How much do you spend on a six-pack of local, craft beer? Twelve dollars? Fifteen? Do you think about the price? I do. I wonder how the company decided to charge more or less than a brewery down the street, from the next state over, or even across the country. Then I put the beer in the cart and move on with my shopping.
Most of the time, my frame of reference when comparing prices is from store to store in the neighborhood. But when traveling, the prices jump out more. “Wow!” I think. “Only $9.50 for a sixer of Belching Beaver Peanut Butter Nitro? That’s $13.99 at the BevMo! back home.” Or “Stone Delicious IPA is $4 cheaper in Wisconsin than it is back home in California!”
Then I see a local craft beer priced at $6.99 for a six-pack, and I reach for my wallet. Still, I wonder what goes into pricing beer for retail. There are obvious reasons, including ingredient costs, labor, business expenses and shipping.
There are the less obvious, but no less important costs associated with marketing, branding, and promotion. However—logically—I think it’d be more expensive to ship beer halfway across the country to resell, so I dig into my Rolodex and reach out to a San Diego beer industry friend to ask.
“You have to be competitive, and specifically, region-wise, you have to be competitive. If your price point is $10.99, but the local beer is $9.99, you have to ask yourself, ‘Do we need to take less of a profit margin to sell beer here,’” they said.
“Yeah, but how can it be 25% cheaper even though you have the added cost of shipping?” I ask.
“They (the breweries) aren’t pricing it that price because they want too,” they replied. “It is what the local market demands. It doesn’t make sense at first glance, but depending on what state you are in, there are going to be different taxes and fees and permits that create different local prices. Plus, there are other stakeholders in a three-tier system—like distributors—who expect certain margins, and have a say in the final price.”
Ahh yes, I thought. Taxes, permits, margins, three tiers. But what is that three-tier system exactly? I started Googling. According to the National Alcoholic Beverage Control Association (NABCA), “The three-tier system is simple in theory: manufacturers provide alcoholic products to wholesalers, who distribute the products to retailers, who sell to the consumers.”
Each state is able to regulate the alcohol industry within its borders, and each tier has its own set of regulations, fees and taxes that create a series of checks and balances to create a competitive marketplace that protects the consumer.
For a producer like Coronado Brewing or Juneshine Hard Kombucha, the more states they distribute into, the more complex their business plan gets as they have to account for the varying demands of each state.
According to one local brewer I was chatting with, they try to keep things simple by selling their product to the distributors throughout the country for the same price regardless of differences in shipping costs or local taxes. The distributor will then sell that product to the grocery or liquor store, which ultimately has the final say on what the beer in my cart costs.
So, why is the California-produced beer in my cart at Woodman’s Grocery in Madison, Wisconsin, cheaper than the same beer back home? It likely has very little to do with our favorite breweries at all and is probably a combination of local economic factors.
These include cheaper rent or labor costs, lower state taxes, and finally, a retailer or distributor that adjusts its own margins to meet the price the local market is willing to pay.
Regardless of price, after a long day of traveling across the wide expanse of the Plains, it is nice to see—and taste—a little bit of home.
If you like craft beer, you probably also love a good cup of coffee. Pour a mug and check out most recent episodes of the Roast! West Coast coffee podcast featuring interviews and coffee education with great local coffee professionals.
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