League of Beers

Opinion: Why Craft Beer is Worth The Cost

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The League of Beers

Opinion: Why Craft Beer is Worth The Cost

League of Beers sommelier Rob Heyns on why we should stomach high craft prices with a smile 

If you’ve ever asked yourself, ‘why is craft beer so expensive’, you’re not alone. We all love the taste and the individuality of craft beer, but most people are not so enamoured with the price – after all, it can be twice the cost of regular beer (more in some cases).

Believe it or not though, there’s good reason for the higher craft prices – and by the way, it has nothing to do with greedy brewers. Craft beer is costly and appears to have all the margin, but looks can be deceiving, my friend.

In reality, the expensive price tag comes down to three simple elements: logistics, economies of scale and quality.

 I will embellish on these and other relevant factors below in hopes that next time you pull out a buffalo to buy a round of craft for the table, you’ll know it was R100 well spent!

Logistics

The biggest factor in beer success worldwide is logistics. As a matter of fact, the biggest, most successful brewers are logistical companies that sell a very consistent product that happens to be beer. Getting beer to the right place, at the right time, in the right condition, in the right quantities, at the right price is an intricate and expensive exercise – especially as beer is a heavy, fragile item. If you cannot do this cost-effectively you will never really succeed and your beer will be too expensive (as distribution will drive the price up).

Unfortunately, most small craft brewers in South Africa don’t have the resources to invest in making good beer AND distributing across an extensive network. Instead, they focus locally on very small markets and find ways to make this work as they tend to have little other option. This means that they don’t sell as much as they could, which means they can’t bring the price down as easily.

The only craft brewers with strong distribution networks in SA are Jack Black, CBC, Darling and Mitchells - and guess who the top four sellers of craft beer in SA are?

The USA is about 10 years ahead of us in craft beer, and the brands that have surpassed all others - Boston, Sierra Nevada, New Belgium,Brooklyn and Rogue - are the ones that have focused on route-to-market above all else.

Part of why we formed the League of Beers was to bring great beers to the people, but the exact problem that we are solving for many brewers and beer fans - getting small lots of heavy beer to people all over South Africa - is also our biggest challenge: The cost of accomplishing our goal is almost not worth it. Like I said, almost; we do still love what we do.

Economies of Scale

This ties in with the previous reason: the bigger you get the lower your costs and logistics are. For example, the cost of brewing a 500-L batch is not much different to that of brewing a 1000-L batch; not to mention, costs do not increase proportionately to the rate that volume increases. Plus the cost of everything, from the price of bottles and ingredients to that of marketing and distribution, comes down with volume.

I would hazard an educated guess that mainstream beer comes in bottled at about R4 with all costs included. Craft beer comes in bottled at about R12 to R16. So in essence, SAB can sell you Castle LITE, which it produces in huge volumes, at a third of the price of a craft beer and make more margin than the craft brewer.

Quality

Here is where I get controversial and have my friends, SAB brewer Denis da Silva and co., request my presence in Newlands again. So let’s compare two very popular but very different beers: Castle LITE (CL) and Brewdog Punk IPA (BPIPA). CL uses SAB pale malt, which is a very basic and cheap malt that’s also grown and malted by SAB. The big beer mainstream brewer makes the saving here.

SAB supplements the grain bill with cornstarch in order to make the beer lighter in colour and less intense in flavour so that you can gulp down many more pints. It just so happens that this is even cheaper than malted barley. Saving and sales go to the mainstream again. By the way, given the aforementioned ingredients, you might now have a clue as to what gives you those sinus headaches - well that’s my theory at least.

On the other hand, BPIPA uses high-quality expensive malts, like German specialities and famous English barley Maris Otter, making their beer more flavoursome and much more costly.

From a process perspective, it’s important to note that hops are generally added in two to four main additions (early boil, mid-boil, late boil or flame out and dry-hops). It is likely that CL will have an early bitter addition and a late aroma addition, both during the boiling process. As the sweet flavours from the malt in CL are so scarce, the bittering from the hops for balance is only needed in small quantities. And remember low flavour is key, so not too many hops please.

Comparatively, BPIPA is a hops explosion. So by the time the BPIPA brewers have included their first addition of hops in a 3000-L brew, they have probably used more hops than the entire batch of a CL 33 000-L brew. Then they take it further. BPIPA has flavour additions toward the middle of the boil, finished off with another addition at the end of the boil. But wait, there’s more! Five days later, after fermentation is complete, they add another massive load of hops to give the beer the amazing aromas of pine and citrus that you have come to love. Saving goes to the mainstream.

Needless to say, it’s much more costly to create the goodness that is craft.

Under-pricing

So here is the kicker. This game is all about volume and distribution, and at this point CL brings in more units of currency than the three-times-more-expensive BPIPA.  So what is the obvious thing to do to further sales, volume and savings if you’re SAB? Well drop the price a bit of course. Now the craft competition looks even more expensive, making the sales even easier for CL and causing the occassional craft drinker to forego that BPIPA purchase after all – meaning craft brewers have less capital to put into the all-important distribution element (which helps them sell more beer and ultimately lower their prices).

Why you should still drink craft

So my message to you is this: If you truly love craft beer and are willing to stick with it for the long-run, then come join us! We are having the most fantastic time.

Disclaimer:

I do have an affinity toward craft beer, but I am in no way against a big brewer for being a big brewer. In 50 years time Jack Back will be big and successful; Ross will be rich, fat and grey; and Jack Black will still be a great craft beer and a forerunner of the SA craft beer movement. And while many hipsters will have long since moved on, the beer will still be fulfilling its purpose – to be flavoursome and awesome (for more on why craft beer is awesome check out my other articles). So I therefore cannot hate on SAB for being an amazing (and almost) homegrown company. I applaud their good business and as long as they support craft beer both in the open and behind closed doors, I will respect them and their highly consistent, world-standard products.

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About the author:

Rob Heyns is the resident beer sommelier at the League of Beers  – an online retailer of craft beer in South Africa. He is passionate about craft beer, supporting local brewers and providing South Africans with new craft beers to tickle their palates.

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