In a few short day’s time we will joyously re-release one of our most sought after creations, The Original 006 Hazy Double IPA. This little beauty has gotten us some great press this last year, being named among both the top IPAs and beers period in the USA by Craft Beer & Brewing Magazine, Thillist, and Forbes to name a few. But, it will only be sold in-house through our Tasting Gallery. Why you may ask? Because the brewing industry is fucking crazy and it’s almost perfectly engineered to make earning a profit as elusive as a North Korean travel agent.
This beer has prompted lots of questions over the years. For example people ask us all the time, “Why don’t y’all make this beer year-round?” Now people will inevitably clamor, “Why are you assholes not sending this out to the market and keeping it only for yourselves! We want it in our stores! We want it in other states! Pitchforks and torches! Rabble Rabble!” The answers to both these questions might give you some visibility into how the brewing industry works, and especially the game-within-the-game – hop contracting.
If you’re a lover of IPAs then you should be no stranger to hops, its varieties, and the mind-
blowing flavors and aromas they can produce. But what you may not be aware of is how we get them, and the very real barriers that breweries of our size face in getting the hops we want. Imagine a chef in a kitchen. She can devise recipes and can rely with some degree of certainty that she can either source those spices or products locally, or at the very least can get them shipped in. Want to develop a banging dish? Just develop a recipe, do some shopping, and voila, you’ve got your dish slingin’ out to the masses. If you don’t get exotic spices in that kitchen then it’s because the chef is cheap, lazy, or stupid.
Brewing could not be more different. There is no “hop store”. There are only hop farmers that are spread all over the world. Most breweries like us work through wholesalers that work with all these farmers and connect buyers to them. However, the game has changed dramatically in the last five years. There are now over 8,000 breweries in the US, and demand for some varieties has greatly surpassed the volume of hops that are produced.
So, you have to “contract” for your hops. This specifies how much a brewery is willing to pay for hops each year over a span of years. Nobly, this lets the farmers know how much to plant and helps alleviate risk by giving them promise of payment. Great right? Yay farmers! However, what this really is at the end of the day is risk shifting. Someone has to have their neck out there. So, the market has apparently chosen the beardy masses of the beer industry to take that on.
These are binding contracts where breweries have to basically make a gamble on their future. We have to literally look into a crystal ball, sometimes MORE THAN FIVE YEARS down the road, and make ourselves financially liable for the poundage of hops we think we’ll need. No one ever really gets it right. You’re either under what your volume is and can’t make the beer you want, or you greatly overshoot, meaning that you’re required to buy hops that you have no use for. We literally have thousands of pounds of hops like that. Some were contracted for beers that we don’t even make any more. And to add a cherry on top, if you don’t want to buy these useless stupid hops at the end of the year you then have to pay storage fees. Join the beer business they said. It’ll be fun they said.
So, contracting for hops is a perilous game where no-one wins (except for wholesalers and
farmers) and often times breweries lose large sums of money trying to ensure basic access to
raw materials. And that’s the good news! The more frequent reality is that you just simply can’t get access to hop contract AT ALL. That’s the not-so-good news.
If you can’t get a contract on hops, you then are at the mercy of the “spot market”. The spot
market is essentially the brewery dark web in all its glory. It’s an open market. People that post available hops come in two categories. They’re either poor pitiful bastards trying to sell hops they can’t use, trying to lose as little money as possible (yes, they’re selling hops at a loss). Or, they are the worst people on Earth. Yes, they are the worst. On Earth. Not Yelp reviewers. Not people that put pineapple on pizza. Not neighbors that lawnmower at 8am on Sundays. The worst people on Earth are the people that gouge prices for highly sought after hops on the spot market.
Hop prices generally range from $7/pound for your garden variety to $14/pound for sexier
hops. If a hop gets some hype they first get contracted to hell, and then the wholesalers tell
everyone that didn’t get their name in the hat fast enough to go eat a fork. Then the wolves
come out to play. Many of these miserable excuses for human beings that get access to these hops don’t even use them! Instead, they jack up their prices, and put the gun on the table. Want Vic’s Secret? Fuck you, pay me. Want Enigma? Fuck you, pay me. You get the idea.
To return to the chef analogy, it would be like her only store telling her, “Oh, you want to make that spaghetti? You now only have the option of buying these gold-encrusted saffron noodles.”
And this doesn’t happen overnight. Often times you can get a variety of hops no problem. That is until a critical mass of haze bois start acting like hop X is the “one hop to rule them all,” and then the whole market goes batshit crazy trying to corner the market. Then if you’ve been producing a beer with that hop previously, good luck. Typically, it then turns into an old boy’s club trying to get a pittance of the annual volume, and the majority of brewers are left on the spot market, waiting like a bunch of junkies for the dope man to arrive. Inevitably it trickles down, and it gets more and more shocking each time to see how little fucks are given by the people reselling them. I always imagine that someone is coughing out cigar smoke with a sinister laugh when they post a new “availability.”
OG 006 has a hefty dose of Galaxy hops in it. We love Galaxy. Once upon a time we had
contracts for Galaxy. Now we’re with the huddled masses, trying to mentally and financially
justify being extorted just to get enough to make a single batch. Sometimes the offers can be more “reasonable.” By reasonable I mean it might be 2-3 times the original contract price. Yea. However, increasingly most of the time these evil con artists will charge 5-6 times the original price, sometimes even higher. Fuck you. Pay me.
We love this beer and want to make as much of it as possible. We distributed 006 earlier this
year because we were able to find hops that some “saint” sold us for a little more than 3.5x the original contract price. What a guy! However, we weren’t as “lucky” the last time. The only Galaxy we could find was a whopping 6.2x the contract price. That is crazy. That is insane. And that is unprofitable, even at the higher price point we charge for this beer.
Or at least its unprofitable to sell through distribution.
Another rose colored dimension of the beer industry is that we are mandated by federal and
state law to only sell through licensed wholesalers. We can’t self-distribute. Instead, if we want to spread our beer outside our four walls we have to sell to a third party distributor at a very low cost. We do this because they have to make a profit, and they are required by law to sell to a retailer (who has to make a profit), and only the retailer can ultimately sell it to you, the end consumer. That means in order for everyone along this byzantine path to make a profit (and you not to spend $30 a four pack) it has to begin from us a very low price relative to market.
So, when we had the opportunity to buy these outrageously expensive hops we had three
choices. The first choice was don’t buy it. That sucks. This is considered a top-ten beer in the
US, and not making it just because the proverbial monopoly guy on the spot market wanted our first born for it seemed unacceptable. It felt like he was winning.
The second option was to buy them and sell it through distribution. However, based on the hop price and not wanting to increase our prices to you the consumer, that would mean that we would lose money on every case we sold. I didn’t get a business degree or anything, but I’m pretty sure somewhere in the curriculum it says “Don’t sell your products at a loss.” Kind of a bad business model. So for the sake of keeping our business running and everything, we had to rule that out.
The last option was to buy the hops and only sell it in-house, where we don’t have to sell it for a fraction of the price. In that scenario we still don’t make the margin we typically would, and I assure you compared with some industries that typical margin isn’t eye-popping. But we still could justify making the beer if we went this way. So, here we are.
If you’re a retailer out in the market, please accept our apologies that we can’t send it out
through distribution. We simply can’t lose money on the beer we make, and we hope that you can appreciate that.
If you’re an awesome person that wants to get your hands on some, we welcome you to come by the brewery to pick some up on Friday June 7th. And if you can’t get there yourself mule on up and bring a case back to a city near you!
We wish that we could press the “BEER” button and spit out limitless quantities of this stuff.
Unfortunately, we are bound by the realities of operating in a really scarce commodities
market, a highly regulated distribution scheme, and are left ultimately to the whims of Chads
everywhere that want a pound of flesh for an ounce of hops on the spot market.
It’s a crazy, cards-stacked-against-you industry, and we can’t imagine ever doing anything else. We love it. We love you. And bringing these tasty cold snacks to you is the privilege of a lifetime.
Thank you for supporting us. Thank you for understanding. And thank you for taking the time to learn more about this bizzaro industry we live in.
Join the beer business they said. It’ll be fun they said.
- Harris Stewart - TrimTab Brewing Co. / CEO