Beyond the Beer, Barrel, and Time...
Barrel-aged beers command top dollar from consumers for good reason. They begin as the most expensive recipes leaving the brewhouse, they’re put to rest in Oak barrels that can cost anywhere from $125 to $600 each, and higher in special circumstances. And then there’s time, as in, the time value of money for these costs which don’t cash flow positive for over 12 months. But that’s where the costs begin, not end.
Space 💫
The square footage occupied by barrels can be expensive, especially in an urban setting where real estate comes at a premium. Factoring in this space as a true cost for barrel-aged beers is tricky and dependent on circumstances. Shortly after moving into a space, breweries often have room to grow into and when that’s the case, there wasn’t a competing need for where the barrels reside. It’s not really necessary to consider the space a direct cost of the beer in this example, since the brewery would have paid for it regardless.
It’s when growth occurs and space is at premium that choices need to be made. When barrels win, the building rent becomes more of a true cost to consider when pricing the upcoming release. If a brewery is lucky enough to own their building, there’s still equivalent costs including loan interest, property taxes, and building maintenance in lieu of rent.
Lastly there’s the opportunity cost. What is the business forgoing by dedicating the space to barrels? For example, how much is the off-site storage that the business needs to acquire as a result?
Packaging Waste 🗑
No marketer wants to put high-priced, special occasion beers into janky packaging, so more premium options are typically utilized. Cans, labels, and especially boxes & tubes need to be ordered months in advance. Even with that precious liquid sitting in barrels right in front of your eyes, it’s impossible to know the true yield (final volume) until the beer is blended and packaged. Unpredictable losses occur at every step of the way including everything from leaky barrels, evaporation, transfers, pasteurization (if applicable), and certainly sending through to the canning or bottling line.
Without knowing the final yield and expected loss, the potential to be off double-digit % versus expectations is very real. Determining how much packaging to order then becomes a near impossible mission so far in advance. With high-priced liquid, you don’t want to be short and have nowhere to put the beer, so breweries tend to go long and more often then not have extra. Yes, you can brew the beer again, but you’ll find yourself in the same position next time. Hundreds and even thousands of dollars can get tied up and essentially wasted in packaging for each release, depending on scale.
Wholesale & Retailer Margins 💰
As fun as it is to visit a brewery on release day, that’s not always realistic for customers. Many are only going to pick it up if it’s distributed to their local bottle shop, making distribution an important consideration. Even more importantly, long term partnerships with retailers are strengthened when they’re included in the release and able to buy an allocation or keg, even (especially) when the brewery could have sold it all out of the Taproom. While this wholesale margin scenario is no different than anything else, it’s trickier to make profitable with the highest cost barrel-aged beers.
I’m regularly asked by our brew & barrel team how much can be spent on ingredients like barrels and late additions (fruit, coffee, coconut, etc.). With some ingredients like honey, maple syrup, toasted coconut, and vanilla beans, that incremental cost can rival the base beer and barrel combined if a high quality example is being sourced. As a result, my answer has to vary based around the scale and distribution of the batch. When a beer is sold mostly out of the taproom, that opens the door for an aggressive budget and the accountants being told to buzz off. But when a batch is being scaled up to meet the demands of the wider market and the sale price is cut in half (due to distributor & retailer margins), smarter choices have to be made.
The Winning Blend 👌
I prefer to look at barrel-aged releases holistically over the course of an entire calendar year, and not agonize over each individual release. This allows for a more simple structure to understand, balance, and execute when it comes to pricing and distribution. Breweries sometimes need to charge what the market will bear, especially for their most exclusive, sought-after releases. It’s often assumed that this behavior is pursued with a profit-maximizing mindset, but in reality it may be to help smooth out the weaker margins from distributing other releases to the wider market.
Find a way to meet the immediate demand on release day, while leaving some pent up demand to ensure your loyal retailer partners share in the success of the release, all while ensuring you’ve made the total margin needed to rationalize the beer, barrel, time, and beyond. That’s the winning blend.