Discount Culture: Craft Beer’s Race to the Bottom

Words & Photo - Matthew Curtis

I’ve spent some time recently observing a worrying trend in the UK beer market. A pervasive discount culture is emerging, as craft beer becomes increasingly part of the mainstream. Where once retailers were able to sell craft beer on merit, increased competition means that those without any are competing on the only terrain they’re familiar with: price.

This culture first emerged in the most obvious of places, the supermarket. Brands such Brewdog Punk IPA, Meantime Pale Ale and Camden Hells Lager retailing for a seemingly fair price – but significantly cheaper than smaller craft brands more commonly found in independent, specialist retailers. As an example, these three breweries have production volumes that can support the thin margins that sustain the sales of these products. However the rest of the emerging market that observes this pricing structure also wants a slice of what looks on the surface to be a rich, tasty, cash-filled pie.

The reality is that brands such as Vocation, who have chosen to grow their brand via churning a premium product at a low price through supermarkets do so at the cost of their brand. Not that there’s anything wrong with this, brewing is a business and a business generates profit in the way that best matches its business plan. However, despite being a relatively similar product, put a Vocation IPA next to a product that sells itself on merit as opposed to price, say for example something similar from Cloudwater or Beavertown and which one do you perceive as being the more ‘premium’?

Another result of supermarket churn is larger specialist retailers, such as the AB-InBev owned Beer Hawk, also aggressively competing on price. Take for example another Brewdog beer, the recently released Born to Die Double IPA. Beer Hawk are selling this at the lowest price around, ‘just’ £5.99 for a 660ml bottle of 8.5% beer. Leeds based independent Beer Ritz were selling the same beer for £7.10 - a difference in price of around 15% - in retail that’s not an insignificant number when it comes to profit. The difference in margin will be far greater than that.

But is Beer Ritz recklessly profiteering or is it simply selling at a healthy margin? A margin that not only allows it to remain in business but to also pay staff and overheads such as rent and electricity. Should Beer Ritz aggressively compete in order to turn over its stock and hope that it shaves enough margin to make ends meet? A Double IPA is a premium product, Brewdog use some of the most in-demand, high quality hops in the world sourced directly from the Yakima Valley in the US Pacific Northwest to manufacture this product. Are we allowing retailers to turn this premium item into a commodity for the sake of a bargain?

Retailers aren’t the only runners in this race to the bottom. Breweries are at it too. Take Thornbridge for example, who now offer free delivery from all orders on their web store. Thornbridge is already making an inflated margin by selling its product direct, and who can blame it, as brewery direct sales are by far the best way for it to generate revenue. But how are the multitude of online retailers who are making vastly reduced margins compared to breweries selling direct meant to compete? Well here’s the kicker, if they want to compete they’re going to have to, otherwise they just aren’t going to convert clicks into sales.

"As a member of the beer industry I worry that this discount culture I’m observing will lead to a very different culture - one of bankruptcy, liquidation and administration."

Discount culture in beer is hardly a new thing, CAMRA built a campaign on it after all. The consumer organization might well have brought Real Ale back from all but the brink of extinction, but they dragged the inherent value of a luxury item down with it. In their pitch, ‘Real Ale’ was better than commodity lagers and cheaper products such as the vilified Watney’s Red Barrel. But in order to convince consumers to pick Real Ale over a commodity lager they didn’t just sell the product on its merits, they offered discounts.

In the late 90’s when I started drinking in pubs some of my friends joined CAMRA. I didn’t, because in the late 90’s I liked drinking Carling and Heineken, it was cheap and it did the trick. I know, I’ve changed. But try to sell beer to a 17 year old on merits of flavour over price and you will fail. The reason my friends joined CAMRA was because as members they got a discount. They got a discount in pubs, they got vouchers to get more discount in branches of Wetherspoon, they even got a free magazine, one that they didn’t particularly care about but why worry when it’s free?

Real Ale might once again be installed as a mainstay of British drinking but as a profit-generating product for small businesses it is permanently damaged. People often complain at the gulf in price between cask and keg and that’s because modern, keg focused products haven’t been dragged down into the discount culture that CAMRA generated in order to boost the sales of cask ale and in turn, its membership. Don’t worry though, the consumer is king, and they’ll manage to drag kegged craft beer prices down with them as demand continues to increase apace.  

In the on-trade itself, Wetherspoon are not just responsible for some abhorrently aggressive discounting – but a level of discounting that dangerously skews perception of the British beer market. This is especially bad as Brexit woes plunge the pound to the lowest I’ve experienced in my own lifetime. The worst affected are the importers – distributors who are bringing in the best beer they can from Belgium, Germany, Czech, New Zealand, Australia, Scandinavia and The US. That beer is becoming hideously expensive and wholesalers are at a breaking point where they’ve absorbed this increase as much as they can, and now its about to be passed on to the consumer.

So what does Wetherspoon do? It launches Sixpoint Resin IPA in cans at all of its bars. A 9.1% Imperial IPA that comes in 355ml cans that sells for £2.99 in on trade sites. In comparison my local pub sells the 5.4% Beavertown Gamma Ray, produced 3 miles away, to drink on site for £4.50 per 330ml can. That price gulf might sound ridiculous but I can assure you, I’ve seen the invoice and as someone who used to work in retail management, the margins on that Gamma Ray are not exactly what you’d call healthy.

The fact is, Wetherspoon is selling an imported US Double IPA for what is essentially cost plus VAT for a small UK producer making a similar beer. The existence of this beer for that price completely skews the national perception of how a product of this nature should – and more importantly could be sold for. It also has the knock-on effect of cheapening a brand that Sixpoint have invested many years and considerable resources in growing. There is no way another UK customer would even consider stocking the same product and competing with Wetherspoon. Sixpoint has already closed the door to expanding in the UK marketplace before they’ve even had time to look inside and admire the curtains.

This is the end of mainstream craft as a luxury item. There are probably plenty of you reading this thinking that beer has no right to be a luxury item and that means you already know that I disagree with you. The thing is, beer can be what it wants to be. It can be a commodity product sold in 4 for a fiver deals at the supermarket, it can be a £50 cask of sub-par bitter festering in a Wetherspoon cellar. Or it can be a £15 bottle of mixed fermentation, chardonnay barrel aged Saison served from a 750ml bottle. That’s the beauty of beer, it covers all bases.   

The trouble is that turning craft beer into a commodity makes the game exceedingly more difficult for those businesses attempting to sell their product as a luxury item. The knock on effect is that the rapidly expanding retail arm of the craft beer industry ceases to compete on quality and competes in the most obvious way it can think of, by discounting. Putting their own livelihood at risk by doing so.

But as I said, the consumer is king. There has never been a better time to be a beer-consuming member of the public, ever. There is beer sold on quality that you can pay a premium for if you want to – and there is beer sold as a commodity as cheaply as possible if you prefer to buy on price as opposed to merit. As a consumer I have absolutely no complaint about the price of my pint, I’m getting a really good deal. As a member of the beer industry I worry that this discount culture I’m observing will lead to a very different culture - one of bankruptcy, liquidation and administration.