Charging too little for kegs??

[FarCry]

Good luck. Lots of info here on PB on how much a "small" start-up costs, building improvements notwithstanding. He provides the space and you brew? Who owns the equipment? How is the the electric/water/gas bill split up? Who says what is brewed? Who pays for "bad beer"? Lots of very unanswered questions await you.

Not to be an ass, but it sounds like you really need to do more research into this business in general, it's economics and the reasons why you don't see your ideas in the real world of craft beer and the restaurant world.

I know how much a small start-up costs. And if you do things in an alternative way than the "standard" way, it's not as much as you think.

Yes, I've done my research, a combined 5 years worth actually. I've been the product and operations manager for a start-up in Arizona. I've helped write a business plan alongside brewery consultants and angel investors. I know the business. Am I an expert? No. Am I constantly learning? Yes.

But one thing I've found out in my experience with beer and in the business world in general is that you have to question things. You have to look at how to do something differently. Whether that means using plastic fermenters instead of the "standard" stainless (up to a certain capacity, of course. Still talking "small" here) to save on start-up, or whether that means questioning the pricing structure of the industry.

Now I'm not saying I'm right or wrong in this pricing matter, but it's something worth discussing and hopefully worth trying to challenge.

[FarCry]

And actually, there are 3 things in the business world that you have to sell. You seem to have forgotten service. I tell my customers "Pick two out of the three you want, because you can't have them all".

Another suggestion: get a price list from the local beer distributor(s) and see how your (proposed) pricing stacks up against the other craft brewers & macro-micros.

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.

[einhorn]

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.

You can differentiate your product, your pricing or your service. You can offer the best price, but service or product must suffer (Dollar Store). You can offer the best product, but what you are buying or the service/experience is expensive (BMW/Mercedes purchase). You can offer the best service, but product or price does not play a role in your decision making (house/carpet cleaning).

In our business, if you want to charge above normal prices for your product, you must offer a 1) superior product and 2) superior service. If you don't provide these 2 elements, you will not sell your product. Basta.

Good luck!

[toddbrew]

Keg Prices

I know I am getting into this late but...
I spent over 10 years working in restaurants and 3 times mark up for a bar is standard practice at every place that I worked. Craft beer or no, they are being romanced by more than a few companies that will steal your tap line quicker than you can blink. Research and business models are great but go and talk to some restaurant owners; they are usually nice people - go see what their experience is like and base some decisions on that. In my area, we do not see a lot of kegs priced where you want them that are not from belgian breweries or craft breweries with a strong following.

Remember: "If you want to make a little money in the beer industry, bring a lot of money"

Good Luck,

TB

[schlosser]

RESEARCH????????????

Loved this line.........

In your combined 5 years of research how many other breweries have you found that use your model?

In all the bar owners you've talked to how many didn't laugh in your face when you told them that they would have to compromise THEIR industry standard margin so that you could make money?

Why is your product costing so much more than all the other craft beers that are coming in a much lower price point (we are all differentiating from the BMC)?

And you can (and in your model are) differentiating on product and PRICE. Your product may differentiate, but your prices are also differentiating from other craft because they are far in excess of what most Craft Breweries are charging (with the exception of some Big Beer Series).

I offer you good luck, but I would also tell you that the posts in this forum are going to be far kinder than your average bar / restaurant owner.

[wolfmanJL]

Price To Consumer

I agree with Glacier Brewing, we came to the market with a $90 1/4bbl and only three customers with all intent purpose to allow the market to dictate our frontline price and to not seek exponential grwth but only to self distribute to local retailers. $90 was suitable for very small local distribution "for fun more than for a living". However at some point exponential growth was in our planning and we had 2 solid years of trying to sell just above the average craft beer range and everyone loved our beer but when it came to price we sat on the shelf or lost our handles. this is not good for so many reasons, long and short term so...
Finally, we dropped our price to compete. We found all along the east coast so far... competative ranges are as follows:
1/2bbls- $125 - 140
1/4bbls- $65 - 75
1/6bbls- $55 - 65
Note: These ranges allowed us to compete and begin driving volume however cut into our MAR significantly and still didnt give us the exponential growth because retailers were still motivated to sell beer with more recognition.

Today we retain our pricing in the above ranges...
and are priced to compete with bigger beers on the shelf that sell, however we utilize an incentive program that rewards the distributors and retailers in addition to carrying promotional pricing to the consumer. Unfortunately this cuts further into our MAR but is very effective in driving the volume we desire. Our promotional frontline comes in under the above ranges but we are gaining market share and most importantly more people are drinking and liking our beer.

Our margins are now "razor thin" but we have been successful in moving our beers from 20bbl batches to 250bbl batches, increasing distribution and setting our markets on a strategic plan towards increased market share and volume sales.

If you are wanting to sell beer for a hobby or side business then I believe your very high price is fine. If you want to drive volume and increase brand recognition you will have no choice but to fall in line with everyone else.

[rextract]

On premise pricing

I haven't posted very much here on PB, but this thread caught my eye, as is this is a topic that I've been dealing with at different tiers of the industry for the better part of the last two decades.

In most of the places that I've lived and worked, typical bar markup has generally been closer to four or five times, but I don't agree at all that this is something that can't or won't change. True, some bar owners and managers are too set in their ways to rethink them, even if doing so would ultimately benefit their bottom lines, while others are so mired in corporate bureaucracy that change is essentially impossible, even if everyone agrees it would be for the better. But beyond these two groups, there is also at least a small group of forward thinking people in the on-premise side of the business who realize that, as the market changes, the old rules of thumb may not always apply anymore.

The "rule of thumb" that I've typically heard for bars is that on a $5 drink, $1 goes to product cost, $3 go to operating costs, and the remaining $1 goes towards general business expenses and profit -- and this is probably a fine rule of thumb to use when you're talking about drinks that don't deviate very far from that $5 price point, but it doesn't translate neatly to a set of percentages that apply equally well across all price points, which is where the "industry standard" goes wrong, and where it's our job as purveyors that fall outside of the applicable range to educate our customers as to how they may be hurting themselves by continuing to use it.

The key point to remember and to try to convey when discussing this topic is that when you look at the cost breakdown of the $5 drink above, adding another dollar to the product cost doesn't automatically double the direct operating costs that are involved in serving that drink. If the cost of rent, utilities, insurance, payroll, etc... works out to $3 for a pint of beer, that number isn't going to change significantly, whether the liquid in the glass costs $0.50 or $5.00. With this in mind, a bar that charges $6 for a glass of beer that costs them $1.75 is actually making more gross profit than they would charging $5 for a glass that costs them $1 -- $!.25, as opposed to $1, after subtracting $3 in fixed operating costs from each. Essentially, they're paying an extra $0.75 to make an extra $1.

Conversely, if that bar's fixed costs for serving draught beer really do come to roughly $3 a glass (and in all fairness, that number probably is a tad high -- especially for establishments outside of big cities), it stands to reason that it can never be profitable for them to sell any beer for less than $3 a glass, regardless of how much it costs.

At the end of the day, there are actually quite a few factors that can affect what a bar needs to charge in order to be profitable, and a few of those, such as spillage/waste, direct returns on COD purchases, etc... are directly tied into product costs, while many others are not. In some cases there are also factors completely unrelated to pricing that some bars may reasonably take into account in deciding what they want to charge. For example, they might want to apply a higher markup to 7% beer of which customers might only drink one or two over the course of a couple of hours than they would to a 4% session beer with roughly the same cost, of which customers might drink 3 or 4 in the same span of time.

Again, not everyone is going to be willing to do this level of analysis, and it may well be the case that you need to give in a little to those who aren't in order to sell enough beer to survive, but there are folks out there who are willing to think beyond the industry standards look at the actual numbers and realize that a more progressive pricing strategy when it comes to higher end products isn't an act of charity -- it's smart business.

Hopefully, with the passage of time, and with some educational efforts on our parts (the same sort of efforts that we've had to put in up until now to teach them about our products), we'll find more and more people in the on-trade thinking this way and applying reasonable dollar mark-ups to products that fall outside of what was once considered the pricing norm, and we won't have to worry so much about those who don't. Or, if you live in a more "progressive" market, with a decent number of establishments that are already thinking this way, and if the demand for your beer exceeds the ready supply, maybe you can already afford to be selective and forget about those places whose pricing policies are stuck in the past or are otherwise unsuited to what you have to offer.

Cheers,
Ron

[South County]

Our margins are now "razor thin" but we have been successful in moving our beers from 20bbl batches to 250bbl batches, increasing distribution and setting our markets on a strategic plan towards increased market share and volume sales.

If you are wanting to sell beer for a hobby or side business then I believe your very high price is fine. If you want to drive volume and increase brand recognition you will have no choice but to fall in line with everyone else.

Very well said Wolfman. For the other statements no amount of "education" is going to convince bars/distros to make less money. Bars are going to make their margins, if you price your shit to high, the bars gonna do the same and your not going to move beer. Plain and simple. No reinventing the wheel here. This is a volume based game, no matter how special you think your beer is, its the same as the rest in a competitive market place. Did someone actually reference a fictitious tv show as an example?

[wolfmanJL]

Price and distribution is a fundamental issue for the future of craft beer

I hate to go too far with this post but oh well...

Price of the craft need to stay flat, but if anything will go up which I believe they will in regards to oncoming inflation, and taxation...its inevitable. These factors only increase PTC and if anything drive down our MAR%.

Here is the duezzy:

It is common knowledge the beer industry of the past has been ran by titans, a small group of corp. servicing the total demand of the consumer. Now with the explosion of the craft industry "if it continues on its path" the total demand for beer is serviced by an increasing amount of suppliers this will make it harder for newer brands who are seeking exponential growth to achieve there goals due to increasing competition and market share. basically, there will be less new brands achieving volume like brands such as Sam Adams or Sierra Nevada. This is already happening today, bigger beer has lost market share due to the growth of smaller companies.

I see now business men have there eyes set on the stable and growing beer industry , opting to enter in the beer arena themselves for a more stable investment than realestate and construction, which will only continue to effect the market share of existing brands while new brands are trying to drive volume.

I believe the biggest threat to the relative new brand and brand coming into the industry over the next 10 years is distribution. The distribution climate is changing significantly, I see now multi-generational big beer house distributors almost buying out there competition and becoming state distributors rather than county distributors in which they are controling the market with there $$$ and infrastructure. This is dangerous because these HUGE distributors will not carry every brand that comes through the door and the alternative for the new brand to penetrate that particular market will be with small distributors with no infrastructure to build a brand, midsized distributors who might have a stronger infrastructure than the small guy but will only concentrate on their bigger brands to hold their market share competing with the big guy.

Basically, I believe if your business model is to grow a regional maybe "10-15 states or more" brand then there is a time clock and its a tickin, if you dont get your distribution now and achieve the kind of volume you desire the door might be shut and when you penetrate new markets and increase your distribution you will be faced against GIANT BEER and GIANT DISTRIBUTORS. The odds of your brand seeing any kind of significant growth out of these new markets will be a JOKE! Grow now or forever hold your peace!

This ties directly into the whole pricing structure. I keep my brand with a standard price In-Line with other craft (draught $4-5 per pint)and so that the MAJORITY of retailers are making over a 70%+ MAR and with our promotions 80%MAR+++ Our distributors are making 30%-40%+ with their incentives. I tell you, we put more money in the pocket of our customers than most brands relative to margins and not volume, however as we are growing volume we are becoming a more valued brand and will hopefully gain our market share before its too late.

Short: In the competitive beer business of today and the future if your not willing to put the money into your customers and spend$$$ to compete....you wont compete! To be a bigger brand of the future you must be willing to operate on thin MARGINS! Or else Ill take your tap handle because im paying the sales rep. to do so and the retailer makes more on my beer than yours.

Jonathan Olson,
Wolf Beer Company

[rextract]

South County, you completely missed my point. We're not asking bar owners to make less money; we're showing them how they can make more. In the example I use, given that the bar has a limited number of seats to fill, and a limited number of drinks that the customers occupying those seats will consume, does the bar do better making $1 net profit on each of those drinks or making $1.25? Choosing to sell less expensive beer in order to maximize margins translates to making less real money, and that's where the education comes in. We need to get them to look at the real numbers and see this, rather than passively accepting their reliance on outdated rules of thumb that effectively fool them into thinking that they're doing better selling cheap beer at low prices than they would selling better quality products with more real profit.

Maybe your point was that we're not going to convince a bar that normally works off 20% product cost to "lose" $4.25 on a beer that costs them $2 by charging only $5.75 instead of $10. If so, the point to keep in mind there is they're not actually losing money, because few customers are going to be willing to pay the $10 -- especially if the bar down the street, whose owner took the time to look at the real numbers, is selling the same beer (quite profitably) for $5.75. The education comes in in reminding the bar owner that not all of the costs involved in serving a drink are directly tied to product cost, and that, especially when it comes to products outside of the "typical" range, treating them as though they were severely hurt his or her bottom line at the end of the day,

Wolfman, I don't disagree with a lot of what you say, but keep in mind that not all of us are striving to become high volume brands. It is possible to survive on a smaller scale by developing a small but loyal following that's willing to pay the prices you need to charge in order to continue operating at that scale, but if volume is your goal, keeping your pricing in line with the competition is certainly going to be key. Even if it isn't, the "value" issue still remains a factor, unless you're doing something that's truly and thoroughly unique, or you happen to be very, very lucky and amass a cult following of customers that will buy your products at virtually any price.

[wolfmanJL]

Rextract

No I understand that not all brands are striving for high production, I was just laying down the exponential growth argument. I know breweries who are very successful as small production, local distribution higher price and I say God Bess!

However, personally I dont know too many businesses that would frown on growth opportunity. I just felt it is important to understand these principles if a brand is intending on growing into an arena or retail account where you do face national competition and plan on selling and keeping your placement.

[South County]

South County, you completely missed my point. We're not asking bar owners to make less money; we're showing them how they can make more.

I'm not missing anything, I just don't agree with your assumptions of the bar/restaurant industry or your math. Your throwing around quite a few hypothetical's and it seems your suggesting that bar owners and restaurateurs don't understand how their "numbers work". Despite your math, theory of pricing structure change, etc.. It still boils down to the same issue, a happy medium between price point and volume. I guess I'm failing to understand where you think your going to squeeze out more money for the brewers side when your marketplace sets your price point, which unless every "craft" brewery starts a revolution against the retail side, isn't going to happen. Arguing nickles and dimes to play some numbers game with sales is going to fall on deaf ears real quick. If New Belgium, Troeg's, Sierra Nevada etc... gets $5 for a 7% glass of beer that's what your lucky to get if you can squeeze your tap in. It sounds like you need to either start a brewpub so you can set your prices or self distribute. Otherwise good luck.

[vincentsterne]

1/6 barrels

We sell our 1/6 barre kegs of Hard cider for $65 wholesale. I'd love to raise my prices to balance all the increased costs I've been absorbing. The problem is my retailers will probably go to the other cider companies who make their products on the cheap by using concentrates and added sugars.

[rextract]

On premise pricing

The issue of what sort of value you're offering vis-a-vis your competitors is definitely a factor when it comes to pricing, and I never denied this. That said, the "industry standard" way of thinking can multiply out small differences in price in a way that isn't genuinely reflective of how those differences affect the total cost to a bar. A drink with a $2 product cost doesn't actually cost a bar twice as much to serve as a $1 drink, once all the fixed service and operating costs are taken into account; it costs them an extra $1 for the liquid, and then maybe another $0.20 or $0.30 for other variable factors directly tied in to the cost of the liquid. So, if, with everything factored in, the $2 liquid costs the bar $1.30 more to serve than the $1 liquid and they charge $1.50 more, they make more money. It's as simple as that.

South County, you say you don't agree with my assumptions or my math. With what, specifically, do you not agree? That the fixed costs of serving a glass of draught beer with $2 product cost are not in fact twice those of serving a draught beer with $1 product cost? Does the former require twice the man power, real estate, utilities, etc... to pour, as compared with the latter? Or do you not agree that it's better to make $1.50 or even $1.20 gross profit on any given drink than it is to make $1?

This analysis is not something that was developed in a vacuum; it's something that's been applied very successfully by myself and others at multiple tiers off the industry. It's what's made it possible to sell 30L kegs to distributors for $200+ and on the trade for $300+ without making the cost of the beer in question completely out of reach to the average consumer.

Does this mean that if you're making an APA that's not as good as Sierra Nevada, you can still get away with charging twice as much? No, of course not. Personally, if I were making an APA that isn't as good as Sierra, with higher production costs and without their name recognition, I'd ask myself why I was even bothering, or what it was that I was hoping to achieve. On the other hand, if I've got a product that people really want, like, say Cantillon, Mikkeller, Struise, etc... I'm going to charge what I need to charge to cover my actual costs and make a modest, reasonable profit, and direct my efforts to those on the wholesale and retail tiers who are willing to do the same.

[LuskusDelph]

... 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.
...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.

They don't have to pass the higher price on to the conumer, but they certainly expect to. They need to make a profit just like you do.
The consumer (and for that matter, your bar customers) could give a rats arse about your margin (especially these days).
And speaking for myself, I know that I would certainly raise an eyebrow or two if faced with the prospect of paying more than $6/pint (and in these parts, it's usually a 'cheater' pint to boot).
All I can do is reiterate what I suggested earlier...if a beer is more that $6.pint, it had better be a damned special beer. I can't think of very many that fit into that category.