The alcohol and spirits market in the UK can be a little complicated. The way the spirits market works varies from country to country. So we’ve written an in-depth explanation into the UK spirits market, how distributors work, how to know if working with a distributor is right for you and what alternatives are available.
How does the UK spirits market work?
In the United Kingdom the hospitality industry is mostly supplied by a network of drinks wholesalers. According to a 2020 report from The Institute of Alcohol Studies ‘this market is relatively fragmented with 2,675 wholesale and distribution businesses that purchase drinks from producers and distribute them to on-trade and off-trade retailers’. Wholesalers can range from massive multi-million pound organisations with fleets of trucks delivering drinks all around the UK such as Matthew Clark (owned by the C&C Group PLC) or a more specialist spirits wholesaler supplying more selective bars in the industry with speciality products such as The Drinks Club.
The reason pubs, restaurants and bars prefer to be supplied by wholesalers is that they can get access to a wide range of drinks such as wine, spirits, mixers and soft drinks from a single source. For them it’s time saving and more efficient to purchase what can add up to hundreds of product lines from a single supplier.
Can you imagine the administrative burden of ordering all your spirits for your bar through different suppliers? You’d have hundreds of different orders to place and invoices to pay each week. Often, if you try to purchase directly with a brand there are minimum order sizes to hit as well which is burdensome from a stock and cash flow perspective. By using a wholesaler, bars can order as little as one bottle of a particular line as long as the total amount meets a certain level.
It’s common that an on-trade venue will use a specific wholesaler or a couple of different ones who they prefer to deal with. For larger operators they might be contracted to only use a specific wholesaler as they can negotiate improved pricing and terms the more they purchase from a single wholesaler. In these situations, a brand might be prevented from selling their spirit into a bar unless it is available through the bar’s chosen wholesaler.
It’s sometimes more common for spirits brands to supply independent “off -trade” retail on a direct basis as the volumes of orders are often lower and the range of products is smaller. As you move up the scale into larger multiple retailers, they tend to only have a very small number of suppliers who they purchase from for the same reason as the bars in the example above… the sheer number of suppliers they might need to purchase from.
Source: https://www.ias.org.uk/wp-content/uploads/2020/12/The-alcohol-industry-%E2%80%93-An-overview.pdf
So wholesalers are quite important, what types of wholesalers are there?
There are three main types of wholesalers which most fall into the category of:
- Specialist wholesalers who have a specific focus on a product category such as wine, spirits or beer.
- Cross category wholesalers selling all kinds of drinks products and sometimes even other food products as well.
- Regional or national wholesalers. These can either be specialist or cross category and they can service a small geographical area (such as a few counties) or the whole of the UK.
However, there are only a few wholesalers that cover the whole of mainland UK due to the scale and investment required to service such a large geographical area. National wholesalers require multiple warehouses located in different regions and a large fleet of delivery trucks. Mathew Clark, Venus, LWC and Enotria & Coe are examples of national wholesalers.
Larger chains of restaurants, pubs, hotels and bars will almost certainly have an account with a national wholesaler as they require outlets to be supplied by the same wholesaler throughout the UK. It’s easy to see why wholesalers can become gatekeepers for larger chains when it comes to listings…. It’s not always easy to get your product listed in these companies and if a product is not available in that wholesaler then the customer cannot purchase it! Most geographical areas of the UK will have several wholesalers servicing them, so one wholesaler doesn’t have a monopoly on an area.
Finally, and somewhat confusingly, some wholesalers are also importers/distributors as well. Not only do these companies wholesale drinks products but they also import and distribute their own brands. LWC and Amathus are examples of wholesalers who also own and distribute their own brands. See section; ‘What to look for in a spirits distributor’ below.
So, what is a spirits distributor?
Spirits distributors sit between the producer (distillery, brewery, brand etc) and the end customer. Distributors tend to purchase products straight from the brand and exclusively supply the rest of the market.
Distributors don’t often sell directly to bars and restaurants because that’s the job of the wholesaler. A good distributor will have a ready made customer base that they already supply their range to. Since distributors have a range of products that they look after, the benefit of working with one is that they might already have an account with major wholesalers and UK retailers. They will also often have a sales team to assist with generating sales for the brands they represent.
A distributor also plays a vital role in setting the price value chain for the entire market to ensure that every level of the supply chain runs smoothly and efficiently. Distributors are uniquely positioned to ensure that there is fairness and consistency of pricing across the market. A good distributor will work with producers to make sure margins for all of the necessary levels of the supply chain are accounted for to acheive a realistic RRP.
Wholesalers and retailers like working with distributors over brands for a few reasons: Distributors are industry experts, they supply a range of products into them and it’s simpler from an account management and invoicing perspective to have one sales conversation rather than multiple ones with brands. For these reasons, it’s sometimes incredibly difficult to get a new account set up with a wholesaler for brands.
Distributors charge for opening up the market and growing your sales but the exact amount will vary from case to case. For example, if a product is new to the market they may charge set fees or insist on a higher margin. Alternatively if you already have strong sales (or fantastic potential) then they may be more flexible. If sales are zero then the distributor will make minimal income from sales. We’ve written an in depth artcile on how distributors charge here.
Benefits of working with a spirits distributor
For the reasons discussed above, distributors can help grow your sales by introducing your brand to their existing customer base through their sales team. On top of this, as experts in the industry they understand how the market works and can advise on the best strategy for your brands.
If you are based outside the UK, then your distributor will arrange the importation and logistics of getting your products into the UK, store the stock locally and then deliver to the customer.
Even if you are in the same territory, distributors can ease the stresses of storing large amounts of inventory. They can store the stock under bond in a bonded warehouse meaning that a brand owner doesn’t have to pay duty upfront which is a considerable cash flow saving.
There are legal complications around selling alcohol too. To sell spirits you need to be a registered UK company and have your AWRS number which allows you to sell alcoholic goods within the UK and if it is being brought in from abroad, a WOWGR licence is required to import and handle spirits/alcohol duty suspended. A spirits distributor will take care of all of this for you!
What to look for in a spirits distributor?
If you are looking for a spirits distributor, it’s important to find the right distributor for you. You are going to be working together to grow your brand. Here are a few things to consider when looking into working with a distributor.
- Do they own their own brands? This is an important consideration because many distributors are brand owners themselves producing their own products. If that’s the case then their focus and attention is going to be on their own products at the expense of their clients’.
- Do they have the right accounts and the right connections in the industry based on your target market? If your product is geared towards the retail sector and they are more focussed on the on-trade then they might not have the right customer base and therefore could be a poor fit for your business.
- What is their portfolio like? You’ll have to look at their portfolio to see if your brand will fit in their range. Ideally you won’t want them to have too many competing brands.
- Do they care about growing brands? Some distributors are only looking to grow sales at all costs. If you are looking to grow a premium brand, this can cause serious issues if the brand is sold into the wrong outlets or sold at a discount, damaging the brand image and long term positioning.
- Are they open with their pricing structure and margins? The distributor will set the price in the market which will also influence the Recommended Retail Price (RRP). They should be open with their margins and selling out prices so that you know how this affects the price of your product in the market.
Are there any downsides to working with a spirits distributor?
A distributor will make a margin on stock sold to their customers. This margin covers the cost of collecting, storing and transporting the product, plus the profit they make on the sale. If you were to sell directly to a wholesaler you’d take a higher margin yourself… so, there is a slight sacrifice on margin to the producer.
Since most distributors in the UK will charge a set fee for distributing your product, plus the margin on top, you’ll need to undersand how this works and balance this financial outlay against the cost savings of employing someone to do this job for you. Someone will have to manage stock logistics, place and receive orders, manage inventory, accounts payable and liaise with wholesale buyers and account managers to secure listings.
The alternative is to self distribute. If you are a producer you’ll have to weigh up whether it is realistic and feasible to do this. If you are based outside the UK this will be very hard as you’ll need to be a registered company in the UK and have all the relevant approvals to sell alcohol. You’ll have to store your products somewhere, ideally under bond. You will also have to build relationships with the key players in the market and set up accounts with them in order to supply them. This can often be a long and complicated process.
If the distributor has many brands of a similar category, this can be both a blessing and a curse. On one hand, if they are renowned for having a fantastic tequila portfolio (for example) then this likely means they have a decent number of customers who work with them because of their large range and expertise in this category. On the other hand, this means they have a number of brands competing with each other in the same category which could cannibalise sales.
There is no right answer, so it’s worth just talking to the distributor to understand if they could work for you.
Summary
If you are researching the UK spirits market or looking for how you can grow your spirits distribution in the UK, then we hope that this article provides a useful foundation. Working with a spirits distributor can be hugely beneficial for your spirits brand but as there are quite a few spirits distributors in the UK it’s worth doing a bit of research into who they are, being prepared, making sure you understand the costs involved and ask lots of questions!
If you would like to speak to bbb drinks about distributing your brand, then we would be delighted to hear from you. Please get in touch via the contact form below and Phil Harding (bbb drinks Founder) will be in touch, within a few days.
Good luck!