a brewery? Those who do pay the premium would want it delivered to them as part of the price. My guess is this is less than 100 people nationwide (let's say they each buy two cans on average so, 200 cans)

Other half is in the business of scaling. Last weekend they had 1,500 cases or 36,000 cans. The population (per my guess) who is willing to pay a premium markup would make up less than 1% of their can sales.

Also what is the story behind JWB and TG?

 

That's a good point. I've often wondered who is buying cans at these exorbitant prices, and it's actually really funny to think that it may be a group of 100 or so well-off folks nationwide, each of whom has 3k followers on Instagram because he gets every "whale" can without ever actually leaving his home to visit a brewery, instead opting to buy resold beer at whatever markup the reseller community has decided to attribute to the "hype" factor. I truly hope that the secondary market is some increasingly incidental blemish on OH's sales, but with the plethora of resale offer posts I see on Facebook, Instagram, MBC, and Ebay, I fear that the proportion of the consumer population dedicated to reselling is growing rather than shrinking.

And in regards to JWB/TG, both have hiked prices on some recent releases to an unprecedented degree, one that is only sensical in the context of secondary prices. I think it was just a few weeks ago that JWB had a cellar sale in which some bottles of BA adjunct stout were priced at $750/each? And to a lesser but still noticeable degree, TG has been steadily increasing prices on its stouts for years. KBBS was $12 per bottle when first released, but the most recent release was $100 for 2 bottles + a glass, IIRC?

 

I'm not attuned to the secondary market so the 100 was a guess based on round numbers, but carries my point across. Agreed that I see more posts for muling, etc but if the "standard rate" is Cost+$10/four pack that's only an added $2.50 per can which I can't see other half being bothered with especially in figuring out how to logistically and legally ship the beer to people who don't want to show up to its doors.

I didn't hear any data points from the JWB cellar sale but $750 for what might be that 4 barrel Bake Kujira is absurd, to me. Others may disagree. However, $100 for two KBBS bottles and a glass is just being competitive now for a high quality stout. If you say the glass is valued at $10 (even if unwanted), each bottle is $45 (or $50 if you value the glass at $0).

Barrel aged dark lord variants are $50 from Dark Lord Day. Evil Twin's most recent double barrel stouts are selling for over $40 at stores in NYC. Cycle stouts are $35. Expensive? Yes. But unfortunately that's where the pricing is moving now.

 

For $240 it hardly seems worth the effort. Now that the lines are forming at midnight, say these mules are on line for 10 hours that's $24 per hour. Add up the time to box and ship them and it's probably closer to $18-20 per hour. For NJ mules even less because they have to pay tolls to get in and out. If they were able to load up a truck per person then maybe they'd see some money but selling 4 cases a week just doesn't seem profitable enough to be worthwhile.

 

That’s been the last couple of crazy collab releases. Maybe these people pay line sitters for the super rare stuff and can bake that cost into the further increased mark up.

On a normal weekend you can line up around 8am and get everything on offer. Also from what I’ve seen that $10 per 4 pack isn’t inclusive of shipping - that gets tagged on as well.

 

DDH ACE probably not the best example because (despite it being a top 3 beer for me) you can typically roll in and buy it after the line has gone.

For anything that I miss out on because of crazy lines (so use the LGA 2 LGB) I might stretch to anything further up the 20’s (per 4 pack) if i really wanted to try it and it guaranteed it’s abailability. Once you hit the 30’s then I’m out.

 

Absolutely, Other Half has a defacto national distribution network without having to pay a middleman a cut. Not sure how powerful the legal distributors are, but I would think they would fight back over this.

 

Not much one can do....they can't punish OH in any way since OH doesn't do business with them and what argument can be made for any sort of legal recourse?

 

This is all supply and demand! As that guy with a crystal ball (he sees things with that crystal ball) was alluding to above, most great beer is way underpriced. Tasting the top beers in the world often can cost you less than $10. We are so lucky here in NYC that we can do this! Most wines/spirits of that caliber are significantly more expensive, or impossible to get. So for these cheap beers people will wait in line, mail it incredible distances, pay extra money, etc. Simple economics will tell us that once this imbalance clears (supply/demand/pricing all in some balance), that most of this will stop. People will not camp out as much, pay lines/ubers as much, always max out, etc. Of course there will always be some of this going on because people are that way, but most of us will be able to avoid it.

Our beer scene here has moved so fast and is still quickly evolving. You can track the changes at Treehouse over the past year to see how their vastly increased supply of base beers has greatly corrected this imbalance, in what was a tremendously underpriced product at under $4 a can. Other Half too the changes are evident; the vastly increased supply means base beers are often available. Collabs have the "scarcity" increased so more imbalance on those, but even on these, they are starting to flood the market (a Monkish collab lasted). So while demand is increasing for these beers, supply changes are much faster and more dramatic here (I would guess that in the past 2 years the supply of "top IPA/DIPA" has gone up 3-5x for people like us). Grimm will be open soon, other breweries keep popping up, breweries will keep expanding.
The elasticity of pricing is really complicated and does affect the brand and loyalty (Singlecut for example has tended to price things higher even at the brewery). Up and coming breweries have tended to be careful to make their pricing competitive as starting off on the wrong foot could really set them back. Even our best brewers must struggle with the fact that much more supply and all of a sudden they are sitting on tons of beer without great storage. Then they need to figure out if they take a serious profit cut by engaging distribution. So big price hikes may not be there for the most part.

Currently, people clearly will pay more than $20 per 4 pack; most Grimm beer as noted above clears for $29 at markets and people sprint to get it, so there is something people call "hidden demand"!
Given the increased supply, I think these beers will only creep up in price for most of them, but we will start to move more towards tiering, as we see in bottles. $30-35 per 4 pack on really special DIPAs will be alongside $20-25 of the base beers and all will be happy. We will call it a money grab but we are the people throwing money at them and they are a business!

 

Using dhaakonmath (ie I have no idea about distributor margins) I’m ball parking $35k at the high end for the distributor cut of an OH release (assuming they took on the whole output, which obviously they wouldn’t). The amount of money involved, combined with the fact there is no single specific target for them to go after, means there’s probably very little they can do.

I would guess their only course of action would be to lobby for a law change that prevents / caps on-premise brewery sales of packaged beer. Not sure how that affects brewery relations though...