Establishing a Balance to Your Packaged Product’s Margin

Finding a good balance of cost effectiveness and margin for a product such as craft beer has been a tricky subject at time for some brewers.

When factoring in cost of goods along with various other outliers, margins can fluctuate.

Scott Roth, the president of Three Notch’d Brewing would like to think there is a healthy balance between building brand equity through appropriate pricing, market research in the consumer packaged goods sector and the craft beer industry category.

“And most important direct customer feedback,” he noted.

He added that pricing strategy is important in that it remains flexible and creative to build partnerships with a brewery’s largest retail clients.

“However, craft also has a highly curated product relative to the biggest beer brands and has priced this value at a premium,” Roth said. “It has taken years to grow this awareness and our consumer has always told us they will pay a premium for better beer.

“All this considered, it is paramount to craft best-of-breed beer and engage with our customer. We will continue to do this and price accordingly to build our brand equity and offer our customers the best experience possible.”

There’s really not much of a ceiling for limited batch specialty projects like barrel-aged Barleywines, said David Kroening, the co-founder of Buoy Beer.

“People will pay a lot to get those,” he said, “although [there is] definitely a ceiling with volume on those.

“When we look at pricing we look at lots of things such as what the market is at, what customers are valuing, what the goal of a particular beer is, and of course what we’ve put into and need to make to keep the business going.”

On larger pack sizes of core brands, there might be some room to cut margin for the sake of volume, but that is a very slippery slope Kroening said that really could cause issues for craft beer if too many get too aggressive.

“The bigger craft players are all dealing with this aspect a lot these days and with lots of different approaches to it, which will be interesting to see how those approaches shake out over the next year,” he said.

In a taproom, Gene Mangrum, the Restaurant General Manager for Penn Brewery pointed out that smaller kegs cost more per ounce, so that may be reflected in the sale price.

“We are more concerned with offering a quality product at a good and competitive value first and taking the margin second,” he said, noting that the brewery has made price increases twice in the past three years.

To date Three Notch’d has had minimal price increases on a yearly basis to long standing beers but Roth has looked hard at pricing new products before going to market.

The brewery’s Minute Man IPA has received a premium ever since its release and the depletions are growing on a monthly basis.

“Every beer style is different and each need to be treated individually to make the best decisions possible for that one SKU,” Roth said. “This has caused us to avoid releasing certain beers because they would be too expensive, and kept us from releasing beers at what would be perceived as being a significant discount.

“At the end of the day all of these choices are about the brand, and as anyone knows in the craft beer world pricing can really define how the consumer views the quality and culture of the brewery.”

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