The Price You Pay

By Devin Lovgren There’s never been a better time to drink craft beer in Nebraska. Whether you go to your local grocery store, liquor store, or restaurant, you have a plethora of choices. Price can vary based on brewery, winery, distillery, or cidery and the size of the business. You’ve probably seen a price difference between Macro beers like Budweiser, Miller, and Coors and your local craft options like Nebraska Brewing Company, First Street Brewing Company, and Lazy Horse Brewing & Winery. Part of the reason can be chalked up to Marketing, premium products for premium prices, but the real reason is much simpler, the distribution channel.Most beer contains four basic raw ingredients; water, malt, hops, and yeast. Beer is beer and whether you add one hop, 20 hops, chocolate, or donuts, in the end, it’s still just beer. Beer does however use a large amount of water, about five gallons are needed for one gallon of beer. Now water here is relatively cheap compared to our counterparts across the country so for this example, I’ll leave the price of water, out of the equation.Let's now look at malt, malted grain, which is the source of sugars for yeast, those tiny little cows, to make the alcohol. Big beer has a distinct advantage over smaller breweries, their huge size allows them to demand lower prices from the grain producers. That farmer down the road who grows specialty grain for making beer is told what their price will be, not what the market will bear, how’s that fair? Big macro beers also mix in corn and/or rice, far cheaper than traditional barley, which most of your Nebraska breweries use, in their beer. When compared with craft breweries, they generally produce beers that are lower in alcohol, which isn’t a bad thing, and they produce significantly less amounts of distillers grains, which your local brewery likely gives away to local livestock producers. Your Nebraska breweries also are more likely to use small amounts of specialty malts to add special flavors to that final beer, which support your local farmers and ranchers.According to recent data from the Brewers Association, a medium size brewer can expect to pay $0.40 to $0.50 per pound of malt, while big beer pays closer to $0.22 a pound. Macro breweries also use 40 pounds of malt to make a barrel of beer where a craft brewer uses close to 70 to 100 pounds of malt to make a barrel. That means that a six pack of craft beer contains about $0.65 cents of malt, while a six pack of macro beer contains about $0.16 of malt.Now let’s look at hops. Hops are a vine plant that contributes most of the flavor you find in incredible Nebraska Beer. They’re best known for adding bitterness but there are thousands of different varieties of hops which all contribute to beer in their own unique way. Certain hops are very sought after which with the explosion of craft brewers, has driven to the cost of hops up exponentially. Most hops however cost anywhere from $4 to $6 a pound, while some specially types can cost $20 or more a pound.Big beer contains almost no hops, which is why they taste so drinkable and not bitter. A macro brewer might add a pound of cheap, $2.50 a pound, hops to a barrel of beer. Meanwhile, some craft breweries could easily add four pounds of $10 hops into a barrel of beer. With all this information, a typical six pack of craft beer contains around $0.53 cents worth of hops, while a macro beer contains $0.05 worth.Next, let's look at yeast. Yeast prices can vary wildly in price. Very large brewers, and some craft brewers, cultivate their own yeast and rarely have the need to spend large amounts of money on it, so we’ll say for sake of argument, the macro beers yeast cost is $0.00. Unfortunately for most craft beer producers, they have to buy their batches of yeast.Most craft breweries will buy yeast from businesses like San Diego White Labs or Oregon’s Wyeast. Overnighting these batches of yeast to make a batch of beer could cost up to $1000, not cost effective. Most brewers will opt to try to harvest yeast from their own batches, which may be up to 4 times, which would imply a six-pack cost for craft beer yeast is around $0.13. If breweries buy fresh yeast every time, which some do, it can add up $0.50 cents a six pack in the end.Next, let's look at additional ingredients. Most specialty beer, includes additional ingredients to supplement flavorings. Coffee beans, chocolate, donuts, local grains, honey, candy, etc., regularly make appearances in all the beer you know and love. Most of these ingredients can add as much as a couple of dollars to the cost of your six pack. Now with that being said, the range is very large and for the sake of argument, we won’t include that in this price hunt.Once all those raw ingredients make it to the brewery, that’s when the cost of beer really comes into play. The general rule of thumb is for labor cost is that it takes 20 hours of work to make a batch of beer, regardless of size or type. The going rate for most beginning brewers is $12 an hour, meaning it costs $200 in labor to make a batch of beer. Assuming that 30 barrels is made at 100 percent efficiency, $0.15 of labor goes into a typical six pack of craft beer.Packaging, whether in cans, bottles, or kegs, is very expensive. Even buying in bulk, a glass bottle with a beer label can add up to $0.20 and the container they come in, adds a few more cents to each six pack. Packaging can easily add up $1.50 to the cost of a six pack. Packaging is single-handily the biggest expense a brewery has to account for. The amount drops significantly when you package by the keg, be in a 1/6 or 1/2 barrel, but it’s stiller considerable.Finally, let’s look at buying equipment, renting space, etc., which can cost up to $1,000,000, and there are ongoing costs for other things, like promotional events, advertising, research and development, that are simply not included in the labor and beer aforementioned.Basic microeconomics tells us that it's unwise to explicitly account for these past expenses when pricing a product but the owner of a brewery eventually has to recoup their investments, as well as make a living. To do that, most breweries add a markup to costs before selling beer to a distributor, around 50 percent of gross costs, leading to a margin of approximately 33 percent. Assuming that all raw ingredients costs are $1.31, labor cost is $0.15, and packaging cost is $1.50, the brewer’s margin ends up adding about $0.91 cents to the final cost of the six pack.Now let's look at shipping. Most breweries here in Nebraska sell only here in Nebraska. Large craft breweries will ship out of state but for sake of argument, let's keep the beer here in Nebraska. If we were to ship, refrigerated trucks are expensive and can cost $5000 to $10,000 to ship across the country. Local trucks generally get the job done, carry 18 pallets of goods and can fit around 80 cases of beer onto one pallet. Most shipping costs average around the $0.67 cents for each six pack you ship.We all know Uncle Sam has to get his cut, and that’s where Excise Taxes come into play. These are generally a double-edged sword with both state and federal taxes levied. They can be $7 a barrel, 31 gallons, or up to $18 a barrel. Most states vary in price and volume but we’ll average it with historical medians and look at $6.20 a barrel. With all that I mind, that comes out to roughly $0.23 cents per six pack.Now here comes the big piece. Distribution. Thanks to Prohibition and the 21st Amendment, all beer must pass through a distributor, especially here in Nebraska. For their services of holding, selling, and shipping the beer, and lost product costs, the distributor adds about $2.73 per six pack they ship out the door to retailers.Retailers are the final piece of the puzzle. A typical retailer will buy a craft beer six pack for about $7.48 from the distributor. The retailer then has to account for costs, like time, labor, insurance, wear and tear, hourly wages, etc. The normal liquor store or retailer is likely going to mark the beer up by around the same amount as the brewery to the distributor, roughly 50 percent or $3.75 on a $7.48 six pack. Once you add sales tax, that’s why you end up with a $12.00 six pack.That’s why direct to retailer distribution is so crucial for breweries, wineries, distilleries, and cideries. Allowing them to proceed forward and keeping more of their hard-earned labor, allows them to expand and grow. Nebraska producers need to be able to produce and distribute unlimited amounts, not the measly 250, 500, or 1000 barrels. By limiting the amount, it shackles the producer and inhibits growth and development in the industry. Write, call, or email your senator today, and let’s keep Nebraska Beer, Wine, Cider, and Liquor the economic “Good Life” we know it can be!

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