Monday, March 28, 2011

Shortage of dogfish beer, why not raise prices

"Every market that we have has had more demand than we can support,"
from The Dogfish Head Brewery's vice president, Mariah Calagione.

Dogfish Head is one of the top microbrews in the nation and with Sam Calagione, the brewer and founder of the company, gaining national fame through a TV show and nomination for a James Beard Award, Dogfish is having trouble keeping its beer in stock. They have taken the step of eliminating distribution in four states Tennessee, Indiana, Rhode Island and Wisconsin, because as the quote above notes they can't keep up with the demand. The brewery has expanded production increasing in size 4 times it output from 2006.

Here's an article describing what Dogfish head is up to. Basic economic theory would tell us when a sellers sees that there is excess demand for their good they should raise prices. There is no mention of raising prices in the article. I think we can conclude one of two things, and I think 2 is more likely

1. They are actually raising prices, they just don't want to mention it in the article.
2. They aren't profit maximizers. If you have read or seen anything about Sam Calagion you know he seems much more motivated by making awesome beer than maximizing profit. As he points out in the article they could make more money by only selling their 60 minute IPA (and a fine beer it is).

Of course #2 is good for drinkers who can still find Dogfish Head at their local stores, but bad for those in the four state who can no longer but dogfish head locally (well except Wisconsin, they'll be fine plenty of good beer there).

Finally, the good news is you can always make your own Dogfish Head beer at home. I made the 60 minute once, turned out well.

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Warren said...

Or they keep prices artificially low to deliberately create a shortage and get free advertising, which can increase future expected profits.

Would you have written this post and told everyone about their product if they had no shortage?

James said...

Finn likes their raisin beer: I'm afraid to try it. I'd support the "more 60-minute" movement!

Eric Morey said...

The retailers are probably going to raise their prices. Sam Calagion's love of beer may be subsidizing his wholesale customers but not retail customers. I would certainly order more Dogfish if I could sell it at a higher margin than other craft-brews.

Brett said...

There's definitely an advantage to Sam & company for having their product always be in short supply. It is cache, and contributes to the breweries prestige, which in turn increases Sam's stature in the craft brewing community, which I am sure has its own rewards.

Also, as a homebrewer, I have to say that those kits from Xtremebrewing seem a little pricey to me.