When predictions that the sky would start falling in the craft beer world over forecasted price increases a few months ago, I initially trained most of my focus on those breweries whose prices went up before their present contracts even came due (in many cases, the more established craft breweries have raw materials contracts going out a year or more). Despite the fact that their suppliers continued to meet their contract requirements (and prices), we started to see wholesale prices creep up a little bit in February and then considerably higher in March. While many American craft brewers have already raised their prices, even if minimally so, there are still many breweries in New England and beyond that have yet to even raise their prices.

Despite the delayed onset of the prices increases that we have been bracing against for months, drinkers in the Boston area began to see beer prices rise sharply as early as three months ago. In some places, beer went up 50 cents, in others a dollar. In a few dastardly holes, extortionists raised prices even higher. And all of this happened long before the bar owners even received their updated price sheets and felt the pinch of an extra five or ten dollars per keg. So to recap, price increases just went into effect, yet some bar owners have had their hands in the back pockets of their customers for a couple of extra months.

In justifying the price increases, I’ve heard a few pub owners break out the old gem, “the beer is good, so you should be willing to pay more for it.? That’s fine and all, but in this case the money is going directly into the publican’s pocket, not to the brewers.

Things recently hit a fever pitch for my friend Todd Alstrom, one half of the BeerAdvocate.com brother team, during a visit to Bukowski’s. A longtime fixture on the Boston better beer scene, Bukowski’s (with locations in Boston and Cambridge) has a reputation for loud music, obstinate servers, and absolutely outrageous prices. In 2002, I visited the bar soon after the Stone Brewing Company entered the Massachusetts market. After pulling up to the bar, I ordered an Arrogant Bastard. A few minutes later, I received a 12-ounce pour of the beer and a bill for $5.25! I eventually figured out that the bar was marking up the beer 500-percent over its wholesale cost.

So on Todd’s recent visit, he encountered the following highway robbery prices:

-Southern Tier Jah-va 12 ounce pour for $8
-Southern Tier Backburner 12 ounce pour for $7
-Young’s Winter 16 ounce pour for $6.75
-Sixpoint Sweet Action 12 ounce pour for $6
-Blanche de Bruxelles Wit 12 ounce pour for $6.25
-Dogfish Red & White 10 ounce pour for $10
-Harpoon IPA 16 ounce pour for $4.95
-Boulder Mojo Risin’ 12 ounce pour for $6.25
-Harviestoun Old Engine Oil 12 ounce pour for $7
-Brooklyn Pils 14 ounce pour for $5
-Abita Restoration 16 ounce pour for $6
-Opa Opa IPA 16 ounce pour for $5.75
-Harpoon Brown 16 ounce pour for $6
-PBR 16 ounce pour for $2.99
-Weihenstephaner Hefe 16.9 ounce pour for $7.75

It’s hard to quite know where to start here. Putting aside the fact that Buk’s charges an extra buck per glass of Jah-va stout versus Backburner when both have the same keg price, you really have to wonder just how malicious a beer pricer can get when it comes to the Brooklyn Pils and the Harpoon IPA. The Brooklyn beer sells for $125 for a 15.5 gallon keg, while Harpoon IPA sells for $120 for a 13.2 gallon keg. By the numbers, I should be paying less for the Brooklyn Pils then I do for the Harpoon IPA, but this not the case. In fact, I pay a little more for Brooklyn and get 2 ounces less of beer! And can someone explain why I should be paying an extra $1.05 per pint of Harpoon Brown, a beer which costs the same wholesale as the Harpoon IPA? Then we get to the Weihenstephaner…While the keg cost is a little higher and the pour slightly more generous (less than one ounce more than a pint), the keg cost is only $20 more than the similarly sized Harpoon IPA keg. Yet I am asked to pay nearly $8 for a beer that many local bars (Redbones in Somerville included), charge $4.50 for. On a single keg of the tasty hefe-weizen, assuming a ten percent draft loss with overpours, Bukowski’s is taking in $700 for a single keg, with a cost of $145, a price to cost ratio of almost 5 to 1). Compare that to the $470 Buk’s takes in for a keg of Harpoon IPA, with a cost of $120, and you can begin to picture the guys in masks riding up to your stagecoach.

For the last few months, I’ve been keeping an eye on wholesale price increases in anticipation of the impending “crisis.? Let’s take a look at some of the prices that we have seen here in the Massachusetts market, from January 2007 to March 2008 (prices reflect 15.5 gallon “half-barrel? kegs unless otherwise noted). The first column reflects prices (if available) in January 2007, the second January 2008, and the third March 2008.

Dogfish Head Craft Brewery (Atlantic Importing)
-60 Min IPA $129 $129 $139
-90 Min $175 $175 $189

Stone Brewing Company (Atlantic Importing)
-Stone IPA $129 $129 $149
-Arrogant Bastard $129 $129 $159
-Ruination $179 $179 $219

Bear Republic Brewing Company (Atlantic Importing)
-Hop Rod Rye $149 $149 $179

So in comparing Stone and Dogfish, Dogfish Head’s price increases seem pretty reasonable overall, between $10 to $14. Stone’s seem a bit higher, from $20 to $30 and $40. The jump on Ruination is a bit troubling overall and cannot simply be put off by an increase in hop prices (regardless of how stupid hoppy this beer may be).

Now if you were a bar owner and the price difference between these kegs in your mind really represented a substantial hit to your business (keep in mind the margins employed by Bukowski’s, extortionate as they may be), you might consider doing some shopping around for bargains. And you would find them. Great Divide Brewing Company offers its Old Ruffian Barleywine for $169 per keg, while North Coast Brewing offers its Old Rasputin Imperial for $156 and Old Stock Ale barleywine for $147 per keg. Compared to the Ruination price (these beers in my mind compete insofar as they represent sipping beers, not session beers), these respected brands seem like a steal.

By why bother restricting your shopping to the American craft market? While it may have been on fire in recent years, American craft brewers have much to thank their European counterparts for. Arguably the ancestor of much of America’s brewing creativity, Belgium is looking more and more like a steal recently. The same goes for German, Czech, Italian, Scandinavian, and British breweries. Despite the global scope of the above-mentioned raw material problems, the Boston area (a major market for better import brands) has seen next to no price increase on European “craft? beers. As I wrote in a very controversial column for BeerAdvocate Magazine, titled “Price Creep,? classic European brands often bring hard-to-match quality at a much more reasonable price than American craft brands. The Atlantic Importing lineup of Belgian and German draft beer (and bottles) has seen almost no price increases. Some brands have even seen a substantial decline in price in the last year (St Bernardus Abt 12, a beer many compare flatteringly to Westvleteren 12, went from $165 in January 2007 to $145 in March 2008 for a 30 liter Sankey keg). Only Brasserie de Rocs, Urthel, and Pauwel Kwak have gone up and only by a few dollars (seven in the case of Urthel Hop It!). Oddly enough, it was Brasserie de Rocs that I focused on as a wildly underpriced brand in the column.

While it may be time to start looking to imports for better value, don’t forget your price friendly local brands. Western Massachusetts juggernaut Berkshire Brewing hasn’t raised prices for its bottles or kegs a single cent since January 2007. Despite this, I’ve seen local package stores and bars consistently jack-up the price of this great brewery’s 22-ounce bombers.

And what about the small price increases we’ve seen for some breweries? A price increase of $10 per keg for a brewery such as Harpoon (from $110 to $120 for a 13.2 gallon keg) is probably long overdue. By the numbers, however, the cost increase shouldn’t result in anything more than a single dime being added to the price of your pint. Similarly, we’ve seen the following small price increases for these popular brands from the Craft Brewers Guild distributorship. (Prices in the first column are January 2007 or most recent period before price increase and the second column prices reflect March 2008 costs).

-Allagash White $135 $141
-Boulder Mojo $120 $130
-Clipper City $115 $130
-Gearys $110 $120
-Magic Hat $104 $110
-Sierra Nevada $120 $125
-Wachusett $120 $125

From a consumer’s perspective, those are entirely reasonable wholesale cost increases that shouldn’t result in major price changes at their favorite pubs. Now when we look at a brewery such a Rogue Ales, whose Dead Guy Ale jumped early from $140 to $165 (13.2 gallon keg), questions should be raised or bar owners should opt for a different brand.

How about our friend Weihenstephaner, which by the way, also hasn’t gone up a cent in more than a year.

I end this mini-rant by confirming that I do believe that the raw materials situation requires some price increases and that breweries should, to the extent possible with competition, seek to follow the example of industry leader Anheuser-Busch and occasionally institute modest price increases (versus stagnation for more than a year). But when a brewery’s prices jump substantially more than their competitors, consumers should be alerted to the red flags.

Moreover, I also believe that the actions of some greedy bar owners are causing the public’s perception of the hop/malt/gasoline/glass shortages to hit “crisis? levels. To be clear, a 500-percent markup on beer is robbery, not in the sense of someone holding a gun to your head and making you order the pint (14 ounces), but in the sense of robbing respect from the client and dollars from his wallet. In the long run, it’s also bad for business as smart consumers aren’t likely to order a second beer or linger at a place with $7 12 ounce glass prices. In The Good Beer Guide to New England,? I defined a “great beer bar? as an establishment which has “an extraordinary selection of craft beers, respects their clients in terms of keeping prices fair, holds events promoting craft beers (from beer dinners to brewer meet-and-greets), makes craft beer key to their business, and also offers true character as pubs.? While I used to enjoy Bukowski’s and still occasionally stop by for a single pint (or 12 ounce pour as it now may be), it never came close to making my shortlist for inclusion in the book because of its abusive price relationship with its customers. I’d hate to see more bars follow its unfortunate lead.

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16 Responses to “Price Creep Redux: Beer Bars Disrespect Their Customers”

  1. dave says:

    Very good, all true!
    Of course, Stone will be a little more expensive than Dogfish on the east coast…
    and with the crazy awful recession the US is heading in, Europe will be able to be able to sell us beer for less and less for some time. The Dollar is worth so much less than the Euro. No way to fix that…..
    Some of this is like the Gas prices. The price of the barrel of crude oil goes up, and immediately your gas station runs out and raises his price per gallon of gas…

  2. Dave – A quick point of order. The weaker dollar makes imports more expensive.

    Of course it makes hops and malt from outside the US more expensive, and also makes US hops cheaper for foreign brewers.

  3. And all of you math implies that the ingredients stay the same – what happens if they added or removed ingredients?

    In other words – is Harpoon IPA (circa January 2007) made the same way its made in January 2008?

    I hate to draw this comparison but one of the pseudo-good qualities of a Bud, Miller, Coors – is there amazing consistency – its the same beer for years.

    If hops are the increasing cost factor and a brewer goes – well I put a ton of hops in my IPA but I can back that down and it still tastes hoppy albeit not quite as hoppy as it was – does the beer drinker have any recourse? Would they even notice?

    I am drinking a Harpoon IPA – Freshness date of 5/2008 so its probably made (freshness date – minus XX days = brewed date) (why can’t they all just adopt a brew birthday system) – and its good – very drinkable, lovely but is it as hoppy as it was a year ago????

    Not to derail the Bukowski’s thread but maybe the higher beer prices are paying for $1 burgers?

  4. Eddie Glick says:

    That is one comprehensive article, Andy. Yet another reason to buy local, directly from the brewer.

  5. Chuck says:

    Mini-rant? hardly.

    >>By the numbers, however, the cost increase shouldn’t result in anything more than a single dime being added to the price of your pint.

    Um, if wholesale keg prices go up 10%, why wouldn’t you expect pint prices to go up 10%, i.e. 40 or 50 cents?

    True, jumping a full dollar smells like gauging, but these things don’t happen in a vacuum. Bar owners are hesitant to mess with pricing too often for a bunch of managerial reasons, so they tend to take big, infrequent jumps. So when they do raise, they typically do it with a few years of increased costs — all kinds of costs, not just the beer — in mind.

    Same goes for brewers. Brewery pricing is complicated and a function of action over time — years, really. Could be that Stone, for example, had underpriced their brands previously, vs. what it cost to make & ship their beer, so that when they got stung with a 200% increase in raw materials pricing, they couldn’t justify making the beer anymore for that market without a 20% price jump.

    As for Bukoswki’s being expensive… it’s called free market capitalism. Sounds like you need to own a bar before you start spouting off about this subject again.

  6. Andy says:

    Hi Chuck-

    Perhaps you would allow that part of the democratic free market/capitalist system you discuss might also involve, as a source of inspiring market correction, a beer writer calling out bars that are routinely gouging their customers. In turn, we should also praise establishments which respect their customers. Moreover, I would venture to say that most beer drinkers don’t understand the margins involved with beer and may very well assume that the prices are higher because the bar’s costs for the products have gone up (which the article suggests is decidedly not the case).

    In terms of your numbers, frankly, they’re way off. A ten percent increase in the cost of a keg (say 10 bucks or so a keg of Harpoon IPA of Brooklyn Pilsner), should not correspond to a 10-percent bump in prices. If the cost increase to the bar amounts to ten cents or less per pint, I don’t agree that the bar then should mark its prices up 40 or 50 cents (let alone a dollar, which you agree is the magical number for gouging).

    And I think I’ve been around this industry long enough to spout off a little about the prices as I (and some bar owners I’ve spoken with recently) see them (note that all the prices I gave were objective; only my opinions on the pricing points were subjective).

  7. Drew says:

    >>Um, if wholesale keg prices go up 10%, why wouldn’t you expect pint prices to go up 10%, i.e. 40 or 50 cents?

    Simple math?

    Let’s take Stone’s IPA jump of 20 bucks. It’s still the same 124 16 oz. pints. The only thing that increases is the cost to the bar owner. There is no extra labor – the only increasing cost that must be covered by the pint sale is that of the price raise of the brewer. Works out to roughly 17 cents a pint. So where is the other 33 cents going on your 10% raise of 50 cents a pint?

    It’s not an issue of price increase, it’s an issue of price increase under false pretense. You expect price markups of 300-400% – bars have to pay for everything from staff to rent to upkeep and much more. You expect price increases – beer prices go up, we know that. However, inflating the markup and assigning the reason as price creep when in fact that is such a small factor? Straight up dishonesty.

    >>As for Bukoswki’s being expensive… it’s called free market capitalism.

    “In a free market environment buyers and sellers do not coerce or mislead each other nor are they coerced by a third party.”

    You did notice the “mislead” part, right? Claiming a 50 cent increase in price due to a 17 cent increase in cost certainly falls under misleading.

    This is disrespect – so do what any self-respecting person would do, buy it by the case and have friends over.

    P.S. – 3 bucks for a PBR pint? Man, I can grab a 64 oz. pitcher for $1 more. If that isn’t gouging, I’m not sure what is.

  8. Seth says:

    Not to throw water on your beautiful rant here (I am just as dismayed by the high prices as everyone else), but I have to say that this entire discussion, as well as the discussions on the BA boards, focus entirely on wholesale vs. retail costs. This essentially treats all beers the same and assumes that bars on average should mark up each beer equally based on margins above cost. Unfortunately, this is not really the way that the marketplace works. You have to take into account forces of supply and demand. Certain beers that are more expensive than other beers at wholesale might actually retail for less because they move more volume and there is more turnover of that tap line. So brands with more turnover might sell for more at retail even though they wholesale for less. Bars are free to markup brands that are more popular, more trendy, have more “buzz” in the beer community, etc. This is a business decision that is normal for any other business operation. Granted, this should all be within reason, and when we feel that we are not getting value, we should take our business elsewhere. Eventually if enough do so, the owners will get the message and change their practices accordingly.

  9. Andy says:

    Hi Seth-

    In very rare circumstances, I agree that demand overcomes supply in terms of a very limited release beer. If we’re talking about 20 sixtels of a particular beer, say Dieu Du Ciel’s Peche Mortel, being spread evenly around the country, with say 2 logs total in the Massachusetts market, you are certainly correct. This is not the case with any of the beers I’ve mentioned. Each of these selections is available to any bar that wishes to place an order and so the price ratios should not reflect any measure of scarcity. In terms of beers that do not move, I would wager that there are very few accounts (the likes of which I am discussing, namely a niche within a niche) that do not move a significant amount of beer in their 12, 16, or 24 taps. If you are the Sunset, with 100+ taps, it may be a different story. If you are Redbones with 24 taps, you shouldn’t be putting anything on (or should remove it and return it to the wholesaler) if it can’t move a certain amount in a specified time frame. My overarching point in this comment I suppose is that, yes, indeed, I believe that publicans should mark up their beers at a specific ratio point absent distinct circumstances to the contrary. Now, this is just my thought and publicans certainly can and do act to the contrary. As such, they’re not likely to get my business and I’m going to write about their practices. They, of course, are more than welcome to add their own justifying comments here.

    Cheers and thanks for the thoughts,

    Andy

  10. Seth says:

    Hi Andy, Your points are well taken. But even beyond scarcity and turnover issues, what do you think of the idea that, as a matter of principle, for whatever reason, a publican can mark up a beer that he knows is highly regarded or seriously sought after. I don’t mean to belabor the point, but even if in theory any bar can order any keg that the distributors carry, some choose to carry things that others don’t. If a certain place regularly has something on tap that nobody seems to carry, I would gladly pay a premium for that. For example, I love Czechvar, and for a while Noir in the Charles Hotel in Cambridge had it on tap for 6 bucks a pint. I was stoked and was willing to pay extra to drink it on tap even though I could get a sixer or a twelver for cheap at the store. So just to illustrate the principle…

  11. Michael says:

    Your “mini-rant? is simply out of touch with realities of running a restaurant and bar. It is one thing to have an opinion that an establishment is overpriced but quite another to use terms of extortion, robbery and rape.
    Using your analytics, I can conclude I am being raped every time I buy a magazine or book based on the cost of the paper and ink. However, I am not naïve to think these are the only costs of publishing. I do not know typical margins of the publishing business but would conduct some research before declaring rape and robbery. A 20 percent pour cost (or 500 percent markup which sounds much more sensational) is pretty much the standard for draft beer and liquor. Here’s an article from a maker of draft systems:
    http://www.micromatic.com/draf.....d-129.html

    You go to great lengths to demonstrate your knowledge of wholesale keg pricing. If keg cost was the only cost input in operating a restaurant and bar, your smear might have some creditability. However consider the following factors:

    • There are other costs associated with serving draft beer properly such as maintaining the glycol system, compressed gas, free samples, customer returns and waste from line cleaning.
    • Most retail rents increase annually and contain percentage of sales clauses which multiply the effect of raising prices to cover costs. Sales tax has a similar multiplier effect.
    • Retail rent can vary widely based on the local market, property location and condition of the improvements and should be considered when comparing prices.
    • Labor costs continue to climb. Here in California, the minimum wage increased to $8.00 on Jan 1. Adding 20 percent for payroll taxes and workers comp, results in a $9.60 cost an hour for the bartender to pour that pint for you. Assuming a busy bar pouring an average of 20 pints an hour, another 50 cents gets added to the cost of a pint.
    • Food costs have increased significantly over the past six months:

    ` http://online.wsj.com/article/.....20755.html
    It can be a competitive advantage to hold food prices and raise beer prices if you compete directly with similar restaurants but have a unique beer list.
    .
    Of course there are many other costs associated with this type of business (entertainment, insurance, utilities, etc.) which may not have increased dramatically over the past year but must still considered when determining profitability.

    Those in the restaurant and bar business sell more than just food and drink. Location, ambience and service also have costs.

    I am not familiar with the business that is the subject of your rant but I doubt the owner is loading up the Brinks truck at the end of the night. It seems to me like you are bitter that a bar with prices you deem to high is still operating. It is fine to have that opinion but at least acknowledge the economic environment that business is operating within.

  12. Ric Hess says:

    I suppose that there’s some service to someone in publishing pricing observations for certain establishments, but frankly I don’t think it’s anyone’s business, outside of the business owners’, how they derive their markup strategy or what they determine to charge. I do know that, for bars, the typical bottom line, before tax, net is 10% on gross revenue. And that’s a hard won figure to achieve. There are so many criteria that go into pricing, and product cost is just one of them. Others include location, competition, local market, type of establishment, customer base and on and on. When I go to see the Cubs play at Wrigley I pay $6.25 for a 16 oz Bud and I’m happy to drink bad beer at that price because I’m at Wrigley. If I have a cocktail on the sky deck at the John Hancock building, I’ll easily pay double what I would down on the ground, and not bat an eye. Strip clubs charge outrageous prices for notoriously bad product and no one complains. The point is, it’s up to the establishment what to charge and if they can get away with it, God Bless Them. It’s hard enough to make money in this business without a socialist observer peering over your shoulder offering critique, especially when they have no money in the game.
    I do love the beer advocate, but this article raised my ire. Open a bar, after all the red tape and expense that requires, run it sucessfully for five years or so and then you can preach all you want about keeping prices reasonable.

  13. Doug says:

    Nice article and when you look at a standard mark up for Dogfish Head 60 min IPA, you come out with a price, with profit, of $1.65 a pint. Yup, we are getting bent over the rail on all of these beers. Yes, they are fine beverages but these price points justify every single homebrew I have ever made.

  14. Matt says:

    The sad part is that, as a resident of NYC, most of those “highway robbery”pint prices just looked normal.

  15. Bob Skilnik says:

    Is there a barker outside Bukowski’s who waves a gun and threatens to shoot passers-by if they don’t go into the bar and spend money?

    In Chicago, if we don’t like the price, we go somewhere else, and we leave our pencils, notebooks and calculators at home. They get in the way of reasonably-priced beers as we drink.

  16. Andy says:

    Welcome back Bob and thanks for your comments. Measured as per usual…

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