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Charging too little for kegs??

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  • #46
    Well, I'm getting your point, Rextract. Mostly, I see where the straight percentage markup policy in a bar can limit sales of higher priced items, and it's a good insight.

    You're proposing a markup policy that's not percentage based: If it's costs a bar 3 bucks to serve a pint of your beer, and they need to make a buck of profit per pint, they could tack 4 bucks on to cost of that beer, and leave it at that...regardless of what the cost is.

    The only downsides to the method are:
    1. Doesn't factor in higher cost for spillage.
    2. Doesn't consider higher working capital costs for pricier items.
    3. Doesn't make simple enough sense to an industry that's been doing it the other way for generations. Certainly a tough sell for the small brewer trying to get their beer on tap!

    But I still like it better. As a brewer and a consumer.
    Cheers,
    Scott
    Last edited by Sir Brewsalot; 01-02-2011, 08:30 PM.

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    • #47
      Originally posted by Sir Brewsalot
      3. Doesn't make simple enough sense to an industry that's been doing it the other way for generations. Certainly a tough sell for the small brewer trying to get their beer on tap!
      thats the key here^^^^

      Rextract, I'm not saying your math "doesn't" work, nor did I say that a $2 dollar drink cost twice as much to serve as a $1 drink, which you have referenced quite a few times now. I'm telling you that the bar owners and beer managers at bars and distro's on the east coast do not sit down and do number games with cost per glass, etc. They get a keg at $150, they know they can expect "x" number of solid pours, they find something comparable, even if that means its close to a higher end beer, they set the price with that. In the end the prices are pretty close across the board. So yes your math "works" but I don't see the retail side picking it up too quick. It would be nice if we could implement an intuitive cost pricing strategy, but the world likes "industry standards". All i'm saying is that bars are going to get every penny they can, and if "x" brings $5 a glass and "y" cost 20% less than "x" there still going to charge $5 a glass. Throwing elbows in a packed market is not a good way to make friends, maybe if your New Belgium you can do it, but I know most cant.

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      • #48
        5% is packed?

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        • #49
          Originally posted by Sir Brewsalot
          5% is packed?
          Not packed from a wholistic standpoint obviously craft beer is doing well, but from a practical application its not like craft will see 10% market share by the end of 2011, depending on your region, and were not far from big beer cities like Philly, there isn't infinite tap space either. I'm just saying if you (a new beer company like mine) want tap space you kinda have to play by the "rules", its not like I can go out tomorrow and suddenly have all the tap/shelf space I want. I'm with you guys in the sense that ideally you could price artisan beers by there merit and perceived value and obviously the direct-to-retailer cost, but I don't see some revelation that allows more money for the brewers end because the retail side is willing to forgo "traditions" and "standards" for a more intuitive pricing system. Maybe I'm missing what you guys are getting after entirely.

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          • #50
            get paid

            Originally posted by NYSBrewer
            Bars will charge 3x what they pay. Thats what the do, overhead, employees ect. Even if you get an account based on those prices, you are looking at a 8-12$ pint to a customer. Most people will not pay that for a pint of beer, your sales will slow, if not stop, and you will lose the line. Better to sell more kegs for less, than less kegs for more. Sucess in this business comes with volume, not high priced kegs.

            not so....steak houses don't keep the same percentage margin on their beef as they do on their pasta! Remember, bars don't put percentages in the bank they put dollars in the bank. Higher priced product can be sold for a lower percentage margin and still make more profit for the bar owner. That's the craft story!

            Distributors call high priced items 'Golden case beer' 'cause it makes more money for everyone. People will never assign more value to your beer than you do, so charge plenty!

            great examples:
            anything Belgian
            Pliney and anything russian river
            Dogfish

            If you are making a limited amout of beer get paid.
            fyi the BA has a great sell sheet to explain how this works to bar owners.
            Larry Horwitz

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            • #51
              Fennel's hit it on the head. I own a craft beer bar in Illinois and he's spot on with those margin numbers. It varies from 1% - %2 profit. We stock 33 on draught and over 200 in bottle, all american craft beer. No swill. We deal with a wide array of pricing on barrels. We pay anywhere from $55 - $200 for 1/6th barrels and $95 - $300 for half barrels. The average is on the low side and if you have a barrel on the high side it had better be rare, damn tasty and come from a reputable well know brewery. If anyone would like unbiased info from a craft beer bar/restaurant owner feel free to hit me up. dalelewis@me.com

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              • #52
                Originally posted by FarCry
                And only because you tried to call me out on my research, I'm gonna have to correct you on this.

                Service falls under differentiation. Take Dunder Mifflin from The Office for example. In the show, they can't compete with the big guys (Staples) on price. However, while their prices are higher, they differentiate themselves by having better service. Those are the only two strategies in business, differentiation or pricing.
                I, for one, do not take my business cues from satirical television shows. I see several things here that bother me. I think it is perhaps dangerous to view your business in such black and white terms (it is either differentiation OR pricing, it is either this OR that). Also, consider if, from bottom to top, the brewing industry worked this way. What is stopping your grain/hops/yeast suppliers from deciding that you make 15 bbls/batch and sell it all for $x. Well, for them to supply you with what you need for that income stream, they only made $y. So they are upping their grain prices for you, because they have somehow deluded themselves into believing that they DESERVE a higher cut of YOUR profit margin. You would just say "yeah. That makes sense."? And not raise your prices accordingly? Won't you as a business owner have an idea of your bottom line, operating costs, and necessary profit margin...? Shouldn't you assume that other business owners do as well? Oh, and you will risk differentiating yourself by pricing...namely you will develop a reputation for unfordable beer.

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                • #53
                  A lot of good points here, but I think Ron has a solid thought process. The bar owners that aren't willing to understand how their profits work, and price everything off of the same margin are missing opportunities. One of the biggest challenges, but ultimately the most financially rewarding is getting a decision maker to break their current paradigm and show them how they can make more money with craft beer by selling more at a higher dollar profit. I am on the distributor side and we do this all the time.

                  A couple of our competitors play the old (and illegal) free keg game and we show them how a free keg may actually cost them money. A bar owner that charges $5 per pint who takes a $120 keg off line to put on a free keg. Assuming the $120 keg is moving at 1 per week (trying to keep the math simple, I can't find my calculator), and further assuming that the free keg would have also cost $120 but takes 2 weeks to go through (which is relatively common in our market) because it may not be the same percieved quality, then the bar owner actually loses money by taking the free keg.

                  Old Keg - 2 weeks sales = $1200 minus cost - $240 = profit of $960
                  Free keg - 2 weeks sales = $600 all of which is profit

                  Net loss = $360

                  Even a 9 day turnaround on the free keg still is a net loss.

                  But a typical bar owner sees a free keg as pure profit never stopping to think about the money he would have made from the keg he is paying for. He also has customers that may be upset about losing a favorite beer.

                  The bar owners who get it, will be the best market for these products since they understand that net dollars is better for them in the long run, than markup percentage. These owners will also be the most successful in the long run. But it is our job to show them the way and teach them how to make more money on a lower markup/margin.

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                  • #54
                    Chuck,

                    That has to be the best example I have read in a while. How frustrating to have your hefe tap taken by Sh*ck T*p when you know it's just because the bar owner got a couple of free kegs. The way you explain it, even the most dense bar owner can understand.
                    Linus Hall
                    Yazoo Brewing
                    Nashville, TN
                    www.yazoobrew.com

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                    • #55
                      This is assuming that the customer will not order anything else and walk out. A "blocked" tap handle does not mean lost sales, but rather "re-distributed" sales to another product.

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                      • #56
                        Greg Koch's recent video illustrating the point Chuck is making:
                        威尼斯欢乐娱人v3676是亚洲最老牌的娱乐品牌,提供各种体育游戏和真人刺激流行娱乐,让每一位玩家时时刻刻享受到最优质娱乐服务,立志打造最具有权威性的娱乐互动中心。
                        John Little | Auburn, Alabama
                        General Counsel, Southern Farmhouse

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                        • #57
                          I still call "shenanigan" on this assumption that a publican sells double the beer in the same time frame,and I think telling this "story" to a potential customer is setting yourself up for heartache when it doesn't pan out like you promised.

                          On a positive side, I agree about attracting the craft beer drinker to the establishment in question who, probably has no problem paying extra for craft beer and goes out more ofter. That, IMO, should be the selling argument.

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                          • #58
                            Any Updates?

                            Just wondering if you had any status updates for us, FarCry. It's been about a year and hopefully you are still making and selling kegs of beer. I was just curious if you were able to stick to your original pricing plan or had to bend to meet current market realities.

                            Cheers!

                            el

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                            • #59
                              Wow, what a great thread! For a noob contemplating getting into the the beer industry this is a truly scary and informative thread!
                              Nate Cornett
                              Yellow Springs Brewery
                              Yellow Springs, OH

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                              • #60
                                Originally posted by YSBrewer
                                Wow, what a great thread! For a noob contemplating getting into the the beer industry this is a truly scary and informative thread!
                                Better to learn from other's mistakes... hopefully FarCry was able to make it work for them, one way or another.
                                Kevin Shertz
                                Chester River Brewing Company
                                Chestertown, MD

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