Prices, slices and perceptions of greed

A quiet family bank holiday weekend for some, for others an outpouring of objections and outrage after Matt Curtis (@totalcurtis on Twitter) pointed out a Cloudwater 4% Session IPA being sold at circa £13 per pint at Mother Kelly’s in London. The national tabloids loved the opportunity to slaughter the beer industry and lapped it up.

Lets just sit back and reflect on that headline.  £13 a pint.  I think most people would see that as a high price for a beer.  But the pub in question didn’t quote the pint price, the price of the beer was quoted in smaller measures, so that the price didn’t seem as excessive.  Is this just a cunning way to disguise the price?  Or is it a suggested measure for drinking it, with an intrinsic acknowledgement that it’s a high cost beer so you may wish to consider drinking a smaller quantity.  I am in no way able to answer that question, but its easy to see how you can, with a pre-set mind, give something a positive or a negative slant.

What determines price?

Most of the discussion has been around the cost of producing a beer, so let’s start with that.  As ever, Cloudwater themselves gave a very honest account of some standard costings for beers, if you haven’t read Paul’s blog post, read it now before we go on, I’ll wait for you to get back…. (Link: http://cloudwaterbrew.co/blog/on-the-values-of-beer)….

….. read it?  Good, it’s an interesting read and a very open way of guiding us to where prices come from.  Honest as ever and as a brewery they often react to social media issues very quickly to justify what they do.  Obviously in this, the beer in question was a Cloudwater beer so they are protecting their own image by responding to it.  And thats very important for a brewery. They are judged by the customer based on their experience of a particular breweries beer at the end delivery point.  Cloudwater themselves have no control over the price a pub customer pays, and yet are undoubtedly judged by the lay buyer on that end purchase, so by writing this piece they wanted to get their points of view across.

But I cant help feeling that they shouldn’t have to justify these things, but I’ll get to that later.

There are points of movement within a chain which takes a beer from being produced, to being supped by the end user.  The brewery puts time and materials into making a beer and must make a return on those things to stay in business.  Any distributor also invests time and materials into collecting and distributing the beer and again needs a return on those to stay in business.  Finally the outlet, be it pub or shop, invests time and materials into the selling of that beer and needs to make a return to stay in business.  Every step must take a slice to justify their efforts in the overall process.

I suspect that most people will look at a price on a board and if it’s outrageously high, as many felt it was in the example that started the debate, the belief is that someone in the chain is taking too high a slice of the projected profits and ripping the customer off.  Cue outrage.

But does the cost of time and materials determine price?  Most of the comments Ive seen over the weekend base an argument on just that.  But in reality, the cost of product and the price of a product are entirely separate things.  We’re looking at this all wrong.  In a world where we as consumers are better educated about the beer industry than ever before, our knowledge is taking us away from the simple reality of how a market economy works.

Price is determined by the customer.  Simple.  End of.

When you walk into a bar and look at the prices, you weigh up how much you expect to be paying and what sort or experience that spend will give you.  You find the balance of price and enjoyment which best suits a sense of value for your hard earned disposable income.  Yes the cost that the brewer has incurred to produce the beer is an influence on your decision, but you are weighing up how much you think that will add to the perceived value for money.  For example, a barrel aged impy stout, I love em.  So if I see one listed I’m looking at the price and weighing up how much I value what I expect that beer to taste like, against what the price actually is.

And this is where the Twitter reaction works.  Simply put, the volume of the response to this high priced beer was a loud and clear rejection from the larger market of that beer at that price.  It’s the extreme version of me opting for a lower priced beer.  Don’t blame the pub for putting this beer on at that price, Id be surprised if they move it quick enough to warrant a return on their investment of buying the beer and also the staff wages during the long time that it sits there getting ever older and more conspicuous.  Pubs owe it to themselves to turn beer around quick enough to maximise their return and minimise the time value of having that beer on the bar.  It’s a balancing act I guess.  But if each stage of the process is too expensive to be palatable by the end user, the whole chain collapses, the longevity dies and there is no longer viability in anyone’s business.

There is one thing that I can’t quite work out though.  Paul made a good point in his blog about imported beer v locally produced beer.  I may be wrong but the customer perception of price was inflated by the lure of the high cost US imports.  Getting a quality US beer to the UK in the best possible condition costs a lot of money and I think punters have become increasingly happy to pay prices at that level to get that product.  But a similarly high class beer from the UK doesn’t cost anywhere near as much to reach the end user and yet, how would a pub price it at a much lower price?  Let’s go extreme examples, let’s say a can of Cloudwater double IPA alongside a can of Heady Topper.  One has gone on a far longer journey.  The original ingredients may be very similar in costs, but does the different transport cost matter?  As a customer, my experience isnt enhanced by the longer journey.  If they are two similar standards of beer then I’d happily pay the same price for the two wouldn’t I?  What if it was an area which I wasn’t such a geek about?  If we were talking high quality fish fingers, I have no idea how fish grow fingers so no knowledge of how they’re made.  So all that matters to me is how they taste.  I have a perception of how much I’m willing to spend on quality fish fingers, irrespective of their heritage.

Some food for thought there anyway.

But I don’t feel that there’s a problem here.  Trends may swing and vary, but the crux is that we vote with our wallets.  You don’t have to hand over your hard earned.  But also, don’t feel under pressure to.  Don’t be afraid to take a step back and say, no that’s too much to pay.  The whole industry will thank you for that in the long run.  Inflation in a market is great while it lasts, but bites back viciously once it runs out of room to grow.

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2 thoughts on “Prices, slices and perceptions of greed

  1. pubcurmudgeon

    You are quite right to make the point that there is only a tenuous link between cost and price, and the basic determinant is what the customer is prepared to pay.

    I thought I had read that the beer in question was a 9% DIPA, in which case the price of £13.40, while half as much again as you would normally expect to pay, isn’t quite so outrageous.

    Long-distance sea transport of non-perishable products at ambient temperature is surprisingly cheap – I’ve read that it costs less to ship a container from Shanghai to Felixstowe, than to transport it by lorry from Felixstowe to Birmingham. You only really get in to much higher costs for imports if you need a swift timetable and a controlled, temperature-controlled environment. I would guess that those US cask beers at GBBF had been airfreighted 😮

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  2. Pingback: Living in the Real World | YES! Ale

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