Why Price Increases Are
Brewing for Craft Beers
By DAVID KESMODEL and JANET ADAMY

That six pack of high-brow beer is about to come at a higher price, thanks to the sharpest surge in decades in the cost of the hops and barley that give each brew its distinctive taste.

Consumers could pay 50 cents to $1 per six pack more in the coming months for many small-batch "craft beers," as brewers pass on rising hops and barley costs from an unpalatable brew of poor harvests, the weak dollar and farmers' shift to more profitable crops. Other makers of craft beers, the fastest-growing segment of the U.S. brewing industry, say they may eat the higher ingredient costs, which will pare their profits.

"The hops are to Samuel Adams what grapes are to wine," says Jim Koch, founder of Boston Beer Co., maker of Samuel Adams Boston Lager, one of America's fastest-growing beers. The company has raised its prices just over 3% this year to help offset the hops and barley costs. Mr. Koch says that for next year, the company is "probably looking at the same or maybe more."


Jim Koch, right, with Bavarian hops farmer Stephan Stanglmair.
"The cost increases have been the largest we've ever faced, both in barley and in hops," says Mr. Koch, who founded the company in 1984. The company only buys hops that are grown on several thousand acres in Bavaria, and the crop has been smaller in the past two years, making them more expensive, Mr. Koch says.

The cost pressures could slow the expansion of American craft brewers, which account for about 5% of U.S. beer revenue, and even put some smaller ones out of business. Craft-beer makers also are battling other cost increases, including higher prices for glass, cardboard, gasoline and the stainless steel used to make beer kegs. "People are very concerned," says Kim Jordan, co-founder of Colorado's New Belgium Brewing Co., which makes Fat Tire Amber Ale, a top-selling craft beer. "It significantly affects profitability."

Big American brewers like Anheuser-Busch Cos. and SABMiller PLC's Miller Brewing Co. also face cost increases, but the impact isn't nearly as great for them. They use much less hops and barley in most of their beers, which is why they are lighter in taste and calories. A barrel of craft brew Sierra Nevada Pale Ale, for example, has about twice the malt and as many as five times the hops of a mass-market brew, like Budweiser or Miller High Life.

Large beer makers are also better able to secure long-term contracts to mitigate the impact of rising ingredient costs. Most spirits makers, such as Diageo PLC and Fortune Brands Inc., also face a relatively limited impact from global increases in the cost of grains such as corn.

The craft-beer segment has been among the few bright spots in the slow-growing U.S. beer industry. The number of barrels of craft beers sold rose 11% in the first half of this year against year-earlier levels, according to the Brewers Association, a craft-beer trade group in Boulder, Colo. Meanwhile, the Beer Institute, a Washington-based industry group, projects total U.S. beer sales, by barrel, will rise 1.5% this year. The boom in craft beers reflects heightened awareness of their brands and a willingness by American beer drinkers to pay an extra $2 or $3 per six pack to get a premium product.

Craft beer makers have faced escalating costs over the past year. Prices for malting barley, which accounts for a beer's color and sweetness, have jumped as farmers increasingly shifted to planting corn, which has been bringing higher prices because of high demand from makers of biofuels, like ethanol. The weak dollar also has made it more expensive for U.S. brewers to buy commodities from Europe.

The news worsened for craft brewers significantly in recent weeks. Firms that turn barley into brewing malt informed craft brewers of price increases ranging from 40% to 80%, and hops suppliers announced increases ranging from 20% to 100%, depending on the variety of hops.

The price of hops -- which give beers their bitterness and aroma -- has risen because of shortages across the globe, due in part to poor crops in Europe. Some European brewers are competing with American brewers for hops grown in the Pacific Northwest.


For years, hops were cheap due to a glut. That prompted growers over the past decade to replace hops with other crops, such as apples. Now, the amount of hops acres world-wide is about half the total of 12 years ago, says Ralph Olson, a hops dealer with Hopunion CBS LLC in Yakima, Wash. That's caused some hops varieties to quadruple in price over the past year, he says.

To cope with higher malt and hops prices, smaller brewers are trying to secure longer-term contracts for the ingredients. And, in some cases, they're tweaking their recipes.

At Bell's Brewery Inc. in Comstock, Mich., founder Larry Bell says he is substituting other varieties of hops into the brewer's Bell's Oberon Ale and Bell's Lager because he could only secure 60% of a Czech Saaz hops that he normally uses in the beer.

Mr. Bell says employees who test beers at his company haven't been able to detect a change with the new hops and that he won't make any changes that will compromise quality. Starting next year, he anticipates he will raise the price he charges beer wholesalers by 50 cents to 60 cents per case. Customers may see an even higher price increase because retailers typically mark up beer even further.

"I am concerned that there could be some small players out there that will fail because of this," says Mr. Bell, whose brewery sold its first beer in 1985.

Boston Beer has inked long-term contracts for some of its ingredient needs. But many smaller brewers, such as Allagash Brewing Co. in Portland, Maine, buy hops and malt on the open market, exposing them to huge price swings. Rob Tod, president of Allagash, says the company expects to absorb some of the recent cost increases. But it will likely impose some price increases, resulting in a four-pack of its Allagash White costing about $9 at retailers in the Northeast, up about 50 cents. "We're getting hit on all sides," Mr. Tod says.

Ken Grossman, the founder of Sierra Nevada Brewing Co. in Chico, Calif., says the brewer plans some price increases, but it's better positioned than others because a price spike for hops in the early 1980s prompted him to sign long-term contracts. "I've gotten calls of panic from other brewers," he says.

Dogfish Head Craft Brewery Inc. in Milton, Del., is coping by trying to make its operations more efficient, locking in commodity contracts as early as possible and weighing a price increase, says brewmaster Andy Tveekrem, whose company is known for "hoppy" beers like 60 Minute IPA, or India pale ale.

"I think there's going to be some brewers out there," Mr. Tveekrem says, "if they haven't looked that far ahead, that actually might run out of malt or hops, which would be a catastrophe."
http://online.wsj.com/public/article/SB119153971071549546.html

Nice find! I threw in the link, just so we don't get in trouble w/ the WSJ.

Very interesting facts, though. I don't want to pay more for my beer, but I want to not drink beer even less, so I'll pay for it.

Response to increased craft beer prices from Dan Weirback

A Treatise and an Appeal or How I Stopped Worrying and Learned to Love Craft Brew, At Any Price

OK, here it is, your inside the industry explanation of the ridiculous price increases in Craft Brew that you are going to see very soon. I’ll explain what’s happened to the price of Malt and Hops and why, what can be done about it, and why you are going to see prices jump likely between 15 and 25% on the retail end for Craft brews in a matter of weeks. I’ll then finish with an appeal to all craft brew fans for continued support. We need it now more than ever to get through this rough period and not lose any more quality craft breweries, which could likely happen to some you might not expect.

I own and operate Weyerbacher Brewing Co. (with partners) in Easton, PA, so you’re getting info straight from the brewery. In late September I was told by another brewery that malt was going up about 40% and hops 30 to 40%. I started calling suppliers and they confirmed this was true, and also that they have no prices locked in yet. Additionally, I was informed that many farmers are not honoring their contracts to the fullest extent (don’t blame the farmers please) due to the crazy price situation that’s evolving in crop farming, with corn being twice the price it was last year.

What does corn have to do with it? Our supplier tells us that with Uncle Sam’s push and financial support for ethanol the price of corn has doubled and many farmers grew corn instead of barley this year. In the UK, where the EU has also required ethanol production, rape seed is the crop of choice and again, a lot more profitable than growing barley and wheat. Couple this with bad weather and growing conditions this year and in Europe and you have a crisis in barley supply. We were told this was coming in early summer, but we assumed our malt company might have meant a 10 to 15% increase in price, not this. When we finally got nailed down pricing last week, one malt price was up 45% and the other up 56%. Plus, we were told to be happy that we’re able to get the supply (with growth) that we’ve asked for. Some brewers will not be so lucky.

Now for Hops. A glut of hops on the market in the mid-90s, caused a 10 year decline in hops acreage and hops farmers throughout the world. Each year more acreage dwindled and it didn’t matter as there was still an oversupply of hops. Beginning perhaps 2 to 4 years ago, the astounding success and strength of the craft brew industry put a big dent in the overage, but prices stayed essentially the same and farmers didn’t have incentive to plant more. Throw in the runaway success of Double IPAs (and bigger) and we’ve jumped up the demand again for those fragrant cones. Sooner or later something had to give. And its happened last month. Rather than going up 30 or 40% as expected, US and European hops have gone up 400%!! That’s not a typo, 400%. There is not enough to go around. Weyerbacher has our supply lined up, but some recipes may require a few substitutions in hops due to lack of supply of some varieties. In a recent Wall Street Journal article on this problem, Larry Bell of Kalamazoo brewing and Jim Koch of Sam Adams were also quoted as saying they would probably have to alter a few recipes.

There simply is no choice for some breweries. Some Craft breweries have locked in contracts for several years for supply, but they’re still going to see the price increase sooner or later. Many farmers are not honoring contracts.

So where does this bring us? These price increases for Malt and Hops alone amount to a minimum price increase from Weyerbacher to wholesaler of 12 to 14% and it gets worse on the beers that use a lot of hops. Many of our beers will increase about $2.50 per case. Our ingredient cost for Hops Infusion IPA has risen $3.94, so we will raise the price $4.00 per case. Its typical for a business to markup a certain fixed amount from cost, so typically this $4.00 would result in a higher markup to keep our margins this same, but you can see why we can’t do that. When you reach for that 4 pack of Double Simcoe IPA in the New Year, don’t be surprised if its $2.00 to $2.50 higher. Our ingredient cost on this hop bomb went up $8.14 per case. You can see where this is going. Many BIG beers not heavy on the hops will go up perhaps 3 or 4 dollars due to the malt increase.

It gets better. A price increase at the brewery of 10 to 15%, just to cover costs, no gouging whatsoever, will result in a price increase at retail of 20 to 25%.

So that’s it in a nutshell. The Associated Press and The Wall Street Journal have both written separate articles on this subject in the past 3 weeks.

While not officially speaking for the industry, I hope other breweries will join Weyerbacher in an appeal to beer geeks everywhere for their continued support of our industry. We need you now more than ever if we are to continue making great beer. When hops are short and the big 3 industrial brewers will pay anything (almost) to get their hands on them, we need you the consumer to come to a full understanding of what’s going on in our industry.

Many craft breweries just get by, with employees typically working 50 to 60 hour weeks, most of whom would not feel they are overpaid. Fuel goes up, glass goes up, cardboard goes up every year, and somehow we have to deal with it. We’ll be OK here, but some breweries may not. We simply ask for your understanding about why the prices have gone up. Thanks for your fantastic support in the past and your (hopefully) continued support in the future. Cheers! Dan Weirback, President Weyerbacher Brewing Co., Inc Easton, PA

Very interesting. Boston Beer Co.'s profits are down already, despite revenue growth as well. A lot of the bigger craft brewers will weather this storm fine. We're going to see quite a few newer and smaller ones not be able to make it.

On the whole still cheaper than wine! I doubt I will ever waiver in my love for craft beer regardless of the price. I'll gladly pay $10-$12 for a 4 pack of Double Simcoe because it is that good. It sucks that the prices are going up that much, but I hope that because of this the current selections I see from all these great craft breweries doesn't get effected too much.........I think it might be time to setup up the homebrew and kegging operation in my basement.

There's definitely going to be some sticker shock in the coming months... but that's just economics! I'm sure the breweries are about as happy about it as us... probably less so, as they make their living off this stuff!

Homebrewers are going to be hit hard too. The price for hops and malt will increase for us as well. And, from what I'm hearing, many varieties of hops will be unavailable... forget the homebrew and kegging line... it's time to start planting some hops!