Friday, February 24, 2012

Bullish on Beer? Bars Turn Into Trading Pits

First discussed in the 1800s, supply and demand is one of the oldest and most well-known economic models. Now, from New York to California, this old model is one of the newest ways for a bar to set itself apart when pricing its beer list.

New York Beer CompanyThe New York Beer Company will sell its beer at prices that fluctuate with the demand at the bar. Supply and demand is the idea behind the New York Beer Company, a Manhattan bar opening next week. The bar is modeling itself both in decor and philosophy after the New York Stock Exchange. The prices on the draft beer list will fluctuate as if they were being traded on a beer "exchange."

As more people order the same beer, the increased demand will cause the price to rise incrementally. Conversely, the prices will fall on the less frequently ordered beers. The price fluctuations occur in real time with a scrolling ticker around the bar showing current beer prices.

The exchange is driven by the bar’s point-of-sale system. As bartenders and wait staff enter orders into the computerized register, beer prices are automatically adjusted.

“It’s pretty instantaneous,” said Brian Connell, co-owner of the New York Beer Exchange. “The software is pretty complex. You enter thresholds and parameters based on the number of sales. For example, if you sell two or four or six of a specific beer, the price will adjust by a quarter or 50 cents. It also accounts for different times of the day and different days of the week.”

Which means selling four pints of Guinness on a Friday at 7 p.m. will not have the same effect of selling them on a Tuesday afternoon. But bar patrons should not worry about driving the price of a beer too high. Once the price reaches a certain threshold set by the bar operators, it will automatically trigger a “market reaction” causing the price to crash and drop.

“The beers will typically be priced between $4 and $8 and will be priced very well even at the height of the market so you’re never going to be over paying," Connell said.

In addition to the patrons' being able to crash the market on an individual beer, the bar itself has the ability to crash prices on the entire market by hitting a button which causes the entire beer menu's prices to fall to the day's lows. At the close of each day, the bar will reset its prices to the regular starting point, setting the process into effect all over again.

Connell and his business partner, Tony Doyle, who also owns House of Brews and Bourbon Street Bar in Manhattan, eventually hope to take the market concept to the next level — allowing customers to buy “futures” in beer prices.

“The next step, once we get open and operating, we want to make a coupon process available on the website,” Connell said. “If you want to lock in the price of six pints of Brooklyn Lager for example, you can buy them online at a set price, print your purchase out and cash it in later no matter the current price.”

The New York Beer Company is playing up the New York Stock Exchange theme, with the back of the bar modeled after the facade of the iconic Wall Street building. Mounted throughout the bar is a high resolution LED ticker, constantly scrolling the fluctuating prices.

The Big Board

While the New York Beer Company preps for its opening, a bar in Washington, D.C., is already putting the beer as commodity concept to the test, albeit in reverse.

“None of us did well in economics,” joked Eric Flannery, one of four co-owners of The Big Board in D.C. “We decided to reverse the model so that the more someone orders a type of beer, the cheaper it gets. We felt that the general supply and demand concept rewarded those who show up early and leave early so we wanted to do it in reverse. The reaction has been great.”

The fact that customers can drive down the prices at The Big Board has led some customers to strike alliances.

“We’ve seen people come in with a specific group who all want to drink the same beer so they can drive the price down,” Flannery said. “We’ve seen collusion among strangers, people introducing themselves and then having conversations about agreeing on which beer they'll drink to see if they can drive the price down.”

Both the New York Beer Company and The Big Board offer separate beer lists that do not fluctuate in price, so as not to annoy customers who do not want to get caught up in the swings of the “market.”

A Growing Trend

Still, other bars around the country are popping up with similar pricing strategies, including the Brew Exchange in Austin, Texas, and the Tipsy Crow in San Diego, Calif., showing the trend is growing.

You can bet other bar owners and consumers will be watching to see if the “beer exchange” model continues to build. Meanwhile, The Big Board’s Flannery said the bar has already attracted the attention of a group of people whose full-time job it is to keep their eye on the markets.

“We’re just around the corner from the Securities and Exchange Commission, so they come in and regulate the market on a regular basis,” he said. 

Questions? Comments? Email us at document.write("");document.write("consumernation"+"@"+"cnbc.com");document.write('');. Follow Tom Rotunno on Twitter @tomrotunno.


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