There is no doubt that the US is a highly sought-after market for wine producers from around the world.
The main appeals are twofold: US wine consumers are open to trying wines from regions around the world; and these same consumers are willing to pay a premium for better-quality wine.
Much has been said about how difficult it is for wineries and wine regions to find importers that will embrace their products. Importers have many choices and are more risk adverse than ever. It is not uncommon for an importer to make a small commitment to a new brand and then rely on the producer to build the sales. If the brand doesn’t sell itself, the importer becomes less interested and moves on to the next brand opportunity.
In fact, this is such a common occurrence that there is a west coast retailer that sells in excess of $100 million annually of close-out wines that did not move in the marketplace.
One of the first and most difficult steps to maximizing your efforts when targeting the US is to connect with an importer that is best suited to your brand. This means the importer shares your vision for your brand and is open to helping you build your brand.
In the US, finding the right importer takes market expertise, industry knowledge, strong connections with market partners and time. Unfortunately, this task is daunting. Searching the Internet, sending out emails, cold calling companies or attending a trade tasting to connect with an importer usually only result in a loss of time and money.
Having spent over 30+ years each in sales and marketing for the wine industry, Chris Lynch and I have a comprehensive knowledge of key US importers. Based on our experience, we are able to profile potential importers to understand their portfolio strategies and gauge their interest in your brand. We also have strong relationships with decision-makers and a large network that gets us a response. As the president of Palmateer Consulting, I have led several searches for wineries and wine regions in which suitable importers were identified and secured, thus enabling my clients to successfully launch their brand(s) in the US.
Palmateer Consulting has the experience, know-how and network to help wineries and wine regions successfully connect with importers. If you are looking for a US importer that will grow your brand, then please contact us to discuss.
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.
Some people think that narrowing a target market will make them less profitable because they are marketing to fewer consumers. For most, it actually helps them cut through the clutter, focus limited resources, and pinpoint their message to a market segment with whom it will resonate.
A good example of niche marketing is radio. There are a wide variety of stations out there such as Howard Stern
radio, NPR, and alternative college radio. These stations design their programming to reach a targeted market segment, or niche, with targeted content. By doing this they differentiate themselves from the mass of stations out there, build brand identity, develop a loyal fan base, and ultimately attract advertisers or sponsors who are also trying to reach the same niche. You can bet that advertisers on Howard Stern radio will differ from those on classical music stations.
When large consumer companies define their market niche, they often use multi-million dollar databases that segment the population by demographics and psychographics. Yet, without a big marketing budget or sophisticated database, smaller companies can still target market. When I work with clients on identifying a target market, I often suggest they start at the grassroots level and answer the following:
As evidenced in today’s video, the way Chris and Brenda Lynch at Mutt Lynch winery apply target marketing is brilliant. When The Lynchs first launched their business in 1995, there were primarily two camps; wineries that produced great wine and wineries that were “critter focused” and offered average wine. The Lynches have been able to move beyond these two categories by overlaying solid marketing tactics with a targeted approach. By offering great award-winning wine at a fair price and with a whimsical, dog theme, they have been able to carve out their own niche. Chris and Brenda are their target audience – wine lovers who love dogs, so they not only understand this market’s behaviors, but also their values. This authenticity resonates within their niche.
One of my personal experiences with target marketing occurred when I worked for Louis Roederer. Louis Roederer wanted to reach American drinkers of French Champagne. What we knew about this niche market was that they were primarily baby boomers; very brand- loyal; knew the difference between Champagne and sparkling wine; had discretionary income; and liked to associate themselves with the “finer things in life.” Understanding our audience and who else was reaching them drove our marketing strategy and tactics. Consequently, in order to reinforce the high-end image of our wines, it was priced in the premium category, placed in the top restaurants in major cities, and aligned with premium brands, such as with the Four Seasons, Chanel, and Hermes.
So, narrow your focus and expand your reach. Unless you are trying to promote tap water, it will serve you better to segment your audience beyond all drinkers.
Based on numerous conversations I have had with wine producers who are struggling to penetrate the distribution market, I have come to believe that there is someone out there spreading the fallacy that in the distribution market, a product’s FOB = winery retail x 50%.
The short explanation as to why this is untrue is that cost and margin have gone up throughout the selling channel. Plus (and this is a big one) post-recession level of competition has created opportunities for distributor and retailer margin enhancement.
Let’s take a real life scenario.
Your winery retail is $40, so you were told by a trusted long-time industry veteran that the product’s FOB should be $20.
In the table, that bottle of wine that used to retail for less than $40 is now retailing for $43. This model is only an example and there are many variables that differ from market to market and from buyer to buyer.
So, if a winery employs the philosophy of FOB = retail x 50%, it will be essentially undercutting those distributors and retailers that he is asking to sell and support the wine. If a winery wants to be successful in the distribution market, I would not recommend undercutting your trade customer. Remember, in today’s market, the internet tells all and your price is public knowledge.
Gordon Palmateer is an expert sales and distribution strategy for domestic and imported wines brands in the US and president of Palmateer Wine Group. Email him at firstname.lastname@example.org for more information on this topic.