Pricing is a craft for small brewers seeking a balance
To charge more for beer, or not? If you’re a small craft brewer, that is the question.
Around the St. Louis area, craft brewers say there is no rush to raise prices in the midst of a tough economy — even when brewing giants Anheuser-Busch and MillerCoors are planning price hikes this fall.
Why aren’t the much smaller competitors jumping at the chance to charge more? Local craft brewers said they still want to provide a good value for the consumer’s money, which helps buoy sales. Thus, they’re trying to strike the right balance between affordability for drinkers and their own profit.
Walking that tightrope is tough. Little brewers are at a large disadvantage when it comes to securing contracts for raw materials, such as barley, hops and glass bottles. Large multinationals such as Anheuser-Busch InBev can use their massive size to pressure suppliers for favorable terms. Craft brewers have to do the best they can.
That makes it hard to pass up a chance at raising prices. In fact, craft beer prices have closely tracked price increases of the big brands this year.
Retail prices for craft beer rose 4.2 percent in U.S. supermarkets by mid-July, according to Information Resources Inc. Meanwhile, "super premium" brands such as Michelob are up 4.5 percent.
O’Fallon Brewery, based in O’Fallon, Mo., has typically priced its beers "a little higher than everybody else, and that’s OK," said co-founder Tony Caradonna.
But the company doesn’t plan on raising prices this fall, keeping its brews in a range of roughly $7 to $9 a six-pack.
"You can get six bottles of a hell of a craft beer for (that)," he said.
The big brewers’ decision to raise prices is "wonderful" for his company, Caradonna said. This narrows the price gap between mainstream beers and craft brews, making the craft beer purchase easier for a price-sensitive consumer.
Square One Brewery near Lafayette Park did raise prices more than a year ago, when prices for malt and hops "went crazy," said owner Steve Neukomm. But the brew pub is not looking into raising prices again, now that hops that went for as much as $20 a pound can be had for $12 a pound make quick cash.
"Part of our niche is keeping things reasonable," said Neukomm.
Small brewers don’t want to let their profits erode if they hold prices steady too long. They have to meet payroll, pay health insurance and utilities, and set aside some money for
expansion.
That’s the situation that St. Louis Brewery Inc., maker of Schlafly beer, finds itself in. The company, which owns the Tap Room in downtown St. Louis and Bottleworks in Maplewood, is evaluating its prices but will not make any price changes until January, said Chief Operating Officer Dan Kopman.
But there is some good news for small brewers. Grain and hops prices have fallen in recent months. The big crunch of higher ingredient costs caused by weak harvests nearly two years ago seems to have subsided.
Craft beer sales are growing well locally and across the country. Beer wholesalers and retailers, enticed by the hefty profit margins that craft beers can provide, are giving more support to the small brewers who make them.
All this has lessened the need to slap customers with higher prices.
So far, St. Louis Brewery has not raised prices this year, thanks to a good 2008 crop year that drove down prices for malted barley, one of the key ingredients of beer. Still, the company is facing serious cost pressures.
The company has seen "big increases in health insurance, continued increases in utilities, some increases in packaging and the beat goes on," said Kopman. St. Louis Brewery has seen some increased costs — new employees, more staffers signing up for health insurance, pay increases — that have not been recovered by holding prices steady for the last 20 months.
That’s why price increases are a possibility next year.
"Consumers should expect us to mind the store," Kopman said. "We can’t dream up the money to cover our employees’ health insurance or utility bills. It has to come from selling beer."
Filed under: technology by Pascal