A Bomber Bubble?

If you keep your eyes cast upward as you hike the wooded forests (or cities) of Oregon, you will occasionally see an ancient tree that appears dead at first glance.  But then you spy one small branch with glossy, green leaves.  That's more or less what's become of one of my favorite blogs, It's Pub Night, on which blogger Bill Night has managed just four posts in 2014.  Ah, but what posts.  This week he updated his Portland Beer Price Index, the leafy branch he has sworn to keep alive.  (And he's only barely managing it, having missed the first quarter's report.)  Nevertheless, Monday's results were most interesting:

• 6-packs: $9.66, down 3 cents (Q1: -.01, Q2: -.02)
• 22-ounce bombers: $5.54, up 30 cents (Q1: +.30, Q2: -.00)

Bill has data going back five years now, and that gives us a pretty decent sense of what's been happening in the market.  (Although Bill's numbers are based on Portland prices, the trends should be interesting to everyone in the country.) If you look at the long-term trend, prices tend to bounce around.  Surprisingly, they go down as well as up.  If you look at the results from any single quarter and try to extrapolate out, doom is liable to follow.  You can also make mistakes if you compare trendlines between any two categories over a short period (bombers down 9 cents, sixers up 12 cents--the bomber market is collapsing!). 

Nevertheless, I am prepared to stride boldly toward the doom and ask a question: are we approaching a bomber bubble? 

Source

Several factors are at play here.  For one, bombers are a fantastic deal for breweries.  They retail, on average, for 25.2 cents an ounce; six-packs fetch just 13.4 cents.  Or to use Bill's other fantastic innovation, the equivalent six-pack cost for a $5.54 bomber is $18.13.  So long as people are buying bombers, breweries are happy to earn nearly twice the value on a barrel of beer.  But equally important, bombers allow a lot more participants to enter the grocery-store market.  A great many of the Portland-area brewpubs use mobile bottling for 22 ounce bottles, and some grocery stores have divided their beer aisles nearly in thirds, with equal portions devoted to mass-market beer, craft sixers, and 22s.  Breweries make more money, and consumers have greater variety with this surfeit of bombers.  But therein lies my worry.

Psychologically, a big bottle that retails for nearly half the cost of six small bottles sort of seems like a decent deal.  It also facilitates sampling from more local breweries.  But there is a ceiling here.  Who among us hasn't taken a few bombers to the cash register, only to discover we're dropping $25 on three or four bottles?  (And then sigh disappointedly when we find they contain fairly average beer later that evening.)  At what price does the bubble burst?  $5.75, $6, $6.50?  I am not quite so foolish as to wander into the doom of that prediction, but I can say confidently that there is a price.  And the faster the price rises, the quicker the bubble will burst.

I'll keep watching Bill's PBPI--when the price of an average bomber drops thirty cents, that'll be a sign the bubble is bursting.