Taking on a brand that is already established seems, at first blush, like a beautiful thing, especially when they have sought you out, or you have been recommended to them. It definitely has its advantages in readymade distribution, but there are also critical issues you will face which must not be obscured by your initial rosy glow.
We’ll dispense with the matter of whether the wines have traction, are priced fairly and a myriad of other factors. We’ll assume you have covered these questions before taking on the brand. You have, haven’t you?
There are three distinct logistic/compliance areas that should be tackled without delay at the outset and throughout the transition. Unfortunately, when the brand is not voluntarily given up – whether it is for legitimate reasons or not – there is bound to be an uncomfortable relationship between winery and ‘old’ importer, which will spill over to you as the ‘new’ importer and potential adversary. At the very least, it is an awkward time as the previous importer wonders what has been said. Was their termination because they owe hundreds of thousands of dollars to the brand owner? Or were they just struggling to find distribution, but truly thought they were doing a good job and blindsided by the supplier’s decision? None of the reasons, real or imagined, are going to be palatable to the prior U.S. representative. They will see you as the one who is going to reap the rewards of their foundation. However, you will need information from this person, and you will need their cooperation. Occasionally they will offer it willingly. Sometimes, they feel that bringing you up to speed only adds insult to injury, or at best is viewed as wasted time when they could be turning their attention to finding a replacement for this lost revenue. Rarely, they will actually attempt to sabotage you. I have experienced all of these scenarios.
The first issue is whether you have taken on a brand that has product in the States at the present time. Naturally, to have cleared customs, it is already labeled with the old importer’s details as part of the mandatory label information. There is no reason why you cannot sell and distribute this product. If the importer owes the brand owner money, it must be transferred to you immediately, to avoid a fire sale on the part of the previous importer who now has nothing to lose (in his mind). If it has been paid for, you do not have any obligation to purchase the wine, especially if there are old vintages or wines you feel have limited momentum, but in concert with the winery it could be concluded that purchasing is safer to avoid said fire sale and bastardizing the brand.
In the event of purchase or transfer, keep in mind that some states require that the previous importer give you permission to sell wine labeled with the old importer name, by having to register the brand under your license in their state. This requires a letter from the previous importer relinquishing all rights to the brand and authorizing you to distribute wine that is labeled for their use. This is not a Federal (TTB) issue when the wines are already in the U.S. It is a state by state issue. Some states will not require anything from you. Some franchise states will require a release from the distributor. Others will allow you to distribute this wine in their state with a simple letter from the previous importer.
The second issue relates to the wines that may have been labeled in the source country ahead of its required use in the U.S., to save money by bottling and labeling a certain quantity at the same time. Or it may have been done at the request, or insistence, of the previous importer, who wanted to secure a specific number of cases for their future use, or who led the winery to believe in inflated expectations for sales. In this case, hundred of cases – thousands of bottles – may already be labeled with the incorrect importer details, all boxed up and warehoused somewhere in the home country. Relabeling could well be within the brand owner’s budget and they would prefer to do so, but it is also very likely that the labor and material costs will incur a hardship for them. In the latter event, there is a TTB provision for a label “use up” and temporary approval of labels for importation, under the old importer’s name. This is accomplished by applying for a COLA (Certificate of Label Approval) online in the usual manner. However, the label jpeg graphic you supply will be the old label and in the section for “other attachments” you will upload a hardship letter. This information is not readily available on TTB’s site, because it is something that they do not encourage, but they will give careful consideration to each request. To quote an ATF (the old TTB) circular verbatim:
“ATF understands that there are circumstances when a company may request to “use-up” labels that do not strictly comply with the labeling requirements of the Federal Alcohol Administration (FAA) Act. Reasons may include the sale of a brand to another company or a change of address of the certificate holder. While ATF does not encourage the use of these labels, we realize that situations arise when temporary approval should be considered. We make our decision about use-up requests of temporary approvals on a case-by-case basis. We restrict approval to situations when consumers are not likely to be misled as to the identity and quality of the contents of the bottle.”
TTB requires that you supply them with the length of time you require for the “use-up”, the reason, dollar impact and other pertinent information such as the steps you will take to ensure this does not happen again. This is all in the form of a personal letter and in your own words. Again, to quote ATF:
“After we review all the circumstances as you have presented them, we will make a determination as to whether or not we will grant permission to “use-up” existing label stock and for how long, Again, our main concerns are that the consumers are not likely to be misled as to the identity of the product, and that we can determine the company responsible for the product.”
The other alternative offered by TTB, which I mention only to round out the topic, is to cut out the importer’s details from each back label and carefully insert the new importer’s details in exactly the same place, all the while looking like a seamless and attractive label. I’ve never heard of anyone doing this and aside from questionable aesthetics, I imagine the sheer time consumption would make other alternatives far more attractive.
The third issue relates to franchise states and whether selling to an existing distributor (who represented the prior importer and will already have a relationship bias, either positive or negative) is possible, or if you can entice them to release the brand from their portfolio. But first, you have to know where it is registered. This is made far easier if the previous importer will provide the paperwork during the transition period, to enable you to know exactly where you stand and who you need to contact. It eliminates the need to wonder if the brand is registered at all, and to whom. It is conceivable – and I know several instances of it happening – that the importer distributed the brand in a franchise state without ever having registered it, which is illegal but happens. Or it could be that they registered it without ever actually supplying a single case.
In my own example, I was not made aware of the prior importer’s activity in Tennessee and found, through considerable effort, phone calls and other hugely time-consuming work, that this importer had not registered the brand in Tennessee and had not, in fact, distributed there. However, the prior importer before that (now two importers back) did register the brand to four different distributors in four different territories. The fact that this was five years ago and not a single case had been sold since, made no difference to the process of having to obtain a release from all these distributors to satisfy the state.
As always, my mantra is be prepared and do your due diligence! These importing and distribution issues are not insurmountable, despite sounding quite confusing when you first encounter them. It’s a matter of carefully considering your options each time you begin a new phase of business, conducting some research, or consulting with someone with experience.