Friday, May 16, 2008

Would You Pay More Than Ten Dollars For A Bottle of Beer

The awesome folks over at the New York Times' Freakonomics blog, have an interesting post about economics and beer.

The post is titled "The Rich Drink Better Beer, Not More." The basic gist of the post is that we only have so much time and capability to drink. Thus, while people double their spending as their income doubles ("income elasticity"), it isn't really reasonable to double the quantity of things that they buy. Thus, quality of purchases increases at a faster pace than quantity. Or, as Daniel Hamermesh puts it: "as our incomes rise, we increase the quality of what we consume." Thus, Mr. Hamermesh concludes, that if we live in an area where income is generally increasing, we should bet more on quality winning out than quantity.

We've talked about this before. There we noted that Rep. Theresa Berceau's plan to raise the beer tax. In that plan she notes that "beer consumption is approximately evenly split across upper and lower income levels." But, we see, this isn't really true. Upper and lower income levels spend approximately the same amount, but don't really drink the same amount. Thus, a tax focused on the number of barrels of sold, taxes quantity, not quality. And thus the poorer are more heavily taxed than the (comparatively) richer. Think about it this way: at a bar in town I can buy a glass of New Glarus' Belgian Red for $6, or I can buy a pint of Miller Lite for $2 - but both kegs are taxed the same ($2) for that keg. So, If I spend $6 at the bar, I have either paid the tax once, or I've paid it 3 times. Chances are if I'm "a person of lesser means" I probably bought the 3 Miller Lites. (We'll ignore for the moment the fact that I probably could have purchased a higher-alcohol beer for the $6 and gotten pretty close to the same amount of alcohol but had it taste much, much better).

But, beyond the tax issue, what this also means is that there is plenty of room on the upper end of the price range for beers. In my meanderings I've seen one Wisconsin brewery price its single bottles above $10 - Sprecher had its anniversary beers, packed in 750ml bottles, priced at $15. Lake Louie had 6 packs of its Louie's Reserve priced at $12.99 and I think a few others have priced 6 packs over $10. I think Central Waters' 22oz bottle of its Coffee Stout approached $10. Not even the Belgian Red and Raspberry Tart are over $10.

I understand that there is a "mental purchasing barrier" at the $10 limit. That's "a lot" to spend for "just" a bottle of beer. But, we don't think twice about dropping $15-30 for wines. Personally, I think part of the mental triggering mechanism is the fact that beer is anchored to the cooler. If it were pulled out and put, lovingly, on shelves - like how wine is displayed - with adequate education (either from store help or from shelf talkers and explanatory pamphlets), I think people would spend the money.

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