On being named “scum of the [beer] industry,” and getting serious for a change

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March 28, 2012 at 11:17 am

Not really an investment portfolio

Not really an investment portfolio

My recent story on “Local Beers as an Illiquid Investment” got a bit of reaction. That story commented on the practice of reselling rare beers. The intent of the story may have been misunderstood. Forgive the length of this treatise, but it’s a complicated issue.

First, the comments:

From Yep, on 2012/03/26 at 3:27pm

Tom, you are the scum of the industry. It’s the lowlife idiots like you who make rare beers the hyped frenzy-producing entities that they currently are.

You’re a dumbass to write an article about this practice, as it is universally shunned by the legitimate beer community. Not only do people like you drive up craft beer prices, they also reduce purchasing options for the consumer since breweries have stopped bottling and allowing growler fills of “rare” beers, to prevent the secondary market.

You should be ashamed of yourself.

From Jimmy on 2012/03/26 at 1:40pm

This is the most despicable piece of advice on investing I have ever heard. You are recommending that people invest in beer that they then need to send and ship ILLEGALLY. Also, your small animal big machine isn’t selling because you could have also bought it directly from De Struise. In order to prevent scumbags from reselling their beer on EBAY they have started their own webshop so I guess you might actually have to drink those beers you douche.

From Eric on 2012/03/26 at 1:32pm

Wow, please do not listen to this person. If you are purchasing rare / hard-to-find beers, solely for the purpose of re-selling?

1. You’re going against the wishes of the brewers who work hard for you to buy and enjoy this beer.

2. You will become reviled in the craft beer community, ensuring that if you’re seen at a beer release… well lets just say you won’t be very welcome.

I feel like I shouldn’t even have to explain this, but come on people. Don’t be a douche.

————–

Obviously (or maybe it was not so obvious to some) the article was written, as many of my others are, with my tongue firmly planted in my cheek. I have never re-sold a beer or a ticket to a beer event on eBay, or any other venue, and I have no intention of doing so. (In fact, the Dark Lord bottle on the right was shared with friends last Saturday.)

That said, if I have to get serious for a while, there are several points that warrant discussion.

1)    eBay’s loophole regarding selling alcoholic beverages based on the value of the package, and not the contents, is clearly a ruse — it’s an excuse to allow eBay sellers to sell alcohol directly, circumventing licensing regulations for retail sales of alcohol. But, to my knowledge, no regulators or states’ attorneys general have chosen to pursue the issue of rare beer sales on eBay. The cost of pursuing it, for the tiny handful of bottles that go into any given jurisdiction, may not be worth their time and effort. They probably have more important issues to pursue.

2)    The brewing community has mixed feelings about the practice. Some, like Natalie Cilurzo of California’s Russian River Brewing, disliked having an eBay listing of their well-regarded Pliny the Younger Imperial IPA, contacted eBay, and had the listing removed. Others, like David Walker, Co-Owner of Firestone Walker Brewing, compared the practice to reselling fine wines, saying “Who’d have thought a bottle of beer would be valued at $100 plus. It is an affirmation that there is real passion for beer out there.” Most brewery owners whose products have appeared in the secondary market haven’t commented publicly, but also haven’t taken the steps Cilurzo did to get the listings removed — which might be considered tacit approval of the practice.

3)    Breweries have the right to set a price point for their products wherever they desire. Three Floyds (to use them as an example) could probably sell out Dark Lord at, say, $40 a bottle (although there would undoubtedly be some grumbling), instead of its current price of $15. That would reduce the incentive to resell the beer on eBay, because, based on online sales, its true market value is somewhere in the $50 to $100 range. If the true market value is, say $60, and if the original price per bottle was $40, that’s a much smaller profit potential than it is at the current sales price of $15. So why does Three Floyds choose to sell Dark Lord at less than its market value? I’m guessing it may involve a couple of reasons: a) Three Floyds feels they can make an adequate profit selling Dark Lord at $15; and b) the lower price helps keep customers happy — it’s a “thank you” for their loyalty. If someone buys a bottle of Dark Lord, it becomes that person’s property, and Three Floyds doesn’t suffer financially if that beer is subsequently sold at a higher price.

4)    Three Floyds (and others) could make Dark Lord, and the others could make their rare beers, year-round. By making them available only briefly (and in the case of Dark Lord, only through a relatively onerous ticketing system) they control the scarcity of their beers, adding to their cachet, and upping demand (i.e. frenzy-producing). It’s different than the case of rare wines. Wines can be relatively variable based on the growing conditions of the grapes, which can be different every year, affecting the resulting product. Hops and barley aren’t subject to the same variables in terms of the quality of product they can produce; the scarcity of these rare beers is largely based only on the breweries’ marketing decisions.

5)    Relatedly, many rare beers are distributed only in certain geographic areas. If you want a bottle of Bell’s Hopslam, but you live in Boston or San Francisco, and you don’t want to buy a plane ticket, acquiring it from someone online may be your only option.

6)    eBay is not the only option for acquiring rare beers online. Ratebeer.com and Beeradvocate.com both have forums dedicated to trading rare beers with other craft beer aficionados. Most trade proposals involve individuals from disparate areas of the country trading for beers they can’t get locally, but in a few cases traders have admitted they purchased certain beers for the sole purpose of trading them for beers they really sought. There’s a fine line between paying for someone else’s beers with another beer that person never intended to consume, and paying with cash.

7)    The breweries actually benefit in some ways by having their beers resold on eBay and other venues. It may not have been designed that way, but it’s turned out to be a brilliant marketing move. The word of mouth created by someone opening a Dark Lord for friends, and being able to tell them “this stuff sells for $100 bucks on eBay,” makes it seem even more special. It also creates a halo effect for Three Floyds’ other beers — it creates a buzz around everything Three Floyds does. That may be one reason why most breweries don’t contact eBay and ask them to take down the listings. In fact, there are unconfirmed rumors of breweries releasing limited edition beers, but holding back a few bottles to list on eBay. Are they just trying to create more buzz, or are they simply using eBay as a tool to determine the true market value of their beers, for the purpose of establishing pricing levels for future limited releases?

I had a brief conversation with Pete Crowley about some of these issues yesterday afternoon. He’s the owner/brewmaster at the highly acclaimed Haymarket Brewpub in Chicago’s West Loop, and President of the Illinois Craft Brewers Guild. He compared reselling rare beers to scalping tickets for concerts and sporting events. Scalpers make it tougher for true fans to get opening day tickets at Wrigley Field, just as scalpers were a factor in the rapid sellout of Dark Lord Day tickets. “Craft beer is all about sharing, and celebrating the craft beer culture. If someone’s able to share by going online, that’s great [referring to trades on Ratebeer and Beeradvocate]. I just don’t like it when someone buys a craft beer for the wrong reason … solely to turn a profit.” But what about the guy who couldn’t get through to purchase Dark Lord Day tickets, but really wanted to go? Crowley doesn’t appreciate the sellers who purchase tickets only with the intent of reselling them at a profit, but for the guy who wants to get tickets, even at an inflated price, “Well, a guy’s got to do what a guy’s got to do.”

So, it’s a complex issue. People who purchase rare craft beers for the sole purpose of reselling them at a profit are generally, but not universally, reviled. But these people wouldn’t exist if breweries didn’t sell their rare beers at less than their true market value — which is, in part, impacted by their own limited-release policies. In general, there’s a more understanding view toward buyers — they’re just trying to get their hands on something they think has value to them at or above a stated price. Hardcore critics, though, condemn buyers for supporting the sellers.

And that’s a very long, laborious exposition of what was intended to be a light-hearted look at the practice of re-selling craft beers, in the previous article.

There’s a very interesting academic study of beer re-sales here: http://ratebeerians.hoppress.com/2011/04/18/market-behavior-for-rare-beer-ebay-auction-prices-in-review/

Finally, I’ve never been called the “scum of the industry” before. It’s an honor to know I touched a nerve.

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