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Why craft brewers could be forced to raise beer prices
Craft brewers will be forced to put their prices up despite risking losing customers, drinks analysts have told db.
Speaking to the drinks business today, Rabobank senior beverages analyst Francois Sonneville, said: “Craft brewers are in a difficult position. Firstly, with commodity prices rising, brewers will try to resist having to pay higher costs through negotiations with their suppliers. In some instances craft brewers might be successful, but in general they will struggle more than large, major mainstream brewers.”
Sonneville also outlined how “craft brewers might not have the professional procurement department that negotiated a long term contract in the past or installed a hedge” and said “there are always exceptions, but often this is the case” and pointed out that “craft beer therefore faces a higher increase in costs, for example for bottles, than a global brewer”.
According to Rabobank, in addition to the price of commodities, like beer’s packaging, being on the rise, the craft beer sector will also likely pay more for its raw ingredients than the bigger macro breweries, tipping it into a situation where they will be strapped for cash.
Sonneville told db how, even though consumers know that “the nature of the product is different” and understand that most “craft beer uses more ingredients than mainstream beer (hops, malt) and as those ingredients become more expensive” this will mean that “the price gap between a litre of craft and mainstream beer grows”.
The analysts observed that an additional contributing factor that was likely to lead to the demise of many craft brewery businesses was additionally based on the fact that people would be looking to pay less for beer than they would have done in the past due to cutting back on their own spending during the cost-of-living crisis. As a result of the craft sector will be forced to pass on costs to customers, it warned that consumer loyalty could wane while many opted for more cost-effective alternatives.
Sonneville warned: “The consumer is looking for ways to trade down in a recession. Even if all brewers were able to keep their costs and prices constant, there would be a shift from premium craft to cheaper mainstream beer”.
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