HOW TO NEGOTIATE PRICING WITH WHOLESALERS

Pricing meetings are a ritual where there is a lot at stake and the wholesaler is usually way ahead of their suppliers. They do this every day; you do it once in a while, so the wholesaler has the edge. To a wholesaler, every penny actually matters. If a wholesaler sells 10 million cases equivalents a year, 10 cents a case is a million dollars. So whether he makes $8.00 or $8.10 on your brands is important. And the same goes for you. For a 20,000 bbl brewery, 10 cents per case means over $27,000 per year, and if you can gain 50 cents through negotiation you can pick up over $137,000. And it compounds every year. To achieve this you have to be prepared and quick in the meeting.

Start with some due diligence in the market and ask retailers about their margins. Many will tell you how they mark up their skus. Do not try to negotiate margins with the retailer. At your wholesaler meeting, start with your desired price to the consumer based on your own knowledge of the market. Ask for the wholesaler’s opinion. Have any competitive craft brewers announced price increases? If so, should you follow? The wholesalers have an objective sense of the market and tend to know where your brand fits in. Ask what margins the largest retailers require and compare that with what you know. I had a client who was assuming a 25% retailer margin, but didn’t realize that the retailers take 30% on single-serve packages and extra on four packs, so the pricing ended up being out of line until adjustments were made.

With some simple math, you can now figure out how much the wholesaler needs to charge the retailer (the PTR = Price to Retailer). The wholesaler will now require his margin, and it matters whether they take 30%, 28% or something else. Most wholesalers are reasonable and want to help you. If you can convince them that it is in their best interest to “invest” in your brand through slightly reduced margins, this is in everyone’s best interest. From there you get to the laid in cost (LIC) for the wholesaler which includes FOB, inland freight, state taxes and in some states, other costs like handling fees. The end result of all this is your FOB. The value of your company is driven in large part by your gross margins, so your FOBs need to be as high as possible. Do pricing well and you will have a more successful company. And your wholesalers will respect you for knowledge.