Beer Buying Strategies For Bar Owners And Managers

The markup on beer depends on several factors, including the type of beer, its popularity, and the type of establishment. On average, the markup on beer is between 200% and 300%. The average liquor cost for bars and restaurants is between 18% and 24%. Bars typically pay 70% to 80% less than what they charge their customers. For example, if a bar pays $1 for a single 12-ounce serving of beer, they should charge their guests between $3.33 and $5. The markup on bottled and canned beer is usually around 75%, resulting in a pour cost of about 25%.

Markup and profit margins

The average gross profit margin for a bar is between 70% and 80%, significantly higher than businesses in other industries such as general retail and automotive. This is largely due to liquor costs, as alcohol has a higher profit margin than food. The average net profit margin for a bar is between 10% and 15%.

When determining the price of beer, bar owners consider various factors, including the cost of the beer, local taxes, wages for staff, storage costs, and carrying costs. They also need to take into account the exchange rate for imported beers.

The "three times" principle is a common pricing model in the bar and restaurant industry, where the product cost is multiplied by three to set the selling price. This helps ensure that operating costs such as labour, rent, and utilities are covered, and the establishment can still make a profit. However, this model has its limitations, particularly when pricing higher-end beers, as a simple multiplication can result in an unreasonably high price that may turn customers away.

To maximise profits, bar owners may consider strategies such as offering a diverse range of beers, including craft beers, and creating tempting beer and food pairings. They can also experiment with different glassware and serving sizes, taking into account factors such as the strength of the beer and the context in which it is being served.

Ultimately, the price of beer in a bar is determined by a combination of mathematics and an understanding of the local market and customer base. By finding the right balance between profit and customer satisfaction, bar owners can set prices that are both competitive and reasonable.

Wholesale vs retail prices

Bars typically pay 70% to 80% less than what they charge their customers when buying from a beverage distributor or wholesaler. For example, if a bar pays $1 for a single 12-ounce serving of beer, they should charge their guests between $3.33 and $5 for it. This is because each stakeholder in the sales cycle, including the retailer and the wholesaler, needs to make a profit.

Bars use different strategies to price their beer. Some follow the 'three times' principle, a widely adopted basic pricing model in the bar and restaurant industry. This involves multiplying the product cost by 3. For example, a bottle of Budweiser, which may cost a bar in the range of 75 cents to stock, will be priced at $3.

Other bars use a fixed markup number for all canned and bottled beers. This involves adding an overhead service charge, such as 50 cents or $1, on top of the wholesale multiplier to get the menu price.

Some bars also use a combination of these strategies to determine the price of their beer.

A 12-pack of domestic beer will cost around $12-$15 or more depending on where you live, while a wholesale case of beer will cost around half of that per case, depending on how much you're buying. A wholesale case of craft beer will cost $20-$30 per 12-pack and $10-$20 per case.

The national average cost of a case of beer is around $21, but this varies by state. For example, in Rhode Island or New Mexico, a case of beer can cost as little as $15, while in Alaska, it can cost as much as $31. Taxes are the biggest price factor when it comes to beer, aside from the ingredients, time, and labour used to create it.

For a 1.3-gallon keg, an average domestic beer costs around $20 at retail. Wholesale, a 15.5-gallon keg costs around $13 per gallon, factoring in the price of a $30 keg deposit and taxes, bringing the total price to around $200.

Different types of beer

While there are many different types of beer, they can be broadly classified into two fundamental types: ales and lagers. Ales are typically "warm fermented", using yeast that ferments at higher temperatures, while lagers are "cold fermented", using yeast that ferments at lower temperatures.

Ales

• Pale ales: One of the most popular beer styles worldwide, known for their golden to copper colour and light malt flavour with a hoppy and slightly bitter aftertaste.
• India Pale Ales (IPAs): A type of pale ale known for its bitterness due to its high hop content, and often with hints of citrus or herbal tones.
• Stouts: Known for their dark colour and thick, creamy head, stouts often have heavily roasted flavours, with hints of coffee, chocolate, liquorice, or molasses.
• Porters: Similar to stouts in colour but with a crisper taste, porters are made with roasted brown malts or barley, providing a toasty aroma and notes of chocolate, toffee, and caramel.
• Brown ales: Ranging in colour from amber to brown, brown ales have a mellow yet flavorful profile, often featuring chocolate, caramel, citrus, or nut notes.

Lagers

• Pilsners: A popular lager style with a dry, slightly bitter taste and low alcohol content, made with malts, hops, and neutral or hard water.
• Bocks: A type of lager with a full-body flavour and extra maltiness.
• Munich-style lagers: Lagers with a smooth mouthfeel and a lighter, more refreshing character.

Specialty Beers

Specialty beers are a diverse category that includes beers with unique ingredients and brewing techniques, such as fruit beers, sour ales, and barrel-aged beers. They offer a range of complex flavours and aromas, appealing to those seeking new beer adventures. Examples include American black ale, barrel-aged beer, chocolate beer, coffee beer, gluten-free beer, and session beer.

How to price bottled beer

The average markup on beer is about 200% to 300% when considering beer prices for bars. However, there are no hard and fast rules when setting a markup schedule on bottled beer. The markup will differ depending on the type of beer, the type of establishment, and the region.

Markup Generalizations

Most drink markups in bars and restaurants are four to five times the cost of the drink components, including labour, and bottled beer is no exception. Many strategies advocate keeping beverage costs between 20 and 30 per cent overall.

Research Your Competition

Evaluate the prices your competition charges for bottled beer. Visit rival establishments that offer the same service you do, in the same regional area, and see what they are charging. Pay attention to what bottled beers are the most popular, and the prices of those beers. This information can be used as a guide for your own pricing.

Microbrew vs Mainstream

Your establishment may offer a variety of bottled beer options, from mainstream brands to microbrew and specialty beers. Your markup pricing will likely need to be different for each. Customers favouring microbrew selections may be willing to pay more per bottle due to the value they perceive within a craft beer. Conversely, customers who prefer standard beer selections may be used to paying only a couple of dollars per bottle and will be put off by higher prices.

Tap Beer Prices

Another way to set your bottle beer markup is to base it on your tap beer markup. This means that per ounce, the same brand of beer should cost about the same, whether on tap or from a bottle. This is especially easy if your business already does the majority of its sales through tap beers.

State's Liquor Laws

Some states, like Ohio, have a minimum markup law on bottled beer. It is imperative that your business operates within the law, and it is your responsibility to know if there is a minimum markup law or not in your state.

Final Thoughts

Your craft beer prices and your markup strategies depend on the products you offer, your bar’s expenses, and what people will pay. Always strive for a balance between profit and customer satisfaction to price your craft beer intelligently and reasonably.

How to price beer on tap

There are many factors to consider when pricing beer on tap, and the process can be tricky. You want to price it just right so that you increase your profits. Price it too high and people won't pay for it, too low and you lose out on revenue. Here are some guidelines to help you out:

Understanding the Basics

Before you can set the price of your beer, you need to understand two key metrics: pour cost and pour cost percentage. The pour cost is the cost it takes for your bar to make a drink relative to the price you are selling it for. This should be kept as low as possible to maximise profits. Once you know your pour cost, you can set drink prices by dividing your ingredient cost by your target pour cost.

Pour cost percentage, on the other hand, is the ratio of beverage costs compared to beverage sales.

Markup on Beer

The markup on beer depends on a few factors, including the type of beer, its popularity, and the type of establishment. On average, the markup on beer is between 200-300%. Bottled beer will generally have the lowest profit margin as you are paying for extra packaging costs, and it is the least efficient way to serve beer. However, patrons like having options, so it's a good idea to offer a range of bottled beers as well as beer on tap.

Pricing Beer on Tap

When it comes to beer on tap, the general cost-per-ounce for beer in kegs is 40 to 45% less than if it comes in cans and bottles. Therefore, the price of beer from kegs aims for a much higher profit. The typical range for draft beer liquor cost is 20% to 26%.

To calculate the price you should charge for beer on tap, you need to determine the cost per keg, the cost per beer, and the cost per ounce. You can then divide the cost per ounce by the sale price per ounce to get the cost percentage.

Strategic Pricing

There are a few other strategic pricing considerations to keep in mind. Firstly, you can run higher costs on more expensive beers as you can still make more per drink. Secondly, you should consider the number of rounds theory, where customers think in terms of how many beers they drink rather than how many ounces. Since bottles are usually served in 12 oz portions and drafts are typically 16 oz, promoting draft beer can increase your sales. Finally, liquor cost is usually about 6% higher on bottled beer, so draft beer sales are generally more profitable.

Frequently asked questions