budget, distribution, forecasting, importer, sales, warehousing
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.