ON THE VALUES OF BEER from Cloudwater blog

The price of beer is probably more varied now than it has ever been, and with recent attempts at provoking outrage in corners of the national press I’d like to clear up a few concerns I have, and try to shed some light on the values that set modern, independent breweries apart.

Beer Is Expensive

This may seem obvious, but it’s worth stating. As a beer lover since the late 90s I’m not sure I’ve ever seen prices on the bar per litre as high as they are now. The reasons for this are varied (and beyond those outlined in the following list): there’s still a strong focus on import beer in forward thinking UK bars (where in some cases imports cost more than double that of domestic beers of near identical recipe composition); there’s an ever greater number of styles of beer, from rustic barrel aged mixed fermentation Saisons, spontaneously fermented and fruited wild ales, through to extremely heavily hopped beers that have taken production costs to previously unseen highs; beer drinkers are in part ever more adventurous and committed to exploration of flavours and textures; and all this and more is happening on a foundation of many start up or still fledgling businesses.

It is also obvious but vital to state that a sense of value is highly variable across the marketplace's mix of subjective and objective concerns. I see a minority of people recoil at the thought of paying anything above a historical yet recent norm set by traditional cask beer for a pint (where in some cases a pint of strong modern beer would be irresponsible, and may not be a pleasurable measure with which to seek the greatest enjoyment of a particular beer), and a majority that are able to happily (and mindfully) invest their disposable income in the higher cost beers on a bar/shelf because it’s the higher end of the market that offers the bold experiences they seek.

Comparing the prices on the bar of a traditional pint, where the majority of the cask market from buyer to drinker actively works against prices above a recent norm, to that of a beer with significantly higher production costs is beyond reasonable. Let’s compare stripped back production costs of two fictional, yet somewhat representative draft beers.

Malt: £0.08 per pint
Hot side hops (kettle, whirlpool, hopback, etc): £0.09 per pint
Yeast: £0.00 per pint*
Cold side hops: £0.00-0.05 per pint (many traditional bitters are not dry hopped).
Packaging materials: £0.02 per pint (cask shive, keystone, and pump clip)
Total: £0.19-£0.24 per pint
*Many traditional bitters are made with house yeasts that whilst needing management and infrastructure impose no additional ingredient cost per se.

9% ABV IIPA (ingredient costs)
Malt: £0.14 per pint
Hot side hops (assuming 6g/L whirlpool addition, fairly normal for Cloudwater): £0.10 per pint
Yeast (assuming 24hL pitching quantity used for 6 generations): £0.02 per pint
Cold side hops (assuming 25g/L as is normal for Cloudwater): £0.51 per pint
Packaging materials (BBT CIP and CO2 purge/carbonation/KeyKeg): £0.26 per pint
Total: £1.03 per pint

Not quite the same production costs, so not quite the same price on the bar.

When there's celebration of the price of a traditional bitter and decrying of the price of the modern IIPA (often around £4 per pint, and £12 per pint respectively), I wonder how much of this back story about such varied costs of production is present in the foundation of any outrage. Of course the ingredient costs above don’t include beer duty, which for a brewery our size would be around 23p and 51p per pint (based on the strengths above) respectively, and assume similar operational costs, and exclude other such costs which further the divide in on the bar prices.

Wait, So Breweries Aren’t Raking It In?!

Very likely not. Whether we discuss a traditional brewery making cask bitters and struggling against market forces squeezing the acceptable price for cask beer, or a brewery somewhat more like us, a modern brewery looking to satisfy the modern beer drinker with fresh and very hoppy beer, making enough margin to keep the wheels turning is a struggle.

From my knowledge of mark up strategies in distribution (where at least one of our customers struggles to serve their customer base and pay themselves a fair wage too), to my knowledge of bar mark ups and margins there are few people making much over a decent return on invested resources. Exceptions exist with high volume (large brewery output/nationwide distro/high bar catchment area or multiple sites) or high margin sales (high percentage of self retail direct from the brewery – worth noting here that the UK barely achieves 10% of production as self retailed beer at best, as opposed to examples in the US that climb as high as 100% of production output as self retail). I can’t speak with conviction of the positive effects on profits distros might see by offering deals in exchange for permanent or rotating taps, or for busy bars serving a customer base with higher than average incomes, but I do get a sense that the majority of people in the industry in the UK have rather humble and healthy profit ambitions.

What About When Something Goes Wrong With Pricing?

For us as a producer that operates with very little variation in wholesale price, to the bar that makes sense of their mark up strategy, to the consumer who ultimately pays the money that feeds all the way back to farmers and brewery equipment manufacturers, it is very much in our mutual interests to offer good, reliable value. But there are times when we have seen our beer on a bar for a price that we strongly believe to be unfair to everyone in the chain, and we are grateful to be tipped off so that we can investigate. We know we are sometimes a popular brand, and we are painfully aware we simply can’t keep up with demand, but neither realities are anywhere near adequate excuses for charging a premium for our beer, and taking more money than needed out of any drinkers pockets.

I’ll repeat my invitation to let us know if you see a price or prices that seem out of the ordinary. The price drinkers end up paying for our beer is our issue, even when it’s not entirely our doing. But I’d like to add that in the interests of recognising the range of operational strategies (same mark up per litre, capped mark ups for stronger beers, loss leading or chipping on a premium for in demand short supply beers, etc), and giving room for human error (anywhere in the chain) it’s probably best to flag up concerns privately, rather than reaching to name and shame when any doubts remain as to why a particular price is what it is.

Of course our baseline loyalty as a brewery are the drinkers interests, followed by those of our team, and our immediate trade customers. We have enough battles to face without devoting out of hours resources to averting twitter storms, so whilst I’m not suggesting you ever remain silent in the face of possible injustice, please be sure there is injustice in the first place. We are ever deeply on your side, and will do everything in our power to influence reasonable and responsible pricing, through to and including cutting off any trade accounts we suspect of misrepresenting the value we work hard to build into the on the bar price of our beers. 

Direct From Producer Pricing

Some of our customers have commented that we ought to be cheaper than elsewhere for cans or draft pours of or beers. Fair comment, but I’d encourage a broad view of our concerns around not starting a price war with our local trade customers, not having the capacity (in both retail hours and physical space) to satisfy local demand should we succeed in bringing many more people to buy direct at this time, and further concerns of wanting to protect our margin (and the margin of other breweries that may not have the production volume or percentage of self retail sales to sustain keener retail margins) until we develop our new retail space.

I’m confident that once we are up and running in our new space in Unit 9 we may spot opportunities to deepen the value we offer across the bar for both draft pours and take out cans.

I’ll round things up by repeating something I said to one of the many reporters I spoke to last week, that I’m really happy to see drinkers looking out for each other, and the reputation of breweries they support by raising questions about value. It’s a great sign of just how mature our still young modern beer marketplace is. Keep up the good work folks – we’re all in this together, and we are committed here at Cloudwater to doing our bit to offer as many people as our production allows the best value for bold flavour experiences!