Are you looking for a guide on what it means for your Australian brewery, winery, or distillery to do business in the three-tier sales system in the USA?
The three-tier system was put into place after the abolition of Prohibition to control and regulate the distribution of adult beverages in the USA. Production, importation, packaging and marketing are all federally regulated. Once federally approved for sale within the USA, further compliance with state distribution laws is necessary for market-entry anywhere in the USA.
The following article examines industry terminology used by suppliers, importers, wholesale distributors and retailers and outlines the role of each tier in the three tier system.
Here are some frequently used terms & abbreviations and their meanings for breweries, wineries and distilleries ready to start contacting importers, distributors and retailers in the USA:
FOB Price– Freight on Board: Supplier’s price (per case). The amount producers will get paid per case for their products. When talking about distributing their brand in their state, suppliers need to be ready by saying, “Its $54 per case FOB (New Jersey) / $4.50 per bottle.” When talking to a potential importer who plans to import their product, the FOB would be quoted as $36 per case FOB (Sydney) / $3 per bottle. If a supplier is picking the international freight tab they can quote $40 FOB (New York Port) to the importer.
On-Premise Retail: Bars, Clubs, Tasting Rooms, Brew Pubs, etc. Any retail location where beverages are sold for consumption on premise.
Off-Premise Retail: Liquor Store, Chain Store, Box Store, etc. Any retail location where beverages are sold for consumption off premise.
Call Frequency – How often a distributor rep visits a retail account
Control State – A state where sales are controlled directly by state-run establishments
SRP – Suggested Retail Price: Suggested final offer price to consumers in on-premise and off-premise accounts calculated using assumed mark-up percentages, as determined by market research by the supplier.
PTC – Price to Consumer.
PTD – Price to Distributor.
Margin – Based on sale price, this is usually reported as a profit percentage.
Markup – Based on cost, this is usually reported as a profit percentage.
Dry Shelf: Retailer shelf that is not refrigerated
DTC – Direct to Consumer: Any sale of beverage directly from the producer to the consumer. Typically, this is done by local producers through internet sales, tasting rooms, fan clubs, events, etc.
FET – Federal Exercise Tax
Hand-Selling: The act of promoting and selling your beverage face-to-face.
Programming: Tastings, bottle-necks, marketing campaigns, etc. Any promotional material you can provide to help market your beverage.
DI – Days Inventory: How many more days of inventory left of a certain product at a distributor warehouse.
Incentives: Coupons, discounts, free cases, give-backs, etc. Any programs given to help promote sales in the three-tier system.
BTG – By The Glass: Price for beverage, offered by the glass at on-premise accounts.
Frontline Price: Highest listed retail price
Street Price: Lowest listed retail price
Retail Price: Price listed by retailers to consumers.
An Overview of the 3-Tier Sales and Distribution System.
In this sales tier, the supplier (winery, brewery, distillery, producer, or importer) sets the distributor’s FOB, which is the only price that the supplier has any direct control over. Suppliers can influence the PTC through give-backs, discounts and promotions, but ultimately the price offered by distributors to retailers (wholesale price) and the PTC is in the hands of the distributor and retailer. Depending on the FOB paid, distributors have a good understanding of what SRP will be for retail accounts and will go-to-market accordingly.
Australian wineries, distilleries and breweries are required by federal law to enlist the services of a registered importer. Once the product has cleared customs and is state side, the importer and supplier begin marketing the product to distributors.
Instead of soliciting distributors directly, Australian suppliers often engage an agent or consultant company to broker sales and provide marketing support to distributors. Often, the firm will have importers and distributors that they work with to establish a solid market-entry strategy for new beverages. These representatives must be fully licensed in the states you are planning on entering.
Even if you plan on selling ‘out-of-state,’ compliance with state laws is a must when working with state importers, brokers, distributors and retailers. The costs and complexities of compliance vary considerably from state-to-state, so plan market-entry accordingly.
Once purchased, the distributor warehouses supply until further delivery to retail partners. Freight, storage, and operating costs, as well as mark-up, will all be added to the wholesale price (note that some states have regulatory mark-up margins).
Even though the supplier does not have overall control of the price offered to retailers, often they are expected to provide incentive programs (tastings, promotional campaigns, etc.) in target markets to help build customer recognition, create a competitive offering and ultimately deplete stock at retail accounts. Both Distributors and consultancy firms will have reps working to help sales for your beverage, but you will need to provide incentive programs to really encourage them to concentrate on your brand. Beyond incentives for your distribution tier reps, in order for successful market entry you will personally need to employ a team dedicated to support programs at retail accounts.
Some distributors are ‘multi-state’ or ‘national,’ which means their distribution network spans across various states and each branch of their company specializes in compliance for the state they operate in. Depending on the state, some wholesale distributors can also hold import licenses.
Working with national distributors or wholesale distributors with import licenses can sometimes simplify the import process in the three tier system, but it does not mean you will not be required to provide incentive programs, support programs and marketing campaigns to go along with those provided by your distributor reps. No matter what state you enter and with what import and distribution partners, be prepared to build a healthy market for your beverages.
Retail sales are separated into two main account types – on-premise and off-premise. Retailers will buy stock from distributors at the wholesale price where-upon the product will be distributed to the retail store for further sale to the consumer. Each state regulates retail sales and each set of laws, licenses and taxes, for both on-premise and off-premise accounts, varies from state-to-state considerably.
Chain and box stores often receive the best pricing and volume deals (incentives) from wholesalers while independent retailers work hard to market their offerings (variety, POP, POS, support programs, etc.) Depending on what type of distributor you are working with, you will need to be able to service the type of retail partners they work with.
Independent retailers typically need to price their offerings higher (approximately 25%-50% margin) because they are unable to sell at the volume that Chain and Box stores (20%-45% margin) can.
Breweries, Wineries, Distilleries and Suppliers often have a SRP that they want to see as a final listing price at the retail level, but they seldom have any direct control over the final PTC. Depending on any discounts, incentives, % mark-up, compliance factors, programming, marketing, and promotional campaigns that has gone into getting the product to market, the retail price can be dramatically different from that of a supplier’s initial SRP.
On-premise retail accounts are usually limited to selling to consumers by-the-glass, or by the bottle, and for consumption at their establishment only. Some states allow on-premise accounts to sell to consumers for off-premise consumption and some even allow securely sealed, opened bottles to leave the premise. Support programs (promotional give-aways, merchandising, etc.) are also highly encouraged to build customer bases at important on-premise locations.
Depending on state laws, some wineries, breweries , distilleries and suppliers can sell direct-to-consumer (DTC). This is often limited to producers selling directly to consumers at tasting rooms and brew pubs or at events, but DTC internet clubs directly associated with the producer are very popular in states where it is permitted.
For a good pricing overview for the USA market, please read Three Tier System and Pricing Overview for USA Market
Are you a winery, brewery or distillery looking to export your beverages to the USA? Come network at Australia Trade Tasting and grow your brand.