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Client FAQs – Second in a Series

Once again, these are real questions asked by real clients, quoted verbatim. Therefore, I believe they will resonate with most first-time importers or anyone thinking about entering the wine business at the wholesale level.

What would be the best order of the steps to get started? For example, do we start exploring potential distributors before we make our first trip to explore potential suppliers?

Whoa, definitely do not start looking for distributors at this stage. There is nothing yet for your customer to buy, you don’t know what you’ll have to sell, and most importantly, there is only one chance to make a first impression. Distributors are not waiting for new products and competition for space is very stiff. Consolidation has decreased the number of available options and many portfolios are already packed. That doesn’t mean there aren’t opportunities. Increasingly, post-recession, there is more demand for interesting, new products from a growing consumer market. However, any alcoholic beverage being presented has to come with a convincing pitch and a compelling reason to even warrant a call back or email response. It doesn’t have to be in the country yet to attract a potential distributor, but it definitely has to be sourced and ready to go. Additionally, it has to align with the right fit in terms of price point, region, style and timing.

So, where do you start? If you are definitely committed to importing you probably already have a region in mind, if not a specific vineyard or wines. But whether you do or not, you can still go ahead with your importing license:

The Federal Basic Permit. Before that, there are these steps:

Establish your business entity – LLC, Corporation, S Corp, Partnership or Sole Proprietorship. There is no one way to do this part and no right or wrong entity. Of course, if you have partners you can’t be a sole proprietor, but other than that the choice is up to you. You may decide that a gaggle of shareholders would warrant a corporation or a partner feels more comfortable with an LLC. These are personal decisions. But don’t just form an LLC because you think you should, or a corporation because it sounds more professional.

Commit to your business address – the address is tied to the Permit.

File for an EIN with irs.gov – very easy, free application with an instantaneous result.

Obtain a LOI (letter of Intent) from a foreign winery – this sounds more difficult than it actually is. It does not have to be a winery with which you are engaged in discussions or to whom you have committed to importing. It just has to state a simple “intent”.  The easiest way is to obtain one from a winery you’ve visited, explaining the circumstances without making a commitment. If you don’t have any connections through direct relationships, see if you know of anyone in the field who can help obtain one, or even contact a trade organization representing the country in which you are interested to see if they can help.

These are all necessary before you can even begin the application, or information to give to your consultant if one is obtaining the Permit on your behalf.

Next step, often concurrent with the Federal Basic Permit is:

Obtain a state license in your business location stateIn most states, you will have to have the Basic Permit issued first, but state licenses usually take much longer so it saves time to get started at the same time. Regardless of whether you choose to distribute in your home state or not, you will be required to have some sort of license issued by the respective state.

Select a warehouse – This is an important consideration for ocean and land logistics, budget and convenience. But be well-informed about why your choices matter.

Selection of freight forwarder, customs broker and most importantly, wines, beers and/or spirits are all important, of course, but the order is going to depend on your own circumstances.

From your experience are there any regions that are exceptionally difficult to import from and should be avoided?

I don’t think “difficult” in this context necessarily applies in an era when wines from even previously unknown and inaccessible regions are finding their way into the world market. The answer is more in the realm of whether the style will appeal to the U.S. consumer at an affordable or competitive price, and whether you can work with the suppliers and establish a relationship that is mutually productive and profitable. Some countries and/or regions are more difficult by virtue of their reluctance to comply with stringent U.S. regulations or can be trusted to supply the wines that were selected. Although I never recommend approaching any potential business relationship with mistrust or cynicism, it is advisable to cover contingencies in discussions and have an agreement to avoid misunderstandings.

Conversely…

Are there any specific regions that are really trending that you would recommend focusing on?

For the most part, this changes all the time and it would be very helpful to talk to retail shops, read industry publications and Google trends online to see what stands out and appeals to you. You can follow a trend, such as prosecco, Provençal rosé or organic, infused vodka, e.g., but determine first if this is a waning or saturated trend or if you can source the right product to compete. Whether you’re on the leading or trailing edge of a trend doesn’t really matter; just make sure you are well-placed to take advantage of it and that this fits your own business model.

Is there a suggested number of regions to start with?

As with most issues, this isn’t a one size fits all. You can be a specialist in one region or offer a different brand from each of a variety of regions. Other than logistics (explained in more detail two questions down) the most important consideration is to import what you believe in – whether this is an inexpensive, everyday wine or a pricey, single vineyard gem. If you don’t feel proud to represent what you are taking the time to import, through all the steps it requires to get here, then it will diminish your enjoyment of your business and ultimately your productivity will suffer. I will never forget that after even after nearly two decades as an importer of my own portfolio, the two comments I heard most often were, “I can’t believe how passionate you still are about your wines” and “I’ve rarely tasted through a lineup where every wine was good.” Now, that doesn’t mean they selected them all, nor will they from you, but it feels good to get that feedback.

What should I consider in terms of selection?

In reality, I think this question applies mostly to wine. Malt beverages can be any number and style, as long as they adhere to the general principle of good quality for the price and appeal to the U.S. consumer. There are so many interesting beers now the question really should be: where do you stop? For distilled spirits, the answer lies with the product itself. If it is a new discovery from a country or basis (agave, fruit, etc.) or innovative method of distillation perhaps you only need one. In the case of wine, I believe this also somewhat applies to your choice of region or style but, more often for unknown brands from a new importer, the emphasis should be on offering diversity in styles and price points. Not everything should be highly allocated and expensive, no matter how great the accolades. If you have some mid-point wines and a “bread and butter” range $12-$15 (forget the <$10; it is saturated) then this allows for more opportunity in approaching wholesalers and, if you are doing your own in-state distribution, retail shops and restaurants.

My only suggestion on this is not to start with too few wines, even if it’s from one region. It’s not uncommon for a client to have fallen in love with a particular vineyard which produces three or four wines and wanting to establish an import portfolio with just those wines. If that is the case, you’ll run out of new wines to show very quickly, unless what you’ve sourced has a built-in demand that drives sales and volume.

There is no magic number. If budget is tight, you can begin with a small selection but again your business model and sales goals will dictate a reasonable and profitable solution.

I want to start by importing wines from Spain, Argentina and Chile. Does that seem like a reasonable approach?

This particular client speaks Spanish fluently and thought it would be an advantage in her relationships with suppliers. As indeed it is, both from a communication and trust perspective. But logistically, this could be a nightmare. Unless you’re going to bring in a full container from each of these locations, it will require sharing space with unrelated products in a freight forwarder’s container, a more expensive and time-consuming process. A better approach is to consolidate different regions from the same country, thereby offering diversity and selection in your own FCL (full container load). Importing from different countries is achievable, but unless the initial budget, business plan and projections support this approach it’s better to make this Phase Two or Three.

What are your views on seasonality? I am launching my products September/October. Will distributors take on new products during the holiday season?

The short answer is no. You cannot have new products land and start approaching distributors in OND (October/November/December) when they are full to the gills with inventory and scrambling to make sales that will provide pull-through during the all-important holiday season.

But that doesn’t mean you can’t bring in wines in September or October in anticipation of distributor launches, as long as you have done a tremendous amount of groundwork and pre-selling before the container arrives. This means doing the following well ahead of container arrival:

  • Having the wineries/breweries/distilleries send samples of the products to you that you will be importing. Not a ‘representative’ sampling of the supplier’s selection, the exact products that will be available on US shelves. They don’t have to have COLAs (certificate of label approval) at that point, but will need a COLA waiver.
  • Set pricing.
  • Contact and generate interest from a reasonable number of distributors who will then taste samples and place pre-orders.
  • Establish allocations from the supplier that can be communicated to distributor.
  • Confirm availability of product from supplier at the exact time you need it and schedule ship with freight forwarder when appropriate, to arrive when you promised distributor.

These are just a few of the common questions that address the early stages of the alcohol import business.  I’ll continue with some of the other launch issues in Part Three.

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