How to properly price draught beer/lager/cider

[JpeeL]

I’m struggling at the minute to reasonably price our draught drinks for our restaurant bar.

We pay £145 for a 50 litre keg (including vat) and I’m charging £4.75 for a pint that costs £1.65.

However other places in our area are selling similar things for £3-4. I’ve looked at other options and all kegs seem to be in the £120 (strongbow and John smiths) to £145 (moretti and dark fruit) range. I can’t see people paying nearly £5 for a pint of moretti or dark fruit in our area (small northern town).


I’m working out the prices by multiplying cost price by 3 which is what I’ve always done.

Am I calculating the prices wrong or are we just paying to much for our kegs? Sorry for sounding naive, I’m new to running a business after my dad fell ill and I had to take over.

Any advice is appreciated, thanks!

 

[Mark T Jones]

It’s a difficult question to fully answer - first of all you need to look at their across the board pricing to se if they are using beer as a low margin sale and propping profits on other items

Alternatively they might just be loss-making, in which case you don’t want to copy their model

Where I live £5 for a pint is entirely normal.

 

[tony84]

There is no set price as such and a multiple of 3 seems a bit generic.
Where I live (outskirts of Manchester), there is a local pub which charges £4.80 for its cheapest pint and £5.80 for its most expensive.

The pub itself is a bit lar de dar and has a chef who makes plates of food that wouldnt fill a child and charges a fortune for it. It seems to be quite busy and do well.

There is another local pub that charges £4.20 for its cheapest pint of lager and £4.80 for its most expensive. That pub is a bit more like your average pub, sky sports, brakes brothers pub food etc.

You have to take in to account:
The area,
The cost to you - not just the barrel but the gas and everything else,
The competition,
The surroundings - ie if you are in an affluent area which is highly thought of with nice scenery, you can probably "get away with" charging more than a dingy back street pub filled full of scrotes selling drugs in the door way.

 

[Noah]

We pay £145 for a 50 litre keg (including vat) and I’m charging £4.75 for a pint that costs £1.65.

That keg price is steep, although it depends on the brand as you note. Try to negotiate some form of discount, or approach a local supplier that might be more keen on your business.

However other places in our area are selling similar things for £3-4.

Your pricing has to be dictated by the market to some extent; you probably don't want to try to compete with W'spoons and similar, but if you are too far above others you will not get repeat nor regular business.

I’m working out the prices by multiplying cost price by 3 which is what I’ve always done.

This sort of approach is dangerously simplistic; you need more flexibility in your pricing.

 

[Energise Accounting]

Had to get up early this morning so i will answer your question.For Draught products the selling price is between 40-50% GP.

so if you are paying £145.00 for a keg which has 88 pints. This is how you work it out.

145.00/1.20 = which is 120.85 rounded up

if you want to run at a
40% GP simply 120.85 x 2 = 241.66/88 = 2.75 a pint
45% GP 120.85 x 2.182 = 263.70/88 = 3.00 a pint
50% GP 120.85 x 2.400 = 290.04/88 = £3.30 a pint

A tied pub would be paying around £173.00 + VAT for a 11 gal keg and they would charge a minimum of £4.00 a pint

 

[Mark T Jones]

Had to get up early this morning so i will answer your question.For Draught products the selling price is between 40-50% GP.

so if you are paying £145.00 for a keg which has 88 pints. This is how you work it out.

145.00/1.20 = which is 120.85 rounded up

if you want to run at a
40% GP simply 120.85 x 2 = 241.66/88 = 2.75 a pint
45% GP 120.85 x 2.182 = 263.70/88 = 3.00 a pint
50% GP 120.85 x 2.400 = 290.04/88 = £3.30 a pint

A tied pub would be paying around £173.00 + VAT for a 11 gal keg and they would charge a minimum of £4.00 a pint

It's good technical advice, but the OP must be mindful of competition and the nature of high margin / low margin comparisons

 

[Financial-Modeller]

Had to get up early this morning so i will answer your question.For Draught products the selling price is between 40-50% GP.

so if you are paying £145.00 for a keg which has 88 pints. This is how you work it out.

145.00/1.20 = which is 120.85 rounded up

if you want to run at a
40% GP simply 120.85 x 2 = 241.66/88 = 2.75 a pint
45% GP 120.85 x 2.182 = 263.70/88 = 3.00 a pint
50% GP 120.85 x 2.400 = 290.04/88 = £3.30 a pint

A tied pub would be paying around £173.00 + VAT for a 11 gal keg and they would charge a minimum of £4.00 a pint

Your recommendation is that he should be selling beer that he currently sells for £4.75, for £2,75 to £3.30, when his competition sell it for £3.00 to £4.00!

This doesn't seem like very good advice.

Following your logic he should be selling Strongbow & John Smiths for £2.28 to £3.28, so less than half what he is currently selling (other beer) for.

OP, one simple question; are you selling all your stock at £4.75, or are you wasting unsold beer? If the latter, either reduce your pricing permanently, or run a 'beer of the day' or similar promotion to push whatever you need to before it goes off.

Also, as somebody has already mentioned, see if local brewers can give you a better price.

 

[Paul Kelly ICHYB]

Do not calculate based on 88 pints - include ullage!

Also, @JpeeL, you do not say if you are having issues selling at these 'high' prices! is your food 'expensive' for the area?

As mentioned, using a multiplier is a bit of a blunt tool!

 

[Noah]

OP, one simple question; are you selling all your stock at £4.75, or are you wasting unsold beer? If the latter, either reduce your pricing permanently, or run a 'beer of the day' or similar promotion to push whatever you need to before it goes off.

Do not calculate based on 88 pints - include ullage!

Referring to keg specifically, it does not go "off" in any reasonable time frame, and ullage is minimal - although there will be a little wastage in the lines during cleaning - 2 pints?

If the OP uses "keg" to mean both keg and cask - well, there are a lot more questions she needs to ask!

 

[Noah]

A tied pub would be paying around £173.00 + VAT for a 11 gal keg and they would charge a minimum of £4.00 a pint

Good illustration of why pubcos (tied pub owning companies) are a blight on the pub market.

 

[Energise Accounting]

Your recommendation is that he should be selling beer that he currently sells for £4.75, for £2,75 to £3.30, when his competition sell it for £3.00 to £4.00!

This doesn't seem like very good advice.

Following your logic he should be selling Strongbow & John Smiths for £2.28 to £3.28, so less than half what he is currently selling (other beer) for.

OP, one simple question; are you selling all your stock at £4.75, or are you wasting unsold beer? If the latter, either reduce your pricing permanently, or run a 'beer of the day' or similar promotion to push whatever you need to before it goes off.

Also, as somebody has already mentioned, see if local brewers can give you a better price.

The examples i have given are the standard markups for the pub trade. I did not include London as the op lives up North.

The average cost of a pint in the UK is still only £3.00. Here are some average selling prices for up North for a pint

Durham £ 3.00
Newcastle £ 3.74
Shefield £ 3.74
Leeds £ 3.53
Peterborough £ 3.48
Liverpool £ 3.45
Hull £ 3.43
Bath £ 3.20
community local pubs would normally sell below the average and pubs out in the countryside would normally be above the average.

The high profit items are.

Bottled Beers 60%
wine and spirits 70%
Soft Drinks 60-80%

 

[Energise Accounting]

Do not calculate based on 88 pints - include ullage!

Also, @JpeeL, you do not say if you are having issues selling at these 'high' prices! is your food 'expensive' for the area?

As mentioned, using a multiplier is a bit of a blunt tool!

No waste in keg beer. in fact you should get more than 88 pints more like 91 as you get around 3% head gain.

With trad beers you calculate at 68 pints in a 9 Gal Barrel and that will cover any waste.

 

[Energise Accounting]

Good illustration of why pubcos (tied pub owning companies) are a blight on the pub market.

Another illustration for you an average pub turning over £250,000 net of VAT

Freeholder Net Profit: £62,500 and £75,000
Tied Pub " " £18,750 and 28,750

 

[Noah]

Do not calculate based on 88 pints - include ullage!

Apologies - I was distracted by technicalities. Yes, you are never going to sell every drop of the contents - cleaning losses, fobbing, over-fill, drink returned by customer, etc. - so realistically allow about 5% loss.

 

[The Byre]

No waste in keg beer. in fact you should get more than 88 pints more like 91 as you get around 3% head gain.

Unless you are in Blackpool, where it is the local tradition to add 25% water.

 

[Energise Accounting]

Good

Apologies - I was distracted by technicalities. Yes, you are never going to sell every drop of the contents - cleaning losses, fobbing, over-fill, drink returned by customer, etc. - so realistically allow about 5% loss.

If you were working for weatherpersons or any large estate and achieved a 5% loss on draught you would find yourself on the dole pretty quickly

 

[Financial-Modeller]

The examples i have given are the standard markups for the pub trade. I did not include London as the op lives up North.

The average cost of a pint in the UK is still only £3.00. Here are some average selling prices for up North for a pint

Durham £ 3.00
Newcastle £ 3.74
Shefield £ 3.74
Leeds £ 3.53
Peterborough £ 3.48
Liverpool £ 3.45
Hull £ 3.43
Bath £ 3.20
community local pubs would normally sell below the average and pubs out in the countryside would normally be above the average.

The high profit items are.

Bottled Beers 60%
wine and spirits 70%
Soft Drinks 60-80%

Neither the OP or I mentioned London. Not sure why you mentioned London as its irrelevant to the OP's question as he says the pub is in a "small Northern town".

In your first post you recommended the OP sells beer for £2.75 to £3.30, when he currently sells it for £4.75.

In your second post, you mention that the average price of a pint is £3.00, then give a range of examples - to illustrate your point presumably - but the average of your examples is £3.45.

You sound like you have a lot of knowledge on the subject, but the advice you're giving the OP is disjointed and inconsistent.

It is especially unwise given the relatively small amount of info that the OP has shared about his circumstances.

 

[Noah]

The pub itself is a bit lar de dar

"lah-di-dah" with a Manc accent - love it.

 

[Noah]

Good

If you were working for weatherpersons or any large estate and achieved a 5% loss on draught you would find yourself on the dole pretty quickly

Don't doubt that. However, for a self-owned restaurant bar budget it might be reasonable for budgetting but expect to achieve better in operation.

 

[Energise Accounting]

Neither the OP or I mentioned London. Not sure why you mentioned London as its irrelevant to the OP's question as he says the pub is in a "small Northern town".

In your first post you recommended the OP sells beer for £2.75 to £3.30, when he currently sells it for £4.75.

In your second post, you mention that the average price of a pint is £3.00, then give a range of examples - to illustrate your point presumably - but the average of your examples is £3.45.

You sound like you have a lot of knowledge on the subject, but the advice you're giving the OP is disjointed and inconsistent.



It is especially unwise given the relatively small amount of info that the OP has shared about his circumstances.

my model is accurate the £3.00 per pint is based on the average of every city in the country. Above are examples of places up North. As it is part of my business to know these things i know the average selling price in every town and city in the country.

So if you take my example above and the OPs pub in in a small village outside Newcastle which has a average selling price of £3.74 you would expect a pub on the outskirts to sell a pint for around anything from £2.75 to £3.30 0n average depending on the product. You would probably sell products like Stella and Guinness for around £3.75 per pint as these are premium products

The op is selling his product at £4.75 and if he is getting away with that that is fine however, he has commented on the local competition which is much closer to my model.

For example in my area of the country if you drink Carlsberg or Tetley you can get a pint quite easily for around £2.20 where as if you drink Carling you would expect to pay a minimum of £3.40 a pint. So when i am comparing pub pricing i use a mixture of the industry standard margins and the average selling price within a town or city.

Another thing to consider is the more you buy the better the discounts you can expect. For example a pub buying 200 composite beer barrels a year would expect to pay around 10% less for a keg than the OP is currently paying.

 

[Mark Laurie]

In a previous life I managed a pub in Sussex that was tied to the local brewery. In addition to the exorbitant rent we had to buy beers, spirits and wine from them. We used to buy 176 pint kegs of Fosters and Carling which cost us £320!! If we went to the local Bookers we could buy 88 pint kegs for about £70. The breweries own beer was quite reasonably priced for a 9 gallon cask at around £65. With the margin we had to make we were charging £3.20 (this was in 2008) for the lagers, bitters were slightly cheaper and premium lagers were £4.00. I would suggest the OP looks around for an alternative supply. We used to lose about 1 1/2 - 2 pints in ullage due to cleaning but as a previous contributor says there are other factors to be taken into consideration, fobbing especially in hot weather and changing kegs if not done properly. We used to have a waste book for things to be noted in. Our stocktake used to show an error of 1.5 - 2% on a monthly basis. I now live in Mansfield and can get a pint from approximately £2.10!!

 

[Energise Accounting]

Fobbing is not really a problem in this day and age if you are using keeping your cellar at the correct temp and use the fob detectors correct manner.

If the pub is run properly you should achieve a 99% yield on stock and cash. i have 35 clients and all but a handful are achieving this. The others are achieving around 97.5% on stock and cash mainly because the employ managers who probably have the odd free pint.

 

[JpeeL]

Some great answers here thanks so much!

To answer a few questions no we have no trouble selling it, and tbh reading some of these replies getting a 60% gp margin on it it sounds like we’re actually doing pretty good, actually 65% since we put the price up after the sugar tax.

Going forward if I aim for higher gp on bottled stuff and spirits and lower on the draught would I be along the right lines?

 

[Energise Accounting]

Bottled Beers around 60% GP
Spirits/ Wine around 70% GP
Soft Drinks between 60/80% GP

By the sounds of it your margins are very healthy, these are the types of margins i would expect from a Gastropub

 

[JpeeL]

It’s a restaurant so yeah kind of similar I guess.

I think all our drinks should match what you posted tbh.

As an over all gp for the full business (small Italian restaurant) should we be looking for 70-80% weekly gp?

 

[Energise Accounting]

I suppose your business is mainly food Led. so i would expect an overall G.P of around 75% however, i should imagine your labour costs are higher than the average pub.

My advice is try and promote wine in your restaurant you will get much better margins and nobody really notices if you add £1.00 on a bottle of wine but if you add 50 p on a pint they will notice.

 

[JpeeL]

I looked at adding £1 to our wine bottles which would make them £14.95 (house wine), but I’d have to push the price of a glass to maybe £5.25 which I don’t think is that reasonable.

I will add to the none house wine bottle prices though.