Thursday, June 14, 2012

Craft beer economies of scale

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In the restaurant setting, craft beer pricing has much more in common with wine pricing than it does with macro-brew beer pricing. So look to your established wine-pricing formulas when establishing your guidelines for craft beer pricing.

Bottled Beer

For many better restaurants, the majority of craft beer sales will be by-the-bottle. For some restaurants, beer list pricing can mean simply taking the wholesale cost per bottle and multiplying by 2.0 or 2.5 or 3.0 (often 2.0 for higher priced products and more for lower priced beers). Don’t worry too much about odd pricing numbers. Just round each up to the next nickel or dime, like $4.32 up to $4.35 or $6.36 up to $6.40. Craft beer customers expect quite a bit of variance from type to type and brand to brand.

An alternative pricing strategy is multiplying the wholesale cost of each beer by a fixed mark-up factor, say 2.0, then adding on a fixed overhead service charge of something like a fifty-cents or a dollar per bottle, and then rounding up to the five or dime.


A 12-oz bottle of craft beer with a wholesale cost of $1.67 is fairly sold for up to $4.25 or so.

A 22-oz bottle of craft beer with a wholesale cost of $4.50 is commonly be sold for $9.00 – $12.00.

A 750-ml bottle of craft beer with a wholesale cost of $8.00 could be priced up to $17.00 on a beer list.

If your restaurant still sells bottled versions of Bud-Miller-Coors macrobrews, there is no need to change your existing pricing formulas for them. Some restaurants set a minimum selling price for even the cheapest beer and price beer there even if their normal mark-up formula would have the beer selling for less.

Variations from market to market do exist as to what is customary for craft beer mark ups. Some locations have much higher overhead (rent, labor, taxes, etc.) than others, so beer pricing will justifiably vary from area to area. Price yours fairly for your market and you will make your customers happy.

Draught Beer

The cost-per-ounce for craft beer in kegs is roughly 40-45% less than the same beer in bottles. You can see how selling craft beer on draught is a good profit opportunity if handled properly and efficiently. The general pricing strategy for draught beer is similar to those described above for bottled beer, but a higher mark-up rate is customarily utilized.

Since the overhead cost for draught beer is higher — draught system equipment depreciation cost, system maintenance/supplies (CO2, nitrogen, adjustments, weekly line cleaning, keg change-outs, etc.), spillage, and potential spoilage — it is customary to factor in a higher overhead charge-per-glass than would be charged for bottled beers. In practice this should bring the regular sale price-per-ounce to roughly the same point as the bottled version of the same beer. This higher regular price also allows room for periodic special pricing on draught beer, such as during early evening hours when business is typically slower.

Rule of Thumb

If most of your craft beer business is by-the-bottle, calculate your selling price for the bottles and then price your draught beer similarly (ounce for ounce, similar product category). Conversely, if your craft beer business is predominantly done on tap, determine your draught beer sales prices and price bottled beers comparably. That means that two beers of similar quality, type and style should sell for a similar price-per-ounce even though one is bottled and one is draught.

Price variety important

Having price variety among the craft beers on the beer list is a good thing. Craft beer customers, like fine wine customers, understand that product costs vary greatly. They expect each product offering to be priced based on its underlying cost. When offering two beers in the same style category, it works best to have one of them a more exclusive brew at a higher cost than the other to encourage a trade up to higher perceived quality (and higher restaurant profit).

As with wines, the price of a craft beer is a proxy for its quality. The higher the price, the greater the perceived quality. It is a good practice to offer at least a couple of beers that cost 50% to 100% more per bottle than the standard craft beer offerings. Similar to offering a grand cru Bordeaux, a 98-point-rated Cabernet Sauvignon, a Barolo or high-end Champagne, offering one or more of the world’s very best beers sets a premium tone for the entire beer list.

For example, the Belgian Trappist beer Orval, widely considered among the world’s best beers with a wholesale cost around $4.00 per 11-oz bottle, could be fairly priced on a beer list at $8.50 to $9.00. In comparison, a standard offering from a quality craft brewery like Bear Republic, Boulder, Bells or Brooklyn would be fairly priced at about $4.00-$5.00 for a 12-oz bottle. A 12-oz bottle of Dogfish Head’s revered 120 Minute IPA can easily bring $13 or more on a restaurant beer list. Consult with your distributor for help with comparison pricing in your market.

Using the above pricing examples, the tab for a typical craft beer customer consuming two 12-oz. bottles with dinner will range from $9 to $20. In this example, if beer costs are running around 38% to 45%, the sale would generate a gross profit of $5.70 to $11.00 per craft beer customer. If serving craft draught, your profit should be even greater.


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