The challenges of distributing products to end users is common in all industries. In the wine industry, customer access to bottled wine is primarily from supermarkets, wine specialty shops and restaurants. Further, there are more than 9,000 North American wineries that battle for shelf and menu space to sell product. Those wineries, including some of the larger houses, need a distribution model which maximizes revenue and minimizes the cost of distribution. In wine industry parlance, the distribution model has been coined “three-tier” distribution; however, the model is not unique to the wine industry.
The distributor provides more than just “pure distribution” to key markets. The additional services include marketing, advertising, inventory management systems, warehousing, sales programs, customer behavior metrics and other specially designed programs to attract customers. Therefore, the winery must pay a fee to compensate the distributor for the added services; the compensation can approximate 50% of the end user/retail price.
Wineries have determined that self-distribution, “Direct-To-Consumer”, can be much more profitable than the traditional three-tier model. Also, the winery is better equipped to control the customer’s wine purchase experience and enhance its brand. Although the initial bottle price received by the winery is much more (less discounted), the winery must design, develop and implement infrastructure, processes and systems to sell on-premise (i.e. tasting room sales) and off-premise (i.e. wine club/internet sales). Therefore, it’s critical that a winery determines its return on investment to provide the better wine experience over an extended period of time.
The CFOs2Go Agriculture Practice Group collaborates with clients to assess a Direct-To-Consumer sales program. The assessment includes pricing model development, state (intrastate and interstate) and federal compliance adherence, financial reporting, point-of-sales systems, building construction considerations and other incremental costs.