Why FOB ≠ Retail x 50%

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 false is that cost and margin have increased throughout the selling channel mainly due to the number of wineries, domestic and international brands, attempting to secure importers and distributors has increased significantly.

 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 example below, the FOB will need to be $18 to achieve a $40 everyday retail price.

In the table below, based on a FOB of $20 per bottle, the retail price will be $43.99 and the bottle of wine that used to retail for less than $40 is now retailing for $44.

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 the distributors and retailers that it is asking to sell and support the wine. If a winery wants to be successful in the distribution market, I recommend it does not undercut its trade customer. Remember, in today’s market, pricing is readily available online, so your price is public knowledge.

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Palmateer Consulting LLC provides innovative and comprehensive operational, distribution and marketing strategies to domestic and international wineries and to wine regions. We couple creative excellence and business acumen with more than 35 years of wine industry experience in distribution, marketing and sales.