Gouging, Maximizing Profit, or Merely Staying Afloat?


Today my friend Jon Urch and I were debating one of his re-tweets on Twitter. (For some reason, I tend to get cantankerous on that medium.)

Just to put this into terms you can immediately grok, that's a six-pack equivalent of twenty five bucks. Which is a lot of money. (A ten-barrel batch would fetch a brewery $13,888.) Which is what I pointed out in response. Jon sent us down the garden path when he mentioned how expensive these beers are, which in no way explains the massive markup. (It's possible to barrel-age beers for years and sell them profitably at this price in grocery stores. If you're selling cans from your dock, this is massive, massive profit.)

But then we got to a more relevant point. A lot of little breweries are fairly deep in hock, and special releases like this help produce the revenue to bootstrap them to the black. Plus, Trillium is one of the hottest breweries on the market right now and even at this extreme mark-up, they sold out within hours of release. I scanned through the replies on Twitter and none complained about the price--they just expressed anxiety over being able to get some. (Anyone who had to work today didn't.) As economists have told me, raising the price on a good is one way of responding to demand, and clearly, this price point was well below the amount that would have slowed sales.

So, how do you relate to twenty-five dollar six packs? There is no correct answer here. Every decision a brewery makes about pricing has benefits and risks. Budget-pricing may move product, but it reduces profit margins and may eventually damage a brand's reputation, miring it in the lower tier in consumers' minds. Once there, it's difficult to raise prices. On the other hand, pricing beer at the upper end increases profits, establishes a brewery as a premium producer, but may appear like gouging once the shine has worn off the brewery's reputation.

Ballast Point was happily cashing checks while charging a 50%+ premium on six-packs of Sculpin--which was great so long as people believed the beer was worth that price. At the moment Sculpin no longer defines the bleeding edge of flavor, Constellation, the parent company, won't find as many takers. Drinkers will be on to Trillium or whatever comes next. Then the question becomes: do customers feel that they had been gouged by these breweries who clearly can make the same beer at a lot lower price?

I have no idea. It's a question that requires more knowledge about retail pricing than I have. But if I were a brewery with a very hot brand, I'd be very keen to find out what the answer was before I started asking my most loyal fans to pony up six dollars for a can of my beer. People with more info are invited to enlighten me; I suspect this is a highly relevant issue about which breweries and consumers would like to know more.