What's in my beer?

During the next few weeks The Beerhive will feature guest posts as Michael and Shane take a break from writing and drink more beer. First up is Yeastie Boys brewer and co-founder Stu McKinlay, who breaks down the cost of beer.

OPINION:  As someone who talks about beer a lot - and about "craft beer" in particular (the definition of which is someone else's problem, which you can read about in another blog on another day) - I am often asked why it is so expensive.

Proving they are society's font of knowledge, a taxi driver once explained this conundrum perfectly in a single short sentence - "twice the price, three times the flavour."

For those who'd like more detail, here's a very simplified overview of what goes into the shelf price of your beer.

The example, from a Yeastie Boys perspective, is based around a 330ml bottle of our biggest-selling beer: the earl grey IPA Gunnamatta.

All percentages are approximate and, importantly, remember that they are compounding... so the more excise tax we pay, the more the retailer makes when they add their margin and the higher amount of GST is added.

Ingredients (8% of final shelf price)

We start with what we think are the very best ingredients in the world... Without these ingredients we wouldn't bother starting the process and it still shocks me when I remind myself that they make up less than 10% of the final cost of our beer.

Our malt is mostly from Weyermann (Germany), with a little coming from Baird's in UK, and our hops are almost exclusively from New Zealand Hops.  With Gunnamatta being our biggest selling beer, we also spend a fair portion of this money through T Leaf T tea these days. Yeast is either from France (via NZ Hops) or direct from two laboratories in USA.

Production (11%)

We produce the vast majority of our beer at Invercargill Brewery.

People often ask "why?" and, although the philosopher would answer "why not?", the simple answer is that we'd ask Steve Nally (their head brewer and owner) to be our head brewer if we ever started our own brewery... so why not let him brew our beer where he wants to live!?

He is also one of the brewery owners that we have met who treat staff exactly the way we'd treat them if they were our staff.

We have also used Four Avenues (for a lot of our keg only seasonals) and Harrington's Brewery (for Pot Kettle Black) to supplement the capacity available at Invercargill while awaiting the expansion that they have been working on in the second half of this year.

There's another entire blog in the whys and wherefores of contract brewing but we'll come to that another day.


Packaging (10%)

Bottles, labels, caps and boxes are not cheap... especially when you buy small amounts of them and they aren't exactly made next door.


Excise Tax (10%)

We brew what people might call "robust" beers.

This means that the government penalises you heavily - via excise tax and the fee for the agency formerly known as ALAC- for inflicting all that harm on society.

It's a lot of money... and, worst of all, we have to pay it before anyone actually pays us for the beer (and even if they don't!).

How many other taxes do you pay even if you don't make money on a product?


Yeastie Boys (13%)

Yay!! We make some money off the beer ourselves, as you'd expect.

At the moment this all goes into making more beer, all our own expenses for getting stuff done, and (as little as possible) towards lining the pockets of pricks who never paid their bills.

One day we might pay ourselves and I'll possibly leave the day job that currently pays all of the household bills racked by myself, my wife, our three boys and our dog.


Freight (5%)

There are two parts to the freight equation - one involves full pallets of our beer travelling about New Zealand to distributors and the other involves a box or three to your locals store (the first part doesn't cost you that much, because we almost gain something like economies of scale in the full pallets... the second part gets beers to the shop down the road from you and that costs us a bit more).


Distribution (8%)

To employ some sort of economies of scale (in the management of moving beer around, storing it between brewing and selling, and the management of accounts with retailers) we utilise a couple of distributors.

These are, in a sense, our only direct customers in New Zealand.  Sometimes it seems like they make a lot of money... and then we think about how much more it would cost us to do this job ourselves! 


Retailer margin (22%)

Someone has to be the craft beer champion that you head to whenever you feel like a special beer.

These guys take the risk on our new beers - be they weird and wonderful, or slightly more off the wall.

Their teams move boxes, stock shelves, hold onto beer for short to medium periods, pay the staff who (hopefully) know more about what's happening in the beer scene than you (and, in the best cases, more than me too!).


GST (13%)

You can see who makes the most money off our beer.

Adding this to excise tax sees the government making around quarter of the dollars you spend on your beer... and they're the only one not investing anything in getting it to you.

I'm a firm believer in role of a democratically elected government, and they would say that they are organising the ambulance and police at the bottom of the cliff, but I would think that we're subsidising a hell of a lot more than what we're costing the government.

I wish we made a quarter of the shelf price because then I wouldn't have a day job to subsidise.


In summary...

It is a very rare occasion that I spend money on someone else's beer (and I do this a lot!) and then go on to think that it wasn't worth it.

Think about your morning coffee, a meal at your favourite restaurant, that delicious fillet of your favourite fish, seeing a band play a live show or that beautiful bottle of wine you're happy to spend $20-30 (or more on) on. These are comparable items.

The simple philosophy you should try to keep in mind is that is that beer is (and always should have been) a luxury good.

Modern factory brewing, where beer is more about being a refreshing vehicle for alcohol consumption than a thing on its own, has somewhat changed our viewpoint on this.

It should not muddy the picture... beer should be something special.

We don't need it, we want it, and we're lucky enough to be living in the best of times if we love it.

Go forth, spending an appropriate proportion of your weekly budget, on the very best beer you can afford.

And, importantly, here's to an even more exciting year in beer during 2014!


This blog was inspired by Beer Money Blog - my favourite blog of 2013.

The Dominion Post