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Of Pints and Prices

August 22, 2014 · by Oliver Gray

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.