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The problem with online beer sales

Chicago Beer Society (CBS) member Win Schaeffer recently posted the following message to the CBS email list:

Amazon Wine in operation – Can Amazon Beer be close behind?

http://money.cnn.com/2012/11/08/technology/amazon-wine/

Here is Steve’s perhaps somewhat lengthy response, which was discussed on episode 147:

While Amazon may well choose to sell beer too at some point, it will be problematic for the same reason that all online beer sales are: beer’s cost to weight ratio is too low, because after all, beer is mostly water.

In wine, the pricing per bottle is high enough to make shipping it practical. This is not the case for most beer, and shipping 24 twelve ounce bottles even a short distance typically costs more than 50% of the retail cost of relatively pricey craft beer.The story starts to change when you look at bombers, which pack a much higher cost per ounce. However, it is still somewhat expensive to ship, and availability starts to become a big issue. Amazon would be plagued by the same issue sites like Beerjobber are now, namely, the only beers breweries will make available to them are beers they’re having a hard time selling enough of thorough traditional channels: overpriced bombers.

As has been discussed on this list previously, bombers are typically a lousy value on an ounce for ounce basis compared to 12 ounce bottles, even when the exact same beer is in the bottle (Lagunitas – Little Sumpin’ Wild, Goose Island – Bourbon County Stout 2009 are two examples that jump to mind). This is odd, considering the normal model in food is larger package = less cost per unit weight, but that’s a tangential topic.  Don’t get me wrong, some large bottle format beers are worth every penny, but these tend to be unusual beers with costly processes involved in their creation (read barrel aged beers and sours). If you’re paying $10 for a large bottle of standard IPA or stout, you’re almost certainly not getting a good value.

This is the core of the Amazon (and online sales of beer generally) Beer problem: the beers that would be worth ordering online will almost certainly not be available there. Beers that command a high enough price point to be worth shipping to an individual (BA and sour) are already in short supply, and there’s no reason for a brewery to give Amazon a cut of the profits on such beers, when they can keep them all for themselves, or share them with their wholesaler and retailer partners, who move the bread and butter beers for them.

Perhaps as breweries ramp up their capacity to make more and more of these high value added beers that can reasonably demand high price points, this dynamic will change. Until then, any Amazon Beer type service will be necessarily tilted towards heavily overpriced large format bottles of beer, and won’t be particularly compelling to the savvy craft beer consumer.

Steve Mastny
Program Director and Co-host of BeerDownload

P.S.  It occurs to me that some new commercial brewers reading this post might take exception to my characterization of large format bottles that are not barrel aged or sour as overpriced. It may well be that to pay for the capital costs of starting a new brewery, selling large format bottles that for whatever reason command a higher price point is the only practical strategy. This is fine, I’m just not sure this is a sustainable strategy in the long term, when there are many other better established breweries out there making beer that is every bit as good and selling it for substantially cheaper. Time will tell I suppose.

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