Thanks to our beloved 3-tier system, pricing in the wine & spirits business per each state is daunting. But coordinating accurate, reliable pricing across multiple states is a Herculean task.
When managing on-premise pricing for national chains, most adult beverage manufacturers know little about tackling such an arduous task.
Our aim in this first article in a series about pricing management is to unravel the mysteries of managing pricing for national on-premise chains.
The unique needs of on-premise chains
So much of our industry is oriented around the off-premise, and rightfully so, as this is where 80% or more of the volume is done. The ‘suggested retail price’ (or SRP) on the shelf is the anchor point.
However, pricing for on-premise is very different from the retail shelf, and failing to understand the unique needs of the channel can result in many missed opportunities.
The table below is a handy visual aid to understand the distinctions between on and off-premise better when it comes to handling pricing like a pro.
Compounding this complexity illustrated above is the fact that 1/2 of the states in the US make no accommodation for these distinctions! ALL pricing in these states is oriented to off-premise purchases, and the restaurants have no choice but to adapt the state’s model to their needs.
The on-premise chain buyers’ perspective
If most wine & spirits sales pros struggle with national on-premise pricing models (and they do), one can only imagine how the buyers struggle.
National on-premise chain buyers tend to see the US as one market, and it’s no wonder. After all, they typically conduct business with ONE person from each company representing the entire country.
Exhibit A of this lack of understanding is how they request pricing from their suppliers. They almost universally use a one-size-fits-all approach when, in reality, there are five distinct pricing models (more on this below).
Most buyers send out a single spreadsheet and expect suppliers to fill in their pricing by SKU and state. This spreadsheet typically has only two columns for pricing:
- ‘Wine List’ price – sold by the bottle on the restaurant’s menu
- ‘By-the-Glass’ price – sold by the glass on the restaurants’ menu
This over-simplification of a massively complex pricing system causes difficulties in the execution of pricing at the restaurant level.
Requesting ‘Wine List’ and ‘BTG’ pricing is fine for half of the states that accommodate special pricing for on-premise. But what about the other half of the states?
In this blind-leading-the-blind scenario, it’s no wonder that buyers are frustrated by the lack of pricing integrity at the store level.
One Country, Five On-premise Pricing Models
If we look at the US and endeavor to understand how on-premise pricing is handled in each state, we find five distinct patterns:
- Everyday WL & BTG – these states have ongoing prices available each month for the wine list and by-the-glass
- Action: Enter two wholesale costs, one for WL and one for BTG
- ORANGE States in this group are AL, AZ, AK, AR, CA, CO, DE, FL, GA, HI, IL, IA, LA, MA, MN, NE, NV, NM, NC, ND, RI, SC, TN, TX, VA, WA
- Calendarized Case 1 – these states have one price offered to all accounts each month, with the prices fluctuating by month throughout the year
- Action: Enter one price in each month
- BLUE States in this group are CT, DC, ID, KS, ME, MI, MS, MO, MT, OH, OK, OR, PA, SD, UT, VT, WV, WY
- Everyday Quantity Deals – different prices are offered based on the quantity purchased, which are available every month
- Action: Enter pricing based on available 1,2, or 3-case quantity deals
- GREEN States in this group are KY, WI, WA
- Calendarized Quantity Deals – different prices are offered by month and by quantity purchased
- Action: Enter wholesale costs by month and by 1,2, or 3 case quantity deals
- YELLOW States in this group are IN, MD, NJ, NY
- Other – New Hampshire – RED
- Due to the complexity of this market and different methods of pricing by Brand, both WL/BTG and Calendar are available
As you can see, any attempt to reduce the price-quoting process to two columns on a spreadsheet represents a detachment from reality.
Dealing with price changes
This is another huge area of misunderstanding. When national account buyers collect pricing from suppliers, they expect those prices won’t change for at least a year. And since the process of collecting pricing can take place 3-6 months before the start of the program, we’re looking at a period of 12-18 months with zero price changes!
Also, consider that each chain’s program start and end dates vary from chain to chain!
Coordinating “on-premise pricing” across all 50 states and dozens of chains with expectations of year-long price stability at up to twelve different start and end dates is an administrative nightmare.
Fortunately, there is a solution, but few suppliers have adopted it. The remedy is to open the window for price changes only twice yearly and in the same months every year. Ideally, in February and September.
This predictable forethought allows the national accounts sales team to plan ahead and ensure pricing integrity for their clients.
Examples abound of companies that fail to factor in the needs of their on-premise chain team when planning their annual pricing calendar. This need not be so.
PRO TIP: Stop and consider that when a brand changes prices, all the off-premise retailer needs to do is print off a new shelf tag. Voila! New pricing accommodated! But price changes are anathema to an on-premise account because it involves a much more costly endeavor: reprinting their menus!
As brands contemplate their pricing strategy, they must stop and ask themselves, “How will these changes affect our on-premise chain customers?
Who “owns” the pricing?
By law, only distributors are allowed to quote prices to chains. No supplier should be quoting prices to a chain without complete coordination with and approval from their distributor partners.
Fortunately, most distributors collaborate with their suppliers to provide full visibility to all pricing scenarios. Distributors deploy sophisticated pricing models and scrutinize all pricing (deals) down to fractions of a cent. Ever wonder why almost all distributor prices end in “88 cents?” It’s no accident. They are “sweeping up the pennies.”
When organizing pricing across all tiers, static Excel spreadsheets won’t cut it. The good news is that software solutions do exist to quickly and accurately manage all pricing aspects for all trade channels.
Here are just a few of the functions that Excel spreadsheets cannot handle:
- A centralized repository of all pricing details
- An automated approval process for price changes
- Automated “push” reports, providing complete information at regular intervals
- Data validation procedures that catch potential errors and save time for all users
- Security against errors
- Integration with space management tools
Mastering on-premise chain pricing is your competitive advantage.
Any company that seeks to capitalize on the rich opportunities on-premise chains provide must up their game. There is no way around it: the sophistication of the tools you employ must accommodate the unique needs of this important channel of trade.
The industry has become too competitive to settle for fumbling along using outdated pricing models and “static” mistake-prone Excel spreadsheets and workbooks.
Will you ‘run with the big dogs’ or ‘sit on the porch with the puppies?’ The choice is yours.
Establishing and maintaining solid control over your pricing is essential. Companies that embrace the next generation of pricing technology will undoubtedly outperform those opting to remain in the status quo.
Tips and Best Practices
Here are a few critical considerations when quoting pricing to an on-premise chain:
- Plan ahead! A good rule of thumb is to plan at least six months ahead of the actual program starting. So, whatever price you quote must be in effect for at least twelve months from the program’s start.
- Most national restaurant and hotel chain programs last at least one year. Some (especially hotel chains) last 24 months. Keep in mind that this may cross over multiple calendar years.
- If you think your pricing will change within twelve to eighteen months of the quote, you need to factor that into your price quote.
- All price quotes should have a disclaimer like this: “Our distributor partners independently determine all pricing.”
- Many chain buyers lack a complete understanding of how on-premise pricing works for each of the US states, so there is an opportunity for your company to provide advice and leadership to the chain buyer.
- Go ahead and fill out whatever spreadsheet you’ve been provided by the chain buyer, but be aware you may need to supplement their standardized spreadsheet with additional information.
If you don’t have time to do it right, when will you have time to do it over?
Of all the reasons to deploy modern, sophisticated software tools, saving time should be at the top.
The two greatest assets any sales team has are a) the goodwill of their customers and b) their time. Both of these critical sales assets should be optimized and not taken lightly.
But, most companies need guidance from pricing experts to achieve this.
When you combine pricing expertise with powerful software tools specifically designed for the task, you’ve set yourself up for success!
Here are some suggested next steps:
- Download a free copy of “The Case for Implementing a Technology Solution to Manage Pricing” and read it.
- Request a free one-on-one private consultation with a pricing expert.
Let this month be the last month for missing out on opportunities!
About Andavi Solutions
Andavi Solutions was built to offer beverage alcohol businesses an integrated suite of technology solutions that provide insights, drive superior decision-making, and deliver ROI across the value chain. With decades of experience as suppliers, distributors, and analysts, Andavi Solutions has successfully leveraged technology to support the deliverables of on-premise chain accounts.
Want to learn even more about how we can help you succeed in on-premise chains? Contact us here for more information.