PUGLIA 2015 !Visit by U.S. delegation to
Puglia June 2015
U.S. Drinks Market: Options for Suppliers to Enter the American
Wine and Spirits Market
Hope is Not a Strategy
Model Has Changed
Suppliers
Distributors
Consumers
From To
Courtesy of Nora Favelukes, QW Wine Experts
The right “CHEMISTRY”Fills an identified void in portfolio
Brands with existing US volume they can growNew brands they feel their expertise can develop and
growBrands that have a unique positioning
Enhances image, value and profitability (Synergy with importer’s mission)
Strengthens importer’s position within the tradeSupplier understands the U.S. Three-Tier systemFinancially sound, budget to invest and support the
brand.
What Importers Want
Company description/historyProduct description – varietals, style, ranges, proposed US
retail price by line/sku, and price structuresBrand point of difference/value proposition for consumer;
why THIS importer should be interested in you.Marketing materials as backgroundA defined target audience Production InfoPast history of importers, distribution agreements, list of
distributors/brokers of products and volumes by statePrice structure for U.S.Marketing support budgetSamples
Presenting Your Brand to Importers
Brand Approval / Launch Timeline
Federal Label (COLA) Approval• 1 to 8 weeks
depending on product and complexity
State Registration & Approval• 1 to 8 weeks
including price posting where required
Product Ships To Wholesaler
Caution-New TTB Turnaround
Wine Brands Economics Example
Supplier FOB (Varies-Packaging etc.)
$ 29.00 Ocean Freight 4.50
Fed Tax/Duty (80 Proof) 3.30 PPU/BF/INS 1.4
0 Importers Margin (24% Margin) $ 12.14 Price to Distributor $50.34 State Tax .71
Freight 2.50 Distributor Margin (50% Mark Up/33%
Margin)26.37 Distrib. Price To Retail $79.9
2 Retailer Margin (50% Mark Up/33%Margin)
39.96 Retail Case Price $119.88
750ML / 12 Bottle Case Imported $ 9.99 Retail Bottle Price
Bottle Price $9.99
Read the Book
U.S. Population 2013By Single Age
0.0500,000.0
1,000,000.01,500,000.02,000,000.02,500,000.03,000,000.03,500,000.04,000,000.04,500,000.05,000,000.0
Age
About 4 million people
more than the cohort ahead of
them.
Source: US Census CPS, 2014.
New Adults
Two Thirds ( 2 out of 3) of these people
drink alcohol according to Gallup
Poll!
Alcohol Beverage Import Values Beer, Wine, Spirits 1992 to 2013
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$0
$2,000,000,000
$4,000,000,000
$6,000,000,000
$8,000,000,000
$10,000,000,000
$12,000,000,000
$14,000,000,000
$16,000,000,000
$18,000,000,000
Beer Value Wine Value Spirits Value
Per Capita Alcohol Beverage Import Values Beer, Wine, Spirits 1992 to 2013
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$3 $3 $4 $4 $4 $5 $6 $6 $7 $7 $8 $8 $8 $9 $11 $11 $10 $9 $10 $10 $10 $10 $4 $3 $4 $4 $5 $6 $6 $7 $7 $7 $8 $10 $10 $11 $12 $14 $13
$11 $12 $14 $14 $14
$6 $6 $6 $6 $7
$7 $8 $9 $9 $10
$10 $11 $12
$13 $15
$16 $16
$14 $16
$18 $18 $19
Beer Value Wine Value Spirits Value
Continued positive growth across Alcoholic Beverage
Source: Nielsen Scantrack; All measured off-premised channels (AOC+Conv+Military+Liquor Plus)
2012 2013 2014$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Beer/Cider Wine Spirits
$ M
illion
s
+3.4%
+3.2% +5.0
%
+3.1%
+4.2% +6.6
%
Sprits up 5% in dollar volume, followed by Beer 3.4%, and Wine 3.2%
GuestMetricsNational Association of Beverage Importers
March 2015
GuestMetrics Update
• Collecting data from 15K locations daily today• Aggressively ramping with 10K+ more coming in ‘15• Total number of transactions 1.3B+ today• Total Dollar Sales captured = 41B+ today
• Capturing all transaction level data: • Entire basket including food items, flavors• Every item time stamped, during of occasion captured• Table, server, tender, tip, party size
• Strategic alliance formed with IRI in April ’14 – data science/projections
• Coming in ’15: Tying credit card data to transactions for consumer insights
• On-boarding National accounts
2.0%
-0.8%
2.8%
-2%
-1%
0%
1%
2%
3%
4%
Sales Traffic Price / Mix
On-Premise: Year-over-Year Growth (2014)
On-Premise traffic was down slightly in 2014 - though increased pricing led to positive sales growth
Traffic declined across On-Premise channels… and was particularly weak in Bars & Clubs
0.3%
-0.6%
-1.6%-2.1%
-3%
-2%
-1%
0%
1%
2%
Lodging Casual Dining Fine Dining Bar / Club
Year-over-Year Traffic Growth by Channel (2014)
Traffic to the channel continues to improve…
-2.4%
-1.4%
-0.8%
-3%
-2%
-1%
0%
2012 2013 2014
On-Premise: Year-over-Year Traffic Growth
Note: Sample size increasing over time
…and recent traffic trends have been encouraging (after a rough start to 2014)
-3%
-2%
-1%
0%
1%
2%
3%
1/26 3/23 5/18 7/13 9/07 11/02 12/28 2/22
On-Premise: Year-over-Year Traffic Growth(4 weeks ending)
Food is 2/3rds of On-Premise sales… and alcohol is 27% of total revenue
5.5%6.4%
8.9%
11.5%67.7%
Share of Total Food & Beverage Sales (2014)
Non-Alc Bev
Wine
Beer
Spirits
Food
27%
…but total sales mix varies significantly by channel
7%24%
2% 7%4%
6%
15% 10%8%
29%
8% 15%6%
3%
3%11%
75%
38%
72%57%
0%10%20%30%40%50%60%70%80%90%100%
CasualDining Bar/Club Fine Dining Lodging
Total F&B $ Sales Mix by Account Cat. (2014)
Food
NAB
Spirits
Wine
Beer
…some of Beer’s weakness was likely due to lower total average check (i.e., weaker value proposition to operators)
$20 $26
$73 $90
$135
$0
$20
$40
$60
$80
$100
$120
$140
$160
Alcohol Only Food Only Food + Beer Food + Spirits Food + Wine
Average Check by Type
Spirits dominates late night, Wine important at dinner
41% 39% 31% 30%
20% 22% 30%11%
39% 40% 39%59%
0%10%20%30%40%50%60%70%80%90%100%
Lunch Happy Hour Dinner Late Night
Alcohol $ Sales Mix by Day Part (2014)
SpiritsWineBeer
Traffic Growth: 0.4% 1.5% -1.5% -3.4%
-0.9%
2.0%
-0.7% -1.1%
-2.7%
-5%
-3%
-1%
1%
3%
Total Lodging Bar / Club CasualDining
FineDining
WINE -- Y/Y Unit Growth by Channel (2014)
Shifting gears and looking briefly at the Wine category… Wine volume has been struggling in Fine Dining
73.8%
26.2%
74.7%
25.3%
74.7%
25.3%
75.2%
24.8%
0%
25%
50%
75%
100%
By-the-Glass By-the-Bottle
WINE -- $ Sales Mix by Container
1H13 2H13 1H14 2H14
Consumers have continued to trade down from bottles to glasses when ordering wine…
…and have continued to choose higher end brands within by-the-glass, but not by-the-bottle
23.9%
47.3%
24.5%
46.6%
24.7%
47.2%
24.4%
46.3%
0%
25%
50%
75%
By-the-Glass By-the-Bottle
WINE -- Ultra Premium / Luxury Share of $ Sales(>$14 per glass, >$70 per bottle)
1H13 2H13 1H14 2H14
Cab Sauvignon, Sauvignon Blanc & Prosecco have gained the most share in wine, while Merlot & Champagne lost the most ground
Cabernet Sauvignon Sauvignon Blanc Prosecco Malbec Red Blend Pinot Noir Moscato Bordeaux Blend
Merlot Champagne Riesling Zinfandel Pinot Gris White Zinfandel Shiraz White Blend
What’s Hot… …What’s Not
Additionally, in terms of growth in price/mix, Beer increased faster than Spirits increased faster than Wine, which could also be a contributing factor of Beer’s soft volumes
3.6%
2.2%
1.5%
0%
1%
2%
3%
4%
Beer Spirits Wine
Y/Y Price / Mix Growth by Alcohol Segment (2014)
Your Options1. Large National Importer
4. Specialist Company that both
Imports and Distributes
3. Regional or Multi-
State Importer
5. Set Up Your Own
Import Company
8. Chain Retailer
Exclusive Brand
9. Direct Import thru
Control State
7. Large Distributor that also Imports
2. Specialist National Importer
6. Nat’l Licensing, Import and Services
10. Wine Club/ E-
Comm/ Flash Site
1. Large/National Importer
1. Large/National Importer
Pros ConsExisting national distribution network
Small brands get lost in portfolio.
Clout with distributors, your brand benefits from their portfolio strength
Agency brand gets lower priority than owned brands.
Large sales force Importer controls pricing, marginsOn staff marketing department, existing ad and PR agencies
Internal competition for company resources
Participate in their sponsored events: portfolio tastings that attract more and more important trade, press than you could reach on your own.
Importer determines marketing strategy, creative, promo, POS…fits your product into their portfolio
Existing business with chain accounts
Set up to work with bigger suppliers, focus on big volume brands
“National” price
2. Specialist National Importer
2. Specialist National Importer
Pros ConsExisting national distribution network
Smaller brands less important to distributors.
Participate in their sponsored events: portfolio tastings that attract more and more important trade, press than you could reach on your own.
Importer controls pricing, margins, brand priority, creative look and feel, fits your product into their portfolio
Category expertise Specialization may mean limited appeal
On staff marketing personnel Limited in house marketing and sales resources
Existing business with chain accounts
Sales management presence in multiple states limited.
3. Specialist, Regional or Multi-State Importer
3. Specialist, Regional or Multi-
State Importer Pros Cons
Smaller, more focused and nimble Limited geographic reach
Get more attention/not lost in the portfolio
Limited capital, credit, payment history may be a problem.
Specialize in specific area (country of origin, indigenous varietals, price)
Smaller/limited resources, limited capital availability, often no marketing staff, small sales staff, hire out PR on project basis.
The smaller you are, the smaller the importer should be
Tend to be with smaller, specialty distributors so don’t get wide off and on premise distribution.
If you only make 50,000 btls, you don’t need national distribution, you need strength in a limited set of markets.
Limited interest in investing in the brand, likely that the majority of marketing has to come from brand owner.If you have multiple importers, will need multiple labels …implications on inventory, compliance
4. Specialist Company that both
Imports and Distributes
4. Specialist Company that both
Imports and Distributes
Pros ConsMore motivated to work with you because they control two levels of margin
Relatively limited sales force
Focus on major markets/cities, not outlying areas.
Limited geographic reach
Specialize/known for something: country of origin, wine style
Different importers in different states require separate labels…inventory management issuesSmaller/limited resources, often no marketing staff, small sales staff, hire out PR as projects.
May take lower margins at each tier because keep both.
Not sustainable price structure if move to traditional importer/distributor relationshipMarketing has to come from brand owner.
5. Set Up Your Own
Import Company
Pros Cons100% of attention to your brand. Bear the complete cost of
everything, can’t amortize anything, need volume to make it work.
Have complete control of everything: marketing, sales, pricing, distribution, margin, focus, message.
Need people with lots of skills: marketing sales, import logistics, warehousing, which can take your eye of what you should be doing…promoting and selling.
Works better for spirits than wine. Not your expertise
5. Set Up Your Own
Import Company
6. National Licensing, Import and
Related Services
6. National Licensing, Import
and Related Services
Pros ConsVery efficient at what they do Do not do marketing.
Cost savings in logistics, freight consolidation, etc.
You will need either a rep in country or you’ll have to hire someone who can do the things below
Only pay for services you need Need to do everything else yourself: marketing, sales planning, distributor management, marketing, inventory, pricing etc.
“Incubator” distribution services in NY, NJ, CAHandle cash flow, invoicing, billbacks and other price modifications and distributor deals.
Need to find/set up distribution network.
Quicker market entry
7. Large Distributor that also Imports
7. Large Distributor that also Imports
Pros ConsBuilt-in distribution network, integration
Distributor is focused on satisfying needs of big internationals like Diageo, Bacardi, Pernod. You will never be a priority.
Existing sales force Not in the brand building business
Efficiencies and margins of having combined functions of importer and distributor
Can’t/don’t work with multi-state chains on or off premise if have operations outside their markets.
May get more attention here than with a large national importer.
Difficult to get distributors in states where this distributor does not operate. Dist’s are not interested in helping competitive distributors make money
Primary business is distribution and sales
Not their primary business
8. Chain, Retailer
Exclusive Brand
73 stores, 11 states
Anakena
500 stores, 19 states
8. Chain, Retailer
Exclusive Brand
Pros Cons“Shadow” distributor works on very low margin, so retailer has more room to price aggressively
Extra margin does not usually accrue to supplier
Establish distribution in multiple states quickly
Limited to selling through only that retailer or retailer group
Minimal marketing costs (Don’t need to fund distributor incentives, consumer awareness programs)
Limited opportunity to grow brand outside dedicated distribution, no on premise business.
Immediate volume with first order Business limited to the states in which the retailer operates. In Total Wine example, no opportunity for sales in NY or IL.
9. Direct Import thru
Control State
9. Direct Import thru Control State
Pros ConsGetting “traction” in one state can get the interest, credibility with other import options.
Only works in one state
An experienced broker with relationships in that specific state can facilitate.
Broker generally only knows that one state.
Not a scalable strategy.
10. Wine Club/E-comm/
Flash Site
Wine Clubs E-Commerce Sites
Flash Sites
10. Wine Club/
Ecomm/ Flash Sites
Pros ConsAn option…to at least get a beachhead.
Limited reach to only their customer base
Low support costs for supplier. Retailer assumes burden of marketing, securing customers.
No real brand building for the long term.
Can represent good volume via a simple sales, shipping, inventory, labeling process to a single customer.
Every sale involves a DTC shipping cost to retailer, meaning a lower margin to supplier.
E-commerce allows you sell in states even where you don’t have a distributor.
E-commerce represents limited volume potential…now.
Off premise solution only
11. Other ideas
Enter competitions to get U.S.-based ratings and reviews. Some will work with brands that do not have a current importer. (Great way to legally import samples)
Use Wine Enthusiast Importer Connection program.US trade shows: click here for updated list
WSWA/US Drinks Conference/US Beverage Alcohol Forum, Nightclub and Bar Show, Manhattan Cocktail Classic, NY Bar and Wine Show, Tales of the Cocktail,
Data on U.S. market, brands, volumes, share, trends: Beverage Information Group Handbooks for Wine, Liquor, Beer, On-premise
ImporterConnect™: Service to help find U.S. importers
Only US domestic wineries may ship direct to consumers (DTC)
EU wineries have very limited ways to access this market
Small and medium wine producers are most negatively impacted - not otherwise commercially viable due to limited production.
US wine Importers should be recognized as a well regulated conduit to DTC. Estimated 1200 active US importers approved by TTB
Only 14 states permit DTC shipping by retailers
The US Wine market is experiencing a significant increase in “Private Label” wine brands. This practice is disruptive to the three tier system and can be offset by SME suppliers finding a conduit to consumers through direct shipping. The US DTC wine market was opened to domestic wineries by the 2005 decision of the supreme court in Granholm v. Heald 544 U.S. 460 (2005)The US three tier system (Wholesalers) can present headwinds to this initiative
Out-of-State Wine Retailer Shipments Allowed in 14 States and DC: AK, CA, DC, ID, LA, MO, NE, NV, NH, NM, ND, OR, VA, WV, WY
DTC Shipping by Out-of-State Wine Retailers (American Wine Consumers Coalition)
MT
WYID
WA
OR
NVUT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MNWI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWVOH
MINY
PA
MDDE
NJCTRI
MA
MEVT
NH
AKHI
Size of the winery direct shipment market?
$2.5 billion value of winery DTC shipments is 8.6% of total US wine retail off-premise market value. (+ 7.5% YOY)
-- (5.6% of total $28B US wine market)
3.47 million cases is approximately 2% of total wine retail off-premise wine volume. (+9.3% YOY) (1% of total US wine volume)
A Few Important Numbers
Limited production wineries 0 to 999 cases made 3.8% of shipments (4.9% of value)
Very small wineries 1,000 to 4,999 cases made 14.7% of shipments (21% of value)
Small wineries 5,000 to 49,000 cases and under made 47.8% of shipments (47.3% of value)
Midsized wineries between 50,000 – 499,000 cases made 28.5% of shipments (23.2% of value)
The largest 55 wineries (each over 500,000 cases) made only 5.2% of shipments (3.7% of value)
Who is Shipping?
Limited production winery 0 to 999 cases - $48.56 per bottle
Very small winery 1,000 to 4,999 cases - $54.05 per bottle
Small winery 5,000 to 49,999 cases – $37.33 per bottle
Medium winery 50,000 to 499,999 cases - $30.68 per bottle
Large winery 500,000+ cases - $27.12 per bottle
What are they each shipping?
DTC allowed DTC prohibited
Direct-to-Consumer Shipping (as of 9/19/14)
Varietal Info, Regional Info, Price Category Info, etc.
Download from www.shipcompliant.com
Lots More Terrific Data
Domestic Small Beer and Wine Producer Credits
Lower excise tax rates (not available to imports)
Wine - $ .17 vs $ 1.07 per wine gallon
Beer - $ 7.00 vs $18.00 per 31 gal barrel
Small Wine Producer = >250,000 gal , $.90 on first 100,000 gals
Small Brewer = > 2 million bbls, $7.00 per bbl on first 60,000 bbls
No excise tax on the first 7,143 barrels; $3.50/barrel on barrels 7,144-60,000; $16/barrel on barrels 60,001-2 million; and $18/barrel on every barrel above 2 million. Applies to all brewers both domestic and import
Small brewer defined as under 6M bbls $3.50 on first 60K bbls $16/bbl 60,001 to 2M $18/bbl 2M to 6M bbls Limited to domestic brewers only
Fair beer Act H.R. 767 would:
Small Brew Act H.R. 232 would:
US Competitions
Do not need a US importer to enter Need a US importer to enterUltimate Beverage Challenge Beverage Testing Institute
MicroLiquor AwardsNY International Spirit Awards
Indie Spirits CompetitionSan Francisco
International Wine Comp.Spirits International Prestige Award (SIP)
Steve RayeManaging PartnerBrand Action Team 1 Darling Dr.Avon, CT 06001 860-676-7900sraye@comcast.netwww.TheBrandActionTeam.comwww.BATChat.net (blog)
Contact
Grazie di cuore per il vostro tempo e
ospitalità