Create New Wish ListSome brewers, including Boston Beer Company brewers of Sam Adams are threatening price increases.
Beer retailers around Chicago received a notice last Friday from The Boston Beer company outlining price increases on their products to take effect in February of 2012. To justify these increases, they cite a 68% rise in the cost of barley.
To be very clear, we are talking about a retail increase of one dollar per six pack and one dollar per twelve pack. That is a substantial increase.
Boston Beer Company suggests that the prices of other domestics will reflect increased commodity costs to a lesser extent. They defend their higher increases by pointing out their higher barley content per bottle.
Boston Beer Company also lists identical per case price increases on their other major product: Twisted Tea. We weren’t aware that Twisted Tea was such a high gravity flavored malt beverage.
We do believe that the costs of commodities such as barley are rising, but we think it is disingenuous to use them justify excessive, across-the board price increases.
These increases aren’t being dictated by cost alone. They are driven by market research and price elasticity of demand. We would prefer the honest truth, that they think consumers will pay more for their product because it is good.
Why should you care? Like it or not, Sam Adams sets the industry standard for craft beer, and this move will be reflected in price tags up and down the beer aisle from other national brands to all your favorite local micros.
Boston Beer Company claiming they’re raising the price of their products is like the sign I read at Best Buy that claims they check the receipts of customers on the way out the door to make sure the customer hasn’t forgotten anything. It’s a transparent ruse. Best Buy is checking receipts to make sure customers aren’t stealing anything, and the BBC is raising their prices because they think a higher price point will generate more revenue for them.Sure, in the case of Best Buy, they may also point out to you if you forgot anything in the store, and in the case of the BBC, it may also be true that the price of barley is rising. But those aren’t the two factors that really motivated the sign or the price increase.I find the Best Buy signs a little condescending, and I find the Boston Beer Company’s stated rationale for raising their prices a little condescending. In the case of the beer guys, they’re assuming I have no real understanding of economics, and are essentially lying to me about their motivations in order to make me more likely to continue buying their product. It’s offensive.If they have to raise prices, just raise them and don’t make excuses. And if you don’t get economics and don’t understand that this is an excuse, ask yourself- are they going to drop their prices when the price of barley drops? No way in hell. In fact, a lot of breweries raised their prices a few years ago citing an increase in the price of hops, and I don’t remember them dropping their prices when the price of hops dropped later on.For a lot of customers, Sam Adams and craft beers at similar price levels (pretty close to the lowest price craft beer is sold at) are the only craft beer they buy. Raise the price, especially in tough economic times, and all that’s left is macros. I’m pretty close to just saying forget craft beer, I’m drinking all macros and regional adjunct lagers. I like variety and all the different styles and stuff, but money is tight and I may only be able to afford adjuncts if prices rise too much more (I already get some adjuncts as it is).
Here’s another Wikipedia entry worth reading:http://en.wikipedia.org/wiki/Shareholder_value
So you are saying that you received a price increase letter from Boston Beer? And that price letter stated a 4 dollar increase on cases of six packs? And two dollar increase on 12 packs? Since you are giving Econ lessons, fit the three tier system into your blog post as it relates to price to consumer.
Jeremy – Costs go up, so retails go up too. That much is unavoidable. We raised the issue because consumer advocacy is good business in the retail world. About the three-tiered system – that’s too big a conversation to have here in the comments section. Maybe it would make good material for a more fleshed-out post or series on the Binny’s Blog in the future. Remember a couple things about the distribution system: 1) It is defined on a state by state basis, and 2) it is a mixed blessing. Distribution can causes increased prices, sure, but it also offers benefits such as broader availability and less risk in warehousing.For an interesting point of view, check out yesterday’s Quick Flight, Small Pours post here on the Binny’s Blog, which links to a recent essay on the subject from John Conlin.
Thanks Greg.
Any time. Thanks for the input!
Greg,My last post was a passive-aggressive attempt to get you to address the fact that no one is twisting your arm to raise prices to consumers.Here’s how I believe price increases work:brewer (tier 1) tells distributor (tier 2) we are raising our price to you. Distributor then says, we aren’t eating that cost, we are passing it on to the retailer (tier 3). Retailer says, we’re not eating that cost, we are passing it along to the consumer. I am just supposing here, so correct me if i’m wrong.Also, I don’t think that it’s legal for brewer to say to tier 2 or 3 – you must price this product at a particular level. So as a retailer, you have turned that brewer increase from whatever it is to a dollar a six pack to the consumer based on your opportunity to make more money, right? Distributor same way. So, as far as “consumer advocacy” goes – why not be transparent in the new gross profit per case that Binny’s now makes on a case of Sam Adams due to the material goods increase Sam instituted? The dollars are certainly more, and I bet you see a few extra points in % too.As a retailer (or distributor or brewer) how can you really be advocating for consumers when it comes to price when you certainly are taking advantage of price increases? You are running a good business, right? It’s your job to create more revenue for your company, right? So by stating that Boston Beer is full of crap because they spread their price increase across all sku’s seems more like blaming someone else for why you have to increase prices.Look, I like Binny’s and the choices they offer us consumers. But everyone gets their undies in a bunch when they have to pay for more today for the same product they bought yesterday. Well, pricing will never go backwards. If it does, that means Binny’s and distributors and brewers aren’t making money and that spells disaster for everyone.Price increases are a part of business and pointing fingers under the veil of consumer advocacy ain’t right.
You’re right – that is how retail works. All retail pricing works on margin, which is based on percentages. Alcohol – beer especially – works on some of the thinnest margins in the retail world. It is naive to assume that we could simply eat the cost of a price increase. So yes, by increasing their costs, they are twisting the arms of retailers everywhere. And when you have giant influence as does Boston Brewing, these market-driven price increases masked as cost increases have a big impact that will ripple beyond the pricing on their SKU’s here at Binny’s Beverage Depot.And no, cost increases that lead to retail increases rarely lead to fatter margins.You are correct – prices will always go up. We’re simply asking for more honesty from Boston Brewing to retailers and to consumers.