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February 22, 2016

3-Tier Sales Channel | Overview of the US Wine Industry | Part Three

On-Premise and Off-Premise Sales

As noted above, on-premise refers to restaurants, bars, clubs, etc. Off-premise refers to stores, wine shops, merchants, etc.

On-premise sales comprise of bottle and by-the-glass (BTG) offerings. Wine list (bottle offerings) pricing is dictated by the wholesale price, any special discounts or promotions the wholesale distributor may be offering, and a margin that covers fixed expenses, profit margin, and potentially a premium based on the brand and/or vintage.

BTG pricing is typically different than wine list pricing. In calculating BTG pricing, a general rule is the cost of the bottle (not including fixed expenses, etc.) is covered by the first glass of wine from the bottle purchased. For example, if a bottle of wine cost $8.00 wholesale, the BTG price would be $8.00. Though this is a general rule, calculating BTG pricing varies from establishment to establishment, and also factors in product branding, scarcity, vintage, etc.

In some cases, depending on state regulations, an on-premise account is allowed to sell as an off-premise account. Furthermore, some states allow a consumer to take an unfinished bottle of wine with them, as long as it is properly closed.

Off-premise pricing truly varies depending on the establishment. Big box and national chain retail stores often work on extremely narrow margins using volume to create profitability. A small wine shop with high fixed costs and expert sales representatives may need up to a 33+% gross margin over the wholesale price to maintain profitability (33% is the typical calculated margin used in deriving supplier published suggested retail price, i.e., SRP).