How Inflation Hits Brewpubs - And How We're Keeping Prices Low

After finishing my quarterlies, I wanted to see how prices for everything square up with our costs here at Hopskeller. While I have always been aware that food costs go up, it's really something else to see it all put together, in one place.

Because I felt that there might be some interest to our most dedicated fans, I wanted to open up the books, as it were, and illustrate some of the headwinds that restaurants have faced over the past 5 or so years. I've dug deep into my numbers from Q1 2020 (pre-COVID) and compared them to today; these numbers reflect the bulk of the core items we use across the brewery and the kitchen (the bar really varies from product to product). 

I've also looked over past menus to see how much we've increased prices during those times. True of almost all restaurants and bars (certainly the ones around here), our prices generally do not increase directly with inflation; relative to the cost of the raw ingredients, the margins for restaurants and bars generally have decreased in the past 5 or so years. It's one of the reasons that it's felt, from time to time over the past 5 years, like eating out seems cheaper than getting groceries; grocery stores tend to adjust their prices much more regularly than we do, and they do so in line with whatever their current prices are at a given time. We may -- may -- adjust once a year if needed, including downwards (like we did with all of our wines and some of our whiskies and vodkas) as we order more in volume and pass on case discounts to customers.

Thankfully, we have multiple tools in our toolbox to keep margins sustainable: price increases, consolidating hours to our full-time staff, switching purveyors, cutting spending across departments, bulk purchasing, etc. There are lots of ways to skin a cat, and being a brewpub means that you're essentially playing with three complementary businesses (production brewery, bar, and restaurant) to make the whole function.  This is quite the advantage, and it's one of the reasons that brewpubs are seeing growth despite a nationwide down-trend in beer and alcohol consumption more broadly.

Without further ado, here are some of the price increases from pre-COVID to last quarter. The U.S. has experienced cumulative inflation of nearly 25% in this time period (A dollar right before COVID would be "worth" $1.25 today). I want you to keep that number in mind for two reasons: one, to see how food -- including what we all buy at the grocery store and at restaurants alike -- has increased in cost well beyond the general inflation rate; and two, to see how that has affected our prices historically.

On the numbers below, keep in mind that any switching of vendors for better prices are already baked into these percentages:

Flour: +33%
Tomatoes: +30%
Cream: +30%
Pineapple: +58%
Lettuce: +24%
Olives: +92%
Onions: +20%
Mushrooms: +12%
Green Peppers: +10%
Oranges: +26%
Lemons: +20%
Sausage: +23%
Pepperoni: +17%
Soda (Coke products): +39%. Not for nothing, unsweetened iced tea is no longer available from Coke or Pepsi in bag-in-box form.
Domestic Beer: +24%
House Wine: +100%
Grain (British): +33%
Grain (American): +18%
Hops: +2% (this one deserves a deep-dive in its own right; suffice it to say, the hop market absolutely stinks for farmers, and it has for years)
Minimum Wage: +47% (+40% from July 2020 onwards)

Likewise, here's how our prices have changed...

Increase in Hopskeller pizza prices since 2019: +20%
Increase in Hopskeller domestic beer prices since 2019: +13%
Increase in Hopskeller craft beer prices since 2019: +8%
Increase in Hopskeller house wine prices since 2019: (-)17%

Again, keeping in mind the cumulative inflation rate of 25% for the economy at large, not only have we kept prices well below inflation, but they've been *markedly* below the price increases in food and agriculturally-derived products (like beer and alcohol).

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There are lots of reasons for these price increases in the broader economy, but the big ones really come down to increases in the cost of fuel, the cost of labor, and tariffs. 

As an agriculturally-adjacent industry, we rely on products ultimately derived from farming. Fuel costs have a massive impact on every aspect of the farming industry (to say nothing of shipping and distribution), and every business paying an increase in fuel costs passes it on to the next person down the line. The farmer's operating expenses skyrocket when the cost of the diesel used to power their tractors, as well as the cost of their petroleum-derived fertilizers, go up. To make ends meet, the cost of their grain necessarily needs to increase -- and believe me when I say that farmers soak far more of this expense than the average person may think they do. Margins, already tight for farmers, are only getting tighter. Not only is the farmer's grain more expensive for the mill owner to make flour, but the cost to operate their mill increases as well; this affects flour, and so on and so on down the line until you buy that box of Golden Grahams at the store for far more than you remember paying the last time.

Labor costs need no introduction, since the debate about where minimum wage should be is front-and-center of state and local politics. I'm not one to offer an opinion on where the "right" number should be, but I can say that as a matter of fact, us business owners have a budget for labor (generally expressed as a percentage of sales). If we see tangible growth, we can increase wages. If wages go up at a faster rate than growth, we cut hours to compensate and/or increase prices to get our percentages back into line; it's fundamentally as value-neutral as that. Thankfully, minimum wage increases didn't affect us much, since most workers here have always made above minimum wage thanks to tips (potential legislation on removing tipped minimum notwithstanding). For all the other industries we rely on for our products, however, increased labor costs find their expression in higher prices at every leg of a product's journey, from raw materials to delivery of the finished goods.

I've spoken to the great people at the Republic-Times about tariffs in the past, and I'll leave those comments with the article. Suffice it to say, tariffs ultimately increase costs on customers -- either because a foreign product is now more expensive to buy, because the American alternatives were already more expensive than the foreign products in the first place, or because the run on American products creates a surge in demand that domestic suppliers can't meet. Government artificially increasing the true cost of goods -- either for economic, political, or diplomatic ends -- will necessarily see those costs increase; it's sort of the entire point, regardless of whether or not there's wisdom in placing those tariffs (and I'll leave that question to the more politically-inclined among us).

So, where does this leave us? Well, it's been a little over a year since our last price increases, and we're getting to a point with costs that it's making sense to do so. Thankfully, those increases will be quite modest -- still well below inflation, mostly because we're in a position to be able to do so -- and I have an idea for taking the bite out of that for our most loyal customers. Stay tuned to your email list; starting in the next couple of weeks, you'll start to see weekly coupons emailed to you for discounts on appetizers or other special offers. It's our way of making sure that we can do what we need to do while making sure we're doing right by each of you. 

Until next time, friends,

  -- Matt