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Most of my friends believe that one excise tax is to blame for the high cost of vodka. It turns out that it doesn’t. What else affects the cost of alcohol so much? Let’s finally open the veil of secrecy over this burning issue.
I interviewed a friend who owns a successful distillery. I asked many questions related to the price of alcohol, to which I was given honest answers.
Let’s go from afar – how the price is formed in general
The principles of formation of the cost of any goods are similar. You can derive a pricing formula: cost price + manufacturer’s markup + store markup + VAT. And this applies to both food and consumer products.
The cost price is the sum of all the costs of producing a product.
This criterion includes costs for:
- raw materials (including their delivery to the plant);
- equipment and rental of premises;
- employees’ salaries;
- overheads;
- taxes to be paid by the manufacturer.
But that’s not all. The manufacturer needs to somehow sell the goods: packaging, transportation, advertising … Who will pay for this? Obviously the buyer.
If the product is unique for the market, then its price will be initially high, and if there are many manufacturers “divorced”, then the price tag will have to be set lower. Competition, no matter what.
The manufacturer must receive some benefit, otherwise it makes sense for him to produce products? Therefore, there is also a margin on the goods. The price for the end user is rising again.
The manufacturer, of course, tries to set the maximum price, but such that people actively buy products.
Next, the product is delivered to the store. The store also does not just buy goods – it needs a benefit. Again, an extra charge is made, plus VAT. This is where the final price of the product is formed.
What is the estimated rate of return on alcohol that this business is so hard to enter
To quote my friend’s story about his factory:
“Income from the production of alcohol is quite large. But to start doing this, you need to spend a lot of money. Therefore, it is not easy to enter this business.”
Expenses for the maintenance of the distillery
At first, I spent almost 2 million rubles just to open a small production facility. The costs included:
- registration of individual entrepreneurs, licenses, permission to open;
- equipment;
- assurance of technical equipment;
- purchase of raw materials and excise stamps;
- certificates confirming the compliance of products with state standards;
- factory advertisement.
The difficulty of entering the alcohol business lies in the fact that large investments are needed here.
But this is not the end. In the plant you need to constantly invest tidy sums. Every month, about 580 thousand rubles “fly away” for employee salaries, the purchase of raw materials, renting premises, advertising, paying taxes, utilities, security, etc.
Sometimes you need to change equipment, make cosmetic repairs and cover some unplanned losses – a battle, substandard, and more.
Average profit
We have calculated the most favorable margin for us and our customers. All costs paid off in less than three years. This is considered normal by business standards.
We now receive about 900 rubles a month (at first we developed about 000 rubles). This is a profit from which you still need to pay off monthly expenses.
So, how is the price of vodka formed?
As we understood, the cost of vodka largely depends on the margin of the manufacturer and the store. But let’s not forget about the excise tax. I will analyze an example of the formation of prices for vodka of average cost.
The cost of a bottle (container + vodka) will be about 35 rubles. Taking into account VAT and excise tax (544 rubles per 1 liter), the price will increase by about 305 rubles.
With the markup of the manufacturer and the store, the final price of a bottle of vodka will be 410 rubles.
So, the formula for pricing vodka is: Cost price + manufacturer’s markup + store’s markup + VAT + excise tax.
How much do people who own the alcohol business earn
In an “interview” that I arranged for my businessman friend, he said that the monthly cost of a “candle factory” is 580 rubles, income is 000. This means that the monthly profit is 900 rubles, and you can earn money this way a year almost 000 million rubles.
So, the price of vodka is formed taking into account many criteria. Alcohol is expensive not only because of the excise tax. Keeping a distillery is not so easy, but if you work hard, then it can bring good profit.
Do you think alcohol prices are too high? Would you like to open your own distillery or maybe you have already?