The current craft beer market is booming. Passionate beer lovers seek out new beers and are willing to pay a premium price for new experiences.

These aficionados are a tremendous boon to the craft beer world, especially when it comes to the success of new breweries.  The fact is, without those customers, new breweries would struggle to stay in business. The larger a brewery grows, the better their cost of producing beer becomes. Economy of scale means they can put their product on the shelves at a lower price point and still make the business profitable. A small start-up brewery needs to charge more to cover the cost of production, so the price on the shelf ends up higher. Thank goodness there are beer lovers willing to pay more for beer from small craft breweries, but sometimes I wonder if they might be paying too much.

Most consumers think a brewery sets a price and that determines the price on the shelf or at the tap. Certainly, the brewery sets a price to the distributor or retailer, but the brewery has no control over pricing after that point. You can suggest a retail price, but the distributor and retailer are under no obligation to follow your recommendation.

As a brewery, you try to set your wholesale pricing so the distributor and retailer get a typical industry profit margin and the retail price to the consumer remains competitive with other breweries of your size. A couple of people told me that if I didn’t maximize my price, I might be leaving higher profits to the retailer. Sure enough, I found out that having a brand that is new and exciting causes some retailers to charge whatever the market will bear.

To be fair, things like distance to the brewery and the overhead of the retail location affect the retail price. For example, the cost of shipping beer in a refrigerated container outside the United States is going to add a considerable amount to the cost of a product that a local liquor store won’t have. The same would be true for a high-end store in an expensive town like San Francisco; their rent is often ridiculous and it all adds to the cost of the beer. But every once in awhile you find a place where your beer is sold at an artificially high price. They add a couple extra dollars to the price of a bottle or serve tiny pours at a premium price because they can. I guess that is the way of free markets, where each vendor sets their own price and their success or failure is up to the consumer deciding if it is worth it.

It can be a little frustrating for a brewery, because even though you hear about high or low prices you cannot say or do anything about it. So, in the end, the consumer is left to fend for themselves and you just hope that they find your beer served properly and at a reasonable price. Rest assured the vast majority of retailers do a great job, but even in the greenest lawn, there is always a dead blade or two.

Last modified on Wednesday, 15 August 2012