Small breweries thinking how to reduce the cost of beer

Photo: Fotomontaaz

Estonia’s small breweries have seen amazing growth in a couple of years, but are still wondering how to reduce the cost of expensive craft beer and reach more consumers.

A total of 140 million liters of beer was produced in Estonia last year with the share of small breweries being approximately on e percent. This beer is mainly tasted by hipsters and beer connoisseurs willing to spend 3-4 euros for a small bottle. Most consumers still prefer cheap lager beer.

“If we want the beer revolution become visible in market share the small breweries must grow a little bigger, which would allow lowering production cost per unit”, said Enn Parel, manager of Estonia’s largest small brewery Põhjala. He added that they have to break out the niche and come closer to the people.

Põhjala, for example, has set a price target for their most popular beer Virmalised IPA at 2.2 times higher than a liter of Saku Originaal or A. Le Coq Premium. The present price gap is almost four times.

While the large breweries suffer from the steep rise of excise, which noticeably increases the price of beer in shops, many small breweries actually benefit from it. Breweries producing less then 600,000 liters of beer annually pay half of the excise claimed from large producers. This allows them raising the price not at all or at least to a lesser degree.

Although the output volume of Põhjala exceeded the excise exemption limit last year, Parel said that they have never increased price since April 2014. “We shall be able to endure the excise rise for some time by improving efficiency and boosting production volume”, he said.

Parel explained that for a small producer the price of beer at a shop matters less than the price gap between mass production and the small-time firm. “The price gap in the USA is 2 to 2.5 times, thanks to which craft beer is much more accessible to consumers and its marker share reaches 13 percent”, he said.

Jaanis Tammela, head of Tanker brewery, promised that they would not increase price after the excise jump. “This means that our prices in shops move closer to those of the blue and red cans “, he hinted at Saku and A. LE Coq beer. “Obviously we can only benefit from it, provided not everybody will move to Latvia after cheaper beer.”

Yet the excise rise affects them as well – the producers have to pay 16 cents excise per 0.33-liter bottle instead of the previous 8 cents. “We are trying to meet the excise rise from improved efficiency and lower profit. This is where the production volume comes into play, which will lower unit cost after we cross a certain threshold.”

But Tarmo Tali, head brewer of Lehe brewery, believes that new growth could come not from lowering the cost but from convincing the consumer to prefer taste to quantity.

“Craft beer is certainly more expensive than mass-produced lager and will remain so. But when looking at people’s shopping baskets, many have enough money to buy whole crates of beer.  It would be important for us if they enjoyed a bottle of quality beer instead of a large quantity of cheap beer”, Tali said.

A large share of Estonia’s small breweries began production in 2013-2014. Several claim that they have been more successful then they had ever imagined. Although Tanker has enjoyed success as well, Jaanis Tammela believes that real craft beer boom has not yet begun in Estonia.

“Having met beer drinkers at summer events I can assure that an average buyer does not know anything about craft beer and our products are still niche production. I believe we still have to work hard improving public awareness and only then, in years, we shall reach five to ten percent of the beer market”, he estimated.

Tarmo Tali of Lehe brewery said that Estonia’s non-existent local beer market has become one of the most interesting in the world, since small Estonian breweries produced 300 new brands last year. “One can say that the initial excitement has passed, but this applies for the media rather than buyers. Craft beer is no longer news but a part of daily life.”

The optimistic picture is somewhat spoiled by Saku and A. le Coq, which in his words attempt to imitate local craft beer and confuse the consumer.

Estonia’s small breweries are active exporters as well. Põhjala sells approximately 75 percent of its output abroad and their beer can be bought in 26 countries, including Brazil, China and Japan. Tanker exports some 60 percent of its output this year.

“Estonian beer is being recognized abroad and it has actually been noticed in foreign counties more than at home. It is highly regarded around the world and we hope those in power will understand it one day”, manager of Põhjala Enn Parel said. “We can achieve that Estonian beer will be as strong a brand as French wine, Dutch cheese, the Finnish sauna or a Swiss watch.”

He mentioned beer tourism as an interesting and growing trend. The Põhjala brewery receives every week inquiries from travel bureaus, which would like to bring busloads of tourists to their shop. “We plan the construction of a new brewery, which should be completed in the second half of next year and then we shall be able to receive groups since the conditions would be created in advance”, Parel promised.