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Charging too little for kegs??

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  • Charging too little for kegs??

    I have noticed that most breweries are selling their 1/2 bbl kegs in the range of $95-$195. This seems a little low to me, especially if you are self-distributing.

    I plan on selling my 1/6 kegs directly to my on-premise accounts for about $70-$100 depending on the beer. This is a reasonable price to me, seeing as how to bars/restaurants will still be making a 50-60% margin. We gotta make a living! Raise your prices!

    Discuss.
    Last edited by FarCry; 12-06-2010, 02:42 PM.

  • #2
    We have been selling our 15.5 gallon kegs for $145 to $185. It has raised some eyebrows but did not stop us from achieving a modest 15 account goal. Only 10 to 15% of those contacted to carry our beer denied. But that puts us currently at the high end.

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    • #3
      Bars making a 50% margin? not were i come from.

      70-100 per 1/6bbl??? translates to 210 to 300 per half!
      Good luck, I think most accounts will not go for that.
      Last edited by frigatebay; 12-06-2010, 01:54 PM.

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      • #4
        IF they buy your keg and put it on tap, it will be priced at the same margin they make off the lower priced kegs - i.e. $8 a pint or something. Just the way it is, sorry but good luck trying!
        Linus Hall
        Yazoo Brewing
        Nashville, TN
        [url]www.yazoobrew.com[/url]

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        • #5
          Granted I am new to the industry, but I am not new in business. And I know a 50-60% margin is VERY good. Retail stores are only receiving 20-35% margins on bottled beer.

          Assuming the account is charging $5 a pint, they are making out very well on that same pint that only cost them $1.80-$2.00.

          This is a business, not a charity.

          Am I in the wrong here? Is nobody selling their beer at these prices??
          Last edited by FarCry; 12-06-2010, 06:27 PM.

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          • #6
            bars

            Bars have to triple their investment. That is the standard in the industry.

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            • #7
              2 cents from Canada

              I'm not in operation yet so I'm kinda BS'ing, but I'm going through the exact same thought process. My plan is to sell my 50 litre kegs of organic ale for $250 CDN - 20 litres kegs for $100. Yes, I'm serious. I've asked around a bit here and the local bar is paying (50 litre) $206 for Coors Light, $220 for Moosehead, BUT, they lower the price (without lowering perceived quality) by giving him every fifth keg for "free" or offering a $30 "discount" per keg, plus free tap lines - the whole deal. I suspect these companies would make money at $100 per keg.

              I've heard the 3 X cost for bars too. A 50 litre keg will pour about 125 beers, at a cost of $2 each. Selling an organic "premium" beer for $6 is not outrageous, especially if it's a nice place. The local dive, maybe not.

              It's really up to us to set the price we need to survive, within reason. The bar/resto will mark up and make the margin it needs to make, and the beer will either sell and stay on tap, or not sell and be taken off tap. Sometimes price is perceived as quality as well, so if you say it's a premium beer, it IS a premium beer. I'm prepared to have fewer accounts that I can make a dime on than trying to compete with the high volume boys at the price & freebies game. But I could also fall flat on my face trying...we'll see.
              Daniel ADDEY JIBB
              Microbrasserie Le Castor
              Organic Ales - Bières Biologiques
              Rigaud, Quebec, CAN

              Comment


              • #8
                Originally posted by DanLeCastor
                I'm not in operation yet so I'm kinda BS'ing, but I'm going through the exact same thought process. My plan is to sell my 50 litre kegs of organic ale for $250 CDN - 20 litres kegs for $100. Yes, I'm serious. I've asked around a bit here and the local bar is paying (50 litre) $206 for Coors Light, $220 for Moosehead, BUT, they lower the price (without lowering perceived quality) by giving him every fifth keg for "free" or offering a $30 "discount" per keg, plus free tap lines - the whole deal. I suspect these companies would make money at $100 per keg.

                I've heard the 3 X cost for bars too. A 50 litre keg will pour about 125 beers, at a cost of $2 each. Selling an organic "premium" beer for $6 is not outrageous, especially if it's a nice place. The local dive, maybe not.

                It's really up to us to set the price we need to survive, within reason. The bar/resto will mark up and make the margin it needs to make, and the beer will either sell and stay on tap, or not sell and be taken off tap. Sometimes price is perceived as quality as well, so if you say it's a premium beer, it IS a premium beer. I'm prepared to have fewer accounts that I can make a dime on than trying to compete with the high volume boys at the price & freebies game. But I could also fall flat on my face trying...we'll see.
                I'm glad I'm not alone on this. Have you had a chance to talk to any potential accounts? If so, what have their reactions to these "higher" prices been?

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                • #9
                  I believe that the quality of the beer and the "sell-ability" of higher priced beers is the issue here, not the price per se. Not everythings is Natural Light and not everything is belgian trappist beer in NR kegs. If the public is willing to pay the price that the pub must demand (3x cost), great. If not, you may want to reconsider your pricing politics.

                  IMO you should offer a range of beers at different prices. An inexpensive to make, 5% ABV blonde should be less expensive than an 8% stout.

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                  • #10
                    Still BS'ing

                    No sales yet - so as I say, I could be singing a different tune in the near future. Sales drive starts in the new year - will post results. Agree with Einhorn that that pricing should reflect input costs (organic, high gravity, oak aging) and exclusivity of brew offered. It might just be the high gravity niche beer that gets you a tap, especially if they already have several pale session beers. Let me know how you do...
                    Daniel ADDEY JIBB
                    Microbrasserie Le Castor
                    Organic Ales - Bières Biologiques
                    Rigaud, Quebec, CAN

                    Comment


                    • #11
                      I think it depends on your production targets and the number of friendly accounts available. When we rolled out, we followed your exact philosophy: price the beer @ what it needs to be for us to be profitable. We started with 3 accounts. 2 were very friendly and understood our position in the market (as well as anyone can - we are in a virgin market). The other was a place that sold a lot of beer, some craft, mostly swill, but volume. Our distributor (we can't self dist) marked our beer up slightly MORE than their 'regular beers' trying to tap into our niche market and figuring they, also, could charge a bit more. Their margin went from, say, 30 to 30%. The price per sixtel was close to major brand 1/2 bbl (to the restaurants). The friendly accounts priced our pints slightly higher than the craft competition and realized they were taking a hit to help us out. The 3rd freaked out when they saw the prices. They charged something like $8 for an 8 ounce glass, $12 a pint, and $25 a pitcher. Needless to say, that didn't help us and probably did some damage. We have since decided to back calculate our pricing to reflect the competition. You might say under-pricing. But, hey, we want to sell beer. The margin sucks. Now, if we only wanted to sell beer to a handful of friendly accounts I think we could get away with what you describe. However........

                      Just my story FWIW.
                      _______________________
                      Chris Burcher, Wolf Hills
                      Abingdon, VA

                      Comment


                      • #12
                        Originally posted by burcher
                        I think it depends on your production targets and the number of friendly accounts available. When we rolled out, we followed your exact philosophy: price the beer @ what it needs to be for us to be profitable. We started with 3 accounts. 2 were very friendly and understood our position in the market (as well as anyone can - we are in a virgin market). The other was a place that sold a lot of beer, some craft, mostly swill, but volume. Our distributor (we can't self dist) marked our beer up slightly MORE than their 'regular beers' trying to tap into our niche market and figuring they, also, could charge a bit more. Their margin went from, say, 30 to 30%. The price per sixtel was close to major brand 1/2 bbl (to the restaurants). The friendly accounts priced our pints slightly higher than the craft competition and realized they were taking a hit to help us out. The 3rd freaked out when they saw the prices. They charged something like $8 for an 8 ounce glass, $12 a pint, and $25 a pitcher. Needless to say, that didn't help us and probably did some damage. We have since decided to back calculate our pricing to reflect the competition. You might say under-pricing. But, hey, we want to sell beer. The margin sucks. Now, if we only wanted to sell beer to a handful of friendly accounts I think we could get away with what you describe. However........

                        Just my story FWIW.

                        Burcher - I think we'll be in a similar situation to yours - though we can self-distribute here. We're going for friendlies first, where we can really sell the our story & the concept of small batch brewing. I'm definitely worried about indifferent accounts like your 3rd one above. Our job is to give people a reason to accept a higher price for their pint. Just being a craft beer might not always be enough. We plan to get out into the community as much as we can, sponsor local events, help local charities with fund raising, etc. We have to put a face on the brewery, and tell the story one person at a time. Sounds more like event-marketing than brewing I know, but I think it's crucial to connecting our customers to our company.

                        BTW - how are you doing with accounts now - have you added more?
                        Daniel ADDEY JIBB
                        Microbrasserie Le Castor
                        Organic Ales - Bières Biologiques
                        Rigaud, Quebec, CAN

                        Comment


                        • #13
                          When we started, we priced our kegs to be on the higher end of the beer market. Because, after all, we are a "small craft brewery making a very high quality product so the market with recognize that and have no problem paying the higher price."
                          Eight-plus years later, it has been our experience that only a small (very small) segment of the market understands or even cares that our products are so different from the bulk of the beers. And this small segment isn't enough to pay all the bills.
                          Conversely, we have had to set our product pricing on the lower end of the craft beer market to get the sales volume up. It has become, and probably always was, a game of volume. The margins are razor thin. We make money by selling a lot of kegs and cases for a little over cost not by selling a few for a higher price. Having said that, it is always a worry that the cost savings we give to our distributors might not be passed on to the retailer or on to the consumer. This is a fun game we've all chosen.

                          my one cent (please pass the other cent savings on)
                          Prost!
                          Dave
                          Glacier Brewing Company
                          406-883-2595
                          info@glacierbrewing.com

                          "who said what now?"

                          Comment


                          • #14
                            2 Points -

                            1. Far Cry don't compare what DanLeCastor is doing in price to you. Canada has CRAZY BEER TAXES. Thus the reason that a keg of Coors Light is going for $206 Canadian when they sell for way less than 1/2 of that in the US

                            2. The market sets the price and we have to find a way to deal with that. Yes, we need to make a living, but I can't price my beers in a vacuum based on what I want / need without looking at what others are selling for out in the marketplace. You need to adapt business plan to find a way to sell beer at competitive prices not the other way around.

                            Cheers,

                            Dave
                            Naked Dove Brewing Company
                            David Schlosser
                            Brewmaster / Founder
                            Naked Dove Brewing Company
                            Canandaigua, NY

                            Comment


                            • #15
                              Seems everyone has some good input. Regardless, just because a brewery sells their product to an account at a higher price, this does not mean the account has to pass that higher price onto the end user.

                              I don't see how an on-premise site can expect a 3x return. That is outrageous. If they buy a pint for $1.80 and sell it for $5.00, that is MORE than fair as far as their profit margin goes.

                              I am confident my local market will support us on this. Elsewhere?....haha I guess we'll see.


                              Also, on the point of volume vs. price: you can't have it both ways. There are ONLY two strategies in business, compete on price, or differentiate your product. Since I'm assuming we all cannot compete on price with Bud/Miller, or even Sam Adams, we all have to differentiate our product. That means higher prices. It's really just that simple.
                              Last edited by FarCry; 12-07-2010, 12:59 PM.

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