It’s all about the Hamiltons, baby.
Forget “Let’s Go.” With the viral rumor that each beer at Wrigley is going to force you to part with a ten-spot, the above proclamation should be the new motto of Cubs business operations. I wonder, though, how former Secretary of the Treasury Alexander Hamilton would feel about fans having to trade his likeness for a cup of mediocre suds.
While not formally announced, the $10 price point was evident in an artist’s rendering displayed at the biz ops panel. Neither the Cubs nor their concessions partner, Levy Restaurants, have officially released pricing for 2015. While the club has not denied an increase, it’s important to note the the rendering is not necessarily a harbinger of things to come.
Benjamin Franklin, who knows a little about both fermented beverages and the invocation of his name in relation to cash, once said that beer is proof that God loves us and wants us to be happy. Ten dollar beer, on the other hand, would be proof that Crane Kenney loathes us and wants us to be crappy.
Okay, that was more a play on words than a factual statement, though I’m not sure it’s not at least a little true. In all fairness though, Kenney’s job isn’t to please the fans but to make as much money for the Cubs as possible. To that end, where better to start than the highly inelastic market of beer? While it might seem that you’ll barely be able to afford your barley beverage, the line for the loudmouth soup will likely linger just as long in the future.
When it comes to suds, the quantity demanded is pretty unresponsive to changes in price, so the Cubs could tack on another $1.50 to the already-pricey $8.50 cost from last year without seeing much of a dip in sales. Then consider that whatever sliver of elasticity inherent in the market is mitigated by the fact that you’re at the ballpark. The Cubs have all the leverage here.
As a fan of beer, namely that of the craft variety, I wanted to take a deeper dive into this rumored price hike to examine the potential impact on the Cubs, their fans, and even the vendors who lug trays of the golden, malty goodness through the ballpark.
Why does craft beer cost so much?
Before I get to the Cubs’ specific situation, I first wanted to provide a little insight into the increasing price of beer in general. Just this past year, craft beer sales exceeded those of Budweiser for the first time. Sure, that’s comparing a whole market to just one beer, but it’s still a significant step.
Those sales figures are even more staggering when you consider the fact that craft beer is more expensive than Bud, appreciably so for the most part. While a sixer of beechwood-aged rice syrup solids will set you back about $6-7, the same number of craft beers will likely run at least 66% more, typically upwards of $10.
Huffington Post’s Joe Satran did a bit of research into the factors that pour into the cost of craft beer, thus developing the infographic below:
It should be duly noted that the two largest factors in the cost of beer (and this applies to macrobrews as well), are distributor and retailer margin.
Okay, so now we’ve got a frame of reference from which to draw. To summarize: beer is an inelastic commodity in terms of price relative to demand, craft beer consumption is on the rise, and several factors go into the cost of beer.
Now we can move on to the Cubs’ decision to charge fans as much for a 16oz can of Bud as an entire six-pack (72oz) of craft beer.
Impact on fans
While the announcement of this price increase was met with several negative comments and upset mumbling, the impact on fans is going to be relatively minimal. This is a first-world problem in the truest sense of the sarcastic neologism, as both beer and baseball are luxuries.
And for all the lamentations of the attendant cost of taking a family or a group of buddies out to a ballgame, many of us continue to fork over a significant amount of scratch to do so. I love to enjoy a couple beverages at the ballpark, maybe even three or four. That said, the added cost from last year to this would only be as much as $6 at the most.
What’s half a dozen greenbacks when I’ve already dropped several hundred on the various and sundry other necessities, from tickets to parking to hot dogs? If anything, the elimination of the inevitable wad of dollars and quarters in my pocket will be a good thing. But the alleviation of that orphaned currency is bad news for those hawking the hoppy hair of the dog.
Impact on vendors
“Beer here! Ice cold Bud, Bud Light!”
“Hey, beer man, gimme two!”
“That’ll be twenny dahlerz, my frent.”
This is the point where Joe Fan realizes that he’s got only an Andrew Jackson, as his various incarnations of George Washington have flown the coop. Either that, or he just a non-tipping such-and-such. Either way, he’s probably going to earn a “Thanks fer da tip” and a clandestine eye-roll from a guy who’s been lugging that heavy tray around all afternoon.
When beer, or any vendor-sold item for that matter, is at an in-between price, it makes it much easier for fans to tip. Having a round figure like $10 puts vendors at much greater risk of getting stiffed. I’d actually be willing to be that the beer men would earn more from beer priced $0.25-0.50 higher, just because people would just wave off the quarters.
I could be way off here, but I’d be willing to bet that the Wrigley vendors are more upset about this development than the fans who will be blowing their rent and/or kids’ college savings on a couple extra cans of Shock Top this summer.
Impact on the Cubs
In the interest of full disclosure, I don’t have the numbers on the Cubs’ profit from beer sales. I do, however, have those same figures as they related to the Indianapolis Colts. Different city, different sport, but still enough of a springboard from which to dive into the concept.
According to Mark Alesia of the Indianapolis Star, the Colts saw approximately $4.2 million in beer sales in 2013, a total that resulted in just over $2 million in profit to the team. At a cost of $7.50 per beer, that meant $3.30 in profit from each plastic cup filled with golden goodness.
A little rough math tells us that that means the team sold approximately 51,400 beers at each home game, during which they averaged nearly 66,000 fans. For the purposes of this exercise, I’m going to have to take some liberties, so bear with me a bit here.
Let’s stick with the same 44% profit margin detailed above, but assume 33,000 fans on average (just over what the Cubs drew in 2014). And then, just for the sake of hyperbole, we’re going to say that the Cubs sell an average of 2 beers per fan in attendance. This may exaggerate things a bit, but I’d rather go too big than to de-emphasize the impact of the price hike.
At last year’s price of $8.50, the Cubs would have pulled in $3.74 from each pint procured, profiting $247,000 per game. Over the course of a season, that comes to just a hair over $20 million; not a bad haul.
But beer prices aren’t the only thing the Cubs expect to see spiking, as attendance is almost sure to increase along with the renewed hope evident in the fanbase. So let’s assume an average of 36,000 fans whose beer purchases will each net the Cubs $4.40 in 2015.
Ceteris paribus, that means a total profit of about $25.7 million for the season, or an increase of nearly $5.7 million. That should put to rest the idea that this increase is a direct response to the increased payroll, as the resultant profit isn’t even enough to pay the salary of newly-acquired Dexter Fowler.
No, this is more likely a tactic being used to squeeze every last drop of profitability from the captive audience the Cubs have. Given their relative dearth of external revenue streams at the moment and the lack of a significant television-rights deal, this was a fairly obvious move.
You might feel as though this is a Busch-league move, but the Cubs know what they’re doing here. They’ve got a grip on your heart, wallet, and liver, and they’ve got no plans to let go anytime soon. Your only recourse may be to spend just a bit more time at one of the local watering holes in order to save a few bucks per brew until stumbling to your seat to watch the last 7 innings.
Personally, I’m not all that put off by the rate hike. I’m more upset by the fact the only thing that really passes for craft beer at Wrigley is Shock Top and Goose Island, both of which are subsidiaries of A-B/InBev and thus are macros.
But as much as I pretend to be a snob when it comes to suds, I still hold that an Old Style in the bleachers while surrounded by tens of thousands of my closest friends is perhaps the world’s best beer. Dammit, they’ve suckered me too.
The rabble-rouser in me wants to deride the Cubs for this decision, but I really can’t because the rational thinker in me knows that it just makes too much sense. I’ll leave you with a gem from Twitter, but would love to get your thoughts on this topic. Will the fact that beers are $10 impact your buying decisions? Will you tip less as a result? Is a hot dog a sandwich?
— Jesse Jensen (@jjrayn) January 19, 2015