From product development to distribution, it’s important for alcohol brands to be engaged in every step of the sales process. When it comes to distribution, going with the cheapest option isn’t always the best option. This is especially true when it comes to introducing new beverage alcohol products to the market. Taking a closer look at what goes into product distribution can reveal opportunities to save money and devise a more honed alcohol product strategy that improves sales performance.
What is Product Distribution?
Basically, product distribution is the process of taking a new product and making it available for purchase by consumers. This includes everything from packaging to transportation and delivery. A distributor is anyone who purchases products and then puts them up for sale to retailers or consumers. Unlike retailers or manufacturers, distributors work for brands instead of for themselves. They also work to foster collaborative relationships between clients and manufacturers. Partnering with the right distributor can ensure better market exposure, improve overall efficiency and create an effective product distribution strategy.
Oftentimes this process occurs along a distribution channel that includes several businesses that pass the product along until it reaches a buyer or consumers. Distribution channels can consist of the internet, wholesalers, distributors, and/or retailers and play an important role in an alcohol brand’s overall marketing strategy.
Now that you have a general understanding of how product distribution works, let’s dive into the complexities of distribution in the alcohol industry.
The Three Tier System for Alcohol Distribution
- Tier 1 is made up of manufacturers who are licensed to sell their products to distributors, importers and state control boards. Once a product leaves the manufacturer, Federal Excise Taxes are collected.
- Tier 2 includes licensed importers and distributors. These entities work with state and federal agencies to make sure that taxes on alcohol products are collected. They can then sell to approved and licensed retailers, which represent the third tier.
- Tier 3 is made up of approved and licensed retailers, such as bars, restaurants, and liquor stores, which are responsible for making sure that alcohol is only sold to people who are of legal drinking age.
Oversight for Alcohol Distribution
Both the Alcohol and Tobacco Tax and Trade Bureau (TTB) and the Food and Drug Administration (FDA) administer federal regulations that provide oversight on the alcohol industry. Each state has the power to create and regulate their own distribution system, which means alcohol brands have to navigate 50 different regulatory frameworks. In some cases, even municipalities are allowed to create their own regulations, further complicating compliance for brands. Ultimately, once you take into account that spirits, wine and beer can also each be regulated differently, the United States has over 200 different regulatory frameworks that can influence distribution channels and the product distribution strategy.
3 Product Distribution Strategies
Distribution strategies will vary across industries and depend heavily on the type of product being sold. As a general rule, there are three main types of distribution strategies that can be employed.
- Intensive Distribution: This method involves utilizing as many outlets as possible in an attempt to penetrate the market.
- Selective Distribution: With this strategy, brands target specific locations. Companies will adjust their price points in order to target a segment of the market and provide a more customized approach. This also limits the number of target locations in a certain area.
- Exclusive Distribution: Luxury brands and other special collections typically choose this distribution strategy to cater to a limited number of outlets. This is the right approach for brands that want to create a sense of exclusivity.
4 Distribution Channels
Distribution channels come in two types: direct and indirect. With a direct channel, producers connect directly with consumers. With an indirect channel, other intermediaries are involved in the channel. Here is a breakdown of the four different types of distribution channels:
Manufacturer > Customer (direct)
Manufacturer > Distributor > Customer (indirect)
Manufacturer > Distributor > Retailer > Customer (indirect)
Manufacturer > Distributor > Retailer > Agent > Customer (indirect)
Understanding the different distribution channels and switching them up when necessary can help to improve CPG sales and get products in front of consumers in a more efficient and effective manner. The efficacy of the channels should be evaluated and used to develop a targeted product distribution strategy.
There is a lot to consider when it comes to taking a new product to market. Developing a distribution strategy shouldn’t be overlooked. For example, brands who want to create a sense of exclusivity won’t benefit from an intensive distribution approach. Distribution should be another element that helps to align an alcohol brand with its overall goals and vision.
What is product distribution?
Product distribution is the process of taking a product to market and making it available for purchase.
What is a distribution channel?
A distribution channel can include a series of businesses that work to pass along products until they reach an end buyer. Distribution channels can consist of a variety of different entities including wholesalers, distributors, retailers, agents, and consumers.
How does product distribution work within the three tier system for beer, wine, and spirits?
Tier 1 includes manufacturers that sell to distributors and control boards (Tier 2). These distributors work to collect beverage taxes and sell to licensed retailers (Tier 3). Retailers typically include bars, restaurants, and liquor stores.
What role does the government play in regulating product distribution in the alcohol industry?
The government can regulate the distribution of alcohol and create unique frameworks for the industry. States and even some municipalities are allowed to develop their own frameworks, so alcohol brands have to deal with over 200 different frameworks across the United States.
What are the 3 distribution strategies?
Intensive distribution, selective distribution, and exclusive distribution are the three distribution strategies.
What are the 4 channels of distribution?
- Manufacturer > customer (direct)
- Manufacturer > Distributor > Customer (indirect)
- Manufacturer > Distributor > Retailer > Customer (indirect)
- Manufacturer > Distributor > Retailer > Agent > Customer (indirect)