Ep. 544 Ryan Malkin | Get U.S. market-ready with Steve Raye

Thanks for tuning into my new show. Get US Market Ready with Italian wine people. I'm Steve Ray, author of the book how to get US Market Ready. And in my previous podcast, I shared some of the lessons I've learned from thirty years in the wine and spirits business helping brands enter and grow in the US market. This series will be dedicated to the personalities who have been working in the Italian wine sector in the US, their experiences, challenges, and personal stories. I'll uncover the roads that they walked shedding light on current trends, business strategies, and their unique brands. So thanks for listening in, and let's get to the interview. Welcome. This is Steve Ray, and, thank you for joining this week's edition of get US market ready with Italian wine people. This week, I'm particularly pleased to have as a guest attorney Ryan Malkin. He's a very well known and, widely published and referenced in a lot of the communications in the trade side of the business. Ryan, thank you for joining us. And why don't you give us a a brief bio of your background? Thank you for having me. So my experience in the industry as an attorney started at Purno Recard USA, which as many people know is the importers of wine such as Perry Juettes and spirits like Klan Livid and Malibu and Kahlua and the list goes on. And prior to joining Pernod Ricard, I was a prosecutor Manhattan at the New York County District Attorney's Office. And then even before that, I was a writer. It did quite a bit of writing for industry publications like beverage media and Sante and other publications, including Spark money in the Wall Street Journal and Esquire, about the alcohol beverage industry. So I've I've been aware of and know the industry very well. And after leaving Purnova card, when I moved to Miami, I started a practice and now worked with many industry members, including some of the biggest brands in the world, and some of the smallest and people who are trying to enter the US market. So we work with people from all over the world who are now, you know, industry members here in the US. Ryan, one of the issues that, a lot of imported brands face is a lack of understanding of what we mean by franchise states. Can you explain what a franchise state is? Sure. So there are a number of franchise states. And what that really means is that the distributor has the rights to that brand think of it almost like McDonald's, right, where if I'm putting up all the money to have a McDonald's of my own, and then McDonald's pulls the ability for me to sell their, you know, big mac. Now I've put all this money into my little McDonald's that I own, And now I can't sell big mess and so I'm out of business. So that that's kind of the theory from the alcohol beverage side of it. And the idea is that the distributor has the rights to your brand, and you can't terminate the distributor, but for very limited circumstances, stances, oftentimes a good cause or just cause depending on the state laws and good cause or just cause is oftentimes obvious things like bankruptcy, you know, loss of a license, But it can also be failure to comply with a material provision of a contract between the parties. So that's why having contracts and franchise states can be important. I just wanna kinda preface the rest of our conversation with the fact that nothing in this you know, chat is, legal advice, but rather just for information, educational purposes only and specifically not legal advice. So if you have any legal questions, certainly consult with an attorney. Obviously, you can reach out to me, and we can talk about that or whoever your attorney may be. So one, addition to, the whole franchise state issue. So some of the the key franchise states that we tend to work with on a regular basis are Massachusetts, Connecticut, New Jersey, Georgia, and there are a bunch of others. And varying, I guess, levels and flavors of different franchise laws. But what it means effectively is in the US, the lineup of distributors in franchise states is going to be different than what we would call open states, where there are normally two major wholesale companies in each market. In franchise states, there's still a lot of the little guys. There's still a lot of independence, and that's why the franchise law existed. What I find is it's it's often a good thing to think about franchise states as a place for market entry Because you have a different set of people that you're dealing with that may be more receptive for smaller or craft brands. Your thoughts on that? In practice, I haven't seen that necessarily because the brands still wanna target the states like the New York or the Texas or the floors or Illinois. Necessarily meaning the franchise state, but they still wanna be in the big states. New Jersey obviously is probably the biggest of the ones you mentioned in terms of sales volume. And and so, yes, they do wanna bring in brands, and it may be easier to get in with a smaller distributor in those states than, you know, a Southern RDC or breakthrough in a bigger state, but you have to be careful when doing that so that you're not jumping to the state because they'll take you on, but they're taking you on because they wanna lock you in forever. Right? So there's that analysis you have to do. So I I I have not seen that specifically that we're like, well, we're gonna target only these franchise dates because we think it will be easier. I have not seen that strategy per se. It's an example of a different strategy than the, quote, unquote, traditional route to market. And that's the big challenge. A lot of people wanna come into the US and work with an agency brand importer, and they get upset that, everybody else is making more money on their wine than they are, which is true. And so they're trying to manage and control margin for all the players down the road. My recommendation to everybody is don't try and control somebody else's margin. Make sure you're getting paid enough for your product. And you have a plan of action that works in that particular market, not just through one importer. Right. And so I think sometimes the analysis is not necessarily picking and choosing franchise states versus open states, but rather where can you have the most effectiveness and where can you allocate your money? Do you have for instance, do you have a salesperson potentially that you bring on to, you know, your side of that lives in Colorado or lives in Florida or lives in, you know, Washington or wherever they may be? Because the old saying is you know, go deep not wide, and your money will also most likely go further in a smaller market versus, obviously, in New York City where everybody's competing, and wants to be. So, certainly, that analysis is important. And I think the other thing to consider is whether or not you're planning on just patching packaging your wine and selling it to somebody in the US and calling it a day or taking a more active role in the market where going with a park street or an MHW or an L and Tenny makes certainly a lot of sense because now you're taking control of the market somebody who's more of a service importer using potentially that self distribution model where you're you're using their license and they're still the licensee selling as a whole reseller, but you're basically doing the work and saying, you know, go sell a hundred cases to Costco or whatever it is. That makes a lot of sense if you're gonna be in the market and manage it. So I think there's there's some considerations there. Yeah. And just to add to that, I'm not saying that is the best strategy for everybody. There is no one strategy that's best for everybody. You have to adapt to everything to your particular situation, and it helps to have somebody in the US whether it's a a a consultant or advisor like me or an attorney like you to help people identify the questions they have to ask and figure out what is the right route to market? But one of the fundamental things I try I recommend to people is try and postpone decision making as much as you can down the road. In other words, don't go looking for your forever importer on day one. You're much better off getting your start in the market. Failing in front of your friends, learning how this thing works, and then you're in a much better position. So if you're going to go to a forever importer first, you don't really have much of a story to tell. But if you've established a track record in a given market with a service importer down the road. Once you have, some examples of success that you've had in the marketplace, you're much better positioned to talk to a perspective agency brand import. It also gives you certainly more leverage in contract negotiations when you have sales. You can say, well, I'm gonna turn over, you know, a hundred accounts with x number of sales versus saying I have zero and, you know, help me get there. So you have a much, a much stronger position as well. Yeah. And we we hear this all the time, and that's one of the things I try. If if you bring the salespeople that I know that have been successful are bringing something new to the market and what everybody in the chain, whether it's the importers, whether it's the distributors, or the on or off premise retailers is, what are you doing for me? What's in it for me? And if all you're doing is bringing me a brand, thank you very much. I don't need another, whatever, someone you'll block from New Zealand. But if what you're bringing me is new customers, or customers coming in more frequently or customers telling other people to come into the store. Now you're providing something of value, and that helps mitigate some of the risk that is a concern for them. So one of the key issues that everybody in the industry, I think now recognizes was that we were probably ten years behind the rest of the world, maybe even further. Everyone's experience in working with Amazon, so your expectations are that's the standard of excellence that everybody else should be performing at. And no one really cares about all the complications that we deal with on a regular basis in the US market, but they wanna be able to buy the products that they want. And so we see a lot of evolution of e commerce. Well, then came COVID. Now what's happened is We've, I think, caught up in the ten years where we were behind. We've also advanced ten years about where we were, and I don't think we're at Amazon's level of excellence yet, but we've gone twenty years in ten months, twelve months now. Could you talk a little bit about how the rules and regulations of e commerce have changed and what the different flavors of players are such as pure players like wine dot com versus delivery within an hour versus retailer selling, direct to consumers in trust state versus retailer selling in Turkey. Sure. So, yes, there's been a lot of changes since COVID. By and large, those changes are allowing in state suppliers, let's say, an in state distillery can now ship interest rate oftentimes. Not in every state, but as an example. And in terms of the players, let's sort of walk through what the options are. There's the drizzlies of the World or Uber Eats, drizzly. However, you know, with however they wanna rebrand it with the acquisition. There's you know, mini bar, there's a number of platforms as, you know, wine dot com. Let's go through them a little bit because they're a little bit different. So drizzly is not a license holder. They're a, basically, a third party platform third party marketing platform. And what happens there is you buy on drizzly. And in fact, on drizzly, you know which liquor store or or wine shop you're buying from, and it will say, okay, I go to drizzly as the platform, and it's being fulfilled by, and the money is going to a retailer who's ultimately going to deliver it. So, you know, Joe or Bob's liquor store, whatever it is is the one who's actually delivering my product. I'm going to drizzly because it's the platform that I know and trust in order to get wine direct to my home. Then you have wine dot com, which does have retail licenses. So has a little bit of a hybrid model where they they actually deliver the wine to you through their retail licenses in the states where they have retail license and then have partners in other states as far as I understand it. Then there's the the other option, which is a little bit more like a white label option where you have the passion spirits, there's bar cart, there's, Bev Shop, there's, speakeas. So there's a number of platforms. There's thirsty, where I click on your website, it says buy now. I click buy now, and it feels like I'm buying from your website and direct to consumer. However, what's happening on the back end is it's actually being rerouted to the third party marketers website, like a drizzly but it's really white labeled to make it look like my site. And the ore is being still funneled to a local liquor store who will fulfill the order and ship it to the or deliver it to the person, whether it's in thirty minutes or more likely the next day or next couple days depending on location. So you have basically the the sort of buckets are either a licensee who's shipping it direct to the person because they have the license to do it. A third party marketer who doesn't have the licenses, but passes your order to the appropriate licensed person, like a drizzly or the white label third party marketer. Those are kind of the buckets. And of course, the the sort of biggest bucket is domestic wineries who can ship by and large everywhere So we've got these options on e commerce. The challenge for exporters is, it's complicated enough for us in the industry who are advising people. It's changing on a daily basis. How are export brands supposed to deal with all of these new opportunities, which really may be primary opportunities for them because the traditional route to market may be closed to them? Well, I have seen imported brands take advantage of quote unquote direct to consumer. When we say direct to consumer, we don't mess this. We don't really mean a direct to consumer from the winery like we do in the domestic winery sense. We really are talking about the options that they have which are. Right? So Drisley is a interstate delivery model. They don't ship, and its retailers don't ship interstate because there are very limited states that allow interstate retailers to deliver. So what Drisley does is just it's almost like the FTD model for flowers, right, where you, you know, ping to the person receiving the product. What's the closest liquor store? Okay. That's probably who's gonna, you know, you're gonna pick to get it. Whereas other models, like the third party marketers will often use retailers. It's again, it depends on the number of states that the wine is available. And if the wine is available in fifty states, then perhaps drizzly is a great model or some of these other options that are available everywhere. When the wine is available in a limited number of states, your options for penetrating the most number of states for delivery or shipment, rather, is more limited. And so what happens is what I've seen anyway is brands will will create a white label page for their website. They'll do a lot of social media. They'll drive people to their website and to order. And the third party marketer will have relationships with retailers in the key number of states, including states that one has distribution, and that retailer then makes the decision of where it can ship. And that may, in fact, be interstate whether permissible or not. And that's sort of where oftentimes this issue is that the retailer is oftentimes shipping interstate in violation of the incoming state's rules and usually making this argument if you look carefully at their terms and conditions, it will say, while the title is taking place here in changing in California, and we're acting as the agent of the of you, mister consumer, or missus consumer, to ship it to you across the, you know, state lines. And that's oftentimes what the argument is. And then the question, of course, is does the brand in Italy care that this retailer who happens to care their wine in California is shipping their or their wine across states in violation of the law? And and that's the question for the winery. Yeah. So when when I talk to people if if they're going the traditional agency brand route, then you can pretty much rely on the importer to no understand and be active in e commerce because they've got a whole portfolio that they're doing it. I don't think it is the responsibility of the export brand to understand the US e commerce market as rapidly as it's changing because they're just one brand. To me, it's kind of the balance of what is the balance of rights and responsibilities for marketing your product. In an agency brand model, generally speaking, the agency importer takes on that responsibility. What we're seeing more and more is even with that model, the expectation on the part of everybody is that the supplier is gonna take much more of an active role in, marketing the product. Right. And I agree. It's often outlined in the contract between you and the agent importer you know, who's responsible for above the line and below the line and how much of each spending on advertising and marketing and all those sorts of things. But oftentimes, the brand controls their own social media channel, and that's where the question is, and is, are you gonna add some sort of bifunctionality through either your website or social media and who's responsible for navigating those issues and how to deal with it. Boy, and I'm actually in the middle of, dealing with one of those right now. So it's certainly timely for me. I'm gonna come back to contracts in a minute because I think that's an important part. But the last last point I wanna make about e commerce is there's a lot of confusion in the industry between the words or phrases DTC, which means direct to consumer and e commerce. A lot of the literature that you'll see in the trade magazines, especially in newsletters that you, especially from California, when they talk about DTC, when Rob, McMillan of Silicon Valley Bank talks about DTC, he's talking about direct from a wine domestic winery to a consumer. I use the term e commerce to cover that as it relates to export brands. And you I'm sure you understand the reasons for that. Do you agree with that that that there's that confusion out there? I think the DTC can be confused. Yes. Because when even, whether it's a winery or distillery who or be, you know, brewed or whatever, they use the DTC and yes, you have some sort of sense that, oh, I'm going literally direct from my supplier to the consumer. And so there there can be some confusion around ambiguity because I may be using it in a way where I, you know, you may be using it in a way well. Yes. Directly from the supplier, whereas articles and other things may really be the feeling of direct to consumer, but it may it may not actually be it, which you noted as e commerce, which maybe is a better option to explain that. Yeah. I think the parallel is the use of the word FOB, traditionally means freight on board or free on board and describes the price from the winery to the person who's purchasing it, whether it's you know, the dock at the winery or whether it's over the rail on the ship. And yet in the US, it's also used as the importer's price to the distributor. So we have the same word with different meanings. One of the things I try and stress with all my people is to make sure that you're all using the same definition of terms. We see a lot of, issues with margin and markup. Same thing. Right. So what's your e commerce solution versus your direct to consumer solution knowing that direct to consumer is not actually viable for you. So the question in it from the wanna read to their importer or other agencies? What is your e commerce suggestion or solution? Exactly. Well stated. So you brought up a word there that's kind of fraught with all kinds of things, and frankly is probably the reason you exist and that's contracts. And so some discussion about when somebody's first starting in the marketplace, it's done with a handshake and people are proud of that. My personal point of view on that is, look, you you want something written more for the fact that so can remember who said what and what you agreed to. So it should be in an email form or something like that. Whether or not, that's enforceable as a contract. I don't know, and frankly, don't care. But I've also heard a lot of attorneys say, yeah, don't start with a contract. Because the relationship is still too tenuous, and that raises a whole bunch of issues that have to be discussed that may not be relevant at this point in the in the stage. Can you talk about should I get a contract? Should I not? And with who at what level? Right. I think it depends on who you're using as your provider. So if you work with a, you know, Park Street, MHW, Alan, any type of company, certainly, they'll send you a pretty basic contract, and it'll be relatively easy to get out. You give notice, and that's the end of it. So that might be one solution and one one option. If you're going with a more formal arrangement, you you need to analyze actually the next step, which is where the issues are. Because without a contract, typically, you can terminate your importer, but what if that importer went ahead and gave your brand to a number of sub distributors and you terminate the importer, but now you're stuck with the sub distributors, which goes back to our franchise question. So And in many cases, are not even aware that that was, that's taken place because the importer had not communicated that to you as the supplier. Correct. So, obviously, as as a attorney, I often, you know, want a contract in place. So I know how I can terminate you and whether or not you're going to get releases from these various sub distributors. So it it's a little bit of an analysis in advance to consider. Do I wanna just be able to terminate the importer? Well, I know which states they're going into? Am I okay getting locked into these states? So I know I can, you know, I'm gonna be locked into those states, but I know at least I can terminate my importer. So I think you need to analyze that, but oftentimes I do end up having a contract with most clients for their importers. Even with small players, maybe going into a market like, Georgia, franchise market like that for just doing a test in Atlanta. You would still recommend a contract? Maybe not. You'd have to look at on a case by case basis, but the the default is oftentimes to have at least something where we know who's responsible for what and how I can get out. So I I oftentimes will have a contract, but you're right. There is an analysis to be done. If it's a small test run and you're comfortable being locked in, you'll know at least you can terminate that importer than, you know, probably relatively low risk to just move ahead. We work with a lot of importers as well. And so for us, we actually want a contract. And so the importer will often impose one or require one to move forward. And then it ends up being of a more of a negotiation. Unless, the importer is also the distributor and knows they're gonna be locked in because of a franchise state. My experience has been that, especially when it's in a an initial agreement. There's all kinds of emotions going on. There's all kinds of unknowns, and there's as, our former defense attorney said there's unknown unknowns. For things that people don't know that they don't know, that might come into play. And it's not uncommon in my case to see contracts that have clauses in there that are for the benefit of whoever wrote the contract. And most suppliers that I work with would not have an attorney who would recognize the would not have an attorney, period, or and or would not recognize those clauses on their own. What kind of recourse does somebody have to say, gee, I signed this thing. I didn't realize I was gonna be stuck in this. Now what do I do? Well, unless there's a reason that they were persuaded and, you know, signed the contract under duress or, you know, for some reason, they they have the ability, certainly, to hire an attorney, whether they do so or not is perhaps at their detriment. Actually, that was the point I was trying to get at, it which is if you feel that you want a contract, you better hire an attorney and experience beverage alcohol industry attorney who understands all the ramifications of that to enter into a contract on your own thinking, oh, I can read contracts and understand the significance of that, maybe, not the right decision. Do you wanna comment on that that leading question? Right. Right. Well, that comes up more often than than not. Is that a brand will be very excited to enter into the US or enter into a particular market and signs a contract just because they're so excited to do it. And then year two, three, four, five years later, when things are going really, really well, they wanna move to somebody else who can support them better or whatever it may be. And now they're stuck because they didn't spend, you know, whatever it is relatively nominal amount of money then to have it done right. And now the distributors or importers think sure you can leave if you give us you know, x number of dollars, potentially hundreds of thousands, if not more. And so, yes, I I always recommend if somebody's going to sign a contract to have somebody who understands the space, you know, read it to make sure that you can actually get out without an issue and that the other folks are doing what they're supposed to do. Okay. So bottom line on that, if you're going to, negotiate an agreement with anybody in the US, it makes sense to have an attorney by your side, literally, but to your, hopefully, by your side, looking at that to make sure that you're covered and you're not put in the situation you're gonna be stuck with after the fact. Because you're you're really gonna spend a few hundred thousand dollars. I'm sorry, not a few hundred thousand, but a few hundred to a thousand or two thousand dollars or whatever it may be for these contracts versus the possibility of spending hundreds of thousands later to get out. So it it's really a good investment. Yeah. And frankly, I find a lot of times. That's when I get called. Is here's the situation I find myself in. Well, gee, we could have avoided Right. In the first place. And now, you know, your options for getting out of it are severely limited and defined by a contract. So it becomes challenging. One of the big issues, Ryan, is, trademarks. And I've seen, I'm sure you have as well, all kinds of examples of, problems, with trademarks. Can you speak to that issue in a kind of a general sense? Sure. Well, the the biggest thing is that you don't let your importer or somebody else in the market own or register for the trademark for you. You you should just register for your own trademark so that you literally own the rights to your trademark in the US. Which no doubt they do elsewhere in the world. And so that is one thing to consider, and you always wanna make sure that you own it. And then if you need help with that, of course, then that's fine. And you can look for somebody to do so. But I think that's the biggest point for me is making sure that you own it as the brand owner. So one of the things I advise my clients to do when I end up being the one who does it, I go to w w w dot uspto dot com or dot gov, which is the patent office, and you can look up what trademarks are are out there. And whether or not it's a problem. A couple of times, I've worked with somebody who had a a trademark in Europe, wanted to bring it to the US, didn't do that, but we found that out beforehand so that we didn't end up causing a problem. Right. I mean, there are obviously a a lot of, you know, brands out there in the world, and it's oftentimes difficult to have a trademark of something generic because it doesn't have, I guess, to step back. Tradmarks have significance because of what the brand does and what they bring to it. And, like, Google, right, is a really good trademark because it didn't mean anything until Google established meaning for it. Kleenex, Chapstick, all these are, you know, examples of trademarks that, didn't have meaning until the company brought to them. So So for trademarks within the alcohol space, because there's so many brands, and a lot of them end up being relatively generic, it can be difficult to, to find a trademark for a new brand if you're trying to do that. Sometimes if you're an Italian winery and you have an old vineyard name, or other tell tell you name that doesn't translate to the US in any meaningful way, then you may have it, you know, an easier time getting your trademark of whatever your product may be. So think thinking about all the things that we talked about, e commerce, the structure of the industry, the idea of of contracts, Out of all that, what's the biggest thing somebody listening to this edition of the podcast can take away from our conversation here today? I think the bottom line is that they should find somebody in the market who knows the market to advise them on provide insight anyway, to advise them on what they should be doing and what the best option is for them. And if they're planning on spending time in the market, then they have maybe one option. If they are not planning on spending on in the market, and they just wanna, you know, load their wine up and into the end, send it over and be done with it, then that's another option. And so I think just knowing what their options are versus just jumping in because somebody knocked on their door at the winer and said they wanna import them is, probably the most important thing they can take away from this is just being able to know that there are people you can call that understand the market and understand what they're going through and what their options are so that they can make the best decision for their business. Great. I and more than that, that's the right answer. It was the reason I invited you to to be on the show in the first place. I I had not told Brian this, but I'd much rather see anyone, not just clients doing the right things in the right order for the right reasons rather than trying to undo naive or ignorant mistakes. Focus on building the brand and selling more is where you should be spending your time not trying to untangle yourself from a bad situation that you may have been able to avoid. So Right. So Ryan, thank you, for sharing your time with us and your expertise. For those who have more questions, you can contact Ryan through his website, Malkin Law, m a l k I n. Dot l a w. So please join us again next week for the next issue of get US market ready with the Italian wine podcast. And, final, thank you to, attorney Ryan Malkin for the insights he's shared with us today. Thank you, Ryan. Thank you for having me. This is Steve Ray saying thanks again for listening on behalf of the Italian wine podcast.