If I wanted water, I would have asked for water.


Monday, October 24, 2011

The Latest Outrage From DC: $7 Pints of Beer

Before I get into the substance of today's post, a brief program note. In a little less than two weeks, I'll be headed off to Europe for nearly a month, visiting something on the order of two dozen breweries. As a consequence, I'm not doing any of the normal blogging about Oregon and Portland I'd like. Brewpublic just celebrated three years with a typical Angelonian bacchanalia, breweries are busy releasing new seasonals, and events stack like cord wood in the ol' Google calendar. I apologize for this breach and assure you that I'll be back on track with the Holiday Ale Fest--which starts the day after I return.

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I'm not totally sure what to make of Tammy Tuck's 3700 word inquiry into a simple question at the Washington (DC) City Paper. She describes the joy of buying beer for $4-5 a pint in San Francisco (also typical for Oregon and Washington) and then describes what it's like in the District:
Yet, in Washington, where drinkers can now sample D.C.-brewed beers for the first time in 50 years, even the local brews aren’t particularly cheap. DC Brau Public Ale costs $6 on draft at The Big Hunt. At Tonic in Mt. Pleasant, the price is $7. The local brewery’s second effort, DC Brau Corruption, runs $6.50 on draft at both Meridian Pint and ChurchKey. All this for a brew that doesn’t even have to cross the District line!
The subject of the piece is captured in the slug: "Why is craft beer so expensive in Washington?" What follows is a strange journey through an alternate craft brewing world where Tuck's informants lead her to passages like this:
One of the biggest factors in how much you pay for locally made beer is the scale of production. Each of the District’s breweries is technically operating at a “nano” level, meaning the amount of beer they make is minute, even compared to others defined as microbreweries.

“We have a 15-barrel system while a much larger brewery like Flying Dog makes 50-barrel batches,” DC Brau’s Brandon Skall says. “We have to brew three times to accomplish what they do in one brew.”

Chocolate City’s seven-barrel system is even smaller, producing just 30 or 40 kegs a week. “As small as we are, we can’t afford to drop the prices of our kegs right now,” Irizarry says. “If our volume were to grow significantly, if we were to jump up to 100-barrel fermenters, I could more easily guarantee that the price will come down.”

(Good reporting can sometimes result in bad information. It's preposterous to call a 15-barrel brewhouse a "nano," as anyone passingly familiar with craft brewing knows, or to suggest that such a system is so inefficient as to cause prices to spike 50%. But that's what the local brewers apparently told Tuck. The article includes a series of similarly bogus justifications for customer-gouging.) Ultimately, she arrives here:
It’s outrageous to have to pay more per pint than suds-sippers in super-pricey San Francisco. No matter what the excuse—the kegs are too damn heavy, the rent is too damn high—there’s no justification for the significant price discrepancy between such comparably expensive and sophisticated cities.
A magnum opus on beer pricing, and we come up with no real explanation. My guess is this: craft beer is in its novel, exotic phase in DC and there isn't a huge amount of competition. As a consequence, the small group of consumers who are supporting the local breweries are willing to shell out a huge premium on a price of beer. If the market were healthier, bigger, and more competitive, those prices would drop like a stone.

Take, for example, Portland, Oregon's. Thanks to the work of Bill Night, we have excellent data over the past two years to see how prices have changed. Every three months, Bill assembles the Portland Beer Price Index to see how prices have changed for various packages of beer. He began in the fall of 2009, giving us two full years of data. In that first tabulation, Bill found that the average price of a pint of beer in Portland was $4.27. In last month's report, the price was up to $4.33. Two years, 1.4% increase--that's stability. The reason, of course, is that if a pub hits you up for five bucks a pint, you're going to consider very carefully the prospect of wandering two blocks to the next pub, where a pint's $4.25. No doubt every pub would love to make seven bucks a pint, but you would be out of business in a month if you tried.

At a certain point, the DC market will mature to the point where there's enough supply that pubs will compete on price. Pints will dip to five, five and a half bucks. DC is an expensive city where a lot of people have expense accounts, so probably it's never going to get as cheap as it is on the West Coast. In other words, it's basic market dynamics. The solution, as with all things, is to make and drink more beer.

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PHOTO: FADO IRISH PUBLink

12 comments:

Maureen Ogle said...

"craft beer is in its novel, exotic phase in DC"

Here's an interesting bit of historical trivia: back in the 1980s, DC was a serious hotbed of craft beer enthusiasm, thanks, in part to an equally hot (bed) of homebrewers.

Not sure what's happened in the intervening 30 years.

Ghost Drinker said...

"there’s no justification for the significant price discrepancy between such comparably expensive and sophisticated cities"

- How about - people can charge whatever they want for something in their own premises?

$7 doesn't seem too bad from someone who hails from the UK, that is of course, as long as the beer is served correctly, is in good condition and more importantly, tastes good. She should try buying pints of "craft" beer in some of the best London pubs, and ask how their business is doing. I think she'd be a little surprised.

Spaceboy said...

Meanwhile in Chicago you're rarely going to find a decent pint for $5 ever. More than likely if you're going to a bar that has a large draft list and therefore has a good friday night's worth of limited or rare beers you're almost always going to get them in a 8-12oz chalice or tulip and pay between $8-$12 each. Even the more local/regionals are going to run you $6 for something like Honkers Ale or Two Hearted.

Patrick Emerson said...

Thanks for tackling this so I don't have to. I tried to wade through this seemingly endless piece but just gave up.

The answer she is looking for, as you rightly point out, is the first thing we teach econ undergrads: supply and demand. $7 pints are a result of the local market equilibrium. Full stop.

Now there are certainly aspects of the local market that influence the supply and demand curves: zoning, rents, incomes, local tastes. But in the end, pints cost $7 because that's what people will pay.

But as an aside, why kind of market pricing software is the Big Board pub using that would LOWER the price of a popular keg about to blow?

Brewers Union Local 180 said...

Guess I'll have to raise my prices.

Doug said...

Have fun in Europe. I will miss your musings, but I won't begrudge you the opportunity to take a break.

Leftfielder said...

Also, it depends on where you go for your beer. Go to a Blazers game, a Timbers game, a PSU football game and see how much you pay for a Widmer. $8.25 last time I checked. Robbery pure and simple, but you can't walk out and go to a different MLS game down the street with cheaper beer.

Anonymous said...

I lived in DC for a few years and I think it's fairly naive (and a little condescending) to assume that prices are high because craft beer is in a "novel, exotic phase" there. There's a decent beer scene in DC. It aint Portland, but it's not bad. Beer is expensive in DC because everything is expensive there. I didn't pay over 1700 bucks a month for my apartment because housing is in novel, exotic phase. It's suprising that beer is so fairly priced in SF though.

Jeff Alworth said...

So I seem to be coming into some hell for the "novel, exotic phase" comment. Despite the fact that I am such a political fiend that for fun I read political blogs, I've never been to DC. So I don't want to get too far out on a limb here. Residents who tell me that it's a great scene rife with choice, I'll believe you.

Still, there are a few data points that suggest otherwise. It's roughly the size of Seattle, Denver and Nashville. It has four breweries. Denver has 10, Seattle 20, and Nashville has four. I"m just suggesting that maybe there's not a huge amount of local competition. This explains the disparity between SF and DC.

Jim F said...

I don't think this is a big mystery. DC is just an expensive city. I have had many a $7.50 pint at Churchkey. Unfortunately they don't taste any better than a $4 Portland pint. Nor worse than a $12 Copenhagen pint.

Now can someone do a story on why Rogue charges so much for their beer?

Patrick Emerson said...

Jim F,

At your service:

http://beeronomics.blogspot.com/2009/02/beer-prices-and-signalling.html

http://beeronomics.blogspot.com/2010/01/signalling-redux.html

Leftfielder said...

Another example of outrageously expensive pints is the Pelican Pub on the coast. Once again, if you're there, where else are you going to go?

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