The Essential Guide to Three-Tier Pricing for Brands, Distributors & Retailers
Every dollar on a shelf price tag was shaped by the three-tier system. Understanding these core concepts is the foundation for setting prices that work for everyone in the chain.
The FOB price is the amount a supplier charges a distributor for one case of product, before any shipping or taxes. This is the starting number for all pricing math. The supplier sets the FOB, and it reflects their production costs, desired margin, and competitive positioning.
Typical FOB ranges for craft beverages sit between $24 and $120 per case depending on category, format, and brand strength. A 6×4 case of 12oz craft beer might FOB at $28–$36, while a specialty RTD cocktail in the same format could be $75–$100.
Landed cost is what the distributor actually pays to get a case into their warehouse. It includes the FOB price plus any freight charges, fuel surcharges, and state or federal excise taxes.
This number matters because the distributor's margin is calculated on top of landed cost, not FOB. A $2/case freight charge compounds through every layer of the pricing chain.
This is the most commonly confused concept in beverage pricing, and getting it wrong can cost thousands of dollars per SKU per year.
A 30% margin is equivalent to a 42.9% markup. A 30% markup is only a 23.1% margin. When a distributor says "I need 30 points," they almost always mean margin, not markup.
A brand quotes a distributor "$30 FOB, you'll make 30% on it." The distributor hears margin. The brand meant markup. Result: the distributor's sell-in price is $42.86 (at 30% margin) instead of the $39.00 the brand expected (at 30% markup). The product lands on shelves $3+ higher than intended, and nobody knows why it isn't selling.
Margins vary widely by channel, account type, and region. The tables below are industry starting points, not rules. Your actual margins will depend on volume commitments, brand strength, and local competitive dynamics.
| Channel / Account Type | Typical Margin | Notes |
|---|---|---|
| Off-premise (retail) | 25–30% | Grocery chains, liquor stores, convenience |
| On-premise (bars/restaurants) | 28–35% | Higher due to smaller drops, more service |
| Large chain accounts | 22–28% | Lower margin, higher volume |
| Craft / specialty | 30–38% | Higher margin on lower-velocity SKUs |
| Non-alc / functional | 30–40% | Emerging category, higher risk premium |
| Retail Format | Typical Margin | Notes |
|---|---|---|
| Grocery / supermarket | 25–35% | Competitive pricing, high volume |
| Liquor / package store | 28–33% | Specialty selection, moderate volume |
| Convenience store | 35–45% | Premium for cold singles, impulse buys |
| Bar / restaurant | 65–80% | Sold by the glass/bottle, major markup |
| Natural / specialty retail | 35–40% | Higher margin for curated selection |
These ranges reflect gross margins before any promotional allowances, slotting fees, or volume rebates. In practice, the effective margin for a distributor or retailer is often 2–5 points lower than their sticker rate once deductions are factored in.
Let's trace a single product through the entire three-tier chain with real numbers. We'll use a 6×4 case of 12oz cans (6 four-packs, 24 cans total).
An $80 FOB becomes a $31.13 four-pack on the shelf. That 2.6× multiplier is the compounding effect of margins and fees through each tier. Even small changes at the FOB level ripple significantly through the chain.
You can also work backward. Start with your target shelf price and reverse-engineer the required FOB. If you want a $24.99 four-pack on shelf, work backward through retail margin, then distributor margin, subtract freight and tax, and you'll find the FOB you need to hit. Alculator's calculator supports both forward and reverse modes.
Run the numbers for your full SKU portfolio with the free Alculator calculator.