Posted by: nickgerlich | October 27, 2007

Hoppin’ Mad

A couple of weeks ago, on the drive out to Las Vegas, we stopped in Seligman AZ. We always stop in Seligman, because it is a “honeymoon town,” one of those cities Becky and I either passed through or bunked down in on our bicycle ride across the US in 1986. We were young. We were crazy. And we didn’t have any responsibilities.

We stopped at the Shell station alongside I-40, where we used the facilities and grabbed some coffee for the final push to Sin City. While I was perusing the fine offerings of this little tourist trap, I spied a novelty sign that immediately resulted in a chuckle: Remember–Beer Has Food Value, But Food Has No Beer Value.

BeerFiguring a sign like that in my office might send the wrong message to students, I passed on it. But I did make mental note just the same. It was just yesterday, though, when it all came back as I read the story at USA Today about the rising price of beer, and how it might affect consumption.

There are but four ingredients in beer: Water, Hops, Barley (which must be malted), and Yeast. And it is the price of hops that has brewers foaming these days, worried sick about having to raise their prices and/or even curtail the number of specialty brews they can manufacture.

No, it’s not the major breweries who are particularly concerned: Anheuser-Busch and the newly-merged Coors-Miller have ample supplies, and normally do not use exotic hops like the regionals and microbreweries depend on heavily. They’ll survive this market anomaly.

The result of this shortage is likely to be a spike in beer prices by Christmas, perhaps as much as 10%, particularly among the craft beers. Furthermore, some of the more exotic varietals may be temporarily scrapped, or have cheaper hops substituted. Of course, beer snobs will be able to tell the difference, so there is great risk in tinkering with the formula just to keep production rolling.

Thus, the smaller brewers are in a real predicament. Raise prices? Adjust formulas? Risk losing sales?

I think the best answer is to maintain the formulas, and pass along the cost to customers. This is really no different from rising oil prices. If the raw materials go up, the finished product goes up.

Besides, beer drinkers are a pretty loyal lot. I actually suspect the demand curve for beer is rather inelastic, and that people will pay the brewer no matter what it takes. I really doubt that beer drinkers will switch to another beverage, say wine, sodas, or liquors.

They do what they do because they like doing it. They find great value in the activity, food or otherwise.

Case closed. Or is that a 12-pack?

Dr “Foam On The Range” Gerlich

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