Determining how much to charge for your product in the US market is an important decision, and it will most likely NOT be the same price you charge in other markets around the world. Following these few simple but essential steps can make all the difference toward achieving your goal of setting a marketable price for your product. Successful price setting begins with education, and education begins with research.
Setting a reasonable, marketable price for your product will show US buyers you understand how to do business in the US, making you and your products ultimately more attractive to potential partners.
Below is a short list of essential terms* that will prepare you for discussions with potential buyers.
The price of the wine “out of the cellar,” meaning the amount the winery receives for the finished wine, without consideration of any costs that are incurred after the wine leaves the winery. In other words, this is what an importer, agent, or broker pays for the wine if they are responsible for all subsequent costs. Sometimes called Ex Works (EXW).
Free on Board, sometimes referred to as Freight on Board. Historically, this is how much it costs an importer to get wine on board a ship. FOB indicates the transfer of responsibility from one party to another—as from the producer to the importer (or from the importer to the distributor)—whether that takes place at the ship’s rail or a warehouse or elsewhere. In a typical example, the wine is transferred to the importer at the port of departure from the coun- try. In this case, FOB includes the ex cellar price, to which is added the transportation and possible storage costs between the winery and the port, and any insurance or fees prior to loading on the ship. If the importer takes the wine from the winery’s loading dock, the FOB is the same as the ex cellar price. An alternative term is FCA (Free Carrier).
The price of the wine when de- livered to the importer’s warehouse. CIF includes the FOB price, to which is added ocean freight costs (shipping the wine from the port of origin to the destination port), insurance, and “pier drayage” (moving the wine from the ship to the warehouse). In most instances, the importer pays these costs, but sometimes a winery can offer to take responsibility for all of the costs up to the wine’s delivery at the importer’s warehouse; the winery would then receive the much higher CIF price for the wine rather than the ex cellar price, but must bear significant costs and risks as well.
The cost of the wine to the importer. The landed cost includes the CIF price plus federal excise taxes (FET) and other government fees.
The price paid by the wholesaler/distributor to the importer for the wine. At minimum, the laid-in cost includes the landed cost plus the importer’s markup. It can also include ware- house storage fees, inland freight (moving the wine from the im- porter’s warehouse to the distributor’s warehouse), and state and local taxes. From the wholesaler’s point of view, this is their FOB price, and it is the price on which they base their markup and costs when pricing the wine for retailers.
The wine price offered by a wholesaler/distributor to a retailer, before any allowable discounts are applied. Discounts and sale pricing by a wholesaler are not permitted in some states.
Markup is the percentage difference between the actual cost and the selling price. Markups occur at several lev- els in the supply chain—between producer and importer, between importer and wholesaler, and between wholesaler and retailer/ restaurateur. Margin is the percentage difference between the selling price and the profit, again occurring at several points along the supply chain.
The wine’s price to the consumer from a retailer or restaurant, including the retail markup. Depending on state laws, the distributor may propose a Suggested Retail Price (SRP) for the wine, and the state may set a minimum retail price.
If you have never been to the US, the internet is the first place to begin. While all prices reported on the web need to be taken with caution, these URLs represent a mix of search engine sites, online retailers and e-commerce purveyors. Compare prices, disregard the lowest and the highest and you will soon be able to compile a relatively accurate picture of where your product(s) may fit into the US landscape.
** Brick-and-mortar retail stores that offer online sales
Bear in mind that this will help you enormously when it comes to discussing how your brand might be priced in different markets around the US. It will also demonstrate that you possess business acumen around the subject of price setting, which will make you ultimately more attractive to US import and distribution partners.
Beginning in November, Vinexpo America’s importer partner, MHW Limited, will offer a new pricing tool on their website called the Brand Economics Calculator (see below for sample price calculation). This tool will be available for clients as well as potential clients. Potential clients will have access to the pricing calculator for a trial period of 48 hours. Sign up here to receive updates about when the calculator will be available to use for the trial period: MHW Brand Economics Calculator.
The calculator will allow you to input various pricing scenarios, change final desired prices by market (state) and account type (retail, restaurant, chain etc.) and will automatically calculate in the federal and state taxes, among other mandatory costs. To learn more right now, watch the video entitled “Imported Wine Pricing Calculator Demonstration.”
Contrary to what you may have learned in a geography lesson, the US is more like 51 different countries—50 states + the District of Columbia—than one country. This causes the beverage alcohol laws to be applied in different ways around the country. While it is not necessary to understand every state at the outset, acknowl- edging this fundamental aspect is important.
Vinexpo America has provided a variety of resources to help exhibitors better understand and ultimately navigate the US three-tier system. To learn more, watch the Vinexpo Exhibitor Education Video Series:
Episode 1, The US Market Structure, covers:
Episode 2, US Import & Distribution Landscape—Understanding the Playing Field, covers: