Distributors cut percentage

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SmokyMtn
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Distributors cut percentage

Post by SmokyMtn »

Just curious how a distributor determines their cut. If you're willing to share. I would appreciate the percentage. Is it based on production volume? Branding and marketing? In Tennessee, it is a three tier system. A TN craft distiller cannot self distribute at their own distillery. My personal opinion, that is insane and hurting small business. I realize the state doesn't care. Thanks and good luck in the next quarter.
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still_stirrin
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Re: Distributors cut percentage

Post by still_stirrin »

Well, there are exceptions.

In Moore county (a dry county) in Lynchburg, the big distiller there can “self-distribute” by sales on premises. By a special order from the state, Jack Daniels distillery does sell in their facility. I would suppose that part of the motivation is the general tax realization from the actual marketing of their products worldwide.

So, when you’re BIG enough, you can get approval from Feds for your business. “Moonshiners” … don’t tend to be very reliable with their tax basis, so I doubt special considerations will be made. After all, “it’s all about the Benjamins”.
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jonnys_spirit
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Re: Distributors cut percentage

Post by jonnys_spirit »

Not sure how accurate that is. I'm in Nashville and there's a couple distilleries that sell out of their tasting rooms.. I've done the tours and purchased the bottles!

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TwoSheds
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Re: Distributors cut percentage

Post by TwoSheds »

Distribution usually means wholesale, not retail, so I'm not sure you guys are talking the same thing.
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Re: Distributors cut percentage

Post by HDNB »

USA is not quite so extravagant with their taxation, but in Canada it pretty much looks like this:

Tier 1:
(small) manufacturer's cost of goods sold
bottle 3.00
top 0.50
tamper evident 0.06
liquid 6.50
bottling labour 0.50

COGS sub ttl 10.56
profit 3.00
ttl 13.56

Tier 2:
import 0.50
distribution 0.50
logistics 0.50
warehouse 0.50
logistics sub ttl 2.00

distributor agent 1.50 <<<this is what most people thing of as "distribution" they are the sales and marketing people that make it happen...they get paid about 10% of the total of "cost" (the above numbers) and are responsible for increasing market share, they get paid on new accounts and maintenance of existing accounts. advertising and marketing material is still paid for by the manufacturer out of their whopping $3.00, but it is executed by these people.

federal tax 5.00
state tax 13.00
recycle fee 0.10
recycle tax 0.10
tax sub ttl 18.20

Tier3:
"invoice cost" (what a store pays) 35.26
profit (divide by 0.7) = 15.11 <<<<discounts and sales prices are usually reduced here, but the manufacturer will also use some of their $3.00 to offer "limited time offers" to encourage stores to stock up their goods, which may reflect in a lower retail price
retail sub ttl 50.37
sales tax 5%

consumer pays 52.95
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SmokyMtn
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Re: Distributors cut percentage

Post by SmokyMtn »

It's my interpretation that the three tier system is this- distillery sales to distributor, distributor sales to retailers, retailers sales to the general public.

If a distiller is selling at their distillery (tasting room) ,that has already been sold to the distributor. The distillery is selling on the distributors behalf. Cutting out the the retailer. Which I assume the distillery and distributor split down the middle, instead of thirds. I could be wrong.

My question is how does a small craft distiller make ends meet with overhead, 3- tier system, cogs, and taxes? What percentage do they get to keep?
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still_stirrin
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Re: Distributors cut percentage

Post by still_stirrin »

SmokyMtn wrote: Fri Apr 01, 2022 8:58 am… My question is how does a small craft distiller make ends meet with overhead, 3- tier system, cogs, and taxes? What percentage do they get to keep?
All work …. and LOW PAY!

The “real money” is perseverance and a quality product …. until a major distiller chooses to buy you out!

Otherwise, small batch craft distillers must do it for “the love of the sport”. Non-recurring costs (capital investment in equipment, licenses, brick & mortar, etc.), and the recurring costs (ingredients, utilities, labor, and TAXES, etc.) don’t leave a lot of profit margin. So, you have to work long and hard to stay on the positive side of the ledger.

Certainly, it’s no “get rich quick” endeavor. I guess that’s the motivation behind the “moonshiners”. I just enjoy it as a hobby. And, I get to drink good liquor!
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HDNB
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Re: Distributors cut percentage

Post by HDNB »

the three tiers have more to do with taxation.
tier 1, at manufacturer and/or importer are responsible for the federal excize taxes. (can be pushed to tier 2 if they are a bonded warehouse)

tier 2, the importer/warehouse/logistics is responsible for state taxes, recycle fees and the excize tax if in bond (they get the booze from the manufacturer and deliver it to the reseller). interesting note- booze is paid for upfront before it is delivered, no such thing as terms or industry credit in the likker world.
This step is also (in Canada always) usually run by the state, or the state's appointed and sole warehouse/logistics company. they get the booze on consignment basically, and when a reseller licensee buys the booze (could b a store, bar or taproom) this tier collects the wholesale money pays the "commission" (invoice cost) to the manufacturer and remits the taxes to various levels of government.

tier 3, the retailer is responsible for sales tax

i wrote all the crap below, but for a more accurate take on this confusing crap look here https://go.sevenfifty.com/

i think there is some confusion in the label of the various parties, manufacturer's agents are often referred to as "distributors" when in reality they are the sales and marketing people; the people that collect the tax are the distribution system.

the whole idea of a tap room is to pick up the retail money...the taproom has to "buy" the likker from the warehouse same as anyone else in the business, thus the government always gets their tax. (they do this electronically, not physically.)
often times the agent reps may do a "floor pour" in a store (samples) and actually buy the bottle from the store they are selling at, so they have a record that it is tax paid booze being served to avoid even the possibility of bootlegging...the manufacturer cannot provide "free" sample material for this purpose....even in his own tap room.
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subbrew
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Re: Distributors cut percentage

Post by subbrew »

I have not studied the craft distilling industry financials but years back I did an in depth look at craft breweries. I assume it is much the same. That small % of not having to pay the distributor during the start up years seemed to be a significant indicator of success. States such of Colorado which allow self distribution got an early jump on the business and have a higher concentration of craft breweries.

They won't get rich but they can make a living selling in a tap room and selling kegs to the local bars in the area. At the "survive" volumes a distributor doesn't want to bother with you. if they do they want a bigger cut so you cover your part of the overhead. Due to that you will notice that states which require use of a distributor have more craft breweries which are chains or have multiple tap rooms, but overall seem to have fewer craft breweries.

I assume distilleries would have similar economics.
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Re: Distributors cut percentage

Post by SmokyMtn »

subbrew wrote: Sat Apr 02, 2022 8:18 am
At the "survive" volumes a distributor doesn't want to bother with you. if they do they want a bigger cut so you cover your part of the overhead.

I assume distilleries would have similar economics.
I would say you're close. In TN, since 2009 their has been significant growth in new distilleries. We went from the original two distilleries, to 60+ currently. With many being a craft to scale. 200-300 proof gallons weekly or less. With that small of volume. I wonder how in the world they can survive.
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SmokyMtn
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Re: Distributors cut percentage

Post by SmokyMtn »

In case anyone else besides me cares.

A distributor called me back in regards to pricing. He wants a 30% margin and the retailer wants a 40%-50% markup. Not much meat left on the bone for the distillery.
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