Entering the U.S. Wine Market for Export Brands

Navigating Entry Into the U.S. Wine MarketPresented by Steve Raye

Managing Partner

Brand Action Team

What is Brand Action Team?

Marketing consulting company with

specialization in wine marketing in the U.S.

Three areas of concentration:

• Trade Marketing

• Working with country and region trade

promotion

associations

• Brand development and launch

Why this information is important.Hope is Nota Strategy

Agenda

• History of Beverage Alcohol in the

U.S.:

3-Tier System

• What it means to you today: brand

entry process, implications, price

structure

• Importer and distributor landscape

• A snapshot of the American market

• Resources

History of Beverage Alcohol in U.S.

Temperance Movement Prohibition

Prohibition Repeal in 1933: New Laws

Federal Regulations Enacted

• Protect Federal Tax Revenues

• Federal Regulations (BATF-Now TTB)

– Licensing qualified importers, manufacturers,

wholesalers, warehouses)

– Bans “tied-house”

– Ensures quality with standards of identity, labels

and formula approval

– Bans false advertising and consumer deception

– Bans unfair inducements to retailers

Tier 1: Producer(Wineries, Brewers, Distilleries, Importers)

Tier 2: Wholesaler (Distributor)

Tier 3: Retailer

Consumer

U.S. Three Tier System Created

Michigan

Virginia

No. Carolina

Alabama

Arkansas

Iowa

Colorado

Wyoming

MontanaVermont and New

HampshireMaine

OhioPennsylvania

W. Va.

IdahoOregon

18 “Control” States, 32 “Open” States

Washington

Agenda

• History of Beverage Alcohol in the

U.S.:

3-Tier System

• What it means to you today: brand

entry process, implications, price

structure

• Importer and distributor landscape

• A snapshot of the American market

• Resources

What theThree-Tier System Means to You Today

Michigan

Virginia

No. Carolina

Alabama

Arkansas

Iowa

Colorado

Wyoming

MontanaVermont and New

HampshireMaine

OhioPennsylvania

W. Va.

IdahoOregon

18 “Control” States, 32 “Open” StatesPlus Montgomery County makes 51 Different Markets

Washington

Montgomery County, MD

51 Different Markets: Implications

Where wine, spirits and beer can be sold

• California:

– Wine, beer and spirits in supermarkets

– Chain and independent stores

• New York:

– Wine, spirits in “package” stores only beer in

supermarkets/bodegas

– Single store ownership, no chains

• Texas:

– Four tiers…HoReCa must buy from Class B

licensed retail store

51 Different Markets: Implications

How it Can Be Promoted

• Tastings

– Off-premise tastings:

– Allowed in New York, but not in New Jersey

– On-premise “wet” tastings:

– Allowed in FL, but not in Wisconsin

• Coupons

– Instant Redeemed Coupons only (IRC) in Ohio

– Mail-in rebates only in New Hampshire

51 Different Markets: ImplicationsTaxes vary by State

• Alaska: $5.94/9L cs., Louisiana:

$0.26

• Wholesale tax in Kentucky and South

Dakota Franchise Laws

Protect Distributors

• Massachusetts,

Connecticut,

New Jersey, Georgia,

Nevada, Arkansas,

New Mexico,

Tennessee, Missouri

Imported Wine Brand Price Structure750ML / 12 Bottle Case Imported - $9.99 Retail Bottle Price

Element Per 750ml Bottle

Supplier FOB $2.41

Ocean Freight, Fed Tax, Insurance, other +$0.76

Importer's Margin (40% mark-up/28% margin) +$1.01

Price to Distributor $4.18

State Tax, Inland Freight +$0.26

Distributor Margin ( 50% mark-up/33% margin)

+$2.19

Distributor price to retail $6.63

Retailer Margin (50% mark-up/33% margin) +$3.33

Retail Bottle Price $9.99

• Federal certificate of label approval (COLA)

• State registration and approval

- Most states require the out-of-state entity (shipper) to maintain state licenses and/or permits in order to sell products to wholesalers

– Most states require the Federal COLA as a requirement for brand approval

– Many states require paperwork submissions with fees and return a formal approval prior to shipping

– Some states require you to have a signed contract with a distributor in that state to get registration

Navigating Brand Entry & Distribution:Brand Entry – The Approval Process

Agenda

• History of Beverage Alcohol in the

U.S.:

3-Tier System

• What it means to you today: brand

entry process, implications, price

structure

• Importer and distributor landscape

• A snapshot of the American market

• Resources

Importers

• Importer– Licensed to import a wine brand from a

supplier outside the U.S. into the U.S.

– May or may not have distributor licenses or

operations in individual states

• Distributor/Wholesaler

(synonyms)– Licensed to buy wine from an importer and

sell to an on- or off-premise retailer

Definitions: Importer vs. Distributor (Wholesaler)

Suppliers

Importers

Distributors

Consumers

From To

The Model Has Changed

Large National Importer (Diageo)

You Have Options!

Specialist National Importer

(Winebow)

RegionalMulti-State Importer

(TGIC)

Specialist, that also

distributes (Slocum)

Set Up Your Own

Import Company

National Licensing

Import and Services (MHW)

Large Distributor that also Imports

(Glazer’s)

ChainRetailer

Exclusive Brand

(Total Wine)

DirectImport

through Control State

E-Comm/Wine Club/ Flash Site

Importers: What They Want

• Fills an identified void in portfolio

• Brands with existing U.S. volume they can grow

• New brands they feel their expertise can develop and grow

• Brands that have a unique positioning

• The right “CHEMISTRY”

• Enhances image, value and profitability (synergy with

importer’s mission)

• Strengthens importer’s position within the trade

• Supplier understands the U.S. Three-Tier system

• Financially sound, budget to invest and support the brand

Presenting Your Brand to Importers• Brand point of difference/value proposition for consumer;

why THIS importer should be interested in you

• Company description/history

• Product description: varietals, style, ranges, proposed U.S. retail price by line/SKU

• Marketing materials as background

• A defined target audience

• Production info

• Past history of importers, distribution agreements, list of distributors/brokers of products and volumes by state

• Price structure for U.S.

• Marketing support budget

• Sample budget

Distributors

Distributors: Who Are They?

Distributor Markets

Sales Revenu

e2013E

(Millions)

2014P

Percent Change

Market2013E

Share2014P

1

Southern Wine &

Spirits of America

Alabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois,

Indiana, Kentucky, Maine, Mississippi, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio,

Oregon, Pennsylvania, South Carolina, Utah, Vermont, Virginia, Washington, West Virginia,

Wyoming

$ 10,930 $ 11,400 4.3% 21.7% 22.2%

2

Republic National

Distributing Co.

Alabama, Colorado, Florida, Indiana, Kentucky, Louisiana, Maryland, Michigan, Mississippi,

Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota,

Texas , Virginia, Washington, DC, West Virginia

$ 5,460 $ 5,825 6.7% 10.8% 11.4%

3Charmer Sunbelt Group

Alabama, Arizona, Colorado, Connecticut, Delaware, Florida, Maryland, Mississippi, New Jersey, New York, Pennsylvania, South Carolina, Virginia, Washington DC

$ 5,165 $ 5,355 3.7% 10.3% 10.4%

4Glazer’s Family of

Companies

Arizona, Arkansas, Indiana, Illinois, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, Oklahoma, Tennessee, Texas

$ 3,245 $ 3,585 10.5% 6.45.7% 7.0%

5Young’s

Market CoAlaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming $ 2,745 $ 2,960 7.8% 5.5% 5.8%

Source: Impact 4/1&15/14

Top U.S. Wine/Spirits Wholesalers

Distributor MarketsSales

Revenue2009E

(Millions)

2010P

Percent Change

Market

2009E

Share2010P

6Wirtz

Beverage Group

Illinois, Iowa, Minnesota, Missouri, Nevada, Wisconsin $ 1,740 $1,765 6.4% 3.5% 3.4%

7Johnson Brothers

Alabama, Arizona, California, Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Minnesota, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Rhode Island, South Dakota, Washington, Wisconsin

$1,560 $1,660 6.4% 3.1% 3.2%

8Martignetti Companies

Massachusetts, Maine, New Hampshire, Rhode Island, Vermont $ 1,200 $ 1,200 0.0% 2.4% 2.3%

9Allied

Beverage Group

New Jersey$ 735 $ 755 2.7% 1.5% 1.5%

10Fedway

AssociatesNew Jersey

$ 680 $ 700 2.9 % 1.4% 1.4%

Total Top 10 $ 33,460 $35,205 5.2% 66.5% 68.7%

Other Wholesalers $ 16,875 $ 16,075 -4.7% 33.5% 31.3%

Total U.S. Market $ 50,335 $ 51,280 1.9% 100% 100 %

Source: Impact 4/1&15/14

Top U.S. Wine/Spirits Wholesalers

Distributors: What Distributors Want

• Money

• Margin

• Manpower

• Marketing

• Media

• Commitment

The chicken is involved, but the pig is committed.

Involved vs. Committed

• Focus, focus, focus…like a laser

- Getting it in is the easy part, getting it out is hard

- The only metric that matters: repeat orders at retail

• Be so successful in a limited number of accounts that

you can support, that you create trade word-of-mouth

buzz as a hot brand

Distributors:Strategy to Get a Distributor

Distributors:Okay, I’ve Got One. Now What?

• Recognize you’re not a priority…you and your importer will

need do the heavy lifting yourself

• Recruit/focus on a limited set of salespeople dedicated to

your brand

– Product training programs for accounts

– Sampling on- and off-premise

– Leverage Brand Ambassadors, winemaker/winery

owner visits vs. work-with’s

Snapshot of the American Market

Agenda

• History of Beverage Alcohol in the

U.S.:

3-Tier System

• What it means to you today: brand

entry process, implications, price

structure

• Importer and distributor landscape

• A snapshot of the American market

• Resources

Total Table Wine Consumption(Millions of Cases)

Top 10 Wine Consumption States

Source: Beverage Information Group Handbook Advance 2014

Imported Wine Purchases in Past 3 Months

Resources

Agenda

• History of Beverage Alcohol in the

U.S.:

3-Tier System

• What it means to you today: brand

entry process, implications, price

structure

• Importer and distributor landscape

• A snapshot of the American market

• Resources

Resources• Key trade publications:

– Beverage Media:

www.Bevmedia.com

– Santé: www.isantemagazine.com

– Tasting Panel:

www.tastingpanelmag.com

– Impact (print only)

– Somm Journal:

www.sommelierjournal.com

– Market Watch (print only)

• Key industry newsletters:

Industry News Update

Wine and Spirits Daily: www.winespiritsdaily.com

Shanken News Daily: www.shankennewsdaily.com

Wine Industry Insight: wineindustryinsight.com

WineBusiness.com: www.winebusiness.com

Wines and Vines: www.winesandvines.com

Resources• Organizations

– WSWA: www.wswa.org

– Natl. Assn. of Beverage Importers: www.nabi.org

• Competitions/Awards/Events

– BTI/Beverage Testing Institute: www.tastings.com

– San Francisco International Wine Competition: www.sfwinecomp.com

– Ultimate Wine Challenge: www.ultimate-beverage.com

– New York International Wine Comp.: http://www.nyiwinecompetition.com/

• Trade Shows

– WSWA (www.WSWA.org)

– Wholesaler/holiday shows

– Importer portfolio shows

Resources

• Alcohol Tax and Trade Bureau: www.ttb.gov/wine/wine-labeling.shtml

• “How to Import Wine”, Deborah Gray

Thank You!

Steve RayeBrand Action Teamsraye@TheBrandActionTeam.com+1-860-676-7900