Thursday, 5 June 2014

The Two Types of Premium


These days I usually don’t bother with posts like this, but something is frustrating me. That something is people complaining about prices of beers they don’t drink.

Complaining about prices of a beer you have no intention of drinking is like complaining that your cock has been chopped off when in fact it hasn’t. It makes absolutely no sense at all.

It’s got me thinking though, because the same people who are complaining about the price of ‘craft’ (which they don't want to drink - i.e. really hoppy or strong beers) are the same people who are complaining about the price of mass produced beers (that they don't plan on drinking) and this all boils down to not understanding why some beers have a premium price.

Why mass produced beer costs more:

You can make a completely valid point in saying that in theory, mass produced beer should in fact be cheaper than ‘craft’ because it’s made on a massive scale and bulk buying cuts the costs of the already relatively cheap, poor quality ingredients. That would be totally fair, but…

Have you seen the sheer size of those breweries? Have you seen the price of energy costs? Have you seen the amount of people who work for an international company? Have you seen the fleet of trucks? Have you seen the logistical nightmare it can be to get beer from A to B?

And then there’s advertising, which is arguably one of the biggest costs. Breweries like Guinness (Diageo) spend so much money on advertising and image to make sure that everywhere you turn your head, you see them. They have a tap in almost every pub in the world so you can’t even go on holiday without seeing them; they sponsor sporting events; hell, Guinness spends millions ensuring that pubs know how to serve their beer, the ridiculous two pour method (that turns out to be a pointless exercise and leaves you standing at the bar, looking like a bit of a knob); releasing a silly looking new font every year; and ensuring their beer mats & bar runners are on tables, and staff are wearing their t-shirts.

All of those things when put together raise the cost of each brew massively, along with the fact that it probably costs publicans £2 a pint to buy in so then you have to factor in basically all of that stuff for them too – their staff, their building, their utility bills… you get the image by now.

And that is why, in so many places, Guinness and the like is now costing around £4 a pint.

Why ‘craft’ beer costs more:

I do feel that I need to open this one by saying that I’m not exclusively talking about keg beer, as so many people are still ridiculously misguided and believe ‘craft’ to be keg. You know me though; I’m not entirely sure what craft beer is myself so this is kind of annoying. I guess what I’m really talking about is a lot of the new wave breweries like Magic Rock, Brewdog, Thornbridge, Weird Beard etc.

See, mostly this is going to be about economies of scale. They’re buying a lot less ingredients which is comparatively more expensive, adding to the price being raised by the fact that they’re using better quality ingredients and they’re using a lot more of them in each brew, instead of replacing 60% of the barley for rice or corn.

They’ve also got to factor in rent or mortgage costs because unlike the big guys, there’s a chance they don’t own the building outright. They’re also probably paying comparatively more expensive utility bills since they can’t get bulk discount on gas and electricity like those.

Essentially, they have basically the same costs as the big brewers but on a smaller scale and therefore pubs end up having to charge £4+ a pint for something between 4-5%.

At the end of the day, nobody is making a great deal of money on ‘craft’ beer. None of these ‘craft’ brewers or publicans are sitting in a sprawling mansion, drinking their beer out of a solid gold goblet, laughing at the fools who are spending £6 for a pint of their IPA. In fact, I’m sure many ‘craft’ brewers actually feel bad that people are having to pay that kind of money for their beer, but everyone needs to make a living.


So there’s my two cents on the topic of price and premium. Personally, price doesn’t really bother me, mostly because I understand it. This piece is just here to inform so more people understand.

If anyone can think of other reasons some beer costs more than others, leave them in the comments. (I’m avoiding barrel ageing, sours, or anything out of the ordinary because realistically those are niche beers that the kind of people who complain about price aren’t bothered about).

Nate

8 comments:

  1. There are a few cases where pub owners are definitely pricing there craft beers too high. My local "craft" beer bar definitely sets its prices too high. Keg thornbridge is £6.5 a pint . British craft bottles 330ml £5. Cask is £4 a pint. Now for were im from thats very expensive.
    I do understand, and do pay the price because I wana drink good beer but I think pub owners are definitely cashing in on the rising interest in craft beer.

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    1. I suppose that depends on which Thornbridge beer it is - were it Jaipur, Chiron or any of the other beers at the lower ABV end, I'd be inclined to agree but if I was being charged £6.50 for a pint of Raven or Halcyon I'd be happy.

      As for bottle prices, I reckon again this all boils down to ABV and such. Plus bottles are more fragile so they take extra secure measures to ship.

      Cask prices at £4 though, I struggle to see if it's under 6%. I suppose that's another thing though, we're a bit reluctant to pay that as we're used to cask being reasonably priced.

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  2. Surely duty is hugely relevant here? Much of the c**** (I just can't use that word!) beer world is benefitting from a tax break (as they're often micros). Part of the rationality of introducing this was to create a more even playing field for brewers, regardless of size - and ultimately give consumers greater choice of beer. It'd be interesting to see the degree to which it helps to counteract the fact that micros don't benefit from the economies of scale large brewers enjoy.

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    1. See, I wanted to stay away from the beer duty thing as everyone knows it's expensive. I wanted to talk about the price on the pumps, which even without beer duty would still be rather high.

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  3. By the same logic the current generation of "youth" have no right to moan about the sky high property prices stopping them buying a house and keeping them renting.

    Of course people priced out of a market have the right to moan about prices in that market.In fact everyone has the right to moan about anything they choose to moan about. It's just that moaning achieves f*all.

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    1. I think moaning would be more relevant if you could actually do something about what you're moaning about. Beer prices are high, and they'll get higher. The same with house prices, and basically everything else.

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  4. You also have to factor that the new age beer bars are pubcos (small ones) and their relationship with the parent company may result in a large cut going to the pubco. In central london I have seen the same keg of Stone & Wood Pale (great beer) going for £4.40 in one craft pub, and £6.50 in another. The brewery gets the same. Then again, the first bar is a keg & cask only operation, while the second maintains a large inventory of bottles.

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    1. Aye, obviously there's whole pubco argument and the ownersr earning out of it, but I'm trying to think exactly what the brewery gets. Something people don't look at, so much.

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