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February 15, 2016

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

Wholesale Sales

Wholesale distributors will pick up wines directly from a supplier’s warehouse after purchasing it at the FOB price, truck it to their warehouse, and add a markup to cover freight, operating costs, and profit margins. This price from the wholesale distributor to restaurants and retailers is the “wholesale price.” While the supplier can influence the wholesale price (through FOB pricing, discounting, various promotional programs, and cajoling), the supplier cannot dictate the wholesale price to a third-party wholesale distributor. In some states, wholesale margins are set by the state alcohol regulatory bureau.

Traditionally, trade accounts such as restaurants and retailers are referred to as “on-premise” (for restaurants, wine bars, nightclubs, bars, taverns, private clubs, etc.) and “off-premise” (for retailers, wine merchants, supermarkets, etc.). The terminology refers to where the wine will be consumed by the consumer.

The wholesale distributor will typically have a pricing strategy that may include volume-purchased discounts, by-the-glass (BTG) special pricing, incentive programs (where legal), coupons, etc. The wholesale distributor may or may not involve the supplier in either supporting or assisting with special pricing or programming, and often the supplier initiates with the wholesale distributor promotions and programming to spur sales.

In the state where a supplier is based, the supplier may be allowed to have a wholesale license, whereupon the supplier can then sell directly to, or engage a broker to sell their wines to on- and off-premise accounts. In the latter instance, a broker makes the sale for a negotiated commission on the sale. In this model, the supplier is directly responsible for setting wholesale pricing, promotions and programming, delivering, invoicing, and collecting payment from the on- or off-premise account. Likewise, a wholesale distributor may be allowed to hold an import license and import wines directly if the state allows it.

Both wholesale distributors and brokers employ sales representatives, the number depending on the size of the company, that regularly call upon on- and off-premise accounts, generating sales and distribution in the market.

Some wholesale distributors are multi-state companies, but in each state the wholesale distributor (and sometimes the wholesale distributor’s regional market branches) is independently managed and run. It is not mandatory for a multi-state wholesale distributor to carry a supplier’s products in every state they operate.

Typically wholesale distributors are legally prohibited from, or opt not to sell directly to consumers.

Wholesale distributors and brokers are licensed and regulated to sell wine by the state’s alcohol regulatory bureau in which they operate.