Impacted by rising commodity costs craft brewers may soon have to raise their beer’s prices whether they like it or not.

Here’s the deal…

Our favorite B2B publication in the UK, The Drinks Business, recently sat down with Rabobank senior beverages analyst Francois Sonneville, to get his take on why craft brewers may be forced to raise their beer prices despite risking losing customers.

“Craft brewers are in a difficult position,” Sonneville explained DB reporter Jessica Mason. “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 went on to detail how big brewing companies have an advantage with regard to commodity pricing, thanks to their ability to negotiate long term contracts that lock in favorable pricing.

As Brewvana astutely explains…

“A commodity is a mass-produced item that is interchangeable with others of its type: agricultural and mining products are typical examples.  Smith farm potatoes do not compete with Jones farm potatoes in the market: they’re all potatoes and priced alike.  In commodities, sellers compete mainly or exclusively on price, not brand or quality.”

“Craft brewers might not have the professional procurement department that negotiated a long term contract in the past or installed a hedge,” Sonneville said. “Craft beer therefore faces a higher increase in costs, for example for bottles, than a global brewer.”

In addition to inflation leading to higher packaging cost, Sonneville explained the the craft beer sector will also likely pay more for its raw ingredients than the bigger macro breweries…

“Craft beer uses more ingredients than mainstream beer (hops, malt) and as those ingredients become more expensive, the price gap between a liter of craft and mainstream beer grows.”

An additional contributing factor likely to lead to the demise of many craft brewery businesses was 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 a perfect storm of inflationary pressures craft breweries may be forced to pass on costs to customers, damaging consumer loyalty as many beer fans opt for more cost-effective alternatives.

“The consumer is looking for ways to trade down in a recession,” Sonneville warned. “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.”