Tag Archive: craft beer


The Power of a Pint

Over the years, I have observed many pricing strategies for beer. Some look to their competitors and try to come in just below or match their price, while others use prestige pricing thus commanding a premium for their suds. Often overlooked is the impact that a slight change in price has over time. Of course, the full impact of your pricing strategy needs to be assessed from a consumer’s perspective and how it will affect the financial health of your company.

One example I can share of how pricing affected a company’s performance occurred at a chain of brewpubs. Their pricing strategy consisted of line pricing their beers with the intent that beers which were less expensive to make would essentially balance out the more expensive. This approach has also been used by large companies such as Southwest Airlines and uses the principle of price elasticity, which relies on large quantities being sold; some at a low price and others at a higher price. After much discussion with upper management I was able to implement a small price change for specialty and seasonal beers, which was needed to offset the additional ingredient expenses, especially when a different strain of yeast was used. After implementing increased pricing for specialty and seasonal beers in one location the benefits were noticed quickly. Revenue increased allowing the management team to attain bonuses consistently and the location became the most profitable out of five locations. This also led to other locations implementing the same pricing strategy.

Eventually this pricing strategy was implemented in all five locations resulting in increased revenue for the company. Revenue also continued to increase as managers adopted the same pricing methodology for other products. Some may have concerns about the price sensitivity of their customers, however, most craft beer connoisseurs (including myself) tend to be more concerned with quality than price. Further, maintaining quality and continuing to offer innovative products requires breweries to allocate funds for QA/QC programs and pilot brews to develop new, interesting beers for their customers.

To quantify the power of adjusting the price of a pint consider how much an increase of $0.25 per pint can make. For example, if you charge $5.00 per pint and sell 75 pints a day it equals $375. Changing this to $5.25 per pint at 75 pints per day increases this to $394. On a daily basis, this may not appear to be substantial, however, over time the difference becomes more significant. The following was constructed assuming a six day business week and the traditional pint size of 16 ounces:

Beer Size Price Daily Quantity Daily Totals Weekly Monthly Quarterly Yearly
Pint $5.00 75 $375 $2,250 $9,000 $27,000 $117,000
Pint $5.25 75 $394 $2,363 $9,450 $28,350 $122,850
Pint $5.50 75 $413 $2,475 $9,900 $29,700 $128,700

Another similar pricing strategy in the craft beer market is to use smaller glasses for certain beers (similarly priced to a pint), which essentially has the same effect. In fact, some craft beer bars use three or four different glasses ranging in size from 6 ounces to the standard 16 ounce pint. If you have the space for additional glassware this strategy is well worth considering as it is also beneficial for monitoring how much your patrons consume.

To be effective and timely, reviewing your pricing strategy should be done on a regular basis due to increases in raw ingredient prices, changes in taxes, and other financial considerations for your business. Being more responsive with your pricing strategy will allow you to quickly address changes in market conditions and ensure you maintain your margins.

Recently, I had the honor of being interviewed about things to consider when contemplating starting a brewery. Some of the information I share includes:

– How to get the planning process started
– Free methods to obtain market research
– How to get support from the craft beer community
– What are the typical costs involved?
– Resources for learning about the craft brewing industry
– The importance of mission and vision statements
– What type of brewery should you open?

The podcast can be accessed via Microbrewr.com a fantastic resource created by beer lover Joe Shelerud Please help support Joe by visiting his website and making comments!

If you are considering jumping into the craft beer business how do you know if you have what it takes to succeed? There are many attributes associated with being a successful entrepreneur such as having the energy and drive necessary to begin and sustain a new venture. So where do you start?

First, determine why you want to be in the craft beer industry. Some brewery professionals such as Kelly Taylor of the Kelso Brewing Company (www.kelsobeer.com) have stated they enjoy the “challenges, variety and sense of accomplishment that come with being a business owner”.

Second, take a self-inventory of your skill set. What skills do you have that are beneficial to becoming a craft beer entrepreneur? This also varies depending on whether the craft beer business you decide upon is a brewpub, brewery or distributor. Some skills identified with successful entrepreneurs are (Kaplan, & Warren, 2013):

– Ability to be resilient even in the face of failure by learning and moving on.

– Navigating in an uncertain environment by using critical thinking skills and knowing that not everything needs to be perfect or

you will not accomplish important tasks.

– Able to network, communicate, obtain consensus and lead (not micromanage).

– Risk taker, by taking action, however, this is moderated by being realistic and making changes as needed.

Besides entrepreneurial skills it is important to analyze what types of skills you will bring to the business. Are you a passionate home brewer with proven results? Beware!  Going from a five gallon to a 15 barrel (465 gallons) system requires new skills to craft quality beer and safely operate (Warner, 2010). So, obtaining training and hands-on experience, hiring a qualified brewer and finding a mentor are all options to carefully consider. I have experienced many brewery start-up’s in which the owners believed they could perform all the brewing activities and soon realized they were out of their depth. To read some first-hand accounts of some of the pitfalls others have experienced I recommend reading the forums at www.probrewer.com.

Finally, to aid in determining where your skills will fit best for your business the creation of a business plan is helpful and a critical part of ensuring success. Creating a business plan is essential to the initial and continued success of any business, provides guidance for long term planning and takes approximately 200 hours to complete (Kaplan, & Warren, 2013). While this may seem to be a considerable amount of time to invest, the investment is insignificant compared to the costs associated with a failed business venture such as loans, personal investment(s) and other liabilities. For example, the start-up costs for a brewery are capital intensive due to the high cost of purchasing brewery equipment. A useful tool for creating a business plan can be found at the U.S. Small Business Administration.

The next blog entry will discuss areas of opportunity for those considering becoming craft beer entrepreneurs.