most bottle shops run at somewhere between 30% and 35% margins. grocery will sometimes run as low as 25%, and wholesalers such as costco as low as 13%. but order-by-mail seems to be considerably more, oftentimes greater than 50% margins!
CASE STUDY: DEUCE JUICE HAZY DOUBLE IPA
at three magnets we used to sell our beer occasionally through one of the leading nation-wide beer delivery services. i knew them to be a little bit more expensive than purchasing beer at a brick-and-mortar store, but i was shocked when i logged in to my account to see our deuce juice hazy double ipa selling for $7.99 per can! we were retailing this beer at $17.49 per four pack. $4.37 per can. the service paid wholesale pricing for this beer, meaning that they paid $3.06 per can. this means they made a 61% margin on the beer!
it was a weekend when i saw this, and i immediately texted my contact to inform them that they must have posted the incorrect price. surely they meant to sell this beer in sets of two cans for $7.99. right? nope. that wasn't the case. they assured me that it was the correct pricing. they were marking up our beer over 100%! and not only that, but THEY SOLD OUT very quickly! what the actual fuck?
full disclosure - porch drops was started because of the COVID-19 pandemic. when we had to shut down our pub and switch to to-go curbside sales, we took an immediate 70% hit to our restaurant and beer direct sales revenue. we NEEDED to find more revenue streams. in addition, without chain approval, and not offerring flagship beers, we were reliant upon mom-an-pop bottleshops to sell our product. unfortunately, these were the shops being hit the hardest, as people transitioned their beer buying habits to larger grocery chains where they could one-stop-shop. this meant that larger regional breweries were set up for success. but smaller breweries like us, and breweries who make most of the beer we will be offerring, were essentially fucked. we lost about 90% of our wholesale sales overnight. so we needed to find another way to sell our beer.
if we were to start a beer delivery service in non-pandemic times, we'd have spent over a year working on the business plan. crunching numbers. projecting sales. but these are not those times. there is no time for analysis paralysis. we need to put revenue drivers in motion, and build new revenue streams before our emergency disaster loan money runs out. so, is 37.5% the right margin? we think so. but we don't really know. time will tell. we do know that we are spending a lot of time curating the beers we bring in. and we will be taking frequent trips north and south picking up beer. and 21+ signature delivery costs significantly more than the flat rate $10 we are charging for shipping.
in fact, depending on where in washington the we are shipping (how many UPS "zones" your Porch Drops box passes through), we pay between $19 and $26 per case. so that extra few percent helps us to cover those costs, while still staying significantly under the prices people are used to paying for online beer sales. in the first couple weeks of business, we found that when taking the portion of shipping out that we are covering, we actually average LESS THAN 30% margins.
we will be 100% transparent in all of our pricing. each of our four-packs will tell you exactly how much we paid for them wholesale in their descriptions. we are not even including any acquisition costs. all guest beer pricing will be set at 37.5% margins, and pricing on our own beer will be kept at 30% margins over our wholesale pricing, just as if you were purchasing it from our brewery.
HOW WE'LL DO THIS
this part is simple. it's because we are not tech people trying to beer - but instead, we are beer people trying to tech. tech people are used to very large salaries. they have investors. investors tend to want a return on their investments. but beer people aren't in it for the money. we're in it for the beer. for the art. for the community. we just want to do cool shit, and have fun doing it. and we know that once our priorities change, and we get into it for the money, it will stop being fun.
certainly, these margins are subject to change as we figure out what works and what doesn't. hopefully we'll be able to bring the prices down! but maybe they'll need to go up. either way, we plan on being 100% transparent along the way. the online beer sales industry has cultivated a lot of mistrust with their consumers over the years. we want to change that.