A dance between math and intuition: Beer pricing
July 14, 2014 9:35 PM   Subscribe

When you go out to a bar or restaurant, have you ever wondered why your beer costs what it does? Here's your chance to find out.

Why Beer Costs What It Does
At SmallBar Division Street in Chicago, owner Phil McFarland is constantly balancing the variables of size, strength, and price when setting the draft list. For example, on a recently published menu, he offered Allagash Black (7.5 percent ABV) in a 13-ounce glass for $5 and Allagash White (5 percent ABV) in a 16-ounce glass for $6. By volume, the Black is 50 percent stronger than the White, and the serving size he chose is close to 20 percent smaller.

Deciding what's a reasonable pour at a worthwhile price is part of being a responsible owner, McFarland says. His menus clearly state serving size and alcohol levels, so customers have the context they need to make informed choices.

McFarland selects beers to carry in part based on how they fit into the larger menu in terms of size and strength. He says, "I don't want to be a place where every beer is $10 and comes in a tiny glass because it's super high alcohol and super obscure."
posted by joseph conrad is fully awesome (19 comments total) 16 users marked this as a favorite
I have only wondered what the first 5 costed. After that, I am pretty accepting of whatever the pricing theory is.

I do find the details that these bars that sell craft beers put into the pricing model is fascinating. I never contemplated all the inputs. As a customer, I do try to maximize my alcohol content versus cost.
posted by 724A at 10:30 PM on July 14, 2014 [2 favorites]

Most places around here charge around $4 or $4.50 for a pint of good beer, and there's a wide range of those. Considering that 20 years ago I was paying on average maybe only 50¢-75¢ less per pint, I'm okay with that. Beer has been far less affected by inflation than just about any other food-related item I buy on a regular basis (and don't get me started on the price of gas...).
posted by Greg_Ace at 10:47 PM on July 14, 2014

Restaurants: Food brings people in, and booze keeps the business afloat.
posted by ZaneJ. at 1:18 AM on July 15, 2014 [1 favorite]

Canadian version: because that's what the provincial government says it should cost.
posted by TheWhiteSkull at 4:35 AM on July 15, 2014 [3 favorites]

An interesting point was made in this article that seems like it extends to other businesses as well, which is the idea that the largest mark-ups should be reserved for the highest selling products as a means of maximizing profit (so a pint of beer at a brew pub will have a healthy markup, but a glass of wine at the same location might be a really good deal since it is not marked up as heavily, not being a huge seller). This concept is the reason why I frequently shy away from shopping at specialty stores like, for example, BBQs Galore, knowing that I can inevitably get a much better deal on a BBQ at a place like Walmart or Home Depot, since they aren't trying to earn the lion's share of the profit for their business on this one line of product, so the mark-ups appear to be much lower.
posted by The Gooch at 5:11 AM on July 15, 2014

There are still places around here that differentiate their beer prices between domestics and imports. Of course, all the microbrews are priced the same as the imports, despite my protestations that Kalamazoo is, in fact, in the US and that makes my pint of Two-Hearted Ale a domestic.
posted by Thorzdad at 5:29 AM on July 15, 2014 [3 favorites]

I was afraid this was going to be about how manufacturers and distributors decide on pricing because it is in fact entirely capricious.
posted by shakespeherian at 5:38 AM on July 15, 2014

It seems like what they're trying to say is that restaurants are trying to replicate the insane markups they get for wine, but it isn't working. The beer age could be very bad for restaurants.

Here in Minneapolis the standard price is $5 for everything (ie there is no relationship with perceived value or quality). Very bad for restaurants if two $5 beers are replacing $60 of cheap wine.
posted by miyabo at 6:05 AM on July 15, 2014

There are still places around here that differentiate their beer prices between domestics and imports.

Around here the split is basically mass beer vs micros, with a lot of spread on how imported mass beer (like Pacifico or Heineken) gets priced. And then some places have a third category for one or two special beers that are usually stronger in alcohol or flavoring (chocolate blueberry stout or whatever seasonal keg has just arrived).

I like that he is displaying the strength -- I've been unhappily surprised to discover that what I had assumed was a normal microbrew strength beer was actually some triple strength thing, making the walk home that much less fun. I wish everywhere did this, just like fast food places now display the calories.
posted by Dip Flash at 6:27 AM on July 15, 2014 [1 favorite]

I like that he is displaying the strength -- I've been unhappily surprised to discover that what I had assumed was a normal microbrew strength beer was actually some triple strength thing...

I really wish more places would do that, too. I'm not a big fan of high-alcohol beers, and being surprised by a high-strength pint just kills the enjoyment.
posted by Thorzdad at 6:53 AM on July 15, 2014

Naessens says that the 'three times' principle is a widely followed basic pricing model in the bar and restaurant industry. "Typically, in a restaurant, you want to keep your food costs and so forth at 33 percent," Naessens says. "So, a lot people simply multiply [the product cost] by 3." This approach works fine for, say, a bottle of Budweiser, which may cost a bar or restaurant in the range of 75 cents to stock. When you see bars pricing Buds for $3 apiece, this is likely the model they're using.

3 x $0.75 = $2.25. I was promised math.
posted by w0mbat at 7:02 AM on July 15, 2014 [2 favorites]

I like that he is displaying the strength
I really wish more places would do that, too.

Depends on where you live. Over in Maine bars had to fight an old law that prohibited it.

Now I want an article on how the hell our local grocery stores in NH price twelve packs. I feel like I'm in a permanent A/B test. As an example, my default winter beer is Sierra Nevada Pale Ale because it's pretty good and it's available everywhere. It can vary in price by $3-4 a twelve pack at the same store in a month. Our grocery store typically has it at $14.99, the beer store down the road is usually $12.99 and the grocery store directly next to our grocery store is somewhere in the middle but both groceries have promotional prices each month so if I want to drag myself around to two stores I can often beat the beer store and save a trip. I know the distributors and brewers provide dollars to promote their product, but I'm assuming they don't do it based on asshole logic.
posted by yerfatma at 8:19 AM on July 15, 2014 [1 favorite]

For package stores, distributors often have a discount on volume -- i.e. if you buy X number of cases from brewery Y the per-case price is a couple bucks less for everything from that brewery on this particular PO. So depending on how a certain brewery's product is selling, stores (especially smaller stores) may not be able to price something as low from month-to-month.
posted by shakespeherian at 8:43 AM on July 15, 2014

It touches briefly on retail pricing:
Though it matters less in the context of bars and restaurants, Friedman has also observed that consumers are much more sensitive to six-pack retail pricing than, say, that of 22-ounce bombers, which hold a little less beer than two 12-ounce bottles. According to Friedman, a $15 or $16 six-pack is "DOA on the shelf," but a bomber priced at the same dollars-per-ounce ratio might sell.
This annoys me: 22 ounces of 9%+ beer is more than I want to drink in an evening, but often the stronger the beer the more likely that it'll only be available in a huge bottle.

I also wonder if there's a deeper motive in play: a bomber of something like Ommegang or Goose Island can cost $10 a bottle, which seems to me a deliberate play to position it as a competitor not to a cheaper six-pack but to a comparable bottle of wine.
posted by We had a deal, Kyle at 9:26 AM on July 15, 2014 [1 favorite]

@We had a deal, Kyle - a bottle capper and 120 bottle caps will set you back $21. I've never seen a twist-off bomber, so you're good to go.

Even better, buy a growler instead.
posted by plinth at 9:39 AM on July 15, 2014

Canadian version: because that's what the provincial government says it should cost.

Only in retail sales at e.g. LCBO, Beer Store, or Wine Rack (in Ontario; relevant store types in other provinces).

Bars and restaurants can mark up their prices as much as they want. However, I'm pretty certain it is flat out illegal to ever sell alcohol for less than the LCBO (e.g.) list price. (For example in Victoria a terrible frat boy bar would do 51c Solo cups of beer, because when they broke down the cost on the keg, it was 50c per serving.)

When you then consider how often there are bars doing incredibly cheap drink specials, you suddenly get a sense of exactly how inflated restaurant/bar pricing is on alcohol, because as mentioned above, it's (until you get into like $200+ pp places) the single largest revenue line item that you've got.
posted by feckless fecal fear mongering at 9:49 AM on July 15, 2014

a bottle capper and 120 bottle caps will set you back $21.

Oh, I have been known to shove a wine cork in a half-drunk bomber of barleywine to save it for the next day; but I don't think an opened beer keeps very well once the air's got to it.

And now I think of it, I am starting to see $10+ 4x12-oz packs of strong beers -- around here, Firestone Double Jack sells in that format. I approve; I guess I should buy some to send a "this is good" signal.
posted by We had a deal, Kyle at 9:52 AM on July 15, 2014

It's gone now and I am not much of a bar person but a few years ago I read about the end of the dime beer at a fine long standing establishment.
posted by sammyo at 11:11 AM on July 15, 2014

Back when I worked at the Toronto Molson brewery I learned the most expensive part of the whole production was the labels (at the time they did both a body and neck label - painted bottles came out just as I was leaving). I would have guessed the cap but apparently not. The beer itself cost close to nothing.
posted by srboisvert at 1:30 PM on July 15, 2014

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