Tag Archives: distribution

Client FAQs – Third in a Series

10 Sunday May 2020

Posted by in FAQ, new importer, organic, warehouse, wine labels, Wine law regulations, wine regions

≈ 1 Comment

Tags

, , , ,

map flag cover (2)

 

I’m getting back to my blog after a long absence and that is true of the FAQ series as well. So, let’s get started.

Whether someone schedules one appointment, or a series of appointments with me I ask them to email me a list of issues they hope to cover. For them, it helps to organize their thoughts and focus their time. For me, it allows a preview of their thinking and goals. Often, it highlights early misconceptions that I can address. I receive everything from a paragraph of bullet point questions to a five-page background and proposed business plan. These are more of the most common questions from clients, presented here verbatim and taken from some of those emails. This first one often arises in different forms from others.

Would it be an advantage or a disadvantage for us (two partners in the import business under one Federal Basic Permit) to live in different states?

In this case, there are no real advantages or disadvantages. There are only various ways in which you choose to build your business, based on complying with laws, your personal preferences, and your financial and career goals. That there are two of you means two people to share the liabilities and profits and two people to share responsibilities. You can decide that one takes care of compliance, logistics, forecasting and communicating with distributors and the other can be working accounts in the state and traveling the country. Or you can split up regions of the country and both cover sales, working with appointed distributors in each state.

The Federal Basic Permit is tied to one fixed address. If you move, the Permit must be amended with TTB, but the business cannot occupy two different addresses in two different states.

In some cases, the state in which you are located may be an advantage. If one of you is in Texas and the other in California, e.g., choosing California as your import base allows the opportunity for DtC online sales and, with the right CA ABC “types” allows significant options overall in a state where the economy relies on the wine business.

Is the market oversaturated with importers? In other words, are there still a fair number of good wineries out there looking to partner with new importers?

There are always wineries looking for importers, far greater in number than importers looking for wineries. Apart from one brand, which is a special circumstance, I have not imported anything for ten years and yet I receive at least twenty emails a week from foreign producers looking for US representation. These are not the overlooked producers, the ones that were not good enough to be considered for export. They have awards, pedigrees, history, and exceptional vineyard management. There just happen to be so many appellations that have expanded or started a brand, and other recently “discovered” regions that are ready to export to the US.

The issue for a new importer is to identify the country or region they want to represent. Whether it is old world or new, there will always be available brands.

Wine knowledge.  How much is needed/expected?  Is it necessary to have certifications?

I began my business with rudimentary wine knowledge. I had never been in the wine industry. In fact, the only time I had even worked around alcohol was when I was a bartender in Spain, and I didn’t even drink! I took a basic, but thorough wine course before I started my importing company which gave me a broader understanding of varieties and regions. From there, I tasted through wines to start to identify flavors. I was fortunate to have someone in Australia who could do some sourcing for me, but this still did not guarantee that they would suit American palates, especially since I started at the very early stages of Australian export to the US. It was only with time that I began to understand not only what was good wine, but what could work in the US. This means finding that sweet spot of quality, flavor profile and price. There is plenty of competition and new brands must fight that much harder to be included in the lineup, but it doesn’t mean your new, unknown, untested brands can’t be the breakout stars.

Knowledge and experience are always good attributes, in all areas, but can sometimes mean less flexibility. Although this is an industry founded on rigid regulation, it also thrives on innovation, out of the box thinking and being open to doing things differently from other industries and other times. Although wine knowledge or certification can be a distinct advantage, it can fail without a good business plan.

One last thing I would add: make sure you taste wines with professionals before adding them to your portfolio. Your friends may love the wine, but will they pay $60 a bottle for it? It’s a buyer opinion that matters, because they’re the ones that know whether they have the prized shelf space for this wine and how it compares to others of the same category, or if it fits a restaurant wine list and will elevate the food.

Is it up to me to prepare the labels or is that on the winery?

Unless you are asking the producer for a completely different label that will only be used in the US, or have asked them to provide wine for your private label, the cost of label design, printing and applying to bottles is the expense of the producer.

US compliant changes will still have to be incorporated for approval by TTB, and some graphics and wording that may be prohibited by TTB. Anything objectionable in the descriptive text, which TTB calls the “puffery”, must be removed. There are ways to minimize the costs, especially on the first order when bottles are already labeled, by having the brand owner prepare additional, inexpensive labels with the mandatory information. It’s all a matter of aesthetics, budget and their inclination to provide entirely new, professionally prepared labels.

On the other hand, submitting label applications for approval (COLA) is entirely up to you. It’s not something they can do. Only the appointed, licensed importer and their authorized compliance consultants can submit label applications through COLAs Online.

If the vineyard is organic and biodynamic can I say that on the label?

Organic terms are all subject to strict guidelines and must include paperwork from a certifying body to include with the application. If the producer has all of that, then yes. There is no current regulation regarding biodynamic, so it’s okay to include that without additional documentation.

What about the EU leaf? Can I leave that on if I have them remove the organic statement?

No, this is specifically associated with EU organic certification and cannot remain on the label if all other organic compliance is absent.

EU leaf

Once I set up an import company in one state can I warehouse in another?

Absolutely. As long as you comply with the laws of that state. My import business moved from Georgia to Colorado to California. In all that time (except for a brief period early in my career when I didn’t know any better) I have warehoused in Northern California. In fact, if your objective is to achieve distribution in more than one state it is preferable to warehouse on either coast, specifically the area around the port in New Jersey and Northern California. Distributors across the country are all familiar with picking up multiple supplier goods from these warehouses and truckers will be able to consolidate loads.

Are we out of our minds?

Yes, true question! And it’s not the only time I’ve been asked, but mostly in the form of a reality check. Is what I’m thinking realistic? Does this sound logical? Have I missed the boat on this country, idea, model?

Although many potential or new importers come to me with what they consider revolutionary concepts that have never been thought of before (they usually have), each one also comes with a unique background, experience, perspective and personality. This is really a recurring theme with me, but I think it’s also the most important advice I could give: you can make a success of this business if you are prepared, realistic and persevere.

Client FAQs – Second in a Series

12 Sunday Nov 2017

Posted by in FAQ, first steps, new importer, wine selection

≈ 10 Comments

Tags

, , , , , ,

Waitiri Creek 2

Once again, these are real questions asked by real clients, quoted verbatim. Therefore, I believe they will resonate with most first-time importers or anyone thinking about entering the wine business at the wholesale level.

What would be the best order of the steps to get started? For example, do we start exploring potential distributors before we make our first trip to explore potential suppliers?

Whoa, definitely do not start looking for distributors at this stage. There is nothing yet for your customer to buy, you don’t know what you’ll have to sell, and most importantly, there is only one chance to make a first impression. Distributors are not waiting for new products and competition for space is very stiff. Consolidation has decreased the number of available options and many portfolios are already packed. That doesn’t mean there aren’t opportunities. Increasingly, post-recession, there is more demand for interesting, new products from a growing consumer market. However, any alcoholic beverage being presented has to come with a convincing pitch and a compelling reason to even warrant a call back or email response. It doesn’t have to be in the country yet to attract a potential distributor, but it definitely has to be sourced and ready to go. Additionally, it has to align with the right fit in terms of price point, region, style and timing.

So, where do you start? If you are definitely committed to importing you probably already have a region in mind, if not a specific vineyard or wines. But whether you do or not, you can still go ahead with your importing license:

The Federal Basic Permit. Before that, there are these steps:

Establish your business entity – LLC, Corporation, S Corp, Partnership or Sole Proprietorship. There is no one way to do this part and no right or wrong entity. Of course, if you have partners you can’t be a sole proprietor, but other than that the choice is up to you. You may decide that a gaggle of shareholders would warrant a corporation or a partner feels more comfortable with an LLC. These are personal decisions. But don’t just form an LLC because you think you should, or a corporation because it sounds more professional.

Commit to your business address – the address is tied to the Permit.

File for an EIN with irs.gov – very easy, free application with an instantaneous result.

Obtain a LOI (letter of Intent) from a foreign winery – this sounds more difficult than it actually is. It does not have to be a winery with which you are engaged in discussions or to whom you have committed to importing. It just has to state a simple “intent”.  The easiest way is to obtain one from a winery you’ve visited, explaining the circumstances without making a commitment. If you don’t have any connections through direct relationships, see if you know of anyone in the field who can help obtain one, or even contact a trade organization representing the country in which you are interested to see if they can help.

These are all necessary before you can even begin the application, or information to give to your consultant if one is obtaining the Permit on your behalf.

Next step, often concurrent with the Federal Basic Permit is:

Obtain a state license in your business location state. In most states, you will have to have the Basic Permit issued first, but state licenses usually take much longer so it saves time to get started at the same time. Regardless of whether you choose to distribute in your home state or not, you will be required to have some sort of license issued by the respective state.

Select a warehouse – This is an important consideration for ocean and land logistics, budget and convenience. But be well-informed about why your choices matter.

Selection of freight forwarder, customs broker and most importantly, wines, beers and/or spirits are all important, of course, but the order is going to depend on your own circumstances.

Groskopf warehouse

From your experience are there any regions that are exceptionally difficult to import from and should be avoided?

I don’t think “difficult” in this context necessarily applies in an era when wines from even previously unknown and inaccessible regions are finding their way into the world market. The answer is more in the realm of whether the style will appeal to the U.S. consumer at an affordable or competitive price, and whether you can work with the suppliers and establish a relationship that is mutually productive and profitable. Some countries and/or regions are more difficult by virtue of their reluctance to comply with stringent U.S. regulations or can be trusted to supply the wines that were selected. Although I never recommend approaching any potential business relationship with mistrust or cynicism, it is advisable to cover contingencies in discussions and have an agreement to avoid misunderstandings.

Conversely…

Are there any specific regions that are really trending that you would recommend focusing on?

For the most part, this changes all the time and it would be very helpful to talk to retail shops, read industry publications and Google trends online to see what stands out and appeals to you. You can follow a trend, such as prosecco, Provençal rosé or organic, infused vodka, e.g., but determine first if this is a waning or saturated trend or if you can source the right product to compete. Whether you’re on the leading or trailing edge of a trend doesn’t really matter; just make sure you are well-placed to take advantage of it and that this fits your own business model.

Is there a suggested number of regions to start with?

As with most issues, this isn’t a one size fits all. You can be a specialist in one region or offer a different brand from each of a variety of regions. Other than logistics (explained in more detail two questions down) the most important consideration is to import what you believe in – whether this is an inexpensive, everyday wine or a pricey, single vineyard gem. If you don’t feel proud to represent what you are taking the time to import, through all the steps it requires to get here, then it will diminish your enjoyment of your business and ultimately your productivity will suffer. I will never forget that after even after nearly two decades as an importer of my own portfolio, the two comments I heard most often were, “I can’t believe how passionate you still are about your wines” and “I’ve rarely tasted through a lineup where every wine was good.” Now, that doesn’t mean they selected them all, nor will they from you, but it feels good to get that feedback.

What should I consider in terms of selection?

In reality, I think this question applies mostly to wine. Malt beverages can be any number and style, as long as they adhere to the general principle of good quality for the price and appeal to the U.S. consumer. There are so many interesting beers now the question really should be: where do you stop? For distilled spirits, the answer lies with the product itself. If it is a new discovery from a country or basis (agave, fruit, etc.) or innovative method of distillation perhaps you only need one. In the case of wine, I believe this also somewhat applies to your choice of region or style but, more often for unknown brands from a new importer, the emphasis should be on offering diversity in styles and price points. Not everything should be highly allocated and expensive, no matter how great the accolades. If you have some mid-point wines and a “bread and butter” range $12-$15 (forget the <$10; it is saturated) then this allows for more opportunity in approaching wholesalers and, if you are doing your own in-state distribution, retail shops and restaurants.

My only suggestion on this is not to start with too few wines, even if it’s from one region. It’s not uncommon for a client to have fallen in love with a particular vineyard which produces three or four wines and wanting to establish an import portfolio with just those wines. If that is the case, you’ll run out of new wines to show very quickly, unless what you’ve sourced has a built-in demand that drives sales and volume.

There is no magic number. If budget is tight, you can begin with a small selection but again your business model and sales goals will dictate a reasonable and profitable solution.

I want to start by importing wines from Spain, Argentina and Chile. Does that seem like a reasonable approach?

This particular client speaks Spanish fluently and thought it would be an advantage in her relationships with suppliers. As indeed it is, both from a communication and trust perspective. But logistically, this could be a nightmare. Unless you’re going to bring in a full container from each of these locations, it will require sharing space with unrelated products in a freight forwarder’s container, a more expensive and time-consuming process. A better approach is to consolidate different regions from the same country, thereby offering diversity and selection in your own FCL (full container load). Importing from different countries is achievable, but unless the initial budget, business plan and projections support this approach it’s better to make this Phase Two or Three.

Creed barrel

What are your views on seasonality? I am launching my products September/October. Will distributors take on new products during the holiday season?

The short answer is no. You cannot have new products land and start approaching distributors in OND (October/November/December) when they are full to the gills with inventory and scrambling to make sales that will provide pull-through during the all-important holiday season.

But that doesn’t mean you can’t bring in wines in September or October in anticipation of distributor launches, as long as you have done a tremendous amount of groundwork and pre-selling before the container arrives. This means doing the following well ahead of container arrival:

  • Having the wineries/breweries/distilleries send samples of the products to you that you will be importing. Not a ‘representative’ sampling of the supplier’s selection, the exact products that will be available on US shelves. They don’t have to have COLAs (certificate of label approval) at that point, but will need a COLA waiver.
  • Set pricing.
  • Contact and generate interest from a reasonable number of distributors who will then taste samples and place pre-orders.
  • Establish allocations from the supplier that can be communicated to distributor.
  • Confirm availability of product from supplier at the exact time you need it and schedule ship with freight forwarder when appropriate, to arrive when you promised distributor.

These are just a few of the common questions that address the early stages of the alcohol import business.  I’ll continue with some of the other launch issues in Part Three.

 

 

Client FAQs – First in a Series

02 Thursday Nov 2017

Posted by in FAQ, new importer

≈ 2 Comments

Tags

, , , , ,

These are actual questions that I am asked many times by prospective new importers, sometimes in different forms but always from a similar perspective. Many of the answers are not cut-and-dried unfortunately. But they might stimulate your own thought process to find the answer that best suits you. The question I am most often asked is this first one:

How much money do I need to start my import business?

How much money someone “needs” is purely a function of individual goals and budget. Let’s start with an illustration, addressing just the initial wine purchase:

  • If you select inexpensive wines at $35 a case and you bring in a container of 500 cases this will run about $17,500, before freight, duty, insurance.
  • If you choose to source more costly wines, e.g. at $300 a case, you don’t have to start with a container, which would be $150,000 for even 500 cases. You could start with just two pallets (112 cases) and this will run $33,600.

The second example is almost double the first expense, but still within a reasonable budget for a beginning enterprise. With startup expenses, freight, warehouse and taxes, the initial budget might run around $30,000 for the first example and around $50,000 for the second.

But there are obviously other factors:

Do you have a market for this wine? If not, the more expensive wine will usually take longer to sell just based on price, which will result in slower turnover and higher warehousing costs.

The less expensive wine, assuming it is good quality and preferably “over-delivering”, has the opportunity for glass pours in restaurants and higher volume sales in retail stores and to distributors.

Does the expensive wine attract great press and high ratings? These aren’t quite the arbiter of sales they once were, but still important enhancers.

Is the expensive wine in high demand as a category or style, e.g. Bordeaux or Barolo? Pre-selling could be an advantage in this case, essentially creating a sales base for the wine before it arrives.

Another factor is profit. In its raw form without sample usage and other expenses, the profit on the $35 case would be around $16.45 per case or a total of $8,225 on 500 cases.

The profit on the second wine, using the same basis, would be around $109.20 or $12,230 on 112 cases.

Keep in mind that 500 cases will necessitate higher warehouse costs and taxes, which are predicated on number of cases stored, not value of the wine. But a full container (FCL) will be less expensive per case than a less-than-container-load (LCL) of the 112 cases.

There is the further matter of terms. Do you have to pay the winery COD or are extended terms available – 30, 60, 90 days?

This may start to look like a confusing muddle but it’s really to demonstrate that the idea of foundational budget is an arbitrary and subjective matter. You must begin with some money, but you can expand or contract your business according to ability and desire.

Is it reasonable to keep our full-time jobs while we develop our business?

This all depends on how quickly you want to ramp up your sales and how big you want your company to be. If you can only start an import wine business by continuing to bring in an income from full-time jobs, this can certainly be done but will limit the time necessary to find distribution and make sales and naturally growth will be slower. Eventually, you will not be able to run an import company while holding down full-time jobs, unless you have very efficient office staff, because some actions need to be taken in immediate response to the situation such as purchase orders, troubleshooting, inventory management, compliance reporting and so on.

Should we become a distributor when we start our import business or wait until the importing is established?

To start with I want to emphasize something important: you can only become a distributor in the state in which you reside/are licensed as an importer. So with that premise, here are the issues:

Importing is a long game with very little immediate gratification but rewards a much greater return with patience and perseverance.

Distribution is an immediate gratification (i.e. short term income) with smaller sales and greater effort vs. return.

To expand on that, as an importer your objective is to find and appoint distributors who will purchase your wines for distribution in their state or region. This can be a very time-consuming process when competition is stiff, distributor consolidation has reduced the number of available options and finding the right partner can be challenging. Added to that, decision-making by the potential distributor can take months. But once made, orders can start at 14-112 cases, as a rule, and continue as long as wine is in demand, support is provided by you and sales staff get behind it.

Distribution in your home state delivers immediate income for your short term financial plan, gives you the boost you might need to confirm your wine’s desirability, establishes relationships in your community and, by selling directly to retail and restaurants, gets your sales one step closer to the consumer. It may take a long time to sell even one case, as you ‘prove’ yourself to an account or wait until a slot becomes available on the wine list but there are many accounts to visit and, with diligence, continual sales can be made.

There are intangible factors as well. Do you enjoy that one-on-one interaction with an account and the first hand sales experience? Is it especially meaningful to see your wine stacked in a store or on a wine list? Is taking time away from sourcing distributors by making your own sales a worthwhile tradeoff?

Research the cost of distribution in your home state to see whether that is something you can afford. In California, e.g., the annual fee is around $400 for wine, beer and spirits. In New York a three year wine license is $3,760. If you add a spirits license to that it is an additional $27,280. And an annual beer license is $1,460.

What is a reasonable sales forecast for the first year?

Sometimes this question is asked in conjunction with “to make a profit”, but the underlying premise is often the same. When can I start to see light at the end of the tunnel?

As frustrating as it may be to read this, the answer is very similar to the first question and is very dependent on the model you choose. For this reason I think it is important to write a mission statement for yourself, where the purpose is to explore your objectives in the business you want to establish. Questions to ask yourself would include:

  • How much time do I intend to spend on the business?
  • How quickly can I achieve the initial stages – sourcing, licensing, COLAs, labeling, shipping, selling, etc.?
  • How much money am I investing?
  • Where is the money being spent?
  • Do I have a partner, employee or broker to assist in this effort?
  • What have I done/am doing to ensure a successful launch and support ongoing sales?
  • Are the wines I chose enabling me to get there?

Even if your background or skill is not especially geared towards accounting, a simple spreadsheet will be a very useful tool in laying out a visual map of wines purchased, costs incurred and path to profit.

If we focus on the southern US and our imports arrive in New Jersey, where should I warehouse?   

If I live in California and bring in European wines, should I warehouse on the east or west coast?

These are two specific questions asked by different clients, but variations on the warehouse question are common. It is a puzzling issue for first time importers, mostly because the answer does not appear logical and is largely dependent on understanding how the wine industry works.

In the first instance, I would say if you live on the east coast, then New Jersey is a logical place to warehouse, regardless of where you will seek distribution. Licensed, bonded warehouses are available in NJ for wholesale storage of wines that arrive at port from foreign sources and trucked from local wine regions. Distributors from any state are accustomed to picking up from them.

Living/working in CA is a somewhat different matter. European routes are closest to the east coast, so this is less expensive and takes less time in transit, but is your distribution going to be all west coast? Are you seeking distributors anywhere and everywhere? Unless you live and work in Ohio, e.g. and plan on only distributing with Ohio, either east or west coast are, to me, the only viable options.

In any given circumstance, where you warehouse is not necessarily where you personally have most access to the wine. It is easy for samples to ship to you or potential wholesale customers via commercial carriers such as UPS or FedEx Ground. It is far more important to consider either coast as access for your distributors. A common mistake (I made it too) in the early days of your career is to warehouse where you can select, visit and pick up wine. But my first company was established in Atlanta, GA and not only was this an expensive warehousing option it was also completely out of the way for any distributor except the one in Atlanta. Distributors send trucks to pick up various suppliers’ products in warehouses at the same time to make an economical truck load. If they are only picking up 14 cases from you, because no one else warehouses at the same location, this will either deter them from purchasing from you at all or make the wine more expensive when they mark it up. Neither of these is a good starting point for you.

I’ll save other FAQs for another post. If you need clarification on any of these concepts, I’ll be happy to answer short questions. Otherwise, I am available for consulting options.

Chain Store Sales – “Back Door” Distribution Still Relies on the 3-Tier System

08 Friday Sep 2017

Posted by in Wine law regulations

≈ Leave a comment

Tags

, , , , ,

chain store photo

The 3-Tier system has been explained at length in my books and online by others so I won’t spend more time here with the same thing. But it remains a hard concept to grasp, especially when you’re new to the US alcohol business and perhaps think there are exceptions, such as when an importer is selling to chains.

Take this example. The importer has contacted a national buyer for Sprouts, Lidl, Whole Foods or one of any number of large chains. Even though an importer is headquartered in Ohio, e.g., and the chain is a retail operation with the buying office in Atlanta, your presentation can be made to the chain buyer, who can then decide to place the wines in stores across 40 states. However, most importantly, the importer is not directly selling to the buyer, because the importer is not allowed to break the 3-Tier barrier of (1st tier) importer selling directly to (3rd tier) retailer.

When a chain store has locations in different states, you would think that an exception could be made to allow a purchase to be generated and distributed from a central location. It sounds reasonable, but the 3-Tier system has remained firmly in place since prohibition through vigorous lobbying efforts by influential state wholesalers, effectively preventing any crossover from wholesale to retail. Therefore, as the importer you have the option of:

  1. Using your existing distribution network to distribute to the chain’s stores, if you have distributors in each state in which the stores are located and where the buyer wishes to place your product
  2. Finding and appointing a new distributor in each state, which may be possible if the potential sales are large enough and therefore appealing to the new distributor
  3. Using the chain’s own distributor network relationship to satisfy the sales and 3-tier requirements.

The last option is the most common. The retail chain has presumably done this numerous times and already worked out the payment and logistical details with the distributors to make it a smooth order and delivery process. Plus, the chain is definitely realizing a pricing advantage from this relationship by negotiating a vastly reduced markup by the distributor. The retail chain may mark up the wines to be on a par with other retailers around the country, which allows them a greater profit margin. Or they may sell the wines at a considerable discount and still make a reasonable profit. Discuss the chain’s objective with them beforehand, so you can decide if this dovetails with your national pricing strategy.

To recap and expand on this concept:

  • All sales from an importer must be made individually to a licensed distributor in each state
  • No sales shipments can be made from an importer in CA direct to a retailer in any other state
  • If a chain is involved with stores in multiple states, buying may be a centralized decision, but each one orders product independently
  • Product is picked up by a state distributor’s trucker at the importer’s warehouse and taken to the wholesaler’s warehouse in their respective states
  • Some states have a workaround that is called a “bump the dock” state; in other words, the shipment can arrive at the dock of the wholesaler and not actually be unloaded, but receive paperwork showing that it arrived at the wholesaler location before going on to the retailer
  • Product must be delivered to retailer(s) of each individual state by the wholesaler
  • Depending upon the state laws (and they all vary) a retailer may have more than one store and the wine is delivered to a central store or depot for delivery to other stores from a centralized location. Again, for emphasis, this applies only to that one state and not multiple state locations.

I have been asked often which price list an importer should use when quoting to a retail chain. That’s a very fair question. After all, the sale is actually to the distributor which will, by the way, be the one to supply you with a purchase order and they’ll be the ones paying for the wine. But up to that point the importer may not have even met the distributor. All proposals and wine selection are conducted with the retailer. Please do not lose sight of the 3-tier system. Make no mistake that this sale is made from importer to appointed, approved, licensed state wholesaler.

As for all the other factors that may come into play in this transaction such as discounts, volume, promotions, market assistance, or market visits to educate sales staff, ongoing purchases, number of states involved and so on, this is going to depend on the chain. And if you get to the point where a chain is interested, they will advise you on their process and expectations. It is then up to you as to whether this is doable.