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The Exporter's Handbook to the U.S. Wine Market
By Deborah M. Gray, Judith Chien
Board and Bench PublishingCopyright © 2015 Deborah M. Gray
All rights reserved.
Understanding the U.S. Market
Top Ten Myths and Misconceptions
When I wrote the book on U.S. wine importing I imagined it would also give the exporter a rare glimpse into the workings of a complex wine market in a country that was often the objective of a foreign winery's aspirations. I believe that most of How to Import Wine — An Insider's Guide does just that, but in the time since it was published, I have come to realize that many misconceptions remain. I am faced with the same issues and questions day after day from exporters and foreign (i.e. non-U.S.) wineries that U.S. importers have learned by dealing with it every day, or take for granted as inhabitants of this country.
Therefore, addressing the top ten misconceptions will be the first order of business in this chapter.
#1 The USA is One Market
I have heard this one so many times it deserves top billing on the misconception hit parade. That it persists is understandable. After all, Germany is one market, France is one market, as is each of Australia, New Zealand and so on. In fact, much of Europe can freely trade across country borders. It is inconceivable that one country has fifty different markets, as the U.S. does, along with fifty different sets of rules, laws and regulations, but it is one of the most important factors in distribution here and will be emphasized in other areas of the book.
#2 Importer, Agent, and Distributor all Mean the Same Thing
Wineries outside the U.S. are often accustomed to the word "agent" as a person who handles the importation and distribution of wines in their respective markets. This is not a term used at all in the U.S. There is only one entity that a foreign brand owner will sell to and that is a wine importer. To the uninitiated, the term "importer" appears indistinguishable from "distributor" and some foreign producers use it interchangeably. In the U.S., the titles are as different as vigneron is from importer or distributor is from retailer, and must be understood from the outset. That's not to say an importer cannot also be a distributor — under certain circumstances — but to understand the roles, we must look at them in their discrete forms.
Importer is the term for the licensed person or company who directly liaises with the winery (in most instances) and is the only entity authorized to import alcohol into the U.S. An importer is licensed by the Alcohol Tobacco Tax Bureau (TTB) a Federal government agency.
Distributor is the licensed company in a particular state and which is authorized to buy alcohol from an importer and sell it to a retail store, restaurant, hotel, grocery store, casino or chain within their state boundaries. They are also known as a wholesaler or wholesale distributor.
#3 Anyone From a Foreign Country Can Send Samples at Any Time to Someone in the U.S.
A foreign supplier can only send wine to or through a federally licensed importer. No winery or wine supplier can send wine to a consumer in the U.S., even if the customer paid for it at the point of origin during a vineyard visit, or through a website with a credit card, unless they are sending it through the proper channels, that is with COLA (Certificate of Label Approval) or COLA waiver and cleared legally through U.S. Customs. The former is the U.S. compliant label that the importer obtains for the supplier and the latter is an exception for samples. Both issues will be discussed in much more detail in a chapter devoted to conforming U.S. labels.
In this instance I am referring to unaccompanied wine, i.e. not in the luggage of a person traveling from overseas, for whom there is a duty free allowance of one liter per person. In every other circumstance, U.S. Customs prohibits the transit of alcohol, in any amount, via air or ocean, via any commercial carrier, without either a COLA or a COLA waiver. Although these tasks are the purview of the importer, it is incumbent upon the exporter to be apprised of the requirements, so that the samples start their journey within legal parameters. Many people try to 'wing' it or 'game the system', but to do so invites intervention by U.S. Customs, which will most certainly seize the non-compliant shipment and either destroy it or return it at the exporter's expense. Any importer who tries to have a foreign supplier ship samples in this way also risks their own license.
Besides, although shipping and clearance can be expensive, the process to ship samples is neither onerous nor cost-prohibitive in the pursuit of an importer.
#4 Only Serious Prospects Request Samples
I would hope this is true, but of course it isn't always. Any exporter or producer in Europe or the Southern Hemisphere is understandably thinking that only importers who seriously want to consider representation would bother with the nuisance and expense of requesting samples or agreeing to a request from the winery to ship samples.
The cost to clear samples through U.S. Customs is from around $35 to $125, depending upon whether your importer carries a continuous bond, or has to pay a single bond each time a shipment is cleared. It would also depend in part on the number of cases of wine since duty is involved, but this is a nominal amount compared to freight costs. As a rule, the cost of samples and shipping generally falls to the exporter, and the U.S. importer is often responsible for customs clearance.
Most importers are just trying to earn a living, employing reasonable practices and making decisions based on what they think will sell. Obviously, they need to taste the wine they may represent and consider it in context with other factors, such as price and packaging. Determining that you have a serious importer prospect is paramount in determining whether you should send samples. All of this is covered in more detail later.
#5 Producers Can Sell to any U.S. Wine Business
You may have a very interested retailer who visits your vineyard and would love to sell your wine in his or her shop, but this is only possible if an importer and distributor are also involved in the process. These days, many importers are also distributors and vice versa, and very large retailers use these wholesale arms (importer/distributor) to clear product for them at a nominal cost, but in its simplest form the fact is that a foreign supplier cannot sell to just any U.S. wine business. And even the most enthusiastic interest from one party, that is distributor, retailer or consumer, cannot guarantee representation in the U.S. market. Only an importer is licensed to bring wines to the U.S. for sale.
#6 Once an Importer Buys the Wine, the Producer has Nothing Else to do
This is probably one of the misconceptions that is most damaging to the wine producer and their relationship with the importer. Although we might all wish otherwise, the purchase is just the start of the transaction. What this means and how to build a sales relationship with your importer will be covered later in detail.
#7 U.S. Importers Are the Barrier to Entry
This is a curious one to me as an importer, because importers are the way into the U.S. wine market, not the gatekeepers. In my view, and the way in which I have conducted my business for twenty years, importers are the key to business and will open many doors, not just that initial gate to facilitate entry into the U.S. market. And yet, an importer as a "barrier" is exactly the way it was voiced to me not too long ago, and is apparently a common complaint. I imagine it comes from a loose perception of the market as being rigidly preserved for the express and profitable benefit of the wholesaler (importer and distributor are both in that category) when how much easier it would be to be able to sell directly to the restaurant, retail store or even the consumer. Importers are a cog in the wheel of this government imposed system and we must maintain our place in it until the system is overhauled or discarded. Meanwhile, knowledgeable, experienced importers are eminently qualified to assist the foreign producer with entry and sales, and even with a far greater range of distribution than they could normally achieve on their own.
#8 Alcohol and Tobacco Tax and Trade Bureau Can Refuse Entry Based on the Quality of the Wine
The Alcohol and Tobacco Tax and Trade Bureau (TTB) regulates the content of the labels affixed to bottles of alcohol entering this country. They also license importers, exporters and wholesalers and are involved in a number of other regulatory pursuits. But this misconception apparently stems from the erroneous idea that a winery must submit all wine samples to TTB and, on the basis of some undefined and apparently arbitrary level of 'quality', may be refused entry and barred from distribution. This is absolutely not true. Although TTB does require the submission of all wine labels to it for approval under rigid guidelines and can, under unusual circumstances, request wine for lab analysis, it is not true that it can or would refuse entry to any brand or any wine based on a perception of quality. If that were the case, many wines already in distribution in this country would never have made it past TTB.
#9 If a Producer Attends a Trade Tasting Event They Will Meet Many Active and Interested Importers
Wineries representatives, at considerable expense, travel to the U.S. to attend trade shows put on by various entities, both government sponsored and privately held. These events can be very useful, depending upon many factors such as venue, invitees, preparation by the producer and expectations. They will be a complete waste of time if there is little or no pre-planning, there are no contacts made with interested parties and no appointments made ahead of time. Cost, of both the show itself and other expenses, such as travel and wine, must be factored in to the equation.
#10 The More Emails Sent and LinkedIn Posts Generated, the Greater the Chance of Finding an Importer
This is not one of those situations where you play the odds, hoping for a certain percentage return on your general marketing campaign. There are so many emails received by all importers and distributors from wineries seeking representation that generic emails touting the qualities of another unknown brand are going to be deleted. Relationship building is an integral component of the wine business at every stage and just as important at the beginning as it is at any other. We will explore this further in future chapters.
I often see capitalized discussions begun in LinkedIn groups starting with something like WINERY SEEKING IMPORTER. This scattershot approach will rarely, if ever, produce results. Most people who see this type of post will think that the winery is either naive and does not understand even the rudimentary elements of the U.S. market or is desperate because they've exhausted other avenues. A producer seeking representation in the U.S. must find a way to appeal to a potential importer by differentiating their wine from everyone else's, letting the importer know why this will sell for them, and finding the best importer for their individual scenario. LinkedIn is a very useful tool and a valuable resource. However, homework and a focused message will produce much better results.
Current Influences on the U.S. Wine Industry
Much has altered since the economic crash of 2008. Having an inside feel for the changes in the wine industry will help inform any foreign supplier as to whether this is the time to focus on the U.S. market, and what is going to increase the likelihood of success. Changes include:
Decrease in price paid for wines overall
Post-2008, many importers found themselves with high priced wines that were no longer affordable and had to slash prices. This led to dumping on the market, importers who went out of business and, in some cases, pushback against certain categories that were associated with expensive wines.
Expectation of greater value for quality
With a steady supply of better wines at lower prices, consumers had an opportunity to try wines of higher quality, develop their palates and continue to demand greater value as their disposable income was shrinking. There has also been a trend throughout the world to elevate winemaking technique, vineyard management and overall quality of wines, with a view to creating a competitive edge in a struggling economy, and a growing wine surplus.
Explosion of social media, affecting buying decisions
As Twitter, Facebook, blogs and other ways of communicating online exploded, "word-of-mouth" on the Internet has had a key buying impact. Whether it's finding bargains on a blog that reviews and recommends wines "under $20", for example, or searching for the best online or in-store prices for a certain wine, at any price point, this is the new normal.
Lesser influence of former rating czars
Tied to the social media phenomenon in wine buying decisions is the waning influence of the two or three guiding wine raters who could formerly make or break a brand with a number. There are still benefits to reviews and ratings in the main publications, but their influence has been considerably diluted, and in the case of every day or value wines, there are often much more reliable sources. Sophistication, evolution of the rating system and necessity born of the economic downturn have resulted in an altered wine world.
Rising influence of "Millennials" as consumers
This group of newly minted wine drinkers has come of legal drinking age in a social media dominated world and many of their own wine buying decisions are predicated on the economic reality they inherited. They expect value, they are adventurous, they don't want to be tied to any preconceptions of an established industry and they're eager to learn more about wine than preceding American generations were at their age.
Shift in preferred origins and styles
Partly as a result of natural evolution, what were once emerging trends are now considered mainstream, some newer regions have developed to the extent that they can now export, and some of the older, more established regions are falling out of favor. This is one of the most important elements in understanding the U.S. wine industry. Being able to see where your wines fit within current and future trends is paramount to understanding potential, price points, marketability and demand.
An Overview of the U.S. Wine Industry
First and foremost, it is important to understand that this is a heavily regulated wine country. There are fifty different states in the United States. All of them behave as if they are fifty different countries, due in large part to the attitudes and motivations of each state's legislature in the years following Prohibition.
The passage of the 21st Amendment, which repealed Prohibition, resulted in laws that were designed to maintain control over the sale and distribution of alcoholic beverages by different factions, each within their own state's borders, resulting in what is known as the "three-tier system". The three tiers are producers, distributors, and retailers. The basic structure of the system is that producers can sell their products only to wholesale distributors who then sell to retailers, and only retailers may sell to consumers. Producers include brewers, wine makers, distillers and importers.
The only state with a privately operated retailing and distribution system that does not require any form of three-tier system is the State of Washington. In Washington, retailers may purchase alcoholic beverages directly from producers, may negotiate volume discounts, and may warehouse their inventory themselves. However, the three-tier system remains a de facto reality in Washington despite the law. In most situations, the law requires adherence to the three-tier model.
When Pennsylvania created the Pennsylvania Liquor Control Board in 1933, then-Gov. Gifford Pinchot said it would "discourage the purchase of alcoholic beverages by making it as inconvenient and expensive as possible." This archaic model for selling alcoholic beverages remains in effect today.
Despite many challenges from wineries and others interested in broadening wine sales, particularly in direct shipping to consumers, the three-tier system has remained relatively unassailable. This is largely due to the vigorous efforts of the Wine and Spirits Wholesalers of America, a trade and lobby organization with many wholesaler members whose interests are served by preserving the status quo.
The three-tier model is true no matter what the circumstances, but often affects spirits and brewers to a greater or lesser degree. As if this wasn't confusing enough, it can be diluted or multiplied in a business model in different circumstances. For example:
In Control states (discussed later), this model becomes more of a two-tier system, in that the State is both wholesaler and retailer. (Although again there are variations on this, depending upon the state.) Having said that, the three tiers remain in place in theory, since the markups and margins enjoyed by a Control state are similar to those in other states.
Excerpted from The Exporter's Handbook to the U.S. Wine Market by Deborah M. Gray, Judith Chien. Copyright © 2015 Deborah M. Gray. Excerpted by permission of Board and Bench Publishing.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
1 Understanding the US. Market 3
Top Ten Myths and Misconceptions 3
Current Influences on the U.S. Wine Industry 8
An Overview of the U.S. Wine Industry 10
Fifty Different States-A Potpourri of Cultures 13
Final Thoughts 14
2 Breaking Down the States 15
Top Ten Wine States by Volume 15
Per Capita Consumption 16
Alcoholic Beverage Control and Franchise States 17
Final Thoughts 20
3 U.S. Importing Alternatives 21
Setting up Your Own Import Company 21
Selling to an Independent Importer 23
Setting up a Hybrid Supplier-Importer Business 24
Appointing a Compliance Importer 26
Final Thoughts 26
4 A Role Defined 29
Importer as Gatekeeper 29
Top Ten Things to Look for in a U.S. Importer 34
How to Find an Importer 37
Trade Shows and Wine Fairs 40
Foreign Trade Organizations 44
Internet Website Search 46
Wine Brands-Reverse Importer Search 47
Other Connections 50
Final Thoughts 51
5 Exploring Options 53
An Export Broker/Agent 54
Awards, Medals, Ratings 56
Cellar Door Visits 57
Final Thoughts 59
6 The Courtship 63
Narrowing the Field 63
The Personalities 63
Expectations-Yours and Theirs 65
Background Checking 71
Final Thoughts 71
7 The Engagement 73
FDA Registrations 75
Sample Allowance 78
Sample Allowance 78
Payment Currency 80
Pricing-In Brief 81
Short-Term Goals 81
Final Thoughts 82
8 The Commitment 85
American Source Letter 85
COLA (Certificate of Label Approval) 89
Purchase Orders 97
Marketing and POS Material 99
Final Thoughts 106
9 Logistics 107
Payment Terms 108
Shipping Terminology and Regulations 109
Freight Forwarder 112
Prior Notice 114
Invoice, Packing Slip, Bill of Lading 114
Final Thoughts 118
10 A Meeting of the Minds 119
Pricing-In Depth 119
Brand Launch 125
Final Thoughts 128
11 A Long Distance Relationship 131
Vetting the Distributor 131
Sample Usage-Publications 134
Sample Usage-Pre-Selling 136
Sample Usage-Wholesaler/Distributor 138
Final Thoughts 145
12 Keeping the Momentum Going 147
Supporting Short Term Goals 147
Market Visit Timing 148
Planning the Trip 152
Paving the Way 157
Final Thoughts 161
13 On the Road 163
Local Customs 165
Trade Tastings 172
Final Thoughts 178
14 Thinking Outside the Box 179
Retail Chains 180
Private Labels 182
Cruise Ships 184
Final Thoughts 185
15 In for the Long Haul 189
Staying Ahead of Demand 189
Vintage Management 191
Reorder Timing 192
Long Term Goal Planning 193
Social Media 194
Final Thoughts 198
Foreign Trade Organizations 203