How much should you pay for beer?

This article origianlly appeared in All About Beer magazine in July 2005

When New Yorker magazine publishes cartoons about the price of beer and the Wall Street Journal runs front-page stories about high-priced beers, beer drinkers in America’s heartland should start to get nervous. Trend spotters guaranteed higher prices at the moment they labeled beer an “affordable luxury.”

Face it. The high-end beer segment is where the action is. We’re not only talking about the fact that American craft beers sales were up 7% in 2004 and growing at a similar rate the first half of 2005, but also about imports with similar cachet. The discussion needn’t be limited to beers that cost (yikes!) $1 per ounce or more in restaurants, but may include less expensive 6-packs sold in national park campground stores and even 750ml bottles in neighborhood gas stations.

These beers stayed out of the fray as America’s largest brewers engaged in summer price wars, reminding us they are different and giving us reason to ask a few questions. How much should I pay for a beer? Why do some beers cost more? How could higher prices possibly be good?

Stephen Beaumont – a veteran beer writer and partner in Toronto’s beerbistro, a beer-friendly restaurant – has long advocated higher prices, occasionally ruffling beer consumers’ feathers. He explained why via e-mail:

“To the American consumer in particular, price tends to equal quality. Charging higher prices for beer is a) a means of garnering respect from the average consumer; b) a path out of the cheap six-pack ghetto of mainstream beers and a point of differentiation; and c) a way to reflect the quality of ingredients, rarity and amount of knowledge, effort and risk that goes into the creation of some beers.

“The industry should take its lead from the wine business. All wines are made from crushed grapes, yet there are massive gaps in wine pricing. Ignoring those wines from long-passed vintages, the justifications for the difference in cost are quality of the goods, expense of the vineyards (lower yields, hand-pruning and harvesting, difficulties in irrigation, climatic challenges, etc.) and rarity of the wine on offer. All of those traits are echoed in the production of some high-end beers.”

Practically speaking, by paying higher prices we give brewers reason to make the beers we want to drink. Think about Thomas Hardy Ale and Samichlaus, two imported beers known for their alcoholic strength when few such beers were sold in America. They had cult followings, yet the breweries producing those two stopped brewing them without even a simple press release. The beers returned to life at other breweries because of consumer demand, in this case consumers willing to pay higher prices.

Or try this bit of math. In June, Russian River Brewing in California began selling two beers, Temptation and Supplication, at $7.99 and $8.99 per 375ml-corked bottle. These beers took 15 months to make, spending a year in wine barrels in a 200-square foot barrel room before they were released. Russian River could have installed three 40-barrel fermenters in the same space, and produced 2,040 (31-gallon) barrels of beer compared to the 55 barrels of wood-aged beer the room yields in a year.

Given growing demand for other Russian River beers, brewer-owner Vinnie Cilurzo had to consider the opportunity cost. “If we did it on pure economics it would probably be priced even higher but I don’t think the market can bear that right now,” he said.

He ages Temptation in French oak chardonnay barrels, letting the blond beer absorb wine and oak flavors while it undergoes a second fermentation with Brettanomyces (wild yeast). The reddish Supplication also ages on wood after primary fermentation. Sour cherries, three strains of Brettanomyces, Lactobacillus and Pediococcus spend a full year with the beer in French oak Pinot Noir barrels.

Cilurzo spent much of 16 years working in his family’s winery. He appreciates the irony that he turned to brewing when he was 24 because he discovered he could make beer in 21 days, and now some of his beers age as long as wine. “These beers reflect a slower pace of life,” he said. “Americans are so into ‘I want it all and I want it now.’ That’s why I don’t think many brewers will get into aging. They aren’t going to commit the time or the space.”

Distinctive beers such as these push our idea of what beer should be forward, creating demand for a wider range of beers that eventually spread the category horizontally. For many the term “extreme beer” means only one with a massive a malt and/or hop bill that makes it clear why the beer costs more, but beer needn’t be excessively strong nor call on twenty-first century creativity to make us think.

Consider Mahr’s Ungespoundet Hefetrüb from Bamberg, Germany, which Men’s Journal recently deemed the second best lager in the world. At the Corkscrew Wine Emporium in Urbana, Ill., beer manager Drew Hagen sells only beers that are “entirely left on the dial.” He begs breweries to send their Imperial Stouts and Imperial IPAs – and he sells the heck out of Mahr’s.

“We like extreme beers,” he said. “But I tell people you don’t drink those every day. Have a Mahr’s Bräu, have two. It’s a session beer. A beer should create an experience, leave you something to remember. This one’s not going to be Tom Cruise in a movie, it’s going to be a great supporting character.”

Mahr’s contains a modest 5.2% alcohol by volume, isn’t filtered or pasteurized and must be served fresh to be appreciated. Freshness is one thing you should expect to pay extra for in a beer where that is so important ($3.19 for a 500ml bottle at the Corkscrew).

Once upon a time, beer and social class were closely linked. Monastery breweries, which dominated in the Middle Ages, took their lead from the Saint Gall Monastery Plan drawn up about 820. The plan called for a monastery to have three breweries: one making beers for guests, a second for the brothers, and a third for pilgrims and the poor. Guests, noblemen, and royal officials drank a beer made from wheat and barley, while the others consumed one brewed from oats.

By the end of the Middle Ages consumers enjoyed wider choice, and brewers learned they could charge more for strong beer, considerably more than additional ingredients and labor would cost. Breweries in Jesuit houses in Europe produced beers called good and small, with the good having an alcohol content of about 5% and the small beer one of 2.5%.

Extreme beers tap into the same notion. Why shouldn’t a beer made with more malt, a lot more hops and containing considerably more alcohol cost more? Remember the chatter Samuel Adams Triple Bock created at the 1993 Great American Beer because it was 17% abv? Sold for $3-$4 per 8.45-ounce bottle, Triple Bock grabbed attention from a limited audience. In contrast, this summer newspapers across the country carried stories about the most recent release of Utopias, 25% abv and selling for $100 a bottle.

Boston Beer Co. founder Jim Koch calls Triple Bock the first of Sam Adams’ “extreme beers,” but he doesn’t stop with the high alcohol hybrids. Chocolate Bock sells at a premium price (about $14 per 750ml) bottle despite containing less alcohol than Samuel Adams Double Bock. “It [a new beer] can’t just be a marketing gimmick. It has to be rooted in product difference,” Koch said. Typically, it’s not just better, but uniquely so. … At the end of the day, we all have to add something, variety or quality, to give people a reason to buy our beer.”

To make a point, he cited the range from Dogfish Head Brewery, founded by Sam Calagione in 1995. “Sam wasn’t among the first [microbrewers] but he’s added stuff,” Koch said. “A whole new set of products.”

Calagione writes about the value of creating unique products in his business-oriented book, Brewing up a Business. He also goes into detail about turning what are inefficiencies for large businesses into tactical advantages for smaller ones. Eric Wallace, co-founder of Lefthand Brewing in Longmont, Colo., said much the same a few years ago: “The large brewers are not tooled to do what we do. They’ll have to build less-than-efficient breweries to make beer like we do,” he said.

Of course the price of any beer reflects more than the cost of production, and that becomes apparent when you travel. Convenience stores in the Ardennes in the south of Belgium sells single bottles of Orval or Rochefort, two highly treasured Trappist beers, for little more than a euro (about $1.25) for a 330ml bottle. By the time these beers reach U.S. shelves they will cost more than $4.

Dan Shelton of specialty importer Shelton Brothers (which doesn’t import those two) explains: “I tell people anything you can buy for a euro in Europe will cost you the equivalent of four euros here. That’s just the way it works out.” Since Shelton Brothers began importing beer in 1996 the cost of transporting a container (1,400 cases) of beer by ship has gone up 300%, and trucking costs within the United States increased 250%. That the euro appreciated 50% against the dollar in the past few years also effectively pushed up prices.

Those are just some of the costs. Expenses incurred along the way (fort both domestic and imported beers) are magnified because distributors and retailers both mark up prices on a percentage, rather than fixed, basis. If you sample beer on-premise expect even higher prices. Why? Draft beer often sells for four times, or more, the cost of the beer itself (remember there are other expenses). Most bars won’t mark up bottles to that extent, but will be inclined to promote draft sales for obvious reason. On-premise accounts may also pay more for beer than off-premise.

We’ve looked at many reasons why some beer costs more. The decision about paying a higher price is a personal one. Dave Whalen, a biology doctoral student at the University of New Mexico, has given the matter thought and admits he’s not what most people would call typical. When he travels he’ll haul home as many different beers as he figures his back will stand, and he posts about 500 beer ratings per year at RateBeer.com.

“I constantly try new beers because I’ve yet to grow tired of learning about beer. And there’s a lot to learn,” he said. He might buy more different beers than you do in a year, but his reasons for picking up a particular beer during a road trip may differ little from why you decide to try a new beer. Here’s an example:

“Before … ‘t Ij Natte, I’d only rated 13 ‘Abbey Dubbels’ and they ranged from Westmalle’s to Kelly’s (an Albuquerque brewpub). It takes many different samples before you really feel like you understand a style …,” he said.

“By culture and proximity, the Netherlands(where ‘t Ij Natte is brewed) is close to Belgium but also very distinct. I’m very curious to taste the best beers that they have to offer. I hadn’t even heard of ‘t Ij Natte, but my friend recommended it so it was worth a shot. I think it cost about $2.99 or so. I could have bought a bomber of Stone IPA in Albuquerque for the same price, but I can already smell and taste that beer just thinking about it. I’d much rather spend my money on something new that has potential. I’ve now tasted and rated my first Dutch dubbel. In the future, if I’m ever forced to choose between Stone IPA and Natte, I’ll take the Stone IPA every time.”

Tasting different beers broadens the palate, enhancing our knowledge of aromas, flavors and other subtle characteristics. Tasting great beers heightens our appreciation for beer itself, revealing what brewers are capable of and delivering individuality and often surprise.

Isn’t that worth paying a little bit extra for?