By going against the old “stack ’em high and watch ’em fly” adage, Duvel USA has managed to double its volume and triple its revenue over a three-year period.
Simon Thorpe, the president of Duvel USA/Ommegang explained how the company has turned that neat trick during the May 2 Brewbound Session in Boston, presenting a case study on the profitability of the super high-end craft beer segment.
“We are revenue and margin driven, which means high pricing and margins at the expense of volume,” he told the audience of brewers, distributors, and investors who were there for the one-day event.
“We think that the difference that our luxury beers bring to our wholesaler and our retail partners is important, not just in terms of profitability but also in terms of the changing wave of the way this new millennial generation is thinking about beer,” he added.
That generation, according to Thorpe, desires beer that represents an “attainable luxury” — one with many of the attributes of other brands outside the beer space, like auto manufacturer BMW.
“We won’t find the answers that we want looking at what has happened in the past in the beer industry,” he said.
As a result of its research, Ommegang has defined three principles about luxury brands.
They are expensive but worth it, they aren’t available everywhere, and when you purchase a luxury brand you feel ‘special.’ That’s why Thorpe has carefully instructed his sales force to politely tell some retailers ‘no’ when they ask to purchase product.
“We could put our beers wherever we want to,” he said. “We have to make sure that we do put them where they must be to develop the brands.”
And some luxuries are made affordable through graduated pricing, according to Thorpe.
“BMW presents luxury at multiple price points,” he said. “It introduces luxury at various levels through a chain. Their marketing programs are all about loyalty and building someone up the ladder of luxury.”
Ommegang and Duvel beer types follow a similar “luxury ladder” and are often found in high-end on-premise accounts. They cost more, but fit with a consumer base that has been trained to reevaluate what is ordinary and what can be regarded as luxury.
“They [consumers] need to feel so good about a luxury brand to justify the price,” he said.
Thorpe made the argument that the high-end picture for craft is big and profitable, but could be more so.
Thorpe estimates that roughly 610,000 hectoliters (511,570 barrels) of ‘luxury’ beer is priced between $8-$10 per 4-pack and represents over $500 million in revenue. Another 130,000 hectoliters (109,018 barrels) is priced above $13 per 4-pack, generating $150 million in revenue.
“There is a remarkable concentration right at the top end of the pyramid,” he said.
Editor’s note: Video playback of Brewbound Session Boston 2013 is available on Beverageschool.com