Hop Talk

October 30, 2007

All of the beer blogs are talking about the price increases recently hitting craft brewers, including Hop-Talk’s own beer blogger Al,  and I wanted add my thoughts and a summary of an article I read in the Wall Street Journal, Why Price Increases are Brewing for Craft Beers.

Currently, craft brewers make up only 5% of the beer industry, but it is the fastest growing segment of the beer industry. Like many Americans, I am willing to pay more for a premium product and I am willing to pay the additional 50 cents to $1 more per six pack of beer for craft beer that is hitting the shelves now. I currently pay about $8-$9 for a six pack; I won’t notice the increase, that much.

But just because I’m willing to pay the extra, doesn’t mean everyone is willing. Not just that, my dollar is not completely covering the cost increase, the brewers are eating some the cost lowering their margin and that’s not good, especially in the long run.

The primary causes for this problem are contributed to the increase in cost for hops and barley, the main ingredients in beer. Their price has risen because of poor harvests around the world, the weak U.S. dollar, and farmers shift to more profitable crops. In the previous years there has been a glut of hop farmers, so there has been a recent shift to other crops, such as apples or corn. But that’s not all, glass, cardboard, gasoline and stainless steel are other areas of cost increase.

Big brewers like Anheuser-Busch will also face cost increases but will not be affected as much as craft brewers for a couple of reasons. For one, they use much less ingredients in their beer than a typical craft beer. A typical craft beer will use twice as much barley and 5 times the amount of hops. The second reason is because the big brewers are more likely to secure long term contracts with the producers of the raw ingredients.

An in-between sized brewer, like the Boston Beer Company has been affected and has raised prices 3% in the last year and will likely do so again next year. Boston Beer only buys its hops from Bavaria and the past few years the crops have been smaller making them more expensive, even though they can secure a large contract with the farmers.

Some craft brewers will be substituting the variety of hops in order to control costs. They will try to do so without drastically changing the taste of a successful product. Who knows… maybe it will taste even better? A tricky endeavour, for sure.

Each craft brewer could be affected differently. Some craft brewers obtain their ingredients locally, some secure large contracts, and some buy them on the open market as available. Those that go to the open market may be the most affected. Sadder still, it could put some of the smaller craft brewers out of business. Very sad, indeed.

Another twist on the issue is that products by craft brewers that are “imperial” or have an extra large portion of ingredients, such as Dogfish Head 60 or 90 minute IPA will have a greater cost increase for that particular style as compared to others that they make. It is possible some product lines see a bigger increase in price than others. As an IPA lover and all around hop-head, that is more bad news for me; and, if you read this blog, probably for you, too.

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