Welcome to my fool’s errand.
Last week in the responses to my “The business of beer” post I started a quick exchange with Alan McLeod. I made a reference to a Beer Advocate thread I didn’t have a link to at the time and Alan asked another question I started to answer off the top of my head before I decided collecting a few more facts seemed in order.
As a result I’ve got a mess on my hands. I still don’t really have a definitive answer to to Alan’s questions/statements because it likely doesn’t exists.
So here are the facts. Do with them what you want. (I have an opinion, expressed at the finish).
This began with a fair enough question at Beer Advocate about if Old Rasputin XII from North Coast Brewing — a version of its popular Russian Imperial Stout aged in bourbon barrels — is worth $22 for a half liter bottle, and the responses were interesting if at times curious. I was struck by the logic in a couple of them:
Old Rasputin is a relative bargain in the world of imp. stouts. That makes the pricing of the BA version all the more aggravating. $22 for 500ml?
And . . .
The pricing always left me scratching my head. I understand BA beers cost more to make but you’re talking one of the cheapest RISs out there thrown into some barrels. I know there are cheaper BA RISs where the original version is twice as much as Rasputin.
(Translations: BA means barrel aged and RIS means Russian Imperial Stout.)
Thus I asked: So to justify a higher price for the bourbon barrel should they raise the price of the regular version ($8.99 a 4-pack in our parts, and one great beer bargain)? And Alan responded.
I sent off an email to Mark Ruedrich, one of the founders of North Coast and the brewmaster who wrote the recipe for Old Rasputin, to confirm a few facts (learned when we were in Fort Bragg in June; recently emptied barrels are pictured at the top of this post) and get a little more detail.
– North Coast sold Old Rasputin X and XI only at the brewery and brewpub in Fort Bragg, California (they are across the street from each other). We bought the XI in June for $12.95. We wish we had more.
– This year the brewery packaged Rasputin XII for larger distribution, a little over 2,000 cases (12 bottles a case). They sold out in advance to distributors and not every market North Coast ships to received the beer.
– Distributors will mark up the beer 28 to 32 percent before selling it to retailers, and retailers will mark that up another 30 to 35 percent. Special beers, like Old Rasputin XII tend to get marked up more. Take the middle of both those ranges and you’ll see a bottle of beer delivered to a distributor (which isn’t cheap when the bottle starts in Fort Bragg) for $10 would cost you $17.29 (more likely $16.99 or $17.99). Who’s making the real profit along the way?
– Now as to the difference in price between the “regular” Old Rasputin and one in barrels. Barrels, which hold around 53 gallons, cost $125 and more. They don’t add as much to the price as the fact that California charges $3.30 per gallon tax on the barrel aged beers (same rate as distilled spirits rate) compared to 20 cents per gallon for beer. Still my math indicates barrels and taxes add less than 75 cents to the cost of a half liter. The real expense is how inefficient and labor intensive small-run batches are.
– What’s changed is that if you really wanted to drink Old Rasputin X or XI you had to travel to Fort Bragg (or find somebody to buy you a bottle or three and ship them, only somewhat illegally) and pay $12.95. Today if you live in the right place you can buy it for $5 to $9 more, depending on the largesse of your local distributor and retailer.
Should you? That was the very fair question asked in the Beer Advocate thread. And one you are going to answer yourself.
So we’re back at the beginning, and what follows is opinion.
As I began typing this Ron Pattison wrote, “I don’t want innovative beer. I want tasty, refreshing beer. Beer I want to drink more than a mouthful of. Beer that’s a joy to drink rather than an exercise in endurance.”
I don’t know why a beer can’t be both innovative and tasty, but I appreciate the point he is making. However some people do want the new, new thing (although I’m not sure that 14 years after Goose Island brought Bourbon County Stout to the Great American Beer Festival for the first time that bourbon-barrel beers count at innovative) no matter what.
In this case I don’t think that North Coast is simply taking advantage of that fact. The brewers wanted to do something special for Old Rasputin’s 10th anniversary and priced it accordingly. Ruedrich wanted to package it in a substantial and expensive bottle finished with a cork and cage. As you read earlier, Alan believes such presentation fakes “the price up to create exclusivity.” Sorry, I love the heft of this particular bottle. It adds to my drinking pleasure.
Bottom line, despite the length and detail in this post, North Coast isn’t obligated to provide an explanation for why Rasputin XII costs what it does. After 21 years in business they’ve proved they are pretty good at delivering value (which is why last week construction workers were pouring footings for the new fermenters). Likewise, consumers aren’t obligated to pay $18 or $22 for any bottle of beer.
The price of specialty beers has lately put Oregonians into a lather, too. I find it all mystifying. One of the most basic tenets of the market is that if demand outpaces supply, the way to restore equilibrium is to raise prices. Since Old Rasputin XII was sold out in pre-order, it means the demand was huge. Breweries are not social service agencies. They work very hard to make the most appealing beer to a market. And when they succeed, they are rewarded. If anything, $20 was too low.
Great topic and point of arguments Stan. As someone from the inside I feel beer consumers often don’t understand what it takes to make a special release beer. There has been lots of complaining recently in forums of the price of beer, and even brewers which are not taking steps to create ‘innovative’ beers don’t understand either. The first point I would like to point out is at even $25 for the most expensive .750ml bottle you’re getting the best beer in the world, this would cost literally thousands if it were a bottle of wine. Yet brewing can often take longer and be a much more arduous task requiring substantial amounts of manual labor. Often breweries have to rent or purchase new equipment like bottling lines. A new 750 ml bottling line is a quarter of a million and a used will cost you $50,000 easily before all the mods and fixing and man hours to do such a task. Fermenters become tied up for much longer periods of time creating a drop in production and a loss of revenue and the ability to ship to distributors. Barreling then un-barreling, and moving the barrels around takes days, and extreme physical work. Corks don’t come from the USA, bottles often don’t either, it takes days researching materials meeting with manufacturers to pick out just the right glass, Labeling can cost up to $30,000 for the creation of a single label, then you have to order them. In the end the whole brewery has to come together work as a team put in loads of over nights, extra hours, pain, blood, sweat blah blah blah… I think consumers should realize what they are getting is one hell of a fine product and worth more then they are paying for it, also they are supporting a small industry and the careers of the people working in that industry. So to that I say next time you’re in your local and you see a bottle at $15.99 don’t think that the breweries are trying to rip people off but that they are trying to stay competitive in a tiny market while bringing a ‘innovative’ product to the shelves.
Chad
Well put, Stan. And while it’s not often I take issue with Mr. Pattinson, I did feel the need to respond to his “innovation post:
http://worldofbeer.wordpress.com/2009/11/17/in-defence-of-innovation/
Pricing in most businesses, often has little to do with what the product actually costs to produce, but instead, is driven by what value customers assign to it (what they are willing to pay for it.). There are plenty of examples of the products with essentially the same cost costing several times the cost.
For example, diamonds. Diamonds are sold at discount jewlry stores for cost conscience customers. But remember when Kobe Bryant, in a moment of shall we say bad judgement, bought his wife a dimond ring at price of something like 4.5 million? What do you think his wife would have thought if Kobe went to a discount jewler, where he could have likely paid 10-100 times less?
High end jewlry stores operate on the principle that expensive diamonds are important to some customers, and quite frankly many of them make really good money on this type of guilt driven sale. (They also make a lot of money on “good news sales”, like engagement rings.)
My point is not to bore you with business case studies but that, in my opinion, these price justifications of barrel-aged beers seem to miss the point. It is not what it costs to produce them, but the value customers put on them, that drives the price.
This is true of almost any business, but it is somewhat complicated in the beer world in that the big industrial brewers like InBev sell essentially a commodity product, with small profit margins, and so the cost of production more directly affects what the price consumer ends up paying.
Craft beer, which sells at higher profit margins, gives the brewer a lot more latitude to set the pricing, which is exactly what we are seeing.
Well put on the commodity front, Derrick.
But Alan, and lots of people in the forum at Beer Advocate and Rate Beer, will question how much latitude craft brewers should have. Or even why they should have it.
I don’t think I would say that I question the latitude craft brewers should have. They are free actors in the marketplace. So am I. And I think that drinkers have to take a stand and say I am a bit fed up with experimental beer (a better phrase than innovative as you note) and going to be perfectly good non-experimental beer for a quarter of the price. Sure you can brew in a small lot and sell the lot. It does not make it worth my money. And if I advocate for anything it is the lot of the beer drinker.
I think brewers might forget that I have a lot of other things to spend money on including a lot of other brewers’ beers. I am looking for value as well as wonderful. Also, if everything is “special” nothing is. A thousand special release beers a year generally available to beer nerds means there are actually no special release beers available to beer nerds.
Another thing to note is that these experimental beers some folks deride comprise a tiny fraction of the market–even the craft market. It’s just us beer geeks to whom they have such out-sized presence.
The bottom line for me is taste. If the “special release” special price beer tastes like crap or is flawed in any way, I get pissed that the brewery had the audacity to keep the high end target price. I don’t mind trying any expensive beer once as long as it tastes good or someone else paid for it. Brewers selling crap for high prices should be spanked. Get it right and reap the rewards. There is a whole bunch of really expensive flawed / infected / flat / road weary beer sitting on store shelved just getting worse while waiting for an unsuspecting consumer. I am quite sure BA Old Raspy isn’t and will never be one of them. Thank You NC!
How is the price of a bottle of wine determined? Taste? Rarity? Region? Vintage? I just realized that I don’t know. How does price relate to quality when compared to beer?
I really don’t understand this.
As far as I know, anyone producing something has the right to set the price they see fit for it, and we as consumers have the right to buy it or not.
Would I buy a 20USD bottle of beer. Well, not right now because I can’t afford it, not matter how good the beer might be. If I could afford it, probably yes, but it better be worth my money, otherwise I’ll simply never buy anything from the same brewer again.
I know, and I agree that beer is supposed to be democratic and all that, but with that argument we could also critisise limited one off batches. They are not democratic, only a few chosen ones will be able to buy them. Neither are those beers that are only sold at the breweries, what about the people that can’t afford traveling all the way there?
There are a lot of great beers I don’t think I’ll ever be able to drink for whatever reason, I’ve come to terms with that, there are a lot more that I can go and get pretty much any time I want, others should do the same.
While that is true, I also think that I do not have a bottle to bottle relationship with a brewer. You will get me to buy again because it was good value next time. It is also how I buy cheese and cars. Because of the factors being added to the market – rock star brewers, unnecessary packaging – one has to be wary of what you are actually buying, the fluid or something else.
Stan’s math makes on excellent point that has not been noted. Buying local should mean buying at good value. The 20-25 dollar bottle sold off the brewer’s shipping dock has a problem.
Bill – A discussion of wine pricing would make my head explode, since it starts with terroir and voodoo.
I’m not sure what it means but these days the wine market above $20 is referred to as “dead” but brewers are able to ask higher prices.
Remarks totally related to this at Beervana.
On the matter of price, in a column in The Celebrator a year or so ago, after I returned from tasting the two most expensive beers in the world in Copenhagen, I wrote the following:
“Are they worth $400, or even $350, apiece? If you’re Bill Gates or Donald Trump or Arnold Mærsk Mc-Kinney Møller, a Danish billionaire, then absolutely, yes. As a person of more modest means, you’ll probably want to stare long and hard into the mirror before you drop such sums on either.”
Similarly, someone living alone and making $100k probably wouldn’t balk at the idea of a $20 or $30 bottle of beer, where someone with a family and more modest income would. It’s all relative.
But the person who makes $100k and is single would also I would expect be happy to know that the $8.99 quart of craft beer is better than the $20 one. It is relative not only to the budget of each person but inherently within the fluid as well.
The discussion recalls the business saying that goes something like, “Nobody buys a drill, they buy a way to make a hole in a piece of wood.”
“Are they worth $400, or even $350, apiece? If you’re Bill Gates or Donald Trump or Arnold Mærsk Mc-Kinney Møller, a Danish billionaire, then absolutely, yes. As a person of more modest means, you’ll probably want to stare long and hard into the mirror before you drop such sums on either.”
I argue nobody buys beer like that for the taste, not even someone like Donald Trump. Donald Trump might buy a beer expensive to reassert their status, keep his ego inflated, or to impress a friend or client with how much was paid for the beer.
And yes, sometimes a person of modest income will buy a beer like that for a very special event. And they aren’t paying for the fluid in the bottle, or the cost of the brewer to make it, or even what it tastes like. They are paying for the experience of showing someone else that they paid $400 for a bottle of beer, to showing them how special the moment is. (Or like Kobe, to show how sorry they are.)
Here in Italy often we pay much more for italian craft beers than foreign ones. Why is it possible? Surely it’s a young market, but here craft beer is often seen like a product for the elite… and the prices arise…
Here some consideration on my blog:
http://www.beer-chronicles.com/trends/202/ok-let%e2%80%99s-talk-about-prices%e2%80%a6/
Living near the source of this beer I can say I bought my bottle for $15.99 at a local bottle shop. Still I was surprised at the price, but that should tell you who’s making the money on the beer.
Alan mentions rockstar brewers and while we see some brewers flying around the country promoting their products, I have yet to see the brewing industry create the sort of personal wealth that I see in the wine industry.
On the topic of the bottle, I was actually talking to the packaging people that sell that bottle to North Coast. It really is a special bottle. The weight of the empty bottle was comparable to weight of a standard 750mL bottle. The glass is actually so thick that it proved a chore determining how much beer was left in a bottle (sadly, it was empty). Does this add to the value of the beer? For a beer you might want to keep some time, save for a special occasion, it’s nice to know a bump and tumble won’t cost you the investment.
As others have said, if you don’t like it, don’t buy it.
And if you think $20 for a Rasputin XII is a lot, this debate from May might get you going as well:
http://www.brewedforthought.com/?p=1409
http://www.brewedforthought.com/?p=1411
A lot of beer cost this much. I was never that impressed with Old Rasputin as I don’t think they got the hop balance right and it has bit too much of the dark grain astringency, but if you like the beer I don’t see the price as a problem. Look how much good wine costs. Look what Sam Adams is charging for some of their terrible beers.
Bringing this back for a similar argument. Old Viscosity is roughly $8-9 near me before tax for a bomber or 750 ml bottle ( I don’t know which from memory). Older Viscosity is roughly $18 before tax for a 12-13 oz bottle — it’s bourbon-barrel aged, in a heavy, cork-sealed tiny bottle. It’s not a one-off — if you like the heft of the bottle, you pretty much get a chance to try it every year, or perhaps all-year round.
Port Brewing isn’t obligated to provide a defense of why they charge what they charge… but all the extenuating factors you mentioned for North Coast don’t exist in this case for Port Brewing. The beer isn’t rare either by perception or availability/tied to a date and never to be brewed again. It’s a beer available year-round, and one they brew and sell at a much lower price point before barrel-aging. The bottle adding to the enjoyment? Umm…. I’d actually argue that capping it normally in a normal weight bottle would have meant they could have sold it at a lower price yet at a level that would have meant _more_ profit per bottle. The bottle certain;y isn’t commemorating anything.
Taste is subjective, of course, but my hunch would be that fans of Old Viscosity who try Older Viscosity wouldn’t try more than one, especially at that price. It’s ok, but, um, in my opinion, not as enjoyable as the regular version. So what’s going on? My guess is that they guessed they could sell all they produced. Great. The American way, and all that. But why the heavy bottle and cork, and why 12.something oz?
I guess the point of this is, are there instances where you think companies _are_ trying to test the market to see how far it will stretch and doing things to suggest false demand/scarcity in order to maintain a price? Port’s pricing of Older Viscosity leaves me scratching my head. It seems to me to be a trial balloon — will this fly? Can we get other things to fly at this price?