The Three Tier System Can Hurt You

May 20, 2017

By Brian Rosen

I am in NYC this week for the USA Trade Tasting. If you have not been in New York City in May, I highly recommend it. One day it can be sunny and 90 degrees and the next it can be 55 and cloudy. This week we had both. What we also had was 200 independent brands at this event clamoring for distribution or an importer or any life line for their product.

The obstacle lies within the three tier system. The Big 5, the ones that we all want to be with turns out could actually be the ones that will end up killing your brands. How can they sell independent brand X when they need to sell Cambria Chardonnay. How can they sell independent vodka X when they need to sell, contractually obligated to sell Gray Goose in order to meet a depletion target?

While here in the city I met with two distributors for my brand clients. They will remain nameless, but their comments to me will be shared. “I have 4000 brands in my portfolio, how can I be expected to focus on you when your client represents so little revenue” or “I need to pre-sell the inventory before I can commit to selling/ taking on the brand.”

I have said it before- in this business as it stands, it is very hard for a independent brand to break through the noise.

I want to encourage all my readers, my clients and otherwise anyone that wants to play in this space to think long and hard about how you go to market and activate the ground teams. No longer is it acceptable to place your brand with distribution and wait for depletions. You need to manage your brand from the off premise/on premise account upwards back towards the producer to fully understand sales flow.

Distributors like LibDib and others are perfect for starter brands. If you need to sell anyway, and market anyway and visit the market anyway, what are you really paying 30% back to the distributor for. The brands need to do the work and with that said, why not use a model that will save you money, keep the onus on you and let the success ride firmly on the brand instead of a 22 year old post college kid making wage but bonuses on selling key items to key accounts. I was that kid many years ago, and fully understand the ask and pressure that distributors put on sales teams.

This reminds me of the “take home” pizza bake stores that are dotting the USA landscape. You pay the same price as delivery but you are doing all the work. Makes no sense. You still have to cook it, dirty dishes and cut the thing. If you are doing the heavy lifting, than you should be rewarded for the lifting with a lower GM% given to normal distribution.

As visually relayed to me this week at USATT, there are 100 new brands a week coming to market in all adult beverage categories. How can you cut the noise, slice through the clutter and have a successful brand? I will argue all day that the three tier system is the 1% market solution. We are the 99 percenters, and we need to vote with our feet in order to achieve brand success.

Think about this as also quoted by my major distributor meeting this week, “our most successful craft in portfolio sold 3000 cases in 2016”. If that is your goal, enjoy your hobby! If you want to be a brand you need to sell 10,000 cases plus and the question becomes, how can you do this and what tools and assets will you use to achieve this.

There were 200 brands here looking to market penetration. This scene plays out all over America. How you hit the market is as critical as what you put in your bottles.

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The Three Tier System Can Hurt You