Question 1

What is the three-tier system?

Accepted Answer

The three-tier system is a legal framework for the distribution of alcoholic beverages in the United States. It separates the industry into three independent tiers: producers (wineries, breweries), distributors (wholesalers), and retailers (stores, restaurants). Producers sell to distributors, who then sell to retailers, who finally sell to consumers.

Question 2

What is a typical distributor margin for wine or craft beer?

Accepted Answer

Distributor margins typically range from 25% to 35%. This can vary based on the state, the size of the distributor, and the sales velocity of the product. A high-volume product might command a lower margin, while a specialty or hard-to-sell item might require a higher margin.

Question 3

What's the difference between margin and markup?

Accepted Answer

This is a critical distinction. Markup is the percentage added to the cost to get the selling price ( (Price - Cost) / Cost ). Margin is the percentage of the final selling price that is profit ( (Price - Cost) / Price ). A 30% markup is not the same as a 30% margin. Distributors and retailers almost always work on a margin basis.

Question 4

How do I calculate my FOB price?

Accepted Answer

Your FOB (Freight on Board) price is the price per case or unit you charge the distributor. To calculate it, you must first know your Cost of Goods Sold (COGS). Your FOB should be your COGS plus your desired profit margin. It needs to be low enough to allow for distributor and retailer markups to reach a competitive shelf price.

Question 5

Why is my wine so much more expensive on the shelf than at my cellar door?

Accepted Answer

This is the effect of the three-tier system. If you sell a bottle to a distributor for $10, they might sell it to a retailer for $14 (a 28.5% margin). The retailer, wanting a 33% margin, will then price it on the shelf at $20.99. Your direct-to-consumer (DTC) price doesn't have these middle layers, which is why DTC is often a more profitable channel.

Distribution Margin Analyzer

Results

Understanding Distribution Margins

Frequently Asked Questions

Need Help Optimizing Your Hospitality Business?