Distributor and wholesaler markups

[Hayden 0]

ADI forum experts, 

I would appreciate if you can help me with this. Assume that the shelf price of a bottle of vodka in a Texas wholesaler like spec's (750 ml) is $24 before sales tax. Based on different sources and some old comments in this forum I got the impression that markups by the distributor and wholesaler will almost double the price of the bottle when it leaves the distillery. Meaning that the distiller, even including the TABC tax should produce the vodka with a cost of below $12 in order to be at least profitable. Any feedback on this especially with states like TX with 3-tier system would be highly appreciated.

By the way, is there any update on reducing the TABC tax on small-scale distilleries?

thanks and best regards,

Hayden

Houston, TX 

[glisade 9]

From what I've seen in TN, which is a 3 tier state; wholesaler and retailer markups are about 25-30%. So in your example, the $24 bottle of vodka assuming a 25% - 30% markup:

Retail shelf: $24

Retailer pays: $19.20 - $18.46

Wholesaler pays: $15.36 - $14.20

[indyspirits 56]

30% margin to the distributor and 30% margin to the retailer. Not to be confused with markup.  Learn the terms and the math and get out our your KY jelly.

[bluefish_dist 13]

A 30% margin is a 42% markup.   $24 with 30 points is $16.80 to the second step and then $11.76 to the first step. So yes, about half the price from distillery to consumer.   You might get away with 25%.   So selling from a tasting room is much more profitable. 

[Hayden 0]

Thanks everyone (bluefish, Indyspirits, glisade) for letting me know about the markups and margins. So, basically the $24 I stated was a very common local Vodka. In order for a distillery to be profitable in a 3-tier system with 30% margin (42.86% markup) on distributor and wholesaler, you should be definitely produce well below $11.75. Based on your experiences in different states, what is the reasonable cost of vodka produced per bottle (750 ml), including all the fixed and operating costs?

Costs include property rental, equipment purchase with a 5-year service life, equipment operating maintenance, ingredients (grains, fruits, water, yeast, etc.), energy costs (electricity, natural gas, etc), TABC tax, all other costs. Please kindly state your assumption of what you're including and what you are not including. 

Thanks and best regards,

[bluefish_dist 13]

Really depends on if you make it or just buy GNS and bottle.  In co bought/bottled goes from $15 to ~$30 (more marketing spent on this brand) where local produced is mid to high $20.   

If you look at GNS based, liquor cost is <$1, bottle, paper label, cork ~$2, tax $2.16 federal so maybe $5 direct cost. 

[glisade 9]

Yup, sorry my bad. Bluefish_dist fixed my numbers. Though I will say you may have some room to negotiate. Distributors have offered 25% margin depending on the market you're in.

Also, bluefish_dist gives a great example of your baseline, non-distilled vodka at about $5/bottle. This is basically your minimum unless you can buy in really large quantities. 

 

[stillcreek 1]

Hayden I'm in Texas and deal with all these guys.  There is no formula as you can't control the retailers price.  $24.00 dollar Texas Vodka  is a hard sell I know first hand.  You need to be less than $20.00.  My product sales from $16.99 to $22.62 and wholesales for the same price.  Your going to need to wholesale for $8.00 or less.  Your a vodka your nobody everyone is a vodka.  Even at an $8.00 wholesale there is not guarantee the retailer is going to price you fair.  You might be on the shelf at $24.00 and the guy selling at 10.00 is on at $19.00.   At the end of the day we probably lose $6.00 a bottle for every bottle we sell.  Plan on doing a lot of tastings if your in Specs and budget about $140.00 per tasting - You have to buy your liquor at retail and then pay a tasting company about $35.00 to $45.00 per hour, hope the girl shows and doesn't text on her phone the whole time. Not sure what your talking about regarding TABC tax on small scale distilleries.  Distilleries don't pay tax to the TABC unless they're donating product to a charity or selling in the tasting room. The tax is picked up by the Wholesaler.   FYI the wholesaler is going to take 25% to 50% margin yes I said 50%.  your $15.00 product is going to end up on the shelf at around $40.00

[bluestar 61]

We have been seeing creep up of margins by wholesalers and distributors, most often using the 30% margin for larger case lots, but adding premiums for single case orders or bottles. It will be interesting to see if any of the web-based distributor initiatives will bring margin competition for small producers in the states where they are active. More useful would be getting self-distribution to occur in 3-tier states for small producers, since a good argument can be made that they lack economic power to be a threat for tied house provisions.

[Blackheart 11]

1 hour ago, bluestar said:

We have been seeing creep up of margins by wholesalers and distributors, most often using the 30% margin for larger case lots, but adding premiums for single case orders or bottles. It will be interesting to see if any of the web-based distributor initiatives will bring margin competition for small producers in the states where they are active. More useful would be getting self-distribution to occur in 3-tier states for small producers, since a good argument can be made that they lack economic power to be a threat for tied house provisions. 

Agreed:  Distribution is being consolidated all over the place.  Consolidation means less competition.  That means they take more in the value chain and we take less.  

New market entries/new distilleries: If you want to make some gains in the first few years of business, lobby your state legislature for limited self distribution.  Especially if you volunteer something like paying an additional 5% of the taxes the state would have received had the distributor paid them as a middle man.