How Can Direct-to-Consumer and Three-Tier Complement One Another?

This blog was last updated on November 17, 2022

Historically, the three-tier and direct-to-consumer (DtC) channels for beverage alcohol have operated independently, sometimes even viewing the other as competition. But in reality, there are many opportunities for a symbiotic relationship between these business units. For beverage alcohol producers that depend on both, a collaborative approach is imperative.

DtC and three-tier—what’s the difference?

First, some quick definitions. DtC alcohol shipping is when consumers purchase products directly from a supplier such as a winery (either online or in-person) and have the items shipped to them. A third-party carrier (e.g., FedEx, UPS) fulfills the order, which often involves the shipment crossing state borders.

The three-tier system has suppliers sell to wholesalers, who then sell to retail businesses (e.g., liquor stores, bars and restaurants). Consumers can then purchase products from the retail businesses.

So, what’s the big deal?

Why is it so important for these two methods of selling to appreciate the potential opportunity for an abundant co-existence?

Sovos ShipCompliant has long held that the three-tier and DtC channels have a positive symbiosis that can build on one other (and also be a boon to states). Of course, there are numerous ways for wineries, distilleries and breweries to succeed. However, a model that focuses solely on one market and ignores the other may be missing out on a significant potential revenue stream.

We estimate that some 50% of our winery clients do go to market via three-tier distribution and DtC shipping, and many can use the one market to further their sales in the other. A producer can show clear value to distributors by demonstrating a robust DtC market in a state. Additionally, a producer can drive business to their DtC channel by expanding its presence in a state’s three-tier market, specifically when customers seek products not available in stores.

Another key consideration when collaborating with wholesalers is the fact that different products are sold in the different channels. Producers generally reserve certain products for DtC (e.g., higher-end selections, limited releases, certain vintage bottles) that are not available in stores/restaurants/bars. This serves to increase consumer choice while at the same time, the products wholesalers bring to market typically are not in direct competition with products available via the DtC channel.

Just the right blend

It’s important to remember that operating such a model requires a keen eye on trends and outcomes in each channel, allowing one to be leveraged for success in the other. Suppliers need to gather, process and act on the information gleaned from their three-tier and DtC sales so they can thrive in both environments.

At the end of the day, your DtC and three-tier channels do not need to compete. Remember, a robust DtC market can demonstrate to distributors that you have a ready and established customer base in a given market, showing that they would benefit from picking up your products. Furthermore, valuable repeat three-tier customers can become club subscribers as they recognize that they can purchase more of your products than what is available in stores.

It can be possible to have the best of both worlds—but knowing the details of each will help us get there.