D.C.'s Economies of Ale Why is craft beer so expensive in Washington?

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Three basic components make up the beer economy and account for its prices. There are the breweries that make the stuff. There are the wholesalers and distributors that carry it to your corner. And there are the retailers that sell it.

Let’s start at the source: your local brewery.

Here in the District, with its fledgling brewing industry, you and your fellow beer drinkers are chipping in on the financing of these emerging producers, which have to cover the not-inconsiderable costs of opening a brewery.

Consider D.C.’s own Chocolate City. At a launch party at RFD in August, its first batch of Cornerstone Copper Ale ran on special for just $4 per pint. RFD now regularly charges $6 per pint. “We had to buy all our own equipment. So, our first beer was the most expensive,” Chocolate City’s Jay Irizarry says.

Chocolate City also needs to recoup the more prosaic costs of doing business. For locals in Washington, rent may be the most formidable. Add to that utilities, ingredients, packaging, shipping, and labor.

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Then there’s the alcohol excise tax the District requires brewers and distributors to pay. Of course, the rate here (nine cents per gallon) is actually lower than it is in most places, including California (20 cents).

Likewise, D.C.’s new breweries don’t face especially steep labor costs, as many businesses in this high-wage market do. DC Brau, for one, employs just four people. The rest of the work is done by volunteers. They’ve also saved money on packaging. Rather than grapple with the rising costs of bottles and cardboard, the firms are choosing the cheaper option of aluminum cans for their six packs. Chocolate City and 3 Stars, meanwhile, are distributing their own beer, which should cut costs in the long run.

On the other hand, the local breweries around here—in an area where the industry is still burgeoning—have higher costs that stem from their newness. 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.”

The kegs themselves represent a big cost, and are a particular peril for small operators. “If we have kegs out in the market that haven’t come back, it can cost us $100 per keg a week,” says DC Brau’s Skall. “Right now, we have a bright tank full of beer and no [kegs]. We try to buy more kegs every month, but with our profit margins we can only buy so many.”

This is all to say that just because something is produced locally doesn’t necessarily mean it can be had at a substantial hometown discount. “You wouldn’t say this chicken wasn’t delivered from far away to Whole Foods, so it should be cheaper,” says Skall. “You take into account the size of the farm, the amount of labor it took compared to much larger farms.”

The biggest factor in the price of the locally produced beers, though, was determined before the new breweries even got into the game: An existing culture of high beer prices.

The modern craft beer movement began in California. Pioneering breweries, like Anchor and Sierra Nevada, have been in operation since the late ’70s and early ’80s, when lower-priced mass market brews set the tone for the industry. In contrast, D.C.’s beer scene came of age much later and grew out of the rising popularity of Belgian beers, which tend to fetch higher prices to begin with.

With imports and microbrews from other places already priced at around $6 per pint or higher, it makes little sense for a newcomer to charge less, even if that producer is local. “If you start pouring beers at $7, then that becomes the way of the world around here,” Irizarry says. “We’re not looking to take a $4 shirt and sell it for 50 bucks. We need to be competitive.”

But a local brewer in San Francisco or Asheville wouldn’t be able to make the same calculation.

Photo Slideshow: Inside D.C.'s Beer Scene

Our Readers Say

Time for #OccupyTheYuppieBars
The distributors are a legacy of prohibition. Congresss required them in order to get organized crime out of distribution. There is no reason for them to exist anymore.
Craft beer costs more because people will pay more for it. Stop buying and the cost will go down. I'm sure there's no craft beer for sale in Rose's Liquors.
Maybe a lack of competition keeps prices up? How many tavern licenses does the city have per capita--residents and perhaps daytime population as well--and how does that compare to elsewhere? I know it's an expensive city for a lot of things, but most cost of living indices put the price premium at more like 25%, not 40-70%, more expensive. Plenty of other cities also have high rents, the outdated three-tier distribution system (which DC uniquely allows both producers and retailers to bypass, so that's no excuse), expensively outfitted bars, and silly liquor licensing boards.

Economic cycles also seem to have little to do with beer prices. The good times have resulted in more supply and not dampened demand, but it's not like food/drink prices are all that elastic -- beer hasn't gotten cheaper in hard-hit cities. I know that it hasn't in the Midwest, the cheap-beer paradise I moved here from.
Sigh. Kids these days. You just don't know what it was like in the golden days of beer drinking (AKA my youth). I'm talking southern Germany ca 1965, my days in the Army, and introduction to beer. The exchange rate at the time was about DM4 to $1. A half liter mug of draft in the corner Gasthaus was about 65-70 pfennigs (17 - 18 cents). The cheapest I can remember was Dachauer Schlossbraeu (yes, that Dachau) at 55 pfennigs per .5 liter. The only "Imported" beer was Pilsner Urquell from Czechoslavokia, in fancy .33 liter bottles with silver foil around the neck - 2 whole D-marks (50 cents).

Now granted a PFC at the time was only making about $80 or $90 a month, but you could still experience a lot of wonderful brews for very little money. I used to hitchhike around the Swabian and Bavarian countryside on Sunday afternoons, trying a local brew at each little Dorf, I collected the "Bierdeckeln" (coasters) and must have had a hundred or so from different breweries. The USO even organized a tour of a local brewery for us.

American brewers had somehow gotten Congress to pass a law requiring the service clubs at American bases in Europe to stock American beer. Needles to say, there wasn’t a big demand for canned Bud or Coors when you could get fresh German lager at these prices. So they’d have “nickel night” at the clubs, the day before payday each month, and unload the American swill for a nickel a can.

You could even buy beer from vending machines in the railroad stations, and of course it was perfectly legal for a teenager to buy beer - I think you were supposed to be 18 for hard liquor though.

Not sure if I envy or pity you young beer drinkers. You certainly have a wide variety of American craft beers which hardly existed in the sixties (though I do remember drinking Anchor steam beer in California in the late sixties). Some of these are excellent, I grant you, (Penn Pilsener, Fat Tire) but a lot of them seem to be just weird flavored, fancy-labeled creations for Gen Y Yuppies who can’t tell real beer from alcopop.

And even if you go to Germany, you won’t find the variety of small town local breweries that existed in the sixties; the same economic factors that killed most traditional American local breweries has resulted in consolidation of the German industry - I read some time ago that there are now only about 2,000 independent brewers in Germany versus over 6,000 forty years ago. Is there a craft beer revival in Germany? I dunno, I’d hope that there are still enough local breweries that it wouldn’t be necessary.
The costs of making and distributing a product are actually entirely irrelevant to the price of a product. If their is no market for $7 Guiness, then even if it costs Guiness $12 to make a pint, you won't be able to sell it for that amount. If costs are greater than the market will bear, the producer merely goes out of business.

And in a free market (which seldom exists in alcohol markets because governments often require monopolies, which they don't even allow in other markets), distributors actually decrease costs as they provide a more efficient movement of product to final destinations. If each brewery in the US had to buy its own trucks and pay its own drivers and fill a van with only its own products to deliver to bars, there would be much higher costs than moving this very heavy product to a central distribution center and then having the distributor move everyone's barrels to the bars. Of course, again, costs are not relevant to the selling price, only to whether or not a company can stay in business.

The only thing that affects the *price* is supply and demand. If there are enough people who want to pay $15 for a pint of Coors Light, then there will most likely be a bar selling at that price. Of course, in DC there is much more demand for bars than there are liquor licenses issued, because there is no free market in alcohol in the District. If anyone could get a liquor license or if no license were required, there would certainly be much more pressure on bars to lower their prices (demand would not be outstripping supply).

Of course, and you touched on this, the primary product that bars sell is NOT beer (or wine, or liquor), it's atmosphere, the entertainment of hanging out with lots of other people in a crowd. It's exciting! And there's also exclusivity which is much more in demand in DC than in San Francisco. Charging $7 for a Guiness means the clientele doesn't have to deal with those pesky bicycle couriers who, when I lived there 6 years ago, hung out at Common Share in Adams Morgan. Common Share was a dive that served excellent beers and liquors for exactly $2 a drink, no matter what the drink. But Capital Hill interns who make even less than bicycle couriers wouldn't be caught dead there so instead went up the street to Madam's Organ and paid at least 3 times that, and Common Share went out of business, while Madams Organ is still there.
Interesting article! Now get cracking on a greater mystery: why is it impossible to buy Bell's in Maryland?
Asheville is in the Blue Ridge Mountains, not the Smokies...
"I had just gotten back from a trip to Asheville, N.C., where craft beer is cheap, around $4 or less on draft at most places. That the rustic watering holes of a sleepy town in the Smoky Mountains charge less per pint than the finer establishments in the nation’s capital should come as little surprise."

"Rustic watering holes....Sleepy town" Huh?

I'm a musician and had a gig in Asheville last night. If you thought the place is quiet and sleepy you either visited at 7:30 on Sunday morning or you have personal habits that would make Hunter S. Thompson and Charlie Sheen freak out and cry. Incidentally about the time you were in Asheville I was in D.C. All I can say about the place is I understand WHY you would willingly over pay for beer.
Don't know if anyone has mentioned this yet or not but the bar mentioned in the article has got it the wrong way around. The price of beer should rise as more pints of that particualr beer is bought and it should lower as less beer as bought. That is how the stock market generally works and supply and demand. I know it isn't the main reason for the story but this bar is doing it wrong.
Wow! Those in the marketing department win again. Next time I will put a carrot on a stick and make you chase it around an oval.
Never again will I complain that my $4 beer in Sacramento costs $5.50 in San Francisco.
In addition to Payton's comment, it's probably not just a lack of liquor licenses, but also a lack of places where a bar is allowed by right. Zoning prohibits the corner bar in far too many places in DC. Plus, any potential new start-up has to go through the ANC rigamarole.

It's not just the craft beer that's pricey, either - there are some places that charge absurd prices for what should be cheap beer. This is a broader issue than just high prices for good beer.
Monopolies on distributorships. Try and open a distribution business.
I would gladly pay $7 for a Guinness. You see I am from Ontario, Canada. Swill at bars is $5.00 and up. Good Craft beer is $8 and often more. I don't mind paying $8 and up for a good Craft beer. But, if all they have is swill like Coors Light and it is $5 to $6 a pint and sometimes more, well get me a coke. I have payed $11.00 for a Guinness at a pub. You have it good in the US, tons of great beer at nice prices.
There's a lot going on in this article. Craft beer *should* be more expensive than mass-market stuff because the difference in cost in making a high-quality brew with lots of real two-row barley, hops, etc is substantial. As Sam from Dogfish has rightfully pointed out, craft beer is a 'cheap luxury' where you can get some of the best stuff in the world for like $10. Even $20 for a 6-pack which seems expensive is NOTHING compared to what wine prices are like for 'the best'.
So, suck it up, drink good-quality beer from small(ish) producers, and drink less of it. When you're drinking Bell's you don't need a whole six pack or freakin' case like the Natty Bo drinker does. 2 is great, 3 even better. Your body will thank you for it.

Now sure there will be some trendy bars that will charge more for everything, not only beer but cocktails, food, etc. If you don't like their prices, don't go there. I don't mind supporting a bar that cares enough to give me high-quality booze instead of schlock for $4. And sure, Toronado is one of the greatest bars in the world and I wish there was one on my block, but honestly I can't figure out how in the world they're selling a real Belgian beer for that money. They're clearly doing the world and their customers a favor but those beers (and transportation all the way from Belgium) are expensive, so don't be too hasty to knock everybody that has a higher price.
And look at the draft selection from Thirsty Monk in Asheville, NC and you'll see that their Belgian beers are mostly $7-8. That's normal. And they're also probably not full pints but rather smaller 12oz pours, which is also normal.
http://www.monkpub.com/tap_downstairs.html
The author needs to make sure he's comparing apples to apples here. He doesn't talk about the pour size at Toronado or in fact anywhere in the article. $7 for a pint or $7 for 12oz makes a big difference too. I still say Toronado throws his whole article off with what looks to me like a loss leader or otherwise insanely low price.
Distribs suck ass, almost as múnich as beer tax.
I'm from the Pacific Northwest though now live in NYC after four years in DC. I will say that good beer tends to be far less expensive out West, whether in Seattle or Portland or even the Bay Area. Even so, DC's prices are high. My local craft brew bar here prices most brews at $5 or $6, and that's in Manhattan. I think there is something broken in DC. Maybe the bars there care less about sharing the experience of good beer and more about earning a buck.

Great article! Informative, well researched, good anecdotes. In the end, all I could do was congratulate myself for moving to Asheville (and this weekend Beer City has Moogfest!). Listen to Barack: escape the Beltway, visit Asheville!
I'm feeling a lot happier about our beer prices in Seattle now! We have a ton of micros out here. We're lucky.
Stop buying beer and start brewing it. If you drink like me 4-12 pints per sitting (depending on the day of the week) it only makes sense to brew your own beer. With an initial cost for your first batch coming in somewhere around 200 dollars and then between 12-50 dollars per batch there after (5 Gallons a batch or 40 pints) you would be saving yourself tons of money. Think about it if you drink 5 pints on Friday and 5 pints on Sat. for a total of 10 pints a weekend at a VERY conservative 5 dollars a pint. Your total will be 50 dollars a weekend now take that out over 52 weeks for an insane 2600 dollars in beer... Brew Strong my friends… Brew Strong

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