What is Craft Beer? Craft beer, simply put, is beer made by small breweries or microbreweries, sometimes referred to as craft breweries. These breweries operate on a small scale, placing emphasis on brewing techniques and the flavor of the alcohol. Additionally, they are often family-owned or small companies.
Why is craft beer so expensive?
There is no ‘Economy of Scale’
If there is one concept familiar to economics students and anyone who understands markets, it is that when you produce more of something, its price should be cheaper. Conversely, when you produce less, it becomes more expensive. This is the basic principle of supply and demand economics.
In the case of craft beer, the breweries typically produce beer in very small batches, which drives up the price. The high prices are a result of necessity rather than choice.
Many craft breweries operate as family businesses or small companies. One common characteristic among them is the “interesting” and “unfamiliar” taste of their beer. Often, this taste difference is attributed to recipes passed down through generations or more recent inventions.
This “premium” taste contributes to the higher price of craft beer.
While not applicable to all breweries, taxation affects all companies. This includes the beer industry. Larger companies often find ways to reduce their tax burdens through government subsidies or skilled accountants. However, small companies have fewer resources and less access to such benefits. As a result, the tax burden is ultimately passed on to consumers.
In addition to taxes, import duty is charged when a product is imported into a country. If craft beer is imported instead of brewed within the country, the customs agency will levy a certain percentage as import duty.
It is worth noting that craft beer often has a higher alcohol by volume (ABV) percentage compared to regular beer, which affects the amount of duty imposed.
Many companies charge a premium based on their brand name. This has nothing to do with actual scarcity or any other factors. It is simply a result of capitalism. From a capitalist perspective, the company is capitalizing on its strong reputation.
Rising Ingredient Costs
This is not specific to craft beer but applies to the entire beer industry. The global prices of raw materials such as barley and hops have increased recently. These price increases are due to various factors such as crop failures, increased global demand, changes in land use patterns, and urbanization.
The increased cost of raw materials incurred by breweries is passed on to consumers.
Another significant factor contributing to the higher cost of craft beer compared to regular beer is distribution costs. Large companies often have their own distribution channels or negotiate deals that make distribution more affordable. However, small brewers face challenges in bringing their products to consumers.
Overall, the aforementioned reasons are some of the most important factors explaining why craft beer is generally more expensive than regular beer. While there may be other reasons, these are the primary contributors to the higher cost of craft beer.