The wine business is full of challenges and rewards, and along the way wineries can feel frustrated (to say the least) while trying to get their wine to the consumer. So what happens once you have a distributor partner but your brand isn’t getting the results you’d hoped for? It’s time to review your strategy.
The first area to check is how you’re managing your distributors. It’s not just about what you say when you are sitting in front of them (although well planned meetings are a must), but what you do in between. I’ve created a simple exercise to help you determine if you are managing your distributor relationships to their full extent.
Good luck! – GP
One thing that wineries can agree upon is the importance of their distributor relationships. Yet, negotiating the U.S. three-tier system has its share of obstacles, especially for small-to-midsize wineries. To help these wineries navigate the system, over the next several months, I’ll be publishing some of my insights as a wine industry consultant in a series of “Best Practices for Distributor Relations.” Our first topic: The Distributor Survey.
When well thought out and reasonable sales goals are not being met, I find that it is often because winery owners and distributor executives are not on the same page. There is typically a lack of communication, direction and understanding between the two parties. This can result in products being sold versus brands being built.
Distributors deal with many brands and therefore have a unique perspective of how a market reacts to a brand. While this feedback could be incredibly useful to a winery owner, even when asked, distributors often are hesitant to share their observations and impressions with winery owners because they don’t want to jeopardize the relationship. A distributor’s impression of a brand will definitely influence their commitment to it.
Winery owners need reliable information about how their products are being received in the market to realize their full potential. Too often busy owners rely just on case sales, sales of competing brands or the impressions of their sales people for this information.
One effective way for a winery to get invaluable information is for an experienced third party to ask a small set of trusted distributor executives about their brand performance and perceptions.
The interview often provides winery owners with:
Often I am asked why distributors are likely to share their honest feelings with a third party. Two factors are key:
A good interviewer, with the required expertise, will be able to translate feedback into both actions to improve brand performance and programs to overcome the winery’s challenges.
As a consultant, I often am asked by my clients to find out why their brand is under-performing. I once worked with a small up-and-coming winery, who despite being told that “everything will be fine overtime” was not meeting their expected sales forecasts.
After finding that their sales and marketing plan was sound, we decided to initiate a distributor survey to better understand “the whys” of the problem. After interviewing key executives from their distributor network, I aggregated and analyzed the feedback.
We were able to distill that the winery owner and the distributors’ expectations were not in line. This was resulting in brand messaging not being communicated to the market the way the winery intended and the distributor selling the product on price versus a way that built loyalty with customers.
The next step was turning this knowledge base into specific actionable tactics. Ultimately, we were able to work with the winery and the distributors on communication and training issues that got to the heart of the problems, issues that would not have been apparent and resolved without having implemented the survey.
Palmateer Wine Group has developed an in-depth distributor survey and an approach for this initiative that has proven to be very successful. We would be happy to work with you on implementing a distributor survey.
In the third installment of our series on Best Practices for Distributor Relations, we talk about the hidden costs of selling through distributors.
Selling through the distribution channel can be more complicated and costly than you might expect. Lately, I have been working with a few clients where this is true. Up until recently, they’d been selling all of their production direct to consumer or trade. Now, their production level is such that selling it all direct has become unrealistic. So, they’ve decided to seek distribution for their wines.
When I compared their suggested retail price and their cost of goods, and factored in their selling costs, I found that the owners may not have fully considered all the costs of doing business with a distributor.
Frist, there is a significant up-front cost to getting a target distributor to say “yes,” including trips to meet with them, cost of sending samples, etc.
Once a distributor decides to list a wine in its already crowded portfolio, the best distributors will ask for additional support to help the brand get noticed by their sales team and by their trade accounts.
It’s a different world than 10 years ago. Post-recession, distributors are requiring greater margins from the wines they sell. Today, they run 25% to 33+%, which is an increase of 3% to 5% a decade ago. An easy rule of thumb is that the smaller the distributor, the more the margin they require.
In addition to these initial costs, there are additional expenses that need to be factored in to the selling price:
Launching the relationship: Getting the distributor to list a wine is only the beginning. Then the real work begins: introducing it to the sales team. Building a good relationship with the sales team is essential, and this is the first and best opportunity to make an impression. If they don’t know a wine, or it doesn’t have a high score in the major scoring publications, it makes their jobs harder. So, the expense of getting everybody on board needs to be factored into the wine’s price.
Don’t forget samples: Once upon a time, most distributors picked up the expense of paying for samples. Not anymore. Good distributors have really clamped down on this expense, as this cost can get out of control if not managed correctly. Distributors are now requiring that wineries pay for most of the samples. The launch period mentioned above will be the time when the samples expense will be greatest. In addition, when a winery schedules in-market time, the distributor will generally charge 100% for samples used during the visit.
Today, some distributors prefer to negotiate a small percentage of each invoice be deducted to account for samples. It is generally true that a winery can negotiate a lower percentage over the duration of the partnership. Some distributors will ask a winery to ship “no-charge” cases along with the paid cases to be used for samples and promotions.
Product discounts: Most distributors are willing to lower their overall margins to discount a wine to achieve a “hot” price point. They will, however, want the producer to pay for most of that discount. Many distributors have minimum thresholds that they will not go beneath, so this needs to be factored into the overall costs.
Giving Incentives: Distributors are more likely to want you to pay 100% for all incentives. In some cases, a winery may be able to negotiate that the distributor take responsibility for minor expenses associated with the incentive. I have very strong feelings about the impact of incentives, but will save that for another post.
Event participation: Distributors will typically ask a winery to pay 100% of all costs associated with trade shows, special events, wine dinners, retail tastings, etc. Many wineries will feel compelled to pay for a table at a trade tasting because they want will want to demonstrate their commitment. This is a good practice, but must be considered in the overall costs.
Wine returns: This is a hidden cost than many wineries don’t consider. In their mind, once the wine leaves their facility, it’s as good as sold. Not so. Sometimes the wines come back damaged or out of condition. If anyone drops a wine while presenting or packing it in a warehouse, there is a good chance that the distributor will ask the producer to pay for it. If a trade account returns it to the distributor because he believes that the wine is flawed, they will ask the winery to pay for it. Thankfully, this has become less and less common, and we see less of this happening lately.
I’ve touched on some of the hidden expenses involved in selling a wine through distribution, but there may be others. It is important that anyone endeavoring to build relationships with distributors consider all the additional costs, and to do their best in negotiating a good partnership. It’s the only way to build a sustainable sales channel.
As you know, hiring the right sales manager for your winery is essential to building your brand in today’s market. Here are three paths to lead you to the best suited candidate.
Pros: For wineries who can afford to retain a recruiting firm, I wholeheartedly recommend this route. These firms keep current on best practices, maintain a large database, and can help you secure the right candidate in 2-3 months. I have had successful relationships with executives Chet Hutchison, Dawn Bardessono, and Amy Gardner.
Cons: Can be expensive, costing up to 30% of the new hire’s first year compensation.
Pros: You are in control and the monetary cost is low.
Cons: Sample size, perspective, and time. Likely, your network will help identify a dozen or so candidates. It is hard to find the best candidate in this small of a pool. Plus, you must be wary of a conflict of interest, e.g., a distributor’s recommendation may be good for them and not as good for you. If you promote internally, expect 1 to 2 years before anyone without established buyer relationships to earn their trust. And, while the monetary cost of DIY recruiting is low, you will spend more time finding that perfect candidate. We all know, time is money.
Please reach out to us at Gordon@palmateerwinegroup.com if you have recruiting needs. We look forward to hearing from you and helping you find your next new hire.