During that discussion, it was clear that the representative from the Virginia ABC board had good insights and expertise. The quality of his answers provided a helpful perspective for any consumer who supports local producers of wine, beer, cider, and distilled spirits.
Not long after attending this forum, I reached out to the ABC board for clarification about beer pricing in the Commonwealth of Virginia. Here is their response:
Beer prices are set by the wholesalers (distributors) and retailers of the product. The state’s primary pricing regulations are 1) wholesalers must charge the same price to all retailers for beer (with some exceptions such as discounts for quantity purchases) and 2) on premise retailers cannot charge reduced prices (happy hour) after 9 pm.
The ABC Board has no control over pricing other than mentioned above.
So, based upon those regulations, and the earlier reference to a highly competitive market, it isn’t likely that the formulas and calculations used to set the price of craft beers are going to be shared. They will remain a closely guarded crafter’s pivot point scribbled on a stirring paddle found deep inside a brewing kettle.
Ok, I can respect because of a competitive market keeping confidential how a craft brewer establishes its pricing. But, that seems counter to an industry that has prided itself in transparency. In fact, the recently introduced Brewers Association seal is “designed to designate beers that are produced by independent craft brewers.”
In the press release, transparency is a consistent reference related to consumers having a clear understanding of who is brewing the beer. Is the brewer a true independent or a brewery acquired by one of the big box brewers? The Brewer Association’s definition is clear, and the new symbol makes sense in providing that clarity for the consumer.
Shouldn’t that same transparency about who is brewing the beer be applied to pricing for the consumer?
Somewhere down the road, there will be an implosion or a significant correction with craft beer sales. I’m sure savvy breweries will hold on and ride the upswing for as long as possible, but at some point, the momentum is going to shift.
Might craft brewers be wise to start carefully evaluating their pricing strategies? Is now a good time to test some different price points that could positively impact consumers?
I’m no expert, so I don’t have an answer.
But, I suspect that craft brewers throughout Virginia worry about a retail account that might push the cost of their beer to an unacceptable mark up. Consumers who carefully monitor pricing would easily recognize such a markup, as would a sales rep for the brewery. In those instances, I sense that a no win situation is being created for the consumer, the brewer, and the retailer.
A significant markup will possibly push a knowledgeable purchaser away. An interested, but new to craft beers consumer might also be reluctant to make a purchase. If the foot traffic in the retail space doesn’t have consumers with deep pockets, then the product will continue to sit and age.
Makes me wonder if the beer was fairly priced from the start, might the consumer buy two six packs instead of one?
Again, I’m guessing that sales reps from craft breweries must lose some sleep over retailers who have demonstrated a propensity for pushing the mark up to unacceptable levels. Sales reps probably have in their repertoire carefully chosen words of diplomacy for such retailers.
And you know what else might keep craft brewers and distributors, sleepless—a knowledgeable retailer like the “deep throat” informant from Watergate.
Part II-- Long Neck
A retailer who has access to insider information, and who might be willing to blabber the industry’s stirring paddle secrets. In this case, we’ll call our informant “Long Neck”.
It was an exceptionally warm and humid summer night in Richmond. Thunder rumbled in the distance, and I’m in an alley that is spooky even in daylight.
I’m at the front corner of a dumpster looking down the alley waiting for the strike of a match. At this point, I’m not sure if my sweat is from the humidity or my fried nerves.
Finally, I see the quick flicker of flame, and reluctantly my feet move me down the alley.
Long Neck is like a Navy Seal on recon, covered in darkness.
Before I can even spit out my first question, he whispers, “Margins, it’s all about the margins. It’s an industry rule, don’t divulge the margins.”
I scan the alley, and ask my whiny second question, “Why does my local craft beer cost more than a craft beer shipped in from Utah?”