Tuesday, 11 February 2014

The Price of Craft
























My more avid Twitter followers will have recently witnessed a brief tirade against what I felt was an excessively high price for imported cans of Oskar Blues Deviant Dale's IPA, one of my very favourite double IPA's. The cheapest price I could find was £6.49 for a single 455ml/16oz can which even I, a true advocate of getting what you pay for when it comes to great beers, thought was over the odds. I raged at the internet for all of fifteen minutes and still the price remained and so I took it upon myself to email the brewery to find out why these cans were being sold at such a premium. I fail to understand what I see as gross inconsistencies between prices of imported American craft beers and suddenly it felt like it was my very birthright to get to the greasy bottom of the import saucepan.

Now here's the kicker, I not only work in distribution, albeit for a company that imports high end music technology equipment rather than beer but my job is to price up our various lines and work out cost and recommended retail pricing in an effort to make both ourselves and our network of dealers what I think is a decent margin. Many of our lines come from the US, a few from California, one from Louisiana and one from North Carolina but we also import from Finland, Australia and China so I like to think that I have a bit of a handle on the costs of international distribution. So, for some unknown reason, despite not actually being at work, I booted up Excel and started laying out a table that will probably only satisfy my own pointless curiosity.

I wanted to do this because I bloody love American beer and I want to drink lots of it while paying a price that I, the consumer deem to be fair. I'm aware that with import costs, our higher tax rates and higher costs to suppliers, retailers etc that it's never going to be the superb price you usually find in the US but why is one IPA just over two quid a bottle and one just over three? They've both travelled a similar distance and have a similar ABV so is the distributor taking a larger cut? Is the retailer pricing beer perceived as being rare at a greater margin because they're confident it'll sell or are the costs genuinely higher. It sounds just like a game of Fiz, doesn't it.

My first step was to produce a small list of American craft beers available on both sides of the pond which I then sent to my roving reporter in Colorado or 'Dad' as I usually refer to him. 'Dad' then went into his local liquor emporium Wilbur's Total Beverage (which if you're into booze is basically where you want to end up when you die) and wrote down a load of prices for me. My first disappointment was that he couldn't acquire the prices of beers from Brooklyn Brewery because they don't distribute to Colorado and this particular liquor store wasn't currently stocking any Flying Dog so they were also out of the window. I do realise that I could have just asked him to go to another store but he demands a ridiculous wage and I couldn't afford the overtime. The prices he did get were all for six or four packs bar a couple of 22oz bombers which are sold singly, I then got my maths on and did some intensive division to work out the individual bottle or can prices. 

Then things got really technical, I converted the individual bottle dollar prices to pound sterling using an exchange rate of 1.58 dollars to the pound which is about average at the moment and then searched for the cheapest off trade price in the UK for the list of beers that remained. It's important to mention that this is purely a look at the off trade because pubs work on different markups and well, I'm going to try and make a point and predict the future in my conclusion, wish me luck with that one. I then trawled the off licences of the internet for the UK prices and a couple of local ones including Waitrose with the thought being that if I can find and buy it easily then it's going on the table. You might think, hey no fair, supermarkets work on lower margins and higher turnover than independent retailers and you'd be right. Tough titty I say, the premium beer marketplace is going to become hella competitive, even more than it already is and business is dog eat dog, you've got to take the heat if you want to play with the big boys.

Interestingly, in Colorado you can't buy any of these beers in a supermarket because of a State law known as the 3.2 law. This ruling indicates that supermarkets cannot sell products that contain more than 3.2% alcohol by volume and this has given rise to masses and masses of specialist independent liquor stores, the largest of which are as big as a large supermarket and price aggressively to try and win business in an overcrowded marketplace.

So with most of my figures intact and my diminished table missing the key players of Brooklyn and Flying Dog as well as Ska and Maui brewing because I forgot to ask my Dad to check those ones I then worked out the margin of difference between the US price (converted to £ sterling) and the cheapest UK price I could find. The results were not particularly conclusive with the majority of beers being around 55% more expensive per bottle in the UK than they are in Colorado. Here, have a look at my table (click to enlarge):









55%, that's actually quite a lot isn't it, well you've got to take into account shipping costs and import duty right? Then why the fuck are most of these beers significantly cheaper than equivalent beers brewed in the UK. Well probably because the cost of running a business in the UK, particularly one that sells alcohol is prohibitively more expensive than in many parts of the US. I do wonder what will happen when the more successful new wave of UK breweries do expand and have a turnover that supports lower margins, it looks like it's already happened to Thornbridge with their incredible beers being seemingly excellent value at the moment.

I digress, what does this table actually show us? Well first it shows us that Deviant Dale's is not only quite expensive in the UK but also in its native State of Colorado. In fact the margin of difference is in fact greater on the seemingly decent value Dale's Pale Ale which not only has a higher markup but also comes in a smaller container. Odell IPA which seems like pretty good value on the face of it is actually sold at similar markup with their 90 shilling being lower presumably because it's a harder beer to shift and it probably costs the retailer a bit less. Goose Island Bourbon County has one of the lowest margins of difference despite its whopping 15% ABV and this will be thanks to the might of their owners AB InBev, god bless them I say, at a bargainous £7.49 a bottle I'll be stocking up. 

Sierra Nevada and Anchor, well established breweries the both of them seem to be offering the UK punter the best deal despite their beers travelling greater distances. 'Oh but Odell and Oskar Blues are smaller so they have to charge more!' I hear the naysayers yapping at the back, well I've been there and while they might fit the American definition of small (like an Elephant is a 'small' mammal) they make our 'small' breweries look positively microbial. They have the might and the demand forecast that says 'hey exporting to the UK is going to make us money!' Well they're not just doing it for the love of it are they. It's a logistical nightmare after all and why would Brooklyn choose to expand into the European market before satisfying the demand on their own shores? Colorado's New Belgium, Americas third largest craft brewery after The Boston Beer Company and Sierra Nevada respectively seem hell bent on getting established in every beer drinking State before even thinking about shipping to us thirsty Brits. 

Did anyone see how great the value of Hoppin' Frog B.O.R.I.S. The Crusher is? *Fills virtual shopping basket*.

So here's the thing, the craft beer boom we are experiencing in the UK is not going to go away, it is only going to continue to grow and flourish. This is not a fad, there are some wonderful people producing some outstanding beverages that stand shoulder to shoulder with the worlds best wines and spirits right now but their number is only going to increase. Many will fall by the wayside, like poor New Albion did in the early eighties but few will leave such a legacy. We're already seeing more and breweries open seemingly by the day which is having a knock on effect of new specialist bars opening and existing bars having to improve their range to continue being competitive. You can buy a pretty great range of beers in most supermarkets but small and independent specialist off licences are also having to raise their game to satisfy demand. Two of my local wine specialists now give over 25% of floor space to craft beer with one even renaming the beer part of its business in order to capture punters attention.

In addition to the bars and breweries a new wave of specialist drinks retailers are about to burst forth, in fact it's already happening and the fact that Brewdog's next big move is to open an off licence in London should come as no surprise, it's unlikely that it'll be their last. More beer retailers will continue to open, each one trying to find a different angle than the last but there will be a crossover, there are brands that you simply have to stock and with the same beers on the shelf you are then left with two weapons in your arsenal, service and price. I ran an independent musical instrument shop for three years, providing top level service day after day is really, really hard and life finds a way of throwing the worst wankers at you when you really don't need it and even the most golden level of service can't satisfy them. So then you're left with one thing, having the best price. With quality beers on offer then surely price isn't an issue? Well, yes it is, we're miserly and British after all and we want the best value possible. That's why many of you reading this now have cupboards and fridges full of Thornbridge beer right now, after all.

I'm not sure that any conclusive results were discovered in my little survey or in fact if there was any point in the exercise at all but one thing I do know is that I want to drink imported American craft beer and I want to drink it regularly but I still won't pay £6.49 for a can of IPA, even one as good as Deviant Dale's.

The lovely photograph at the top was taken by Dianne Tanner.

17 comments:

  1. Interesting post however it does underestimate the elephant in the room - excise duty.

    A quick google gives the duty rate in Colorado as 8 cents a gallon in addition to the federal rate of 58 cents a gallon (and indeed drops further for microbreweries). This is therefore 6 cents (4p) per 355ml bottle and is the same rate regardless of ABV.

    UK duty rates vary by ABV, the weakest beer on the list is 4.9% - the tax on this would be over 33p a bottle. Taking the ABV to 7.2% for Sierra Nevada brings the duty to 48.9p. We then come to HSBD and an even greater differential. The Goose Island costs a whopping £1.29 a pint (and is therefore excluding duty actually cheaper in the UK).

    Oh and once you apply standard retailer markup to these the impact can be increased by 50%.

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    1. Good points and thanks for sharing them, I decided to move the focus of the post away from excise it's it's less about beer being more expensive in the UK than in the US and more about the wild differences in price between different US brands that are available in the UK... if that makes sense. With the post already at 2000 words I had to start editing down and leaving stuff out!

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    2. Guess the point is the % difference should be larger the higher the ABV is.

      SN & Odell do that, Anchor are flat and then it appears the others are the opposite. Perhaps the Hoppin Frog or BCBS are just overpriced in the US?

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    3. Interesting post. Even if you're point was to show the drastic differences in % from US to UK, you've passed over the glaring point that per ounce each of these brewers' prices vary significantly. Generally the high gravity beers cost more, but the variance in price is pretty big even then (compare Hoppin' Frog at ~$0.73 to Goose's ~$0.52). I think you can just chalk this up to the branding. Oskar Blues has a strong brand and based on your post, demand in UK, so they charge for it.

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    4. In reference to your comparison I think this big price difference between the Hoppin' Frog and Goose Island is down to GI being owned by AB InBev and produce in much higher volumes, they can sell cheaper because they have larger production and wider distribution, it's the economy of scale. I think in the case of Oskar Blues you might be right but UK beer lovers would maybe pay that once to try it but never again because there is a lot of great beer as good as that available for half the price. I don't think the price is entirely down to OB but a lot of it is down to distribution costs and dealer markups.

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  2. Great post, Matt. The 'cost of craft' is a very interesting topic. Sure, there will always be some people who will pay any price for a beer they want, which possibly allows some outlets to charge any figure they like for imports in the knowledge that someone will go there (but will the beer still be 'fresh' by the time they do? I'm kind of over imported hop-forward US beers right now, but that's another post.). But on the whole, the majority of people are not prepared to pay what they feel is way too high a price for an imported ('special') beer. Especially when the UK is producing some pretty special beers of its own. So, I guess we'll have to wait and see how it pans out for stuff like Oskar Blues - might turn out to be pricing themselves out of the market in the long run.

    Ems

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    1. Thanks Em!

      It's weird, last year I was over US imports and found myself drinking mostly UK and Belgian gear but since about mid December I've been craving US IPA's that have that little bit of extra residual sweetness that balances those hops. I also think the standard of imports is gradually improving and recognise that even if the distributor gets it to the vendor quickly the onus is then on them to store the beer correctly and sell through the stock before it expires.

      Plus, I'll happily buy US imports because in many cases they are quite a bit cheaper than beer... case in point:

      US: http://www.beerritz.co.uk/buy/sierra-nevada-torpedo-35-5cl_50.htm

      UK: http://www.beerritz.co.uk/buy/magic-rock-cannonball-33cl_1239.htm

      Why is the locally brewed one 25% more expensive?

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  3. I think the way you are working out the percentage difference isn't very clear. It's an exponential scale, so the difference between 50% and 60% is rather more than you'd think on the face of it.

    Why not just do £/$, so it's a multiple? i.e. Dales Pale Ale is 3.37 times more expensive here than the US, and SNPA is 1.88 times more. Make more sense in my head any way.

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    1. I like to work in margins, I guess that's how my brain works. 70% seems like a more sensible figure that 337% especially when 50% is actually about the margin of difference you'd expect after shipping and duty has been taken into account.

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    2. But it's not really a margin, it's just a retail price difference. I can't think that many people would say they had paid 50% more having shelled out £4 a pint at one pub compared to £2 at another.

      Anyway, my nitpicking aside, it's very interesting seeing the differential.

      I'm not sure why cannonball should be more expensive than torpedo. Yes magic rock are miniscule in comparison but I'd have thought shipping costs would bring them into line. I tell you what though, paying a quid extra for the 1 day old cannonball I had the other week did seem worth it!

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    3. Magic Rock have actually been in touch explaining the price difference and it makes sense, I'd also quite happily pay that for Cannonball, it's good enough to warrant the price.

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  4. Why is craft expensive? Is it due to an old allegory regarding fools, money and parting?

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    1. *Hands over can of worms* Would you like to open it or shall I do the honours?

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  5. I can get 4-packs of Punk here for maybe 10 dollars; Marble Decadence and similar 750 run to about 25/30 dollars; Halcyon is around 8/9, Bracia I think is 20 dollars or so. Though import prices vary quite wildly really - Cantillon is $30 minimum for 375s, and that stuff never really reaches the shelves. I think the Sam Smiths imports are pretty cheap. Though to be honest I don't really take note of the prices.

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    1. That Cantillon price is mad, especially with the wealth of great sours being produced in the US right now that are probably a lot cheaper. The punk seems quite reasonable where you are, in Co is $4 for one bottle of Punk or 5am Saint and $5 for Hardcore.

      I can't even find Marble Decadence in London!

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  6. Price points are purely psychological, but it has been proven time and again that price points used correctly can mean more sales and a bigger profit for you. To move products better, try combining items for a better price.

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  7. Great post Matt. Slightly off topic, but by any chance do you know what gross margin most beer-focused off licences make in the UK selling UK craft beer?

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