Ever stare at a bar’s tap list, letting the myriad bubbly options sink slowly into your brain as you swirl that first potential sip over the phantom taste buds of your imagination? Ever get so excited that you forget to look at the sneaky little number winking at you from the right of the beer’s name? Ever suddenly stop, mid-Pavlovian drool, to say, “Wait, really? $7 for a pint? That’s like 43 cents an ounce! We’re getting dangerously close to printer ink prices, here!”
You’re not alone. The price of a pint has climbed steadily in positive correlation to beer’s national popularity, to the point where many are forced to budget their brew to avoid Chapter 14 (Beer Bankruptcy). At a glance, these upwardly creeping prices seem exorbitant, and out of reach of people without disposable income searing a hole in their Levis. Beer is supposed to be the layman’s drink, the libation of the laborer, that less snotty or less punchy variant to wine or whiskey. It’s not supposed to be expensive, and yet here we are, where the quality of beer in general has improved (for the most part), and can finally be justified in green, paper terms.
The beer pricing discussion often grabs onto and swings around ABV; a lot of the trendy new “session” IPAs boast alcohol in the sub-5% range. By brewing definition, less alcohol in a final beer means less malt used in the recipe, which should in theory, translate to savings for the drinker, right?
If you’re approaching the beer world from a homebrewer’s perspective, you’d be right. Cutting a significant amount of malt from your recipe would lead to a much cheaper final beer. But homebrewers have next to no overhead costs; their equipment is already paid for, they have no property rental cost (a mortgage doesn’t count), and they don’t have to pay any employees for their time.
If you tilt your head and squint your eyes a little bit to look at brewing from a purely business perspective, factoring in the (somewhat, to some people) hidden costs of property rental, staff salaries, and utilities, you find that ingredients account for barely 15% of the total price of a beer. Significantly adjusting the amount of malt might lead to a net difference (per pint) that could be measured in a take-a-penny, leave-a-penny tray.
Higher ABV and aged beers tend to be more expensive not (only) because their ingredient cost is higher, but because of the opportunity cost associated with managing and storing that beer when it could have been sold as is, right away. If an imperial stout sits in barrels for 8 weeks after it has finished fermenting, that’s 8 weeks the non-barrel aged version could have been sold; 8 weeks where the brewery could have turned a profit. When it does finally pop out of the wood, all bolstered by bourbon, the brewery has to charge more for the beer to make up for lost time.
Defying conventional logic, ingredients play but a bit role in the price of your beer. As a rough basis, the following numbers reflect the brewing costs* of a small, local, US brewery for an average, middle of the road beer (per $7 pint):
Malt: $0.21
Hops: $0.06
Other ingredients (spices, fruit, veggies, etc): $0.01
Yeast: $0.06
Total ingredient cost per pint: $0.34
Utilities: $0.06
Rent, employee salaries, other: $1.77
Total overhead cost per pint: $1.83
Total brewery cost per pint: $2.17
So if you’re paying $7 a pint, where does that additional $4.83 you shovel out of your poor wallet onto the ring-stained wood come from? A portion goes to the distributor (as part of the three tier system of beer distribution in the US) who takes a cut to move the beer from brewery to barroom. But if the brewery sells their beer at cost, the distributor only takes ~75 cents, meaning the other $4.08 comes from bar markup.
Before you scoff at that and swear to never drink another beer at the bar again, know that these prices are generally justified. To function properly, a bar has to pay for liquor licenses, staff training, labor in the form of cleaning and hauling and pouring, draft lines and systems, property rental, taxes, and other sundry business related expenses. They’re also probably trying to turn a profit to remain solvent, pay down any business loans, and make the owner some money, which is sort of the whole spirit of capitalism.
Of every beer you buy at the bar, ~25% of the price goes back to the brewery. Beer is a game of scale; the more beer a brewery can sell, the relatively cheaper their overhead becomes, as their static costs are further divided by every extra barrel they can produce and sell. If it wasn’t obvious before, this stresses the importance of the brewery-connected taproom (and should fuel your consumer desire to drink there if you support the brewery). Every beer sold in-house means all the money stays at the brewery, and none is split with distributors or bars.
All of this financial theorycrafting mashes out and boils down to a sweet wort of knowing what you’re paying for. When you slap down $7 for a pint, you’re not paying for the sum of the ingredients, no matter how exotic the hops or rich and decadent the malt profile. You’re paying for the expertise of the brewer, her time and energy, the collective work of a brewery’s staff to deliver a product that you probably couldn’t make yourself.
You’re paying for knowledge, practice, patience; for brewing as a service, not beer as a food.
*These numbers were provided by Jailbreak Brewing company of Laurel, MD, and are representative only. Specific numbers can/will change based on the size and popularity of a brewery, and may also fluctuate by state/region. Please do not quote me or Jailbreak on these numbers, as they’re supposed to be for educational reference purposes only 🙂
Tagged: beer, beer cost, beer ingredient cost, beer prices, brewery costs, brewing, business, craft beer, craft beer is expensive because love, financials, how much does beer cost, how much per pint, i have an mba?, jailbreak, jailbreak brewing, pint, price per pint, prices, why is beer expensive, why is craft beer expensive
Although ‘myriad’ is completely unforgivable.
You have to be careful in the UK. If you ask ‘what’s a good beer?’ in the wrong pub you get the barmaid’s eyes rolling into the back of her head. Meanwhile the regulars tut, spit even, and the only spare seat is under the dartboard…this is the story of my life.
I’ll be back my beer fellow 😉
I make no apologies for ‘myriad.’ Hyperbole is one of my specialties 🙂
The same happens here, truthfully. You’ve got camps who still think Miller Light is the end-all, be-all, and folks who consider anything less than 10% ABV some sort of sub-human proto-beer.
Glad you found me; hope to see you back soon!
I always wondered how that all breaks out. I’m usually happy to pay it because I tend to drink mostly local brews and I want those local folks to stay in business. Then again, I only tend to go out maybe once a month where I would get a drink so it’s not some giant portion of my income.
Well, time for the beer professional to chime in. And I can tell you exactly what the price make up is as I’ve been pricing kegs and looking at shipping prices all week.
I’m going to take a random locally craft brewed Pale Ale 1/2 bbl (15.5 gallon) keg, 1984oz or 124 pints.
In the state of Oregon, it’s sold by the wholesaler to the bar for $154. (keg prices vary by state).
The wholesale paid the brewer $104 for that keg plus $3.50 for shipping (Shipping costs go up significantly for imported or out of state beers and vary depending on fuel costs and time of year). In addition, if the beer is imported or from another state, the wholesaler has to pay the state tax (in-state breweries pay their own taxes).
So…the wholesaler is basing their price on the total cost of the keg, the shipping, and the tax. In our example, $107.50. Most wholesalers operate on a 30% margin which will yield a price to retailer of the above mentioned $154.
So the keg is now at the bar. They cost out keg by the pint, $1.24. Most basic bars/restaurants will use a 350% markup and then round it to the nearest $0.25. This yields a cost to consumer of $4.50. Of course this price can fluctuate heavily based on the mandated pour cost, rent, or upscale nature of the restaurant.
I don’t have the information on how the brewery arrived at the $104 they charged the wholesaler.
So am I way off with my calculations? They were given to me from a new, small brewery for distribution within state. I’m happy to update the post to be more accurate (if you can point me in the right direction!).
Your calculations could be close based on several factors. If it’s a small brewpub, the costs could be higher. They’re probably paying much higher costs for ingredients do to their lack fo buying power and shipping costs to get hops to the east coast. Also, being a brewpub they would have to pay for both the restaurant side of things as well meaning a lot more staff/rent to pay for. Although $2.17 still seems really expensive. I would have to work really hard to find a $7.50 pint of standard beer in Portland.
As I’ve been saying for quite some time. Problem is not so much price as it is value. If you want me to pay $7 (or any other in relation to the market high amount in any currency) for a pint, you’d better make those seven bucks worth it. Unfortunately, many times that is not the case and you get beer that was poorly conceived and/or made at the brewery and/or not properly taken care of and/or poured by bar, who may or may not do the proper maintenance to the dispensing lines and/or have way too many taps and far from enough rotation. All that is something people trying to make money from expensive beer should understand, instead of expecting us, the consumers, to understand the reasons behind their high prices.
I agree. I’ve regretted spending that much money more times than I care to admit. This was more of a thought piece than a justification of prices (I suppose I shouldn’t say a bars costs are totally justified). I hadn’t personally ever worked out the costs of what I was *supposed* to be paying for, and this is the result.
Not saying plenty of breweries aren’t culpable, but I find a lot of my quality problems come from bad bar etiquette; kegs past their prime, dirty lines, dirty glassware. The “how many tap lines can we cram in here” mentality needs to go away. It’s terrible from a maintenance/quality perspective, and causes even savvy drinkers heartburn when trying to choose something.
I think an consumer base armed with knowledge can help them make good decisions (ie. stop buying bad beer), but you’re totally right; it isn’t our responsibility to know all this stuff.
“I find a lot of my quality problems come from bad bar etiquette; kegs past their prime, dirty lines, dirty glassware” I’m full agreement with you there.
Czechs have a saying: “Pivo vaří sládek ale ho dělá hospodský” (basically “Beer is brewed at the brewery, but made at the pub”), and it couldn’t be any more true. Go to the right place, and even an average to mediocre beer can be elevated to new heights; go to the wrong place, and even the greatest beer can dragged through the dirt. That is something that I feel is not addressed enough, even by people in the industry. Many breweries, especially small ones, and understandably so, are happy to sell their product to pretty much anyone willing to pay for it without caring much about how that product will reach the end consumer.
“Every beer sold in-house means all the money stays at the brewery, and none is split with distributors or bars.”
Ah, but they’re getting crafty (no-pun). Florida just had a bill (that luckily got defeated) go through its government that basically would have required breweries to sell their beers to a distributor, and then buy them back with a markup, to sell them on premiss. I believe this is an isolated incident however, because I believe Florida is just getting its craft beer laws sorted out. But it was a scary attempt by someone to dip their greedy little fingers into the mash tun.
As to $7 pints. I don’t have a problem with them so much, as I do many craft beer bars charging near (and sometimes over) $1 an oz for a beer I know I can get off the local store shelf for $0.3 an oz. Of course, few people would spend $16 for a pint of beer, but for some reason (if they feel the beer is worthy) they seem to have no problem paying $10 for an 8oz pour. Beers like DFH Immort Ale, Oscar Blues Ten Fidy and Delirium Tremens all command more than a buck-an-ounce in the craft beer bars around me, and I don’t think that’s in line with the markup on the other products on tap (but then again, I can only go by what I know I pay for it off the shelf or in a keg). Kinda sad that I can’t enjoy one of my fave beers when I’m at a bar, because I can’t justify the price bump they’re asking. OH well, it is what it is I guess.
Unless I’m at the brewery, I can’t justify those prices. Too many bars have let me down in terms of quality and cleanliness, so there’s no way I’m paying a dollar-per-ounce unless I know it’s as fresh as possible.
I think the high prices are a reflection of the enthusiasm (and rate of consumption) of the culture; as soon as the fad wears off a bit, the prices will probably settle to more reasonable levels for those still drinking.
Well-‘crafted,’ Oliver, but don’t neglect the non-trivial cost-input of taxes. There are excise taxes at production, assessed at the federal, local, and, often, local levels: http://www.yoursforgoodfermentables.com/2014/07/your-beer-and-excise-taxes.html. There are sales taxes at the pump, so to speak. Then, there is the multiplier effect: percentage markups upon percentage markups upon percentage markups.
And, where you write,”~25% of the price goes back to the brewer,” remember that it’s the brewery that gets that amount. The brewer, herself, receives much less of that percentage. If one wishes to “grow rich, beyond the dreams of avarice,” don’t brew!
Great point on the taxes. Part of me feels like I willfully ignored that knowing they were important, hoping they’d just go away if we all forgot about them 🙂
Even better point about the brewer/brewery. I think there are some people outside of the beer world who think brewers are big time money makers, but it’s sort of like writing; you do it because you love it, not because it puts you in a Ferrari.
Here in Paris (France) your 7$ will get you a half (25cl) of “craft”. I ain’t crying for you guys 😉
You and Bryan are posting around a pricing (and more general state of craft beer economics) issue that I’ve been bouncing around in my head for a long time. I may have to actually write the damn thing. You two always inspire me or make me feel like a lazy-ass…I haven’t figured it out yet. Maybe the latter is a form of inspiration.
Laziness is the mother of Cheetoes. Wait…
Do you need any help with the piece? I’m still researching the tax portion.
I’m still trying to figure out what kind of margins small and mid-size production brewers are generally operating on. I am assuming it is somewhat thin. But I can’t find any good industry data that you don’t have to pay for.
Also, as a tax nerd, I am excited at the prospect of the intersection of tax and your blog writing style.
The edge of the W-2 slid across bare skin in a quick, slick slice of finance and finger.