State Compliance for Wine Importers – In-house or…..Outsourced

paperwork-1_l

Each of the fifty states has its own unique licensing system and within that system are entirely different requirements and costs for out-of-state importers. These can range from simple one-page forms with no fee, to extensive applications, surety bonds, non-resident seller permits, brand registrations and as much as thousands in annual fees. It is essential to comply with their requirements and to maintain the licenses in good standing or you may find yourself running afoul of the alcoholic board of that state and unable to ship. But there are other considerations which may help you negotiate the state licensing maze, and often save a considerable amount of money.

Your decision, at any stage of your business development, is whether to manage your licensing and state reporting from your office or to outsource to a compliance consultant. Initially, if you have taken on a brand or brands that have no previous history in the U.S., you will be able to start very slowly with one state and its requirements, then the next state and so on. Using the premise that you are carefully and conscientiously sourcing and appointing distributors, this may not be an onerous burden at first. But there are other considerations, even at this stage.

  • Are you starting your business with little or no office assistance?
  • Do you expect to be on the road most, or a significant part, of the month?
  • Are you planning a strong push to assign distributors in several states at once?
  • What is your budget?
  • Do you have the patience for this type of paperwork, or are you likely to forget or procrastinate?

Since many states have requirements with timelines and monthly or quarterly reporting, it is essential that they are met and the money you save with doing it yourself, or with the assistance of employees, is not eaten up with penalties, late filings that delay shipments and issues that take this out of the realm of cost-effectiveness.

If you are on the road a significant amount and part-time help is unable to find the time or is unavailable to cope with meeting deadlines, I would suggest outsourcing, at least in the short term.

With the prospect of a rapid expansion of states, there are a huge number of disparate requirements to get up to speed on all at once. Budget for outsourcing should be weighed against your own ability to reasonably accomplish this on your own.

Some licenses are good for a year, others up to three. Occasionally states require a bond and this can be obtained from a surety bond company that handles bonds of all types for a nominal fee. One such agency is www.suretygroup.com. The purpose of a bond is to uphold the contract you have made with the state, to comply with their laws and to demonstrate credibility. The bond company is effectively guaranteeing your performance with the payment of a fraction of the bond issue.

Label or brand registrations are often required in addition to the actual license and may incur a fee per label. Consider which wines you plan to ship to that state, whether the available volume of wine is worth the expense and, most importantly, which wines the prospective distributor wishes to order, rather than just a wholesale registration of labels.

Some states require price posting each month or whenever a price changes, to set the price itself or the price range under which the wine will not fall. These states often prohibit variances in prices, or any discounts, and require uniform pricing for all retail outlets.

SAVING MONEY – USING OTHER’S LICENSES

License fees in certain states may appear prohibitively expensive, until you consider that, in Colorado, Arkansas, New York, New Jersey, and others, a common practice is to allow the distributor’s separate import company to “import” and register the brand for you in that state. Instead of a huge fee or unwieldy monthly price posting, the cost to you is nominal or none at all.  This is standard in several states, but it is something that escapes the notice of novice importers. They end up spending far more in license fees than necessary by not investigating or talking to the distributor beforehand.

Another vital consideration in this scenario is when assigning an “importer” in a franchise state. This effectively means the wholesaler become the owner of your brand in that state. Investigate fully the implications of using another’s license in a franchise state. It may be the logical and cost-effective way to go, but doing your homework is important. Call the relevant state ABC and discuss your obligations with them, and ask another winery in your reference checking if they have any concerns about assigning the distributor as state importer.

Proficient compliance specialists will be intimately familiar with the requirements of each state and keep up to date on changes in laws and deadlines. Make sure to discuss fees and what these cover. Some compliance firms require a large minimum monthly payment, regardless of the scope of work. This may not be in your best interests when you have only one or a handful of states in the beginning. Look for flexibility and whether they are interested in saving you money, or just taking your money.

When I first started my import business, I was somewhat overwhelmed by state requirements, particularly in Georgia, where I initially resided. The licensing process, for an in-state importer, was lengthy and onerous and on top of that they required monthly reporting and the submission of all invoices. I thought the prudent thing to do was to free myself of the state obligations and concentrate on building the sales of my fledgling business. I did not take the time to acquaint myself with the reporting requirements and for a year I paid an outside compliance company a monthly fee to handle the paperwork. I moved to Colorado with the same arrangement for another year, until one day I received a notice from the State of Georgia that I owed stiff penalties for 12 months of non-reporting. The compliance company was either incompetent or unfamiliar with the reporting requirements of an out-of-state company and had filed the wrong paperwork for the entire year I had been in Colorado. When confronted, the compliance “specialist” refused to accept full responsibility, and I ended up paying half the penalties, in addition to the full monthly fees I had already paid the compliance firm to carry out the correct handling of the compliance matters.

Never relinquish all control over your own business, but in the initial stages, when it can seem overwhelming, some assistance, in-house or outsourced, can free you up to pursue the real reason you got into the wine industry – to represent and sell wine. Whichever route you choose, doing your due diligence is paramount. Eyes wide open in this area can save you time, money and aggravation.

Sales Quotas vs. Job Satisfaction – a Balancing Act

Sales quotas can be a double edged sword for wine distributors, often putting sales reps and distributor at odds over the goals. A dynamic distributor that represents brands with some traction in the market, or with the potential for broad sales volume, will usually have some quotas, ideally hitched to an incentive bandwagon. This would indicate a sufficiently robust portfolio to enable the sales reps to make a decent living, but quotas can often conflict with their customers own needs.

I am aware that there are as many disparate situations as there are distributors and wines, and for purposes of this subject I’m eliminating large wholesalers with enormous national brands. The assumption with these companies is that the entire portfolio is based on quotas and, although it can be a great proving ground for some, it is not the scenario I wished to explore here.

One of the customary reasons for incentives tied to goals is a push from a brand owner to establish and build a particular market, to make it stand out in the sales reps’ minds and ultimately achieve some success amid a very crowded field. This can mean an income boon to the sales rep. The right wines can also open previously unavailable ‘A’ accounts, or certain price points can open other doors to case stacking in stores and glass pours in restaurants.

wine store photos Del Mar 007

The downside is when the wines are impossible to sell despite threats and intimidation from the sales manager and begging and pleading with accounts. Again, there are so many reasons for this – price increase, vintage issue, decline of the category, prior commitments by the retailer to other quota related wines – any of which the distributor could look upon as a temporary situation. But while he is trying to keep the supplier happy and mark time until things improve, he is making the sales rep’s life miserable.  Another challenge is a distributor, even a small to medium-sized one, which has all quotas (with or without incentives) and nothing else. This reduces sales calls to moving boxes and a disingenuous attempt to convince the retail buyer to purchase whatever is in the book, just to reach an arbitrary target. The retail account only has limited time and will start to avoid the sales call, and the rep will become discouraged by having been reduced to a box mover, where the wines themselves have become immaterial.

Placements and volume incentives with a monetary reward are typical motivators for the sales rep, because they are, after all, commission-based, but if everything in the book is a quota they lose interest and start to feel they are chasing an unrealistic sales goal every month. Quotas ideally should be established for a period that is long enough to see results, but short enough to avoid having the incentive taken for granted. One wine a month can work for rotating wines in a brand, e.g., but ideally a quarter gives salespeople a satisfactory period to allow buyers to accommodate the wines in their schedule, and for the sales rep to accumulate a healthy bonus bump. It is also a good opportunity for vendors (hopefully in financial collaboration with the distributor) to establish a competition between reps or territories for such achievements as the following:

  • Most new on-premise (restaurants) placements
  • Most new off-premise (stores) placements
  • Number of case stacks fulfilled
  • Most glass pour placements
  • Establishing new accounts
  • Establishing new territory
  • Opening a chain account placement

These are just broad examples. Incentives can and should be tailored to meet such factors as the population and potential of the individual market, or the ease or difficulty of selling the particular wines. A program could run a whole year if it is tied to a trip to the winery abroad. Key to any program is accountability and making it enticing and specific enough that a good segment of the sales force jumps on board. Something nebulous, such as a reward at the end of the quarter for “most wine sales” or “biggest jump in sales” can backfire. Ambiguous or undefined goals could result in very few people accepting the challenge and having, e.g., to pay out a large gift that exceeds the supplier’s profit made on the overall sales.

Esoteric varieties, high priced, low priced or unknown wines all play a part in designing a program. If budgetary constraints are an issue, make it something fun and interesting. If possible for new wines, a market visit by the vendor can generate enthusiasm and give the sales team the selling tools they need for a successful launch.  Whatever you choose, it has to make sense for all concerned. And ideally the distributor should contribute to the supplier’s financial commitment, both to attract the sales rep’s attention with a higher incentive and to make the distributor a partner in the outcome. And vice versa. If the distributor is the one who wants to set goals, then solicit the supplier’s help, both in designing the program and contributing to the incentive.

There are lazy sales reps, ones who only service accounts for reorders, who cannot be relied upon to follow through on commitments and put in a minimum number of hours. Those aren’t going to be motivated by goals or quotas or much else, so there’s no point in spending time and effort on them. The best sales people, the ones you need to keep, are self-starters who aspire to build their wine knowledge base, gain experience in the industry for future advancement, introduce their accounts to new wines and see their hard work pay off with strong income growth. Therefore, for a distributor to succeed with quotas, they must be realistic and balanced with the ability for the sales rep to have some stimulating self-determination in their sales with a diverse portfolio. The good sales rep chooses to feel they are not just “pushing” the latest quota (whether they like the wine or not) but they also have some latitude and flexibility in the field to present wines that interest and excite them, and that they are learning and growing in the process. It’s a collaborative process.

Finally, if a sales rep can see that the quota period ended with solid placements on which they can build a brand, it is a further incentive to sell the wines beyond the quota timeframe – the goal of both supplier and distributor. Quotas should ultimately be about longevity for a brand’s relationship with the distributor, not one budget period.

Over-delivering on Customer Satisfaction

Tags

Tasting room customers

Have you ever noticed at this time of the year, when we are getting ready to celebrate a season of giving with family, that people are often grumpier and more selfish than usual? I was aware of this as I stood in line at the post office and watched an argument about who was in line first, as I drove in heavier than usual traffic and was cut off by an aggressive driver, and again as I did some last minute shopping around some scowling people. How much more enjoyable it would be if we took a deep breath, left our stress at home, and put a smile on our face as we went about these chores? Imagine what a difference it might make to our interactions with others and the ripple effect it could have on our day and their day.

It started me thinking about our customers. As an importer, I sell to distributors and retailers. I try to make sure my transactions with them go smoothly at any time, whether it was for my own imports, or these days as I assist clients with their portfolios. But I’m not perfect and life isn’t a well oiled machine, so sometimes things go awry. Just this week I received an irritated email from a distributor. He attached his recent P.O. to the email on which he had circled the statement “Please note trucking reference on bill of lading.” According to him this had been ignored on the past three orders, incurring $15 each time as a surcharge from the trucker, for a total of $45. Now, imagine if I said to him, “We can’t be responsible for your individual requirements when they fall outside the norm” or “we don’t actually know if it was the warehouse’s fault.” The end result could have been aggravating the distributor further, making him feel as if he is not important to me, ultimately resulting in the loss of thousands of dollars in subsequent orders because he decided to purchase wines from someone else. No matter how good your wine is, chances are there is always someone else with something similar. The incentive to buy one brand over the other is how you make them feel about the purchase.

Instead, I took responsibility, apologized to him for the repetitive errors, assured him it wouldn’t happen again and offered him a credit on his next invoice. I’ve done two things in this instance: generated good will for a very tiny sum and virtually assured another order, so that he can collect on his credit.

On another occasion, a distributor’s trucker picked up the order from the warehouse and en route the load shifted. When the truck arrived at its destination, a pallet slid out of the back doors and smashed on the ground. Numerous bottles in the 56 cases were broken, although some were not. In any case, all the cardboard cases were soaked with wine, and many of the labels were marred. Even though this was in no way my responsibility (having transferred liability at the warehouse door to the distributor), I called the winery in Germany and arranged for  them to ship a number of boxes and labels on the next container, for free, to supply my customer and allow them to repack, relabel and sell the undamaged bottles. This cost the winery very little, it cost me nothing and made the distributor very, very happy.

I know someone who owns a successful organic fruit and vegetable business at a ski resort who effectively eliminated his competition because, early on when he really couldn’t afford it, he assumed responsibility for every complaint his customers made, even if unfounded. If they said the quality wasn’t up to their standards, that the lettuce was wilted or there was something missing from the order, even though he had personally filled it and knew differently, he replaced it, no questions asked. He would make a point of visiting them, getting to know their needs and at the same time they got to know him, creating a relationship. Instead of taking advantage, customers started to respect his integrity and increase their business with him. Importers and distributor principals can’t always visit their customers, or at least not that often, but listening and responding positively to complaints goes a long way towards making them feel valued.

When you go out of your way to accommodate a retailer by making sure he has sufficient wine in stock, the shelf talkers you promised, the sample she requested to taste with staff or a special delivery outside the normal delivery schedule, the retailer will likely reciprocate with concessions of their own, such as valuable store space for a display or giving you greater opportunity to increase shelf placements.

Featured store wines

Featured store wines

Samples are a necessary component of doing business in wine. Distributors and retailers cannot be expected to buy unknown wines and new vintages they haven’t tasted. Think about how much more we all buy at Costco – or at least I do – when we taste the products provided at the little stands dotting the store. The same can be said of wine samples. You are unlikely to sell wine the customer has not sampled and you can’t afford to be stingy. To withhold samples is counterintuitive. If your portfolio is large, you may want to select representative samples from each of the brands, but generally you will sell what they have tasted, and those wines that were not sent out will not be on the current order. If the customer tells you they need a second bottle to taste with staff or to send to the satellite office, or something was corked, you may bemoan the lost revenue but good customer service means you send it or risk losing the sale. Most people don’t have the time to waste on requesting samples they’ll never consider buying.  

Doing the right thing even when it doesn’t appear to benefit you is a little like the expression “do the right thing even when no one is watching” except that your customer is always watching and evaluating you. It could be the small distributor who grows and your wine sales will grow with them, or the retailer who opens up two more stores and triples his orders from you. This is your reward for hanging in there with them and treating them like an important customer, even when, financially, they were not.

Alcohol and Tobacco Tax and Trade Bureau – the fun government agency

Alcohol and Tobacco Tax and Trade Bureau leaves out the ‘A’ for alcohol in its initials, (TTB) but as its name suggests, it is a government agency that regulates industries that produce alcohol – wine, distilled spirits, beer and ‘other alcohol’. I have always found their website to be a fairly well organized wealth of information. It has improved even more after a recent overhaul, so it’s no surprise that they offer extensive information on label compliance.

In addition to domestic labels, all labels (or rather a jpeg equivalent) on bottles exported to this country must be submitted to TTB, by the importer, for review and approval, prior to import. The certificate of label approval is known by its acronym COLA. Although the antiquated option remains to submit this application by mail, there is absolutely no reason to do so. For several years it has been possible to register for COLAs Online at www.ttbonline.gov which streamlines the submission process and decreases the waiting time for responses.

All mandatory requirements are available on TTB’s site at www.ttb.gov, and in detail in my book on wine importing. Although there appears to be a little discretion among reviewing agents for layout and design, or perhaps they just overlook things occasionally, they require adherence to the mandatory regulations with the fervor of an Army General.

The mandatory information is clearly spelled out, item by item, font size by font size and there can be no deviation. As if wineries would like to test the rigidity of this principle, I am often presented with labels where, e.g., the Government Warning has all the right words, but it is set out in the way that the printer feels will be the most aesthetically pleasing for the label. I will usually have to go back and forth with the example a few times to show that only the heading can be in bold, the text must ‘wrap around’ (i.e. (2) does not start on another line) and font size minimum is 2mm. Here it is done correctly:

GOVERNMENT WARNING: (1) ACCORDING TO THE SURGEON GENERAL, WOMEN SHOULD NOT DRINK ALCOHOLIC BEVERAGES DURING PREGNANCY BECAUSE OF THE RISK OF BIRTH DEFECTS. (2) CONSUMPTION OF ALCOHOLIC BEVERAGES IMPAIRS YOUR ABILITY TO DRIVE A CAR OR OPERATE MACHINERY, AND MAY CAUSE HEALTH PROBLEMS.

Conversely, no reference to any health benefits from wine can be made, no matter how well substantiated or carefully worded.

As another example, even though a label clearly states the appellation is Western Australia and it additionally says it is produced and bottled by a winery with an address in Western Australia, the label must still include the words “Wine of Australia” or “Product of Australia.” Let there be no doubt!

The word “Sulphites” is a spelling accepted and used routinely throughout the world, but TTB consider this a misspelling and insist on the word “Sulfites.” The European spelling must be deleted. Simply adding the TTB required spelling will not suffice. This applies to other statements made by foreign countries that TTB has stipulated as conflicting with their views, such as a recommended number of drinks per bottle.  

When it comes to the mandatory information, there is no wiggle room. Anticipating potential problems and doing it accurately the first time will save the brand owner, and the importer, headaches and wasted time.

However, nothing can prepare you – including TTB’s own website – for those quirks and idiosyncrasies that will inevitably crop up during the course of any importer’s career. Oh, if you dig deep enough you might find something buried in their periodic rulings and regulations, but often you have to know what you’re looking for or anticipate that a certain turn of phrase or word will be a problem. In the normal course of operations, they’re neither easy to find nor anticipate. Here are just a few of the obscure ones I’ve encountered:

  • The use of “powerful” to describe a table wine in the winemaker’s description. This may be the biggest, baddest Cabernet or Shiraz on the planet, but you may not use this word to describe it, lest it be construed as a fortified wine.
  • Any mention of fortified in the winemaker’s notes, even if it is meant to be helpful and merely to inform the consumer that this particular grape is normally a component of fortified wines in its native country, Portugal. However, in this instance it is used to make a soft, fresh, fruity style of table wine. TTB is convinced that despite the wine’s clear, light color, stainless steel fermentation and its 12% alcohol, the consumer might be misled into thinking that this was, in fact, a fortified wine.
  • Describing a wine as “lively.” This is limited to sparkling wines and, although a wine may be positively dancing off the tongue, if it is not in any way effervescent, with the appropriate characterization and designation, then you cannot use this word.
  • “In Vino Veritas” which was part of a family crest was forbidden, because to declare “In Wine There is Truth” would be to encourage drinking.

This is by no means a complete list of the various issues I’ve encountered, but it’s meant to illustrate the need to take TTB’s regulations seriously, because they certainly will. If you feel strongly that your label has been misunderstood, misconstrued or misinterpreted, there is always the option to upload a letter of explanation with the application as an attachment. This has worked for me in some situations.

Quirks, foibles and idiosyncrasies notwithstanding, TTB is one government agency that does appear to try to make their information easily accessible through constant website redesign, updated sections and requests for feedback. It just takes a little patience, experience and a willingness to suspend disbelief when faced with yet another obscure, but mandatory label regulation or prohibition.

And never, ever let the winery print and attach labels until the COLA is obtained. You just never know when one little word will make all the difference.

Playing the Odds – Winery Email Campaigns

Like most wine importers and distributors, my email inbox is inundated with requests, even demands, for my attention. Buy my wine! Check out my website! See my reviews! And I would bet that my response is mirrored across the country. Click! Deleted!

They come from foreign wineries, Google translated from another language, stiffly worded and a little funny in their awkward phrasing. They come from marketers with a superb command of the English language, overly confident that I will love their wines as much as they do and they have obscure awards to back it up. They come from domestic wineries looking to expand their reach, from imported wine brands that have some distribution in the U.S., but are looking for more regional importers.

Occasionally, I delve a little deeper. If the email has my name as the addressee (a simple thing, but a big plus), or expresses a specific reason for contacting me, it might prompt me to read. I may be captivated by a vineyard photo that shows a multi-generational family, looking proud and happy. I can be a sucker for the sweet naïveté of their PR efforts. I may see something in the prose that prompts me to check out the price attachment or their website. And once in a great while, I will contact the winery to make a suggestion or forward the email on to one of my clients I think may be interested. But that’s me. Most importers and distributors aren’t consultants and I venture to say that most, if not all, of these unsolicited emails will be ignored and deleted.

A few months ago I received a box of wine out of the blue from Spain. I hadn’t agreed to receive samples from them and unaware it was coming. Inside, there were six beautifully packaged wines from different regions each bottle encased in a decorated metal cylinder. There was also a coffee table size, hardcover, full colour book. And a folder of marketing material. I leafed through the book. Gorgeous, artful photos of vineyards, wineries, landscape, bottles, food. With almost no words. What was I supposed to take from this? I read the accompanying letter. It took me to the website, where there was an invitation to a “virtual tasting” without accountability or stated purpose. I still don’t know what it was about.

Perhaps other recipients of this wine were so impressed by this extravagant marketing exercise they immediately signed up to be importers and distributors. Perhaps they saw the marketing as sophisticated and edgy. I was simply mystified. They had made some crucial mistakes with me:

  • They did not identify whether I was importing new wines
  • They did not identify whether I was interested in importing from Spain
  • They did not identify me!
  • They provided no compelling reason or purpose for the samples
  • They did not follow up in any way.

Eventually I drank the wines, which were actually quite good. I threw out the marketing materials. I recycled the metal tubes and I kept the book. I’m a book lover. I can’t bring myself to dispose of something so beautifully produced. It’s collecting dust on my office shelf.

Focus, specificity and knowing your audience is key to outreach for a winery or wine region organization. An email can work if some research and preparation is conducted beforehand and the communication is personalized and compelling. A personal contact to determine a) if samples are welcome and b) what the desired outcome is, would be advisable. And follow up is essential.  

But maybe that’s just me.