Your products are on the LibDib platform. Congrats! You now have wholesale distribution and your products are searchable and presented beautifully to buyers all over the state. However, just because they are there it doesn’t mean the stuff will sell itself....
I was thinking this morning about LibDib and why I decided to go on this path of the high-tech start-up, two-sided marketplace, never sleep well again, journey. I was comfortable in my previous job at the family winery. Working hard, but not too crazy. And I enjoyed it.
But I was frustrated. Year after year, I didn’t make sales numbers (which is sort of embarrassing when you work for your Dad). I was frustrated with our distribution and how even after 20 years in the business, my family winery was being left behind. We couldn’t afford the manpower or the cash to compete for our wholesalers’ attention. We had feet on the street. We had incentive programming. We were the squeakiest of squeaky wheels. But it wasn’t enough.
And then this happened. And that’s when I lost my mind.
Clos LaChance (my family’s winery and my former employer) has a secondary brand called The Vegan Vine. We had some distribution set up in a few states based on a little bit of business with a few Whole Foods accounts. The winery’s partner in the brand is John Salley, a former champion NBA player and TV personality. And what a personality he is. I did a couple of ride-with days with him in New York. People literally followed him around and we sold over 50 cases in about 4 hours (best work with I have ever had!). He is so charismatic and just a nice guy.
Anyways, he was on a trip for a different project, in a different state and city all together. One where we had a distributor. A big distributor. He went into a small natural foods/organic restaurant and walked out with a three-case order!
He called me. I called the distributor. They told me to email the manager who would find the right rep. I emailed. Nothing for a few days. John called me to see if the cases had shipped as the restaurant kept asking him. I called the manager. The manager said they would take care of it. Nothing. The restaurant kept calling. I kept calling and emailing. John kept texting me asking why the wine was not being delivered.
This went on (no joke) for about 30 days. When finally, the manager at the distributor told me they didn’t go to that account because they don’t order enough. The distributor had the inventory. I had the order. But the account was not worth it to the distributor. So, I lost the sale.
John, who doesn’t come from the alcohol industry, was pissed. And the guy does not get pissed. He totally all caps texted me. But for him, the most easy-going guy ever, that was dramatic. He kept saying “Cheryl, why can’t you just send them the wine directly. They really liked it!”
I had to explain about the three-tier system. John says “well, then I’ll send them the wine and they can pay me!” After I talked him off that ledge, we both kept scratching our heads and wondering if there wasn’t something else to be done. How can we efficiently get our wine into the hands of accounts that want it?
So here I am. Liberation Distribution is here to help.
If you want to send 20 cases to one account in New York, you can do that with LibDib. If you want to try out a new brand, yep…. we are here. If you want to post a couple of tasting room only wines for a few accounts, that is also acceptable (new “choose by account/allocation” feature in CA coming soon).
We are flexible. We allow anyone access to the market who wants it. We are a technology company that can make changes and add features that help our Makers to SELL. We are distribution done differently. Join us and together let’s change the world.
Many Makers have been asking us here at LibDib about pricing. They want to know how best to price their products and then submit an offering to restaurants, bars and retailers. My nearly 20 years of experience has given me a little bit of knowledge about what buyers expect when it comes to pricing in a competitive marketplace. However, it is ultimately up to you as the Maker to decide how much you want to be paid for your products. And pricing really does matter. If you price your products too high, buyers might be hard to come by. If you price too low, your products could appear on the shelf for lower than you would prefer.
So, let’s get down to the question at hand: How should you price your products on the LibDib platform?
When I was working at my family’s winery, I would do a simple math problem (I am kind of bad at math, so simple is necessary). The FOB (the price I sell my wine to distributors) price was half of retail. If I sold my wine for $40 per bottle, then I would sell it to the distributor for $20 a bottle or $240 per case. In most cases, the distributor would ask for extra “marketing spend” or Depletion Allowances (DAs) for programming or QDs (Quantity Discounts). So that $240 was never the total amount of money I would receive for my case of wine (that’s a whole other blog post for later).
Keep in mind there is no extra “spend” with LibDib as your distributor.
Let’s look at traditional distribution:
Let’s assume the case is going for $240 as mentioned above. Let’s assume shipping and taxes is about $8 a case, which brings it to $248. Then there’s a 30% margin per case to the restaurant, bar, or retailer, bringing it to around $322.40. Assume a retailer marks it up 40% to the consumer and you are looking at $37.61 per bottle or a total of $451.36 per case. The retailer can add a little margin here as well and sell it for $39.99. But if you are listing it on your web site for $40, most retailers want a little bit of an advantage for giving you shelf space. (Oh and I am just talking about retail here because restaurant pricing is all over the place.)
Often a $40 bottle of wine retail will show up on the menu at a restaurant for $80. Consider “By-The-Glass” pricing and usually the cost of the bottle is the glass price. A $120 case of wine at $10 a bottle will be $10 a glass. Margins on food are low, so restaurants make it up with the sales of alcohol.
Now, let’s look at the LibDib model and show you where you can save money:
With LibDib you have the choice to save money OR to give the retailer an opportunity to make more margin and therefore choose your product over other commodity items that are traditionally pushed by big distributors.
Half of retail is still $240. Now, add YOUR cost of shipping to this. Say it’s $25, which brings a case total of $265. The LibDib margin is 15% bringing it to $304.75 for the buyer. Assuming the retailer marks it up 40%, the total is $426.65 per case or $35.55 per bottle. Round that up to $36 per bottle. You can keep that $2 (or $24 per case!!) for yourself and put your price in a little higher, or you can offer it to the retailer in extra margin. Make sense?
For more about LibDib’s margin and why it is different in each state, please click here for my previous discussion on the matter.
I often say that the LibDib model saves money. I have demonstrated this above with straight up math (I LOVE math…not).
But in deciding which distribution route to take, Makers also need to consider the “additional” costs of working with a traditional wholesaler that include:
·Incentives: Often to the sales reps in the form of trips to wineries, gift cards, gas cards, and straight up cash. Each state has different rules about that. However, if you can’t afford to be in the incentive game, your competition can. What product do you think the sales rep is going to push? The one that earns an extra $10 per case plus the opportunity to win a trip to Italy? Yep.
·Billbacks for DA’s, SPA’s, QD’s or FSAs. (OMG that’s a lot of acronyms!)
o DA: Depletion Allowances
o SPA: Special Purchase Allowance
o QD: Quantity Discounts
o FSA: Floor Stock Adjustment: This is a fun one and can be thousands of dollars. When old inventory needs to be cleared out to make way for new inventory, it gets discounted. End of vintage or a new SKU. Or, when you realize your wholesaler is not doing their job you go to another distributor and they have to pick up aged inventory. You pay the wholesaler laid-in, then discount to the new wholesaler. The joys of cleaning up a mess. Super fun to coordinate (is there a sarcasm font here?).
Obviously, the cost of shipping is a big expense. The lower the shipping is, the better solution for everyone. Give us a call and we can help find solutions through our partner warehouses, special common carrier rates and other ways to save on shipping. This is something LibDib Central Command will always be working on for our Makers. As we scale, we hope to provide better solutions for all. The lower the shipping rates, the more dollars available for “feet on the street,” which is the next blog (coming soon).
Distribution, done differently. That is our motto. And it resonates true in everything that we do. The LibDib model is different than the traditional wholesaler model in a number of ways. Most importantly, our margin is between 15%-20% vs. 30% (or more) that other distributors make on their resales.
Here is a little more detail about this as the percentage varies by product and “ship to” locations.
Regulations vary by state, which is what makes building a platform like LibDib complicated (but incredibly fun work for our brilliant engineering team). At the time of this blog we have two markets available: California and New York. Our goal is to be in every state over the next few years. Ten states are being researched and we are applying for new licenses as we speak.
A breakdown of margins by state and by product:
#1 - California:
Beer from in the state and out of the state = 15% margin.
Wine from in the state and out of the state = 15% margin.
An interesting thing to note is that LibDib (or any distributor of record) is required to pay the state excises taxes in certain situations. Traditional wholesalers add up the FOB cost of the product, plus shipping, plus taxes, then charge margin on top of that number. This is called “laid-in.” So, a $200 case of wine at $.20-.$.30 per gallon (2.378 gallons per case) goes to the tax man, plus $6 shipping has a “laid in” for a total of approximately $206.60. With the distributor margin of 30% the wholesale price of the wine to the buyer is $268.60.
The LibDib model: Same case of wine at $200, plus shipping (let us say $25, but it can be less in some situations, just email us to discuss) totals $225. At a 15% margin you are looking at $258.75 to the buyer.
Liquor from inside the state = 18% margin. Why? As the distributor of record, LibDib pays the state excise taxes for liquor in the state of California. That tax is $3.30-$6.60 per gallon. Hence the increase in margin.
Liquor from out of state has a higher margin. Why? Because in California, liquor from out of the state must make a stop at our licensed warehouse in San Jose. This is called the “at-rest” law. Once the liquor comes to rest on our premises, LibDib delivers it “the last mile.” LibDib covers the cost of that last mile. Hence a higher margin, on top of the tax margin.
#2 - New York:
Wine from in state and out of state in NY = 15% margin.
Spirits from in and out of state in NY = 18% margin.
At this time, LibDib is only selling Wine and Spirits in New York. We need to get a separate office in New York to do beer. Sigh…another story for another time. We are in the process of posting prices with the state for a go-live date of June 1, 2017.
Again, here are those pesky taxes. For wine, it’s $.30 per gallon (no biggie). However, for spirits it’s pretty high at $1.70 per liter (3.78541 per gallon, so could be $15+ per case of 12). Here is where LibDib needs to cover our costs. However, good news is that there are no stops at a warehouse required in New York. Cool!
What does LibDib earn for that margin since the Makers handle most of the delivery and sales? (more on sales and “Feet on the Street” coming soon). We built and will maintain the web (and soon to be mobile) platform that facilitates those sales. We handle all the invoices and collections. We take the A/R risk. In states where credit cards are accepted, we pay the percentage fees back to the card “sharks.” We have the appropriate licenses in each state. We do all the required reporting, pay taxes and work with government entities to get products posted, certified and assigned to territories. Oh and we have a ton of cool features coming soon that will help sell, sell, sell.
But most importantly, we give ANY Maker of ANY size access to the market if they want it. That is truly something different in the United States where distributor consolidation has kept many small to mid-sized Makers on the sidelines when it comes to Trade Sales. NOT ANYMORE! Consumers want small, craft products. Let’s get them in the market and change distribution now!
Welcome to a new way of doing things. Join us at LibDib.com
Today, Phase II of Liberation Distribution launched. This is the second phase for reunited brands and retailers. This is the phase where orphaned brands can now find their homes on shelves without having to scale the wall or mire in the that middle area known as the “death strip” That area where you are with a distributor you don’t like or doesn’t sell you as a priority. That is really a slow, painful march towards out of business.
In 1999 I was a young pup and my parents gave me the opportunity to work in sales and marketing at their growing wine company. At the time, I didn’t know much about wine or how distribution worked but I decided: “fake it till you make it Cheryl.”
One of the main reasons I left my job at a big company to join LibDib was Cheryl Durzy’s (our CEO) vision. It was perfect to me. From a business model perspective, it was really well thought out. As a technologist, this business model made sense.