Tysler last week told the Australian Craft Brewers Conference that Deschutes had been suffering from inadequate profit margins when he came up with the idea of launching the new Fresh Squeezed IPA at a premium price, three years ago.
“Our gross margin was $80 per barrel. We had to course correct, because our goal was to get to $105 gross margin per barrel,” he said.
“We had to readjust. So that’s when I came up with the idea, ‘when we launch this Fresh Squeezed, let’s take it up to a higher price point’. And we’ve done it and it made a huge difference.”
Tysler said Deschutes priced the Fresh Squeezed IPA at almost $2 a six-pack more than its other beers.
“We took a big chance… Well, lo and behold this beer starts taking off and price didn’t matter.
“People said, ‘wow, it’s a higher priced beer, it’s probably better’… The millenial consumer in the US looks at price and they relate price to quality.”
To command a higher price point, Tysler said Deschutes had to talk about the ingredients that were going into the product.
“The amount of hops that go into our beers is mind-blowing, and we use whole cone hops, we do not use pellets [other than in dry-hopping],” he said.
Tysler said Fresh Squeezed IPA is growing at 75 to 80 per cent in the grocery chains this year and it is passing a lot of other established IPAs.
“We only have maybe 25 to 30 per cent distribution in the grocery chains with that brand, compared to other IPAs that have 70-80 per cent distribution in the chains, and we’re at a higher price point,” he said.
Tysler said Ballast Point had subsequently pushed the boundaries even further with its Sculpin IPA, priced at another $4 or $5 a six-pack higher than Fresh Squeezed.
“Then Constellation came in and bought Ballast Point, who are smaller than us, for $1 billion,” said Andrew.
“Don’t be afraid to put up the price a little bit [and] see what type of elasticity you have,” he told brewers at the conference.
“When you come out with a product, push the boundary a little bit, because you can always discount down.
“It’s very difficult to go up, but you can always discount down,” he said.