The alcoholic beverage market is rapidly growing despite the strong regulations enforced by most countries worldwide. Experts predict that its global value will reach $1,599 billion by 2022. In 2017, online sales of liquor, beer and wine grew by a staggering 32.7 percent. Spirits account for over 35.9 percent of the total alcohol market. If you're looking for a profitable business idea, you may consider selling wholesale liquor. Before getting started, make sure you have a good understanding of this industry and the laws that govern it.
What Is Wholesale Liquor?
"Liquor" is an umbrella term for all alcoholic beverages produced by fermenting fruits, grains and other plants into CO2 and ethanol. These include vodka, rum, gin, brandy, whiskey and so on. The distillation process increases their alcohol content. Most beverages that fall under this category have an alcohol by volume, or ABV, of 20 percent to 55 percent. They're also known as spirits, hard alcohol or distilled drinks.
Beware that liquor and liqueur are not one and the same. Even though liqueurs are distilled spirits too, they also contain added sugar, oils, herbal extracts and various flavors, such as coffee or citrus fruits. Their ABV ranges from as little as 15 percent to 55 percent. Irish cream, amaretto and Kahlua are just a few examples.
Wholesale liquor is defined as distilled spirits that are bought or sold in bulk. If you decide to start a liquor business, you'll find it more convenient to purchase these beverages in bulk rather than by single unit. Wholesale liquor costs significantly less than individual bottles.
How to Buy Wholesale Liquor
There are a couple of things about which you should know before you jump into the wholesale liquor business. First, make sure you understand the three-tier system of alcohol distribution. This industry is divided into three tiers: manufacturers, wholesale distributors and retailers. Manufacturers can sell alcoholic beverages only to distributors. As a wholesale liquor distributor, you can sell only to retailers who then can sell to the end customer.
The only exception is the state of Washington, where producers are allowed to sell directly to retailers. Also, beware that Alabama, Iowa, Maine, Montana, Michigan, Ohio and West Virginia have state monopoly over part or all of the distribution tier. There are 17 control states in the U.S., and each has its own regulations concerning the wholesaling or retailing of alcoholic drinks.
Idaho, for example, has a monopoly over sales of beverages with at least 16 percent alcohol content. In North Carolina and Oregon, liquor can only be sold in state-run stores. Michigan maintains a monopoly over wholesale liquor distribution. What this means is that you may not be able to distribute spirits in these states. Some may allow you to do that, but you’ll need to obtain special permits and/or government contracts.
As a wholesale liquor distributor, you'll purchase distilled spirits from local and/or international suppliers. These may include local liquor sellers, whiskey distilleries and warehouse clubs like Costco or BJ's Wholesale Club. Prices will vary from one supplier to the next.
Start by contacting bulk liquor suppliers in your area. Request multiple quotes and negotiate the price. Some may provide discounts if you pay upfront or place large orders. Check online liquor sellers as well. Spirits producers like Drillaud, La Cana Grande, Veil Vodka, Thames Distillery, Siesta Key and Battle Hill Scotch operate through both online and offline channels. Ideally, choose one that offers premium and limited edition liquor. Product quality makes all the difference.
In this industry, your inventory could be your greatest asset or your biggest downfall. You cannot run a profitable wholesale liquor distribution business unless you keep inventory under control. Update and monitor your stock regularly, coordinating it with the fluctuations in demand. For example, if the demand for whiskey is higher in the winter, stock larger quantities during this time of the year.
Check your sales reports every month or so to determine what products are in high demand. Try to resist discounts on beverages you don't really need. Use inventory management software to streamline your operations and prevent costly mistakes.
How to Start a Liquor Business
Before you start a liquor distribution business and search for bulk liquor suppliers, it's necessary to obtain certain licenses and permits. This industry is regulated by the Alcohol and Tobacco Tax and Trade Bureau. To apply for a wholesaler’s basic permit, access TTB.gov, click "TTB Audiences" and select "Wholesalers." Next, fill out an online application or send your documents by mail.
The average application processing time is 61 to 65 days. You can check the status of your application from your Permits Online account. Make sure you submit all documents required by the TTB, including:
- Proof of signing authority
- Letter of intent (for alcohol importers only)
- Power of Attorney (if applicable)
- Variance request (if applicable)
You will also need to comply with federal and state laws. This involves choosing a business name and legal structure, applying for a tax ID number and checking the wholesaling requirements in your state. For example, if you live in Phoenix, you must contact Arizona's Department of Liquor Licenses and Control and ask about the permits needed to start a liquor distribution business. Each state has its own department responsible for the distribution and sales of alcoholic beverages.
If you're planning to import wholesale liquor, you must first apply for a TTB-issued Certificate of Label Approval. Simply fill out the application form available on the TTB website and wait for approval. Alcohol distributors who plan to store the products they will sell must register with the Food and Drug Administration.
Once your business is up and running, you'll need to keep daily records of the receipt and disposition of liquors at your warehouse or office for at least three years. Beware that if you ever change your business, location, mailing address or signing authority, you must submit additional documents to the TTB. If you plan to sell wholesale liquor in other states, contact each state individually to ask about the local regulations.
Next, make a business plan and determine to whom you're going to sell. You can either work as a private distributor or sell to ABC stores (state-run stores). Most wholesalers partner up with bars, pubs, restaurants and other retail outlets. Research the spirits market. Check out the industry trends and growth rate, analyze your competition and study the various business models in this niche. Analyze popular brands and try to determine what makes them successful.
Again, it's important that you study the market since sales prices will vary from one retailer to another. For example, a local restaurant may not be able to pay the same price for wholesale liquor as a large chain of stores does. Therefore, you need to find out how much customers can pay based on the market conditions and local economy. Furthermore, your marketing strategy will depend largely on the target audience.
Your success as a wholesale liquor distributor is reliant on several factors, including your marketing strategy. You're competing against hundreds or thousands of other businesses, so make sure you come up with an offer no one can resist. Define your unique selling proposition and incorporate it into your marketing plan and sales pitch.
Keep your target audience in mind at all times. You'll need a different approach when pitching small retailers than you would when selling to chain stores. For example, if you plan to sell wholesale liquor to a small restaurant, focus on their profit margin. Explain to them how your products can help increase their sales and drive customer loyalty. Back up your statements with facts and case studies. You could tell them how a small venue located in another city or state grew its revenue by 30 percent after it started to sell a particular liquor brand.
Also, decide whether you'll require delivery minimums or keep your offer flexible. A local bar, for instance, may not be able to afford ordering large quantities of liquor. If you operate in a small city, adjust your requirements accordingly. Remember to budget for support in your pricing. In this business, you'll spend a lot of time showcasing your products, organizing tastings with restaurant owners and training their staff so they can sell more.
Consider setting up a referral system to grow your liquor distribution business. For example, you can offer discounts to retailers who recommend your products and services to other merchants. A restaurant owner may have a friend or family member who owns a local store. If you come up with a good offer, he might recommend your business to them.
Take the time to build your online presence. Set up a website to showcase and market your products. Decide whether you're going to sell liquor online, in person or both. Your website can serve as an online catalog where merchants can see what you have to offer. Update it with new products and special deals, share industry-related news and offer discounts for online orders.
Stay active on social networks and engage with potential clients. Use these platforms to pitch local restaurants and stores that may be interested in your products. Consider offering discounts to new customers. Flyers, brochures, billboards, newspaper ads and other traditional marketing materials can help too.
Why You'd Start a Liquor Business
Over the past few years, liquor sales accounted for over a third of total alcoholic beverage sales in the U.S. In 2015, this market niche was worth over $113.78 billion. Currently, the most popular liquor brands in the world are Jinro, Emperador, Smirnoff, Bacardi, Johnnie Walker, Jack Daniel's, Absolut and Chivas Regal. Jinro, for example, sold 71 million nine-liter cases in 2014. Emperador, the second leading brand, sold 33 million nine-liter cases.
Whiskey seems to be a preferred choice among U.S. customers. In 2016, whiskey sales jumped 7.7 percent in the United States. Cognac and Irish whiskey are popular too. Furthermore, vodka is making a comeback due to the increasing number of flavors available. According to Fortune magazine, more and more customers are choosing high-end premium spirits over standard brands. This market increased by 5.5 percent in 2016, and it's not going to stop anytime soon.
According to Gilles Bogaert, CFO of Pernod Ricard, the digital revolution has fundamentally changed this industry and the way customers interact with their favorite liquor brands. The company is investing heavily in e-commerce and has already launched its own online platforms. Going digital is a must for those who want to remain competitive and relevant.
Now is a great time to start your own liquor distribution business. The wine and spirits wholesaling industry was worth $103 billion in 2018 and has an annual growth rate of 2.3 percent. Excise taxes are going to drop over the next five years, which translates into higher profits for alcohol distributors and retailers alike.