Based on numerous conversations I have had with wine producers who are struggling to penetrate the distribution market, I have come to believe that there is someone out there spreading the fallacy that in the distribution market, a product’s FOB = winery retail x 50%.
The short explanation as to why this is untrue is that cost and margin have gone up throughout the selling channel. Plus (and this is a big one) post-recession level of competition has created opportunities for distributor and retailer margin enhancement.
Let’s take a real life scenario.
Your winery retail is $40, so you were told by a trusted long-time industry veteran that the product’s FOB should be $20.
In the table, that bottle of wine that used to retail for less than $40 is now retailing for $43. This model is only an example and there are many variables that differ from market to market and from buyer to buyer.
So, if a winery employs the philosophy of FOB = retail x 50%, it will be essentially undercutting those distributors and retailers that he is asking to sell and support the wine. If a winery wants to be successful in the distribution market, I would not recommend undercutting your trade customer. Remember, in today’s market, the internet tells all and your price is public knowledge.
Gordon Palmateer is an expert sales and distribution strategy for domestic and imported wines brands in the US and president of Palmateer Wine Group. Email him at email@example.com for more information on this topic.