The brewing industry is getting a boost thanks, in part, to the increasing availability of hops.
While beer prices at Dorothy Lane Market have increased over the last year and are now about 10% higher than they were this time last year, the tide is turning, said Jerry Post, beer and wine director for Dorothy Lane's Washington Square store, one of three locations in the Dayton, Ohio area.
“Prices have seemed to stabilize,” he said. “It seems like the situation is getting better.”
The price increases have not had a major impact on sales, which have slipped about 0.5% compared with this time last year.
“People are still buying beer,” Post said.
The chief drawback to the hops shortage over the last year has been that some craft brewers reduced production, so Dorothy Lane didn't get the same amount of beer volume as it once did, according to Post.
Over the past year, price hikes have occurred in the beer category as the hops shortage and other cost pressures began to take their toll at retail.
Hops, which are the flowers of the hops plant used to flavor beer, were in low supply due in part to worldwide crop shortages caused by bad weather in growing regions outside the U.S., as well as a fire in October 2006 at a large hops warehouse in Yakima, Wash. In addition, some U.S. farmers have converted their hops fields to more profitable crops, or have sold their farms to developers.
Prices for certain types of hops tripled and even quadrupled in 2007 and into 2008.
Most of the big domestic and craft brewers weren't affected as much because they typically lock in long-term contracts. But the smaller craft brewers took a big hit.
The hops shortage got so bad that Boston Beer Co. launched a hops sharing program this year. In March, it held a lottery for 10,000 pounds of East Kent Goldings from Tony Redsell, a top English grower, and 10,000 pounds of the German noble hop Tettnang Tettnanger. Both are the same hops Boston Beer uses in its own brews. The company sold the hops at cost: $5.72 a pound plus 75 cents a pound to cover shipping and handling for the Goldings, and $5.42 per pound plus 75 cents for the Tetts. Similar hops sold for $15 to $30 on the open market.
The program was so well received that Boston Beer received requests from 212 brewers for a total of almost 40,000 pounds of Tettnang hops.
Boston Beer soon will release another 20,000 pounds of German Noble Tettnang Tettnanger. Those who didn't win in the first lottery will get priority. The prices will be the same as in the March lottery. Nov. 10 was the deadline for submitting orders.
Boston Beer founder Jim Koch stressed, however, that while the hops sharing program continues, the 2008 hops crop looks like a good one.
“I feel much better this year than last year,” said Ralph Olson, general manager, Hopunion, a Yakima hops supplier.
The reason is that more hops are being farmed, Olson said. In 2007, there were 118,000 worldwide acres of hops farms, down from 234,000 acres in 1994. This year, the number has increased to 127,000, thanks to an additional 9,000 acres of hops that farms planted in 2007 in Washington, Oregon and Idaho.
“It [hops acreage] is coming back up fast,” Olson said.
That has helped keep hops prices in check. Hopunion sells some hops for about $17 a pound, up from $3.40 a pound in May 2006, according to Olson. While that's a big jump, it's still down from the $22 a pound the supplier charged just a few months ago.
Beer prices have been climbing for more than a year at Jungle Jim's International Market, Fairfield, Ohio, said spirits operations manager Ed Vinson. Domestics are up about $1.50 a case, while crafts have risen $1.50 per six-pack.
“I'm not sure if that's a result of hops shortage or fuel charges or both,” he said.
Jungle Jim's offsets the price increases by buying in large quantities when the brewers offer deals. For instance, when Bud Natural Light, which Vinson normally buys for $13.99, was offered for sale at $11.99, he bought more than he needed, and put the excess in the warehouse.
“I bought a ton of it and passed the savings on to the consumer,” he said.
Jungle Jim's stores the beer in a warehouse, and puts it on the sales floor when needed. This technique is possible because while some beers have a shelf life of three months, others can last up to one year.
Despite the price increase, beer sales are up 10% now vs. this time last year. Vinson attributes this to the fact that the weak economy may be forcing people to entertain at home more often rather than go out.
Meanwhile, retailers are promoting the category more aggressively. While Dorothy Lane has included one or two beers in its weekly wine tastings for years, it decided the time was right to let beer shine on its own.
“We found there was a large enough following for beer that we should hold tastings not just for wine, but beer, too,” said Stephany Madliger, beer and wine manager at Dorothy Lane's Oakwood store.
Dorothy Lane Market also heavily promotes the category with a variety of themed beer displays. For instance, Madliger created a “He Loves Me, He Loves Me Not,” beer display for Valentine's Day. The display featured craft beers with unique labels like “Arrogant Bastard” (for “He Loves Me Not”) and “Two Hearted Ale” (for “He Loves Me”). Madliger enhanced the display by cross-merchandising flowers, chocolate and other items.
“When we create displays, we pull things from other parts of the store that fit the theme of the display,” she said.
Take a recent display for the Kentucky Derby. Dorothy Lane merchandised “Magic Hat” craft beer alongside actual hats.
“The microbrews have great packaging, so they lend themselves well to promotion,” she said.
Efforts like this go a long way toward building category sales, said Madliger.
“It's a growing category, especially with imports and crafts, so we want to draw attention to it,” she said.
Creating a display with craft beers is worth the effort because of the higher basket ring: Crafts typically sell for $8.99 a six-pack, compared with $5.99 for domestics.
“While some people may not buy a craft because of the higher price, we find that once they try it, they come back to it,” she said.
Displays also help stimulate impulse sales for beer buyers who may not have considered a craft brew.
“We've always had a strong selection of craft beer, but the displays draw attention to it. It gets new people into the category,” Dorothy Lane's Post said.
Along with crafts, domestic beers are also being featured in displays. Retailers cite Michelob's holiday sampler pack and Budweiser holiday steins as good complements to seasonal displays.
The big brewers also provide a host of other merchandise that can be tied into a display, such as Anheuser-Busch's cookbook, which describes how to pair beer with food.
Some of the recipes include spicy shrimp cakes with corn salsa; tuna ceviche with cumin and chilies; and chicken stew with saffron.
Each recipe is paired with a type of beer, including American-style premium lagers, European-style pilsners and English-style pale ales.