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| April 4th 2008 |
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| How to break into the US market |
by Tina Caputo
With the United States on target to become the world's largest wine market by 2010, producers everywhere are hungrily eyeing the aspirational Americna consumers. But competition is fierce and distribution is concentrated in ever fewer hands. Tina Caputo asks what a producer or an importer can do to make an impact.
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It’s official: The United States is now the world’s second-largest wine consuming country by volume. In 2007, wine consumption surpassed 300 million cases for the first time ever, according The Nielsen Co., and imports accounted for a record-breaking 30% share of the U.S. market. To add to the good news, the market is being driven by adult Millennials—those between ages 21 and 31—members of the generation most likely to buy international wines.
American consumers outside of California are also promising targets for importers. According to the Wine Market Council’s 2007 consumer tracking survey, 73% of Californians favor wines from their home state, while only 56% of out-of-state participants said they prefer California wines over imports. The number of on- and off-trade wine sellers has increased dramatically in the last year: Today there are 8,000 more on-trade accounts and 6,500 more off-trade-accounts than in 2006, according to Nielsen Co.
All of these factors make the U.S. market highly attractive to overseas wine producers and importers. The down side is that, along with the market’s unprecedented growth comes unprecedented competition. According to The Nielsen Co., the number of active wine brands in the U.S. market jumped from less than 2,000 in 1999 to 4,000 in 2007. More than 3,000 new brands have entered the market since 2000. While America’s top 10 brands are losing market share, making way for new brands, it’s more difficult than ever to attract the attention of U.S. consumers and distributors.
Exchange rate and economy
The decline of the U.S. dollar has also presented challenges for importers, as price increases become inevitable. After holding off for the last few years, many importers plan to raise prices by as much as 20% in 2008. While high-end wine producers are confident that their customers will remain loyal, price increases for brands priced in the $9.99 to $12 category may cause Americans to seek out lower-priced wines. The weakening of the U.S. economy is likely to have a similar effect on middle-tier wines, though industry experts don’t see it as a long-term problem. The recent trend of “trading up” to more premium wines is likely to continue, they say, although sales growth may slow down temporarily.
Finding a distributor
Rampant distributor consolidation has left the industry with fewer options for representation in the U.S. market. With the remaining distributors overloaded with brands, some are reducing their portfolios, and are not taking on any new wines. With a shrinking number of distributors and a seemingly endless supply of new wineries trying to get into the market, it’s not always about which distributor you choose, but which one is willing to take you on.
If a supplier chooses to contact distributors directly, rather than paying a marketing/import company to handle it, |
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there are many factors to consider. For example, which markets are the best fit for their wine’s style, variety and price-point? Is the market already overrun with similar wines?
While it may seem logical to target large wine markets, like New York, there is a tremendous amount of competition in those regions. Would your wine be better off in a secondary market, like Detroit, where it will get more attention? You should also take into account regional wine preferences, which are often quite different on the coasts than in, say, the Midwest. It’s a good idea to talk to restaurant and retail wine buyers in various markets to find out what their particular needs and interests are. You can also set up customer group tastings and send samples to retailers to determine which of your wines will do best in a given market—and at what price-point.
Before you start targeting distributors in your chosen markets, make sure you can present a clear picture of how your brand differs from others in the same category. Be ready to present a comprehensive two-year business plan—including sales projections and marketing strategies. Find out as much as possible about the distributors in your target markets. (For a list, contact the Wine and Spirit Wholesalers of America: www.wswa.org.) Which brands do they represent? Do they fit your brand’s image? Is your brand likely to get lost among thousands of other wines in the distributor’s portfolio? Survey accounts in your target markets about which distributors have the best reputations for service, and which are best avoided. Call wineries that your target distributors represent and ask if they’re happy with their service, and whether the distributors are financially sound.
Before your wines can be imported to the U.S. for resale by a distributor, you must obtain label approvals for each unique product from the U.S. Alcohol and Tobacco Tax & Trade Bureau (TTB). The Certificate of Label Approval, or COLA, can be submitted in paper form or electronically (www.ttb.gov/colasonline), usually by the importer or the importer’s agent. For specific label requirements, see www.ttb.gov/wine/bam.shtml.
Tracking results
A good distributor will provide suppliers with monthly sales reports showing depletions and accounts. (Larger distributors will sometimes make reports available online.) Check in with distributors on a weekly basis to find out how sales are progressing, and to remind them of your existence. When you’re in the area, arrange to ride around with your distributor the day to check in on accounts.
When setting sales goals for the distributor, be realistic. Start with a two-year period of investment—any less will not be enough time to establish your brand—and create goals against the costs of |
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doing business.
Discounting and club stores
In addition to sales data, distributor reports include information about which accounts purchased your wine. If you’re concerned about discounting, monitor retail catalogs to find out how your wines are being priced. In most cases, prices vary between accounts by only a few dollars per bottle, unless they’re being sold at a club or warehouse store, such as Sam’s Club or Costco. While some producers think of club stores as damaging to the image of high-end brands, they’ve become increasingly important in the U.S. wine market. Nielsen Homescan data for the 52 weeks ending December 29, 2007 show that club stores accounted for 10.3% of overall wine sales.
In the last five years, club stores have expanded their wine selections to include many high-end brands. Today, it’s not unusual to find first-growth Bordeaux wines, along with wines like Grange and Opus One, in such stores. Selling through stores like Costco can create image problems, however, for restaurant wines. A wine with a suggested retail price of $50, for example, could sell for $30 at Costco. That same wine might appear on a restaurant wine list for $150, leading consumers to view it as overpriced. This is more of an issue for the trade, however, than it is for consumers.
Marketing matters
Perception of your brand by American trade members and consumers is shaped more by your marketing efforts than by discounting or club-store placements. Thanks to distributor consolidation, the responsibility for marketing and promoting new brands now falls to suppliers. Distributors are no longer willing to spend time building a brand, only to have it snapped up by another distributor a year later. Therefore, you should be prepared to distribute brochures, shelf-talkers and display items to accounts, or to provide staff training. The real value of distributors today is in their relationships with accounts in the various sales channels.
While it’s expensive to hire a dedicated U.S. salesperson, it is essential in successfully marketing your wines. Most distributors don’t have time to focus on any one brand, and having a representative in the field will yield better results than a supplier can achieve from across the ocean.
Market visits—two to three times per year, if possible—are also important for brand building and keeping your wine in the minds of your distributors and accounts.
The media
Media relations should also be part of your marketing efforts. Getting your product noticed by the wine media—represented by hundreds of regional writers in addition to influential critics like Robert Parker, Jr.—can make or break a new brand.
Unless you have personal contacts with American wine writers, it pays to hire a public relations representative or agency. Monthly fees can range |
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from $1,000 for a product launch to $6,000 per month for comprehensive PR services, from media outreach to label design. (For a list of wine-focused agencies and consultants, see www.winecolleagues.com/directory.html). When choosing a PR agent, visit the company or individual’s website for a client list, then contact wineries about their experiences.
While you can certainly obtain a list of media contacts and send out your own samples and information (resources include Bacon's Media Directories: us.cision.com/media-directories.asp, BurrellesLuce: burrellesluce.com) and the Wines & Vines Directory/ Buyer's Guide: winesandvines.com), writers are more likely to take notice if a brand is introduced to them by a trusted PR contact.
Ratings are an important sales tool in the U.S. market, but it’s unwise to rely solely on Wine Spectator scores to establish your brand. Make sure your message gets out not only to the top publications, but to newspaper wine columnists in key markets, lifestyle magazines and influential wine bloggers like Alder Yarrow (www.vinography.com) and Tyler Colman (www.drvino.com).
When sending wine samples, keep in mind that wine writers are unlikely to review your wine it’s not available to readers in their markets.
Beyond the distributor network
As more states open up to direct-to-consumer shipping (see http://wi.shipcompliant.com/ for state-by-state updates), online sales are becoming increasingly important to wineries. For small-production wineries and start-up brands without distribution, selling direct via the Internet can be a viable alternative.
Importers interested in selling online can take a couple of different routes: set up an e-commerce business in the U.S., or sell through a multi-brand wine marketplace website, like Bottlenotes (www.bottlenotes.com) or Vinomatch (www.vinomatch.com). Marketplace websites typically retain between 15% and 35% of wineries’ online dollar sales. Private label wines also offer opportunities outside the traditional distributor network. With an average retail price of around $5, these products offer consumers high-quality wines at lower prices than traditional branded wines. For suppliers, private label wines provide an outlet for surplus wines, and they benefit from aggressive promotion by the retailers and restaurants that sell them.
Sales of private label brands have grown by double-digits for the last three years—dollar sales increased by 54.3% in grocery stores during the 52 weeks ending May 19, 2007 to reach $1 million, according to The Nielsen Co.—though they still represent only a small percentage of the market. In 2006, sales accounted for less than 2% of the grocery store wine market. However, when you include outlets beyond grocery stores, such as on-trade accounts, the percentage is probably closer to 3-5%.
Most off-trade private label wine brands in the U.S. are “merchant brands”—those created specifically for a retailer, but not identified on the label as house brands. Though house brands, which bear the name of the parent company, are popular in markets like the UK and Germany, they are rare in the U.S. and are associated primarily with on-trade accounts.
Companies specializing in global private-label brands include Winery Exchange (www.wineryexchange.com) and KDM Global Partners (www.kdmglobalpartners.com).
Additional resources
For more information about the U.S. wine market, including sales data and consumer research, the following are excellent resources:
The Nielsen Co.: www.nielsen.com
MKF: www.mkf.com
Wine Market Council: www.winemarketcouncil.com
Wine Opinions: www.wineopinions.com
This is a longer version of the article that appeared in the magazine.
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