Running head: Beverage Management Report 1

Beverage Management Report 6

Beverage Management Report

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Beverage Management Report

Introduction

There were about 503,000 jobs in the wine and spirits industry in 2008, and the industry brought $137 billion to the U.S. Gross Domestic Product (GDP).

The wine and spirits industry includes three general parts: product suppliers, wholesale distributors and product retailers. Usually, these three tires are used in the USA.

All three tiers of beverage industry are subject to state regulations in every state. The main goals of regulations are:

1. efficiently collecting taxes

2. preventing the sale of alcohol to minors

3. fostering and overseeing responsible competition in a regulated environment

4. ensuring product safety

5. preventing the distribution of counterfeit products.

Now, the traditional three-tier structure is often criticized. Therefore, its benefits are described in this paper. The authors want to show the efficiency of traditional system.

Opening a direct supplier-retail distribution channel would likely result in lower prices in big-box stores, but might also:

1. cause rising prices for wine and spirits sold in other shops

2. diminish local investment

3. reduce brand development

4. reduce innovations of the goods and consumer choice

5. some local suppliers, wholesalers and retailers are forced from the market.

Distribution Overview: The Three-Tier System - Benefits, Value and Choice

One must understand each tier's role in the marketing and sale of goods, especially the badly known role of the wholesaler, as well as know how the traditional marketplace functions

A. The Purchasing Environment of Wine and Spirits: Variations in Good Characteristics and Individual Taste Lead to Marketing Challenges:

The choice of wine and spirits is very wide taste, content of alcohol, quality, image, origin and price. Wine Spectator allows its members to study more than 199,000 wine ratings on-line.

Central Distributors present about 500 new brands per year to retailers, and about half of them fail within one year of distribution and 95 percent fail during ten years. Due to a rapid rate of innovations, consumer brand loyalty is not very high.

In this environment, marketing and brand management are very important activities that can help a product become popular and successful in the marketplace.

Most wine and spirits are experience goods: a consumer cannot appreciate or evaluate a product, or compare it to another product, without first tasting it.

As the products are usually expensive, consumers prefer free samples and degustation.

B. The Third Tier: Wine and Spirits. Retailing:

For most customers, shops are not just places of purchases; they are also a good source of information, and a place to taste new products.

The percentage of sales for each category of retail outlet was relatively stable from 1990 to 2005.

Retail outlets not only sell wines; they can also advertise and be a primary location for promotional activities including free or paid wine degustation.

Retailers and wholesalers receive information about the role of product attributes and promotional strategies that attract consumers.

C. The Second Tier: Wine and Spirits. Wholesalers:

In August 2008, there were about 16,000 wholesaler licenses in the U.S.

In 2008, 88,500 employees worked for wine and spirits wholesalers.

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Wholesaler activities reduce retailers' expenses by about $52.00 for every $1,000.00 in retailer sales, and a national savings in retailer operating is about $7.2 billion per year.

Nowadays, wholesalers rely more and more on sophisticated electronic information systems to extend their logistic capability.

The logistical operations of wholesalers are more efficient than other alternatives of customers and suppliers.

The long-term relationships between wholesalers, suppliers and retailers are important because they uniquely position wholesalers to effectively perform the marketing functions they have.

Specific marketing investments made by wholesalers usually include:

1. Performing category management

2. Sponsoring and organizing local events.

3. Creating sample wine lists

4. Creating different types of advertisement.

D. The First Tier: Wine and Spirits. Suppliers:

There were 1,551 enterprises in the winery sector in 2005.

The number of wineries is growing constantly.

The number of different kinds of spirits has grown a lot as producers have introduced more innovations.

Economic Analysis

Three-tier systems are not unique for beverages; moreover, they are implemented in many industries where their use has not been limited by regulators, for example, in book distribution system.

Such systems often provide significant economic advantages to market participants.

Three-tier systems save on the amount of transactions required.

Three-tier system also provides innovation in the area of information sharing by allowing quicker transition to electronic inventory and delivery systems.

The three-tier system can increase the number and variety of computer- and network-based transactions.

As wine is perishable, most customers would prefer a faster shipping service, which costs more, thus reducing the relative attractiveness of on-line sales.

Conclusions

Proponents of the direct purchase of beverages by retailers assert that wholesalers are no more than an unneeded level of bureaucracy in the distribution of wines and spirits.

The three-tier system refers to exclusive-territory arrangements that bring corrections to externalities.

The analysis was devoted to the wholesale segment of the wine and spirits industry, which has different functions beyond the efficient physical delivery of beverages to retailers.

Exclusive territories are a vital part of the rewards that justify the investments wholesalers make in the products they represent. Direct purchasing by large stores reduces the advantages to traditional wholesalers and diminishes their incentives of investing. A movement of goods to the supplier-retailer channel will reduce the economies of scope, and increase the costs of all the participants of the three-tier system, and ultimately reduce the benefits of low prices and superior variety at nearby locations to customers who rely on the three-tier system.

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