Sunday, 6 March 2011

The price of a pint (of strong beer)

How much a pint?” He was middle aged, respectable and probably had a good job. Dressed smart casual he gave the impression he had a nice house and a nice car. “£3.40 a pint? That’s ridiculous!” I suspect he probably does some sort of engineering job. You know, he might well have earned his current position where he sits in his office looking over technical specifications and project timescales because he has worked up from the bottom and gaining his experience the hard way. He could probably still swing a hammer if he had to. Probably well paid but still has his feet firmly in that opinion that beer should not lose sight of its roots. It is the drink of the working classes, drunk in pints and should be priced by the pint.

In the same pub the big brand lager and a well known, and if I were honest, not too bad a representation of a stout, were about the same price as his 6% beer. Bearing in mind the mainstream beers were around 4% ABV I was failing to understand why the gentleman was complaining about the price of the 6% plus craft brewed beer he had ordered.

Very roughly, the cost of making a beer is proportional to the ABV. A stronger beer needs more malt, more hops and the beer duty, for the time being, is very proportional. Actually, from a brewing perspective, I think there is need for even more hops in a balanced strong beer; not only is a stronger hop character needed but the utilization of hops decreases with greater gravities in the copper. Mash efficiencies for that matter drop off as the OG increases.

It is true that there are some base costs that stay the same; Energy perhaps and other key overheads. However, typically a stronger beer needs more time in maturation, wherever that might be. Stronger beer ties up crucial brewery equipment for longer reducing the throughput of the brewery. There is good demand for some of my stronger beers but the time in tank holds up my bread and butter brewing schedule. Strong beer has to pay its share of the overheads to be commercially viable. Time IS money and all that.

“But the pub probably pays less than half the pump price for the beer” I had been trying to communicate to the irate drinker, who in return was trying to defend his right for cheap beer, irrespective of strength. “They can afford to sell me it a bit cheaper than that”.

Well, no. I don’t think that pubs can. Many do because licensees find that they get objections from the likes of our friend here. Pubs that heed the desires of the bargain booze drinkers often get into trouble because they find their overall profitability is cut. The reason is very simple.

Strong beer gets people drunk quicker. No shit Sherlock. Either that or they drink less. I’d like to think that most responsible craft beer drinkers will pace themselves. Perhaps even choose a half. Indeed, I think that beers over 6% are much better presented in an oversized curve bottomed tulip anyway. The standard nonic or straight tapered glass fails to show these beers at their best.

So, let’s assume the licensee is being good to us. Lets suppose he simply puts a straight cash markup on the pint at, say, £1 a pint. Having been a licensee I can categorically state that this is a very charitable mark-up for the pub to be charging on a typical 4% beer. Less and the pub will go out of business. I could expand on this point, but please, for the purpose of this piece, trust me on this one. Remember, this represents the low end budget style pub, the type most reasonable people wouldn’t enjoy anyway. This is the type of pub where they avoid high overheads by cutting back on cleaning staff, avoiding decorating and doing minimum maintenance.

At this cash markup, our 4% beer might be costing the pub £0.901 per pint to buy in, excluding VAT. That’s £1.90 per pint to the punter, excluding VAT. That is £2.30 a pint including VAT and once we round the price to get rid of ghastly copper coins out of the change. Cheap? yeah, but I did say this is in a slum of a pub.

Our 6% beer probably costs the pub £1.22 a pint. £2.22 before we put on the VAT making the retail price £2.65. Remember, this is where the pub is only making the same gross profit amount per pint as they are from a weaker beer. And remember we are still in our bargain basement slum pub.

Lets rework that for a more realistic pub, one that spends a bit more on keeping the décor nice. One where they pay a little more in staff wages to make sure the toilets are clean. The ones where they will call out a plumber if need be to make sure all the toilets flush. The ones that have paid to replace those really crap seats with something a bit more comfortable. Where you might pay £2.60 a pint for session beer.

On a cash markup the 6% beer would retail at £3.05 and an 8% beer, for example, would retail at £3.40. What astounds me is that there are pubs that actually make less mark-up on strong beers and recently I noted my Queboid, 8%, was priced at only £3.00 a pint when 4% beers were around £2.60 a pint.

I would like to think that most readers would think these prices are at best very reasonable. I would also like to think that some enlightened readers will realize the flaw in this pricing structure. Remember, each pint of the beers is contributing exactly the same to the financial viability of the property.

Every bum on every seat of a pub is valuable. Every customer is an asset to a business. Well, until they get so drunk that they piss everyone off. Equally, the establishments that are the more financially healthy are the ones that are busy and maximize the revenue from every bum that sits on the seats and every pair of feet that crosses the threshold.

I was recently told a story by a very experienced world beer bar manager. A customer, it seemed, had been drinking a fairly strong fruit beer all afternoon. This particular customer was negotiating an open stairway, probably with some difficulty, when the aforementioned fruit beer felt it time to make a bid for freedom. Bright red beer made the return journey up oesophagus and then proceeded to cascade through the open stairway onto a nice couple who had only just entered the building for a quiet evening’s drink.

The bar manager felt the only reasonable course of action was to organise a taxi for the unfortunate innocent bystanders, give them a free bottle of something very expensive and apologise with as much humbleness and grovelling as could be mustered by a busy barkeeper. I failed to find out what happened to the drunk, but one can only hope it hurt.

Although the above example is an extreme case of what can go wrong when people drink too much, it has to be said that drunk people are a problem to the very businesses that create them. We all think we are charming when we are actually drunk. The better of us realise the next day that we weren’t, but at the time we fail to acknowledge that to the bar staff, and often other customers, we can be a liability.

In conclusion, drinkers who drink stronger beer probably drink less and so on my cash mark-up model explained above spend less money or alternatively they spend the same amount of money but are more trouble.

But of course, you’re charming when you are out drinking, aren’t you?

For the reason I have given here, I would not expect a 6% beer to retail in any reasonable pub for less than £3.60 a pint. I would not expect an 8% beer to retail for less than £4.20 a pint.

I like strong beer. I like it too much. I like it so much that it gets me into trouble. The last time it got me into trouble I blamed Kwak, and some other Belgian thing that might have been Kasteel Rouge Kriek, I think. Well, it was a Kriek anyway. Apparently, I failed to drink Jaipur and White Shield in the following pub due to my by then intoxicated nature.

I like strong beer but fail to find it often enough. Licensees don’t really like to stock it. Why should they? It doesn’t gain them the same GP per footfall. But I’d be prepared to pay a little more than the standard considered price to ensure I could get it.

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As a side note; strong cask beer also sells slower. Although it also keeps a little better and I've know good cellar men to keep 8% beer in good condition for up to 3 weeks, it is not unusual for greater quantities of stronger beers to be thrown away, further reducing profitability of strong beers.

1All the supply prices used for this illustration are based on Hardknott list prices. Obviously different breweries have different prices and nearly all breweries offer various discounts depending on distance, order volume, overall volume and other delivery variables.

12 comments:

Ed said...

As a fan of strong beer I see your problem Dave. I think you're very much in the minority in being prepared to pay a reasonable price for it on draught, though for some reason people are less concerned about paying more for bottled beers.

Curmudgeon said...

It's very rare to see any cask beers above 5% ABV except in specialist pubs. Even 5% beers often struggle to sell - very often, people just regard them as something they'll have one of at the end of the evening.

RedNev said...

You have absolutely no idea that the man protesting about the price of a strong beer was well off, and your speculation about his line of work was off the top of your head too. Is sheer guesswork a good start for a serious discussion of the price of beer?

We all know that duty has gone up by 26% in the last 2 years - it's hardly surprising that people are taking time to adjust to that - and that many people are suffering from pay freezes or cuts, and yet you make no reference to such factors in considering people's reaction to prices. An incomplete analysis, I think.

HardKnott Dave said...

Nev, As it happens the character is no individual person but a conglomeration of experiences I've had to listen to in pubs. You are correct of course that some people have little disposable income for all sorts of reasons.

However, the typical demographic of the discerning beer drinker is in fact that of a reasonably comfortably well off person. I know there are outliers to this, but I do know people who have good incomes but still complain against what I believe to be a reasonable price for a pint of stronger beer.

I'm not arguing for people to be ripped off, I'm arguing a reasonable return for the drinks industry when considering strong beer. Consider price per unit rather than price per pint; nearly always stronger beer gives you much better value for money.

Considering the current economic situation, it is true that people will be suffering hardship, everyone is. However, the mentality that beer should be priced per pint with very little consideration for it's ABV is endemic in the pub industry and has been even in more affluent times.

I'm sorry that I tried to liven my writing up by painting a picture; I'm trying to be a better writer. We can talk about cold figures and discuss policy but it makes for uninteresting reading for all but the most committed readers.

StringersBeer said...

As you well know Dave (you've been in the business long enough, after all) pub-goers aren't just buying a drink, much less a quantity of alcohol. Apart from anything else they're renting a spot in the pub. While they do whatever it is they do in the pub (talk shite, play pool, relax, etc). So no, many drinkers won't get "better value" from a strong beer. They may even get worse value.

That strong beers should be priced relatively low, while counter-intuitive perhaps, isn't so mysterious. It's a funny old mix of good business, consumer power & tradition, surely.

Tandleman said...

On pure logic what you say is fine Dave and I can't but agree that it is reasonable to charge around what you suggest. Maybe drinking in London has numbed my Northern thriftiness a bit.

Situations and business models may vary that from time to time as Stringer says, but on the whole I agree with you.

Cooking Lager said...

How to convince a punter a beer is worth £3.40? Don't bother. Clearly put up a list of all the beers and all the prices. Let the punter decide what to order knowing the prices.

Pubs are one of the few places punters order, not knowing the price. No other trading environment ask customers to do this.

One thing the Spoons get bob on, is the clarity of pricing. When they decided to put different prices on different guest ales for under and over 5% they put the prices on the pump clip rather than a general guest ale price sign.

dredpenguin said...

It always amuses me when I order a half of something strong in the Rake the barstaff make a point of telling me you know that is £2 a half? I'm thinking £2 that is a bargain!

I'm with you I would happily pay more for strong beer but seldom fine these beers outside the specialist beer bars.

RedNev said...

Sorry, Dave, I think I overreacted. I'm sick of the élitist drinkers who want quality ales to cost more simply to endorse their own perception of their good taste. In fact, your explanation of the economics of beers in a pub was very clear.

HardKnott Dave said...

Stringers, I think I get your point, and indeed if it is session beer the drinker wants and is unhappy to sip and savour rather than chug a few pints, you are right, he will get worse value out of a strong beer.

But from a business point of view it makes no sense whatsoever to sell a beer at as price that makes less total margin. Although there is the loss-leader Hence I'd preffer to delete the phrase "good business" from "It's a funny old mix of good business, consumer power & tradition, surely" - then we can agree.

Tandleman, you, turning into a southern softy? You'll be turning your back on sparklers next...

Cookie, good point. The Euston Tap have their prices clearly marked on the chalkboard for instance. Pumpclip prices is even better. It would help if more did so.

DredPenguin, indeed, although refer to Cookies point.

Nev, no worries. It is a contentious point, the price of beer. I look at it simply from the point of view that the margins in beer are incredibly tight and easy to make a loss on the job.

Cookie has it blob on; advertise the price, if we want to waste our money being pretentious then it's always easy to get fools to part with their money.

StringersBeer said...

Thing is Dave, having one (or) two daft (or indeed, lovely) strong ales is a real signifier of being some kind of a specialist beer bar. Even if most of the money might come in from sub 5% stuff. Not exactly a loss leader, but perhaps a way of making a statement, while attracting a certain kind of drinker (and deterring others?).

At the same time, even though these strong beers could, as you say, be kept on for ages with proper care - they need to be shifted as quickly as possible to keep the bar lineup interesting. Hence they're priced to sell.

I'm not saying this is the best approach, but it's the only way I can think this common practice makes business sense.

I suppose that if you want to try to encourage publicans to price strong beers higher, you can try charging significantly higher prices yourself?

treble9man said...

Trying to place/price stronger beers led me to think that craft would sell better in bottles - hence I bottle all mine. That and I cant afford/fill casks with my small kit.

BTW How you doing Dave? Need an assistant yet, grovel grovel :-)