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A little about the cost of beer

This is going to be a bit free-form so bear with it while I stab at the keyboard!

I was recently reading a blog post by the ever entertaining Pub Curmudgeon with regards to quality of ingredients in beer and their worth and the subsequent price of the pint.
Also the same day I was reminded of what Small Brewers Relief on Beer Duty is supposed to be about and how the relief should be used to reinvest in people and process to further the business and should not be used to discount beer prices to pubs or wholesalers etc.

There is a notion that seems to pervade some Blog posts, Twitter comments and Media articles and its as if Brewers and Pubs aren’t allowed to make their businesses profitable so as to have a stable business creating something that people want.

Beer and its Ingredients, I’m going to tell you how much a couple of our beers cost to make:

Blonde 3.6% (Simple session blonde using Polish & German hops at a low abv, quick turn-around beer in and out of tank within 7 days)

  • Selling Price to pub £65+vat for 40 Litres
  • Price per litre for materials only £0.154p
  • Cost of production per litre £0.386p
  • Cost of Delivery & Pumpclip per litre £0.0925p
  • Beer Duty (@ SBR) per litre £0.344p

Total = £0.9765 per Litre (£39.06  per 40 L Firkin)

We could make our Blonde cheaper than this, we could save maybe £80-100 per Ton of malt by buying from a cheaper Maltster, we could Mash cooler and make thinner beer of the same abv, we could stop using a load of Carapils Malt (Dextrine) to help add body, we could use less hops.
BUT THIS IS NOT THE POINT OF OUR BUSINESS.

Cellar Dweller 7.5% (Three Speciality malts, heavily hopped & dry hopped with American, & New Zealand hops, this beer spends longer in Tank dry hopping and chilling more due to being unfined)

  • Selling Price to pub £125+vat for 40 Litres
  • Price per litre for materials only £1.086p
  • Cost of production per litre £0.386
  • Cost of Delivery & Pumpclip per litre £0.0925p
  • Beer Duty (@ SBR) per litre £0.715p

Total = £2.2795 per Litre (£91.18  per 40 L Firkin)

We wouldn’t make this beer cheaper, in fact the next time we brew it we may make it more expensive and add more Dry Hopping.

Small Brewers Relief (SBR) is meant to help growth in the brewing sector and let new brewers start producing beer without having to pay the Full Beer Duty rate, we get a 50% discount. I dare say we wouldn’t be trading if we had to pass on the full duty rate to our customers. I suppose the reality is that the SBR is being used to keep the price of a pint low as brewers pass this saving on to pubs to get business, with some pubs wrongly demanding ridicules low prices from brewers £45-55 per cask and some stupid brewers do it. Every brewer out there should charge the Full Duty rate so they can afford the money to improve their process and ultimately make better beer, though that would have a knock-on effect to price of a cask… Our 3.6% Blonde sells at £65+vat with SBR, we should really be charging £79+vat… now lets see how well that sits with pubs and bars when you tell them its a 3.6% Blonde for nearly 80 quid! I dare say we wouldn’t sell very much.

So then brewers, and I’m talking to ALL of you…. Lets do a MagicRock and put our prices up to sensible levels to ensure we all have a business in 5 years time 😉 Though if the vast majority of Microbrewers put their prices up they would end up leaving sales wide open to the Big boys again and the multinationals would fill those gaps with mediocre beer!

I have seen some comments from Shane (Assuming Cheshire Brewhouse) on the Boak & Bailey blog regarding the multinational brewers selling beer into trade at £45 a Cask, this can only be the economy of scale that allows such a low margin and clearly shows why us small independent brewers NEED Small Brewers Relief to even come close to being competitive.

Back to the SIBA statement “Our members typically invest the relief in jobs, marketing and capital investment”, in all probable reality SIBA members typically use SBR to discount beer prices to be able to compete in the marketplace and work their arse’s off to be able to reinvest in people, process and equipment.

When I was first shown the pricing formula for McSpoons supply it was ABV x 30.1 + 74 = price per brewers barrel (4x Firkins in a Brewers Barrel)

Lets use Blonde 3.6% as an example:
That works out at £45.59 per 9 Gallon Firkin, put that beer in a Rental Ecask like if you were doing the JDW Festival (£7.50 each) and you have ZERO profit.
If the FULL duty rate is factored in the brewer is basically paying Spoons to sell their beer!
So what do we do?
We trade on quality not quantity, we keep things local and traceable, we design a recipe for flavour not cost, and NEVER sell to JDW or Tied PubCos.
I’m pretty sure someone more eloquent than myself could write this lot so as to make more coherent sense than I just have!

To sum up, what I am trying to illustrate is that Brewers & Bars all need to turn a profit to be able to stay in business and put back into their businesses, and that starts with the price of a pint so the bar takes their cut and then a reasonable amount filters back to the brewer.

Not forgetting that there a lot of other factors that are holding back the price of a pint as mentioned on twitter in tweets with Will Hawks, Business Rates, VAT, Fuel costs, Electricity & Gas costs, supermarket prices, Minimum wage on both sides for employers and employees etc… Its a complex mix!

Oh, and the SIBA recommendation to brewers that they should not use SBR to discount beer is turned on its head if you intend to sell via SIBA to Tied PubCo pubs using BeerFlex/DDS. This is actually kind of disturbing that the Association that is ‘For Brewers’ is its self helping Brewers sell too cheap at discounted rates thanks to SBR and Pubco pressure.
And lets no forget that every brewer or bar out there has completely different overheads.
*I’m hitting Publish though I may come back and edit*