LOOKING FOR IMPORTER DISTRIBUTOR IWC 2011
You are the Export Director of a newly established winery in Ribera del Duero, with production of around 50,000 c/s per annum. You plan to export your wine to the US, the UK and one other market of your choice. Which types of intermediary organisations, if any, would you employ to access these three different markets?Give reasons for your choice.
Considering a case study where the Export Manager from a newly established winery from Ribera del Duero has to export its wine in three targeted markets: USA, UK and Sweden. The annual production is around 50,000 cases per annum. The area of production is regulated and under strict rules dictated by the D.O.[1] The production is mainly red wine, while white and pink are not relevant even for the local market in Spain. The wine is a “Premium” considering its quality, limited quantity and specific area of production. In our case we defined a production of 75% of young wine unoak and 25% of Crianza.[2] Reserva and Grand Reserva are too expensive and overoaked and can be introduced in a second stage of expansion and consolidation of the new market. David Gill Mw suggests: “When starting out, you cannot possibly know how much each market is going to require. Therefore, you will need to maintain as much flexibility as possible until you know approximate pa volumes. That is unless the wine is so good and easy to sell that some mad fool takes a punt and ships a load without having seeded the market. In that case, you need to make sure you get cash with order” [3] The Export Manager needs to decide how long the action plan will take. The first results can be analysed after the first year of trade. Therefore it is advisable to set a two – three years objective to be reviewed every six months and if necessary correct the objectives established before. If the business is going to be successful with a turnover on selling in the new market, the winery can consider opening a branch as Ch.Musar i.e. has done in UK. All bottles are for the export market and the cost ex work of the young wine is Euros 3.5 while the crianza is Euros 5. It is a new winery and it is important to consider the particular financial situation and structure of the new company, where the fix cost has to be amortised over the 50k x12. Every further cost has to be planned very carefully because in this case there is no further budget to be dedicated to the marketing and promotion of the brand. Sergio de Luca suggests the importance in these cases to “…. exploit the opportunities through the promotion, advertising and founds that the state, generic wines of Spain body, Embassy, Ribera del Duero Do, the local association and EEC can provide to you.”[4] He stated the importance to have a good packaging and bottle design and in this case we assumed they already have one. The 50,000 cases are not such a big amount, but considering the D.O. wine characteristic of the wines its cost is enough for a niche market where the value of the brand can be further build up.[5] The export manager understanding the mechanism, legislature, size and demand of the three markets, is allocating 60% of the bottles in the US , 35% in UK and 15% in the Swedish market. Especially for companies with low export volumes the use of export intermediaries offers a propitious possibility for initial exports[6] Based on personal experience Richard Hunt says the first step in the selection of the specific intermediary “the Export Manager”, has to define the currency and in case of a marketmaker, the term and condition of payments” [7] The fluctuation of the currency has to be considered, because it can result in big loses or gains of money.[8] In this case the payment has been defined with the winery in current Euros currency in the three different markets due to the current Eurozone situation. Now we can see the strategy and choice of intermediate link to the three particular markets on the base of what has been stated since this point.
4.1 The USA three tiers market(s)
This is the first export market for France, Italy and Spain.[9] USA does not represent just a single market but 50 different markets regulated under the three tiered wine distribution systems. In this case the Export Manager at the first stage of penetration of the market should consider the bigger and most accessible markets. After further consideration, Florida, California, Texas, Washington, New York, and New Jersey have to be targeted. (I.e. Pennsylvania due to the state of monopoly is one of the most difficult markets)
US legislation makes mandatory for imported wine to be distributed by a USA importer, then a distributor and lastly the retailer. “Until recently this also applied to all interstate wine shipment and it still applies for some states. [10] The prohibition law was replaced by the United States Constitution 21st Amendment “ :
2. The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”[11]
Therefore the government has control over import and distribution in US territory. One third of states has got a monopoly system controlling all the supply chain. That one third has got strict laws under a licencing system for wholesalers and retailers. Visiting the Alcohol and Tobacco Tax and Trade Bureau’s website[12] there is a confirmation of how complicated the legislation is with strict rules on labelling, permits, taxes, imports, and wholesale requirements. For the Ribera del Duero Export manager it can be time consuming and very expensive to apply for a exporting permit even through a law wine consultant like Corbin Counsel.[13]
It is essential to find importers who cover different states and provide a distribution and development marketing mix for Spanish Brands.
It will provide all the legislation back up. It is advisable to use a marketmakers wholesaler , therefore assuring the sale of stock without any further risk. Someone who is specialized in Spanish wines and in the specific trade Ho.re.ca. distributions, especially with famous Spanish restaurants or off trade, can develop the winery brand furthermore and add value to the wine. Someone with a good off trade retailer specialised in premium old continent wines included Ribera del Duero. Richard Hunt explains how an agreement can be taken “vis a vis” and based on old friendship and trust. For instance Chateaux Musar has been imported by Broadbend Selection in USA and successfully distributed and promoted by them with passion. Serge Hochar is an old friend of Michael Broadbend, whose son funded Broadbend Selection in USA. Loyalty is a good value too, especially if the brand sees the benefit in the long period. “It’s like for an employer to find the correct person and can be difficult in the future to fire the person and find someone to cover the position without creating disadvantage in the transition period.”[14] After looking for an importer without success the Export Manager can consider the option to contact a well established USA Broker specialized on “Old Continent Wines” to create the link with the correct importer and distributor. A winery brand agent can be introduced in the chain to have a better control and help organize specific promotional wine fairs.
Join a trade association, such as the Wine and Spirits Wholesalers of America. Joining an association will help you gain contacts within the alcohol industry and form relationships with wine producers and wine retailers. Becoming a member will give you the opportunity to attend network events and other gatherings that will assist you in your success. The Spanish Embassy and Wine from Spain USA can provide further support. Wines from Spain aims to create greater awareness and increase sales of Spanish wine in the United States through promotional and educational activities focused on both trade and consumers. It is the number one information source on Spanish wines for wine professionals, media, and consumers. [15]
In USA there is a specific export marketing programme called “Drink Ribera, Drink Spain” especially created with the support of the Consejo Regulator for the promotion of their D.O. in a National contest. They organize wine tastings and wine workshops in the most important cities in the USA. April Cullom, Brand ambassador is an expert in food and wine marketing; she has cultivated hundreds of contacts in the elite wine trade and maintains working relationships with sommeliers, wine educators, retailers, distributors and importers in the top U.S. markets” [16] In reply to my enquiry to participate in the next event in Washington DC and Los Angele she wrote: “You have two options, if you are exporting already, you will be allocated in one hall. The other hall is just for wineries that are looking for an agent, or distribution there. In this case follow this exercise, send some invitations for people to visit you in the wine fair. You need to be in the wine fair to meet all the possible new agents or distributors. The program Drink Ribera Drink Spain, also has a place to deposit wine samples. ”[17]
US market is a critic-orientated market and the Export Manager should consider advertising the wine in specialized magazines and try to send contacts a few wine samples, for example to Jay Stuart Miller on behalf of Robert Parker.com and the Wine Advocate. The importers, distributors and clients in the USA keep their score in consideration especially if above the 90/100 threshold.
4.2 UK open free market
The UK operates an open free market; all the distribution options are open and one is free to decide over different distribution channels. It is not legislated that any intermediary business must be compulsory used to get the product to the market.[18] It is a key market in the world among non-producers. The total consumption from December 2009 to December 2010- still wine under 15% is 1,006,682 Hl.[19] In 2007 Spain was the 5th supplier of wine to the UK with 1.106 million hectolitres exported. Vinexpo/IWSR 2009.[20]
It is a highly competitive market and “price point” is a very important feature for the British importers which keep in consideration the low purchasing power of the final customers in this period of crisis. Furthermore the Chancellor delivered on 23.03.11 an increase on the taxation. “In real terms, that means a rise of 7.5%, with retail price inflation running at 5.5% in the UK. If fully passed on to consumers, the rises will add around GBP0.04 to a pint of beer, GBP0.15 to a bottle of wine and GBP0.54 to a bottle of spirits.[21] Therefore small producers like the Ribera del Duero find very difficult to introduce their wine where negotiation is related to a very low “price point” that can play against the quality and origin of wines. Licensing laws of the United Kingdom regulate the sale and consumption of alcohol Premises licences, in as far as they concern the sale of alcohol, can be categorized to include on-licences (allowing consumption of alcohol on the premises) and off-licences (alcohol must be removed from the vendor’s premises and drunk elsewhere).[22] Therefore a Licence is not required if the Export manager decides to use a B2B unless decided to sell directly to the consumers. (On line, wine fair, wine club….)
Furthermore the structure of the UK trade is still consolidating and to keep in pace with the high competition businesses has to be flexible and adapt offering additional services and marketing consultancy at low costs. There is a overlapping of roles and crossovers of activity that make it very difficult for new comers to understand the mechanism. The Consejo Regulator, Embassy and Wine from Spain can help the Export manager in the decision to use a short or long channel of distribution in relation to their Winery and the market context providing information and support. Icex report “The United Kingdom wine market 2010”[23] states that the UK’s perception and consume of Spanish wine is good when associated to Rioja tempranillo grapes and this can create the link with Ribera del Duero wines. They suggest to point to the HO.RE.CA. distribution to the increase popularity of Tapas and Spanish restaurants. Furthermore there is a favourable trade request of Spanish wines above £5. It is advisable to participate in the Spain Trade Fair organized every year in London by Wine From Spain[24], where there is an opportunity for producers to get in contact directly with importers, agents and distributors. It is very important to start a personal relationship “Face to Face” and have the opportunity to taste the wines as a first step. The second big event in the UK to approach the market is the L.I.W.S.F.[25] Due to the high cost, this approach must be examined; the Export Manager tried to contact the right UK distribution player directly without success.
The Ribera del Duero manager can explore both the On Trade market, especially with the young wine and the Off trade market with the Crianza range due to the very different final customer needs.
4.2.1 Off Trade
Approximately 70-75% of all wine consumed in the UK is currently sold through Off Trade, with around 73% of this sold by the supermarkets.[26] The Big Five – Tesco, Sainsbury’s, Asda, Safeway and Morrison’s. It is very difficult to approach them directly, therefore it is better to access them through a wholesaler, or Broker. In the UK, the Master of Wine figure can influence the supermarket buyers. In recent years the Supermarkets have introduced a “Fine Wine Range” where big volumes are not required and where they try to satisfy the increased demand of “connoisseur” wine in that niche of customers. In the decision to target supermarkets, a different label can be considered to differentiate the same wine from the one on Trade market. Multiple specialists like Majestic can be approached, but it seems that the sector is suffering. The last victim was the high street Oddbins which has been put on administration from the 04.04.11[27] With help of Brokers or though selling to their supplier Wholesalers, it should be considered to target more “healthy” independent specialists like Berry Bros & Ruddy, Robertson, Jeroboams, etc. Their customers are looking for something “unique”, more service and premium wines that match the quality of Ribera del Duero D.O. Therefore it can compete with supermarkets and Co-operatives targeting a niche market.
The most important department stores like Harrods, Selfridges, Harvey Nichols, Fortnum & Mason have got their own wine cellars. Again it is possible to approach their buyers directly, but only big brands can have a chance to be insert in their portfolio. Selling to their Wholesaler supplier can be a right move, adding value to the wine if accepted by such prestigious Stores.
4.2.2 On Trade
The market is very complex and fragmented, therefore it is advisable to sell to a Wholesaler or use the consultancy of a Broker which can provide a marketing mix (P8) service and target HO.RE.CA., or to independent retailers who can translate the Ribera del Duero brand value to the final consumer. Moreover, they can offer translation skills and a single invoice point to the buyer. The Export Manager can convince famous Spanish restaurants or Hotels to be the contact points for them with the importers and distributors. It is possible to find one importer distributor which covers all the national territory or single specific targeted areas in towns like London. This can make it easier to monitor and elaborate sales databases and decide to stay or change areas. As suggested in the USA, a Brand Manager can be introduced to follow the strategies closer.
4.3 Sweden Systembolaget State Alcohol Monopoly
In the Swedish jurisdiction there is a state alcohol monopoly which regulates the import, distribution and sale on their territory. It is called Systembolaget and exists for one reason: To minimize alcohol-related problems by selling alcohol in a responsible way, without profit motive.[28] Moderate consumption of wine is seen as part of a healthy life style, especially if matched with food. This has penalised Spirits and it is helping wines that can be linked to a healthy Mediterranean cuisine and tradition like Spanish wines: In the wine trade, Sweden has no aid to promote imports, unlike Spain, with grants and subsidies to export wine. The taxes are high with more than half the price in taxes. The purchasing power is high due to the good level of the Swedish economy in the EU. Exporters should have an authorized importer in Sweden to sell wine through Systembolaget or Horeca channel. Systembolaget controls the retail of all alcoholic beverages with an alc % over 2.5 % vol except from beer that can be bought in normal grocery stores with up to 3.5% alc. Vol. They exceed customer expectations by constantly changing their product range like specialists wine retail chains. The system remains very popular amongst the population. This is increasingly important for the monopoly because after entering the EU, the survival of the monopoly solely depends on whether the consumers wishes will continue or if they will prefer privatization. Systembolanger claims can have a world wine like selection and more rigorous quality control and better trained employees than in a free competition market. They own a nationwide retail network comprising 412 stores and 511 agents. The stores are divided into four types considering the following parameters: availability, service and finance. Their products range is one of the most extensive and complete in the world with 3000 brands of beer, wine and spirits. The number of stores is increasing and the smallest has got a range of 700 brands. Every year around 900 products are introduced after passing a selection tasting by trained staff. In 2005 Systembolanger received 17,773 tenders and sampled 11,859 products[29], this can provide an idea about the size of the operation. The wine that is rated the highest is purchased. A customer satisfaction system (Csi) is a strategical performance key indicator to outline the tenders buying strategy.” Swedes are not loyal to any brand of wines in particular. You have to make them buy the brand by communicating the characteristics of wine, benefits, and so do the Swedish consumers.
Spanish wines. All wines for the basic assortment are selected by a call for tender system. The monopoly sends out a list of products they are looking for and then the country’s importers send in samples. The samples complying best with the tender are tasted blindly and the product with the best quality/price wins and is chosen for the assortment. The fixed range is renewed twice a year, in April and October. Launches are made to supplement the selection. The launches are divided into category groups in order to respond to the sales trends and fashions.
Fixed launches: 1 April 2011, Wine in small and large bottles (Profile) Segment Module Origin Description Purpose Red wine small bottles T2 Spain Ribera del Duero, organic, twin launch with full-size bottle Supplement regionally and organic. [30]
The Swedish values have a profound impact on their sensitivity to environmental problems, demanding organic wines. Preferences are high for quality wines, warm, fruity, low in tannin. There are circa 570 like this to be considered. For a Ribera del Duero export manager a good indication is to find importers with at least 5 wines from Spain. In our specific case the Export manager can consider this opportunity to introduce their wine with the conditions stated above. It is essential to find an importer who has got good connections with Systembolaget and here we outline a limit of monopoly system that can be “corrupted”. A Swedish importer will be necessary and to get in touch with one, we recommend to contact the embassy or commercial office of Sweden. Helpful information can also be gathered from the Swedish Spirits & Wine suppliers: http://www.spritochvinleverantorsforeningen.se/.[31] In the practical example the tender asks specifically to: Fill out a form with technical information and sometimes an image of the bottle. Make sure that what is on offer matches the tender’s requests, both in terms of taste as well as the technical specifications given. Concealed Wines will do the paperwork and submit your request via Systembolagets IT system. While Concealed Wines does this, you have to prepare samples.[32] Then there is the temporary range that is changed 5 times a year and consists of seasonal products or products only available in smaller quantities. In addition to this there is the “ordering” range: a vast range of wines from the country’s importers that is not available in the shops but that can be ordered and will arrive in the chosen shop within 8 days. Finally, if the consumer wants to order a product that is not available in either of the above-mentioned assortments, they can be requested for a special import. These special imports are not handled by the monopoly itself, but by a subsidiary company.
Fabrizio Fichera state “Therefore it is a very difficult market to enter, but even small producers can fix their sells especially if they manage to get into the fixed base range. In the Horeca distribution channel it is very difficult to find importers ready to sell to restaurants. There are mainly 6 big nationwide distributors outside the state monopoly system and it is very difficult to introduce new products to them.”[33] On line sale is very well developed among Swedish consumers and a direct sell can be considered keeping in consideration restrictive advertising laws. An Export Manager can promote the wine with the support of the Spanish Embassy, Wine from Spain, Icex and information on the Oficinas comerciales web site[34] In the marketing mix aimed to find and meet importers participation to
Vinordic can be included, this offers numerous benefits:
– To make contact with new suppliers and customers
– To develop and strengthen relations with existing suppliers and customers
– Meet decision-makers and secure profitable deals
– Build and invigorate your brand
– Launch new products and identify new trends – Gain inspiration, experience, knowledge and new solutions[35]
[1] Consejo Regulator Ribera del Duero D.O. and Numbers of back labels issued over 2009 units- http://www.riberadelduero.es/eng/pressroom/factsandfigures.asp
[2] Jancis Robinson (2006), The Oxford Companion to Wine (3rd edition) US: Oxford University Press. Crianza: “…the wine must have spent at least 12 months in oak casks….With the term joven fully accepted for fruity young wine without cask ageing”
[3] Pers. Comms. David Gill Sale MW Sale Director Bottle Green mail 29.03.11
[4] Pers. Comms. Sergio de Luca Director of buying for Italy at Enotria Uk
[5] Dr. Hermann Pilz and Richard Grosche http://www.wine-business-international.com/161-bWVtb2lyX2lkPTEyNA–en-print_vorlage.html “…smaller producers from less illustrious regions must be more inventive in order to sell…”
[6] Refereed paper – 5th International Academy of Wine Business Research Conference, 8‐10 Feb. 2010 Auckland (NZ) http://academyofwinebusiness.com/wp-content/uploads/2010/04/Ruhdorfer-Export-intermediaries.pdf
[7] Pers. Comms phone call Richard Hunt, Chateau Musar’s representative in London 30th March 2011
[8]Jeremy Cook, chief economist at World First foreign exchange, 25.03.2011 Currency watch: Eurozone back in the spotlight http://www.thedrinksbusiness.com/content/view/12532/333/
[9] AWBC Winefacts 2009
[10] C.Michael Hall and Richard Mitchell 2010, Wine Marketing a pratical guide by Elsevier Ltd
[11] United States Constitution Amendment 21 http://www.usconstitution.net/xconst_Am21.html
[13] Corbin Counsel R. Corbin Houchins http://www.corbincounsel.com/about.html Corbin’s practice focuses on the interests of producers, brand owners, innovative retailers and other suppliers of wine, beer and spirits in market entry, distribution, regulatory compliance and other areas in which licensed beverage issues arise.
[14] Pers. Comms phone call Richard Hunt, Chateau Musar’s representative in London 30th March 2011
[15] Wine from Spain http://www.winesfromspainusa.com/WFSUSA/WFSUSA.htm
[16] Drink Ribera. Drink Spain http://www.drinkriberawine.com/trade-media/for-the-trade/
[17] Email April Cullom Brand Ambassador Drink Ribeira Usa, 25.03.11
[18] Wset Unit 1 2009 The Global Business of Alcoholic Beverages
[20] Wset Unit 1 2009 The Global Business of Alcoholic Beverages Vinexpo/IWSR 2009 pag.11
[28] Systembolaget http://www.systembolaget.se/English/ (accessed March 24th 2011)
[29] C.Michael Hall and Richard Mitchell, 2010 Wine marketing a practical guide by Elsevier
[30] Systembolaget, Launch Plan 2011, http://www.systembolaget.se/ImageVault/Images/id_12707
[31] Email Jakob Stenson Marketing & Communications Department Systembolaget 04.04.11
[32]Concealed Wines AB, Stockholm http://www.concealedwines.com/index.asp
[33] Pers.Comm. Fabrizio Fichera Export Manager Cantine Riondo Spa Italy email 27.04.11
[34]Minister of Industry and Commerce, Icex, http://www.oficinascomerciales.es/icex/cda/controller/pageOfecomes/0,5310,5280449_5296000_5516307_0_SE,00.html