Not meaning to “beat a dead horse,” but what factors contribute to the high cost of Hop Pocket Ale?
While ingredient prices are much lower than they were a year and a half ago, they’re still twice what they were when we were with Old Dominion (OD). But the biggest factor is economies of scale. St. George is, even among craft breweries, tiny. They still put together beer cartons by hand, for example. They had to buy new equipment to brew our beer, so we’re not just a marginal product for them. But even if the InBev plant in St. Louis were brewing it, it would be expensive. We condition four times longer than most ales, dry hopping is labor intensive, whole hops are expensive and labor intensive to work with, and we use a ton of hops in the kettle and in the dry hopping process. Even when the beer is done, it’s not done: it has to sit for a week in the bottle and condition before it reaches peak form.
There are many reasons for the higher price.
When the Bud guys took over OD, they told us that their “more accurate” cost analysis showed that OD had been losing money on the beer for years. Even if we had worked something out with Coastal, the price would have risen suddenly and steeply even while they sharply reduced what they paid to us. While I was cynical at first, I think their “more accurate” cost analysis probably was. Hop prices are better than they were a year or two ago, but still hover around twice what they were when we were at OD. Malt prices are higher too.
St. George is a much smaller brewery than OD and cannot achieve some of the economies of scale that OD had by the end. The result is higher costs for malt and hops, of course, but also for cartons, carriers, and bottles. Few people remember that the price of Tuppers’ steadily dropped in the 12 years we were with OD as the brewery expanded and achieved economies of scale. We’re now with a brewery that is smaller than OD was when we first produced Tuppers’ Hop Pocket in 1994. Distributors and retailers (and Montgomery County, Maryland) base their charges on a percentage of the purchase, so as the cost of making the beer increases, those higher costs are not only passed on, but multiplied as the beer passes through the multi-tiered US distribution system. A contract beer usually takes advantage of excess production capacity in a brewery, allowing the basic cost to the contractor to be at margin plus some profit for the brewery. The price of most contracted beers includes little or no capital cost. St. George has had to purchase new tanks to have space to produce our beers. So it’s not a marginal product at all, but an integral part of their production. The beer is a tank hog—6 weeks for the ale!—and the tanks aren’t free. We are currently conditioning our ale for a week longer than we did when we were with OD. We’ve talked with more breweries than I care to think about in the last few years. They fall into three groups.
1.Good craft breweries who are selling every drop they can produce of their own beers. There’s clearly no incentive to produce ours when it means making less of theirs.
2. Breweries with excess capacity who could make beer at a lower price. But in each case it would have required us to make changes in process or formulation. Some of these options tried contract beers that tasted like they’ve been sitting around somewhere for months. That’s because they have.
2.Tiny breweries who will take the time and effort to make our beer exactly right, albeit at a much higher price. It seemed like an easy call to us. We never expected to make as much money as we did from bringing Tuppers’ Hop Pocket into production in the 1990’s. We thought we’d make a bit, and help some people out, but also produce a beer that no one else would be willing to make even if they knew how. That’s still true.