Ep. 1141 Michael Votto | Get US Market Ready With Italian Wine People

Welcome to the Italian wine podcast. This episode has been brought to you by the wine to wine business forum twenty twenty two. This year, we'll mark the ninth edition of the forum to be held on November seventh and eighth of twenty twenty two in Verona Italy. This year will be an exclusively in person edition. The main theme of the event will be all around wine communication. Tickets are on sale now. So for more information, please visit us at wine to wine dot net. Thanks for tuning in to Get US Market Ready with Italian wine people on the Italian wine podcast. I'm Steve Ray, your host. And this podcast features interviews with the people actually making a difference in the Italian wine market in America, their experiences, challenges, and personal stories. And I'll be adding a practical focus to the conversation based on my thirty years in the business. So if you're interested in not just learning how, but also how else, then this bond is for you. Hello, and welcome to this week's edition of Get US Market Ready with Italian wine people. I'm Steve Ray, your host, and my guest this week is Mike Vatto. Mike, welcome to the show. Hey, Steve. Thank you for having me. How do I find an importer? And while it's a very simple question, it's a very complicated answer. And so we invited Mike this week to talk because he has a deep perspective on it owning an import company himself. But it's been going through some evolutionary changes, which opens a lot of new opportunities, for some brands. So, Mike, tell us a little bit about you, your personal history, and then we can get into VOTovine. Sure, Steve. Thank you. We grew up, a big Italian American family in New Haven County in Connecticut and food and wine, always a part of our family. I think, like, like, like, most Italian, Italian, Italian American families. And so while me and my cousins, brother. We're all sister all off doing, you know, what I'll call kind of a traditional traditional path through through school and careers. We always had this fascination with with Italy and and the food and beverage industry. And so I was a, I was a young I was a young attorney, in New York City about fifteen years ago, and my wife and I were newlyweds. We went to Italy to visit family and friends. And stated a little winery in Tuscany where we had a contact. We didn't know anything about wine or the wine industry at that point in time, but we were drinking county class ago in Toskana I GT, and I asked the winemaker where he could buy it in the United States, and he told me that I couldn't And so, I said, jeez, why not? And and and and so you'll really appreciate this, Steve. He he he told me a story which, you know, now looking back makes perfect sense to us. But again, as someone from completely outside the industry that was just curious why I couldn't get this, you know, newly discovered one I like in the States. You know, he told me, so in this case, the family owned two estates, one's larger, one smaller, The larger one was imported by, you know, well known blue chip US importer, and was found out, you know, all over the country. And then their smaller state was at the one we were at. Didn't have to scale for the larger importers. They had spoken to some some smaller importers over the years. They were, you know, concerned about their ability to pay their bills and and and things that, you know, you would run into with with with kind of small companies in any industry. And so they said that they were resident to export to the US, came home, you know, had this conversation with my cousins and brother and and and dad and all sorts of folks. And as we started digging in and trying to learn about the industry and talk to folks we knew in the industry, I think our original thesis was just that, hey, maybe there's an opportunity to try to, you know, really get to that what we'll call middle market where, you know, you're you're you've got enough size and scope and financial wherewithal to, you know, build, build a significant sized business, but But, obviously, you know, to get to the level of the real blue chip companies, you know, take takes a lot of luck and time and and capital. So you're not really competing with them in so much as trying to build, something something kind of industry. And again, what I'll just call the middle market And so as we as we continued to develop the the thesis and the idea, we really boiled it down to to two fundamental questions. One was if you did this, How hard would it be to find wineries that were interested in in working with, you know, a startup US wine importer? And then number two, if you did find those wineries, how hard was it to sell the wine actually once you once you got it to the states? And so you you already know the answer to this question as do. I'm sure many of the listeners, but just on the surface, finding wine, that wants to make its way to US shores, not that hard. Finding the right wines is hard, but, of course, you know, wineries around the globe that they would love to export to to the US market. And so even in the early, earliest days when we hung up a shingle and and started this business, finding wineries that are at least interested in having a conversation and or working with us has really never been an issue, to be honest with you. On the other hand, once you get wine into the country, and you try to build a sales and marketing organization. That is a massive challenge just due to competition, regulations, cash flow, all sorts of other things, when when when you start a new business, especially one inventory intensive as this business and, you know, with shipping from, in many cases, halfway, halfway around the world or further. So here's a here's a guy in a family. They're not ignorant, but you are. I mean, you're not ignorant that it's complicated, but you're ignorant and that you don't know specifics of it. And I deal as I'm sure you do with people like this all the time where they need an education on the US market. Well, you got past that. However, you did it. Now here's Votto Vines. It's been in the industry for you guys been active for thirteen years. You're recognized in the industry. Tell us what are the the basic strategy or philosophy of what defines Vadovines vis à vis other importers? Really at its core, I think that we are a customer centric business And and because because we came from outside of the industry, I think that's actually one of the things that's really unique because we had we had no preconceived notions. We had no particular attachment to any any product or producer or supplier, we've developed all those relationships, you know, over the last thirteen years from nothing. And and same with the customer side. So we're really we really tried to, as we are cultivating our early sales and marketing efforts, you know, really in Connecticut and delivering out of my brother's Subaru. We we we just wanted to talk to people and and particularly retailers off premise customers just because that that's really where our our business is is focused and we generate most sales. And and understand, you know, what they were looking for, how we could differentiate ourselves. So that's really the nuts and bolts of it is, and I know we'll talk more about products later, but, you know, trying to find wines and wineries that that, you know, we know will be attractive to customers and ultimately consumers. But, really, you gotta be able to sell into, at least, again, in our business model. You really have to be able to sell into retailers and get them excited about what you're doing. Yeah. I think one of the issues is every the it's you can almost, to use your legal term stipulate that, everybody's wines are great. Right? That's not something that makes them unique. In this day and age, the science of production is such that everybody can make good wine. The challenges making it through or navigate, as I like to say, at navigating the complexities of the US market. So your area of focus, though, has started off as the tri state area. You also were doing, you had distribution licenses as well as being an import. Talk about that. Yeah. So when when we started, we were really a a a Connecticut centric business in terms of, you know, really cutting our teeth early on. And and in fact, I think I was actually still living in, we had moved to Massachusetts. My wife and I, by the by the time we really got this, off the ground. So we were living in Massachusetts. The rest of the family was was in Connecticut. So we we started as an importer and distributor in Connecticut worked with a small imp a small distributor in in Massachusetts in those days, and and really grew it from there. As we sit here today, we also have distribution licenses in New York and New Jersey, and we acquired two years ago, a small Massachusetts distributor as well. So it's it's a separate legal entity, but, you know, is is a portfolio company, if you will, at this point. So we directly distribute Mass, Connecticut, New York, New Jersey. We also sold directly to to the Pennsylvania liquor control board, the PLCB, And then throughout the country, we work with a network of a network of wholesalers. So, essentially, pretty similar to many, of course, with the added distribution thing. And then recently, something happened to change the structure of what you guys are doing. Can you explain that to us? Sure. So so, last year, we, we had, an, strategic, Italian investment company make an investment in in in vital lines. And they, they own five wineries currently. And and so they started out as a, as as a winery investment company, three, four years ago. And and now over the last kind of two years are really trying to, you know, integrate, vertically in in other parts of the world, particularly Europe, Asia, and and the United States market. So was introduced to to one of their consultants. He's based in New York, and we thought it was a we thought it was a really great fit. So that partnership, became official just about eighteen months ago, and we've been know, integrating the wineries into our portfolio and, you know, sharing stale strategies from around the world. So that's been, that that's been pretty exciting. Okay. So answer the key questions of why did they do it and why did you do it? What are the benefits? So I think, again, big, big picture, you know, from from their standpoint, being able to, you know, have some control over sales and marketing of of the wineries is really is really key. Because making an investment in in a winery is one thing. And then, you know, understanding how to sell both in the domestic and the export markets is another. And so I think we're, you and I know chatted about this, at another time. I think you're seeing this a little bit more and more in the industry, and and and it goes back aways. But large conglomerates, either wineries, creating their own captive importing companies, as, as you see from some of the top kind of Italian producers or winery owners that make an investment in in existing US importers and in US and importers in other parts of the world as well. In order to be more active in the, in the supply chain. And and and on the other hand, from from our side, you know, the wineries that that that they own or co own are are really fantastic wineries. And so to have, you know, what we'll call captive winery partners that are, you know, under the same umbrella or or really truly partners is is something very, very attractive to, you know, small and medium sized importers, because you're really building something together. Yeah. You don't have to discover them. They've already been vetted due diligence has been done, and they're indoctrinated in the way the program goes. Well, when I when I think about situations like this, and I I talked to a lot of people about it. There's some big ones, the three that come to my mind, Santa Margarita, Zonin and Pasua just to name three who had decided to move from their traditional agency brand model where a supplier sells to an importer. The importer does not have any equity in the company. And they moved from that to setting up their own operation in the US. Your situation is a little bit different from that because you're not owned by any one winery per se, but some larger entity, who is buying the import company for the strengths that the import company has, including distribution. As opposed to just only controlling their own destiny. Are there any other flavors of this? Are there any other spins on this? I think I I I think we've hit the big what you'll call the big the the big kind of buckets where you've got, you know, what we'll call Rio powerhouse. Again, I'll use the term blue chip companies. I think you mentioned Santa Margarita, Zonine, you know, that that set up their own US, importing operations and then work with distributors directly. It makes a lot of sense if you've got the scale and the capital in order to do that. Obviously, standing up a US importing company and building it out, in our, you know, with all the regulations and and everything else is is no small task. So I think that makes perfect sense when you've got a large powerful organization that's, you know, really sophisticated and has a lot of capital and an established brand with existing distribution. Exactly. Exactly. And an established brand. And then you see, I think, are there deals you know, more in the ilk of what we're talking about in terms of in terms of our partnership. So, I remember years ago, reading about Sogrop, you know, acquiring an importer in Connecticut. You saw just within this year Italian wine Italian wine brands, which is which is IWP, which is actually a publicly traded, organization in Italy that owns a number of wineries. They made an acquisition or a partial acquisition of an importer in Florida. So if the US market is so competitive that, to be vertically integrated or have have, you know, more than just an importer distributor or winery importer relationship, more of a true partnership or some sort of shared investment is is is really exciting to folks. Well, that's the eight hundred pound gorilla in the room, where the elephant in the room, whatever metaphor you wanna use. And that is I'm seeing a lot more, interest all the way up to, demand or requirement on the part of both importers, as well as distributors for some level of equity in companies that they work with. The fear, the basis of it, it's not the fear. It's the concern that has happened in the past. We've all seen it that somebody grows a brand to significant size, and then the supplier feels that they're not really the, importers not bringing them as much value as they were before. I can do it myself, and so they set up their own thing. I understand that conceptually, but it raises the question. Is the agency brand model, meaning there's no equity going either way? Is that dead in the US? Or is it dying? I don't know about that. I I I think that it's certainly more in vogue, what you described, and you can get there either through, you know, the type of kind of corporate partnership we're talking about where you've got you know, importers may be under the same the same umbrella as the wineries. And so, you know, there's there's a real sense of connection there and and this kind of, in many cases, you know, a mutual mutual investor in the room. Who's keeping everything together, or there's equity in the individual brands. But I still think in the case of, you know, well established estates, and again, I'm I'm I'm sure you even faster than me could think of, you know, some some some top Italian estates, right, where they're certainly not going to they're certainly not gonna give up brand equity to their to their US importer necessarily. But that, you know, most US importers would be really, really excited to have, an established brand like that. Not now in the case, on the other hand, in the case of, you know, what we'll call a private label or a new brand or a control brand, Certainly, an importer or, you know, someone that's helping either create and or launch their brand, they may be looking for equity in the brand. Italian wine podcast. If you think you love wine as much as we do, then give us a like and a follow anywhere you get your pods. Okay. Well, let's, you're an attorney. So let's get down to contracts. One of the things is do you see contract terms changing to soften the blow, if you will, if somebody pulls a successful brand? You know, I I honestly can't answer that question that well only because, again, as a as a what we call a kind of small, medium sized importer, we're not importing a lot of name brand products where you'd see you know, you'd see contractual clauses like that. And furthermore, I think it honestly, you see, among smaller winery, smaller importers and distributors that many of these agreements are not really worth the paper they're written on because no one's gonna sue on the contracts. And if they do, where do you sue, how do you enforce it? There there's all sorts of more practical problems. So, unfortunately, I can't give you a good answer on that one. Although, I am I am virtually certain, and I think over the years, I've probably seen one or more of these. But, you know, an importing contract with a blue chip importer and a and a major and a major well known winery. I'm I'm sure is a very robust, legal agreement, but like you'd see in all sorts of industries. Right. Because they have the the wherewithal to be able to do that. In fact, what I see most of the time, and I, advise my clients not to do this is to, reach an agreement on a handshake, basis, or verbal without having anything written. Even even an email would be better if you don't even have a contract. That old chapter in my book on on contracts. And they're only as good as the paper that they're printed on. And if they get under dispute and somebody has to sue and all that, but generally most of the agreements that I deal with come to me. They're just verbal agreements. Have you seen that too? Yes. Although, you know, I think I think there is a level in between, which, which is very, very typical, and, and, and, again, anyone in the trade knows about this. But I think what's very typical is to have what I'll call, you know, a letter agreement or an appointment letter So at least something in writing, which is often required in many markets, right, in order to I was gonna say you need that in order to to be able to distribute it. Exactly. In in in many places, you know, Connecticut a perfect example, there there is a a a fairly robust brand registration and, you know, price posting, on the wholesale side requirement, which in order to even have your brand properly registered, you know, with the state liquor commission, you need an appointment letter And so I think that appointment letters and and in some states franchise laws do give, you know, importers, well, distributors, technically, you know, a a level of some level of protection, but yet, it it it's still tricky. Right? When you're a small, medium sized imported distributor and you're out really working to build, you know, a third party, as you said, a state or winery brand, there is certainly a concern that, you know, the winery may ultimately wanna go to, you know, somebody bigger. We can certainly talk about franchise states on a couple of interviews and do just do just that, but we're not going to. I wanna I wanna jump to sales channels. One of one of the strengths that you guys have that has always impressed me about your business is the relationship you have with the accounts that you're selling to. For a lot of brands that come to me, it would be their initial engagement with particular retailer, whether it's a chain or an independent store in New York. It doesn't matter. The same thing is true. I don't know you, or I don't have an existing financial relationships. That means I have to fill out a credit app. There's a lot of hurdles that are there. One of the things that Bartovines brings to the party is existing relationships with customers who are you've made them easy to deal with. I think here, the real interesting aspect as I alluded to earlier, Steve, is that we we really try to become customer centric. So you know, and and we get a boy at this point. I don't know, a hundred inbound inquiries a month from from suppliers. And would I tell would would I tell them or or, you know, when we're at conferences, or shoot when I when I go speak at colleges or universities to young entrepreneurs. I think one thing we always talk about is is the ability to differentiate yourself because the line of, you know, we're we're a family one winery. We make great wine, and we've been for one hundred and fifty years. I, I think I, I think all that's fantastic, but it doesn't mean I can sell your wine just as us showing up and saying, Hey, we're, we're, we're, we're a family run business of, of, of, cousins and brothers, and we're really nice people. Do you wanna buy our wine? That that'll maybe get you a meeting, but, you know, it's not gonna sell any it's not gonna sell any product. So I think you have to really succinctly be able to describe the fact that, you know, why your products are interesting, you know, and what they what they ultimately offer to the to to to the retailer, just to use an example, right, and and ultimately the consumer. So whether, you know, you've got the best price wines in your appalachian, whether you just got you know, a ninety two point score from Robert Parker, and the wine is not present anywhere in the north, etcetera, etcetera. So I think that's really how we've tried to something we think about all the time is, you know, mister and missus retailer, you know, you wanna do business with us for for these reasons and and, you know, not just because we have nice wines because we know there's a lot of inverters and distributors that have that have great products. Yeah. When I counsel, clients, it's your consumer message about how wonderful your wine is in the story that makes it memorable and shareable. That those are critical tools for the consumer side. For for the trade side, you gotta answer the question. What's in it for me? And they're interested in five ms. Money, margin, marketing, manpower, and media. Go through those slowly. Money, marketing, manpower, and media. And those all cost money. But at the end of the day, what you're trying to do is to get that person's comfort level up that in fact you can be a business partner that will deliver them more profits, more butts and seats if it's on premise, more customers coming more often spending more money. And I think a lot of people focus on the wrong thing, which is telling the consumer story, to the trade. Do you agree with that? I agree completely. I don't even think you need me for this for this podcast anymore because because, honestly, it just nailed it. And and I've never actually thought about it in those terms, but, I, I think you're exactly right. The consumer story and actually the story which the retailers ultimately ask us for more information about in order to sell to their customers is exactly what you described. That's where I'm fascinated by tenth generation winemakers and, a daughter and son, you know, who are taking over the winery and, you know, have the old school mentality, but, you know, the sophisticated training and all all these other great things. But in order to sell that product in first before the story, you know, really matters, frankly, like you said, it's all about it's about dollars and cents because e even though we've got, you know, one of the things that attracted us ultimately to this industry, which makes it really fun and exciting is, you know, you've got farmers, you've got the relationship with food, you've got all these cool things about the wine industry. But at the end of the day, it as you said, it's dollars and cents in terms of the actual b to b selling. Yeah. I liken it to a series of three locked gates, and you have to have with a brick wall at the end. And the first one is importation. The second is distribution and third is retailer on premise sales. And getting through the first two are great, but you haven't accomplished anything if you can't also plan and have in place a program to hit number, number three, the get into the retail store, and then finally, to the consumer. So let's jump to the whole concept about sales channels. We're all familiar with on premise, bars and restaurants, we're all familiar with off premise what we would call either independent or chain liquor stores as opposed to grocery stores that sell things other than wine and spirits. But there's a new one now that's called non premise or e premise, which has really exploded from something like four percent to it will be twelve percent, maybe more at the end of twenty twenty two, and they're saying up to twenty percent in the coming year or two. Called non premise or heat premise. How are you guys dealing with that? Yeah. I think we we've been we we've been bullish on on the e commerce, one channel for a long, long time, for for as long as I can remember. And I I don't know if you know a book, a book called Delivering Happiness, but it's the book. It's the book about the story of Zapos. You know, in the book, the founder who who unfortunately passed away, I think, over the last, last year or the year before, just tells a story about how, you know, early on, everyone told them that no one would buy shoes and sneakers online because, you know, they needed to try them on. And and and ultimately, you know, built a massive business, which you sold for more than a billion dollars of selling shoes online. And so I I think wine is, in some ways, similar in so much as a traditional model as you go, you know, you go into, a retail store here in Connecticut. We still call it a package store. You go into a package store and you talk to the proprietor or you, you know, happen upon a tasting on a Friday or Saturday afternoon, and then you go buy the wine. But the the reality is that so much industry is moving to to online that, you know, once you know what you like in particular, then you're gonna search for the easiest, best, and most efficient and inexpensive way to find it. And and especially you know, the younger generation, they are used to transacting business on their phones and their computers since since forever. And so it's really no surprise. I don't think, you know, from a big, big picture standpoint that ecommerce is growing. Certainly got a massive boost during during COVID. And I think that that the sales numbers are are down this year. We're seeing all the, you know, industry newsletters, and we're seeing from our own customers, sales are certainly down from twenty and twenty one and twenty in terms of in terms of online sales when when when people are, you know, quarantined at home and really had a lot of new customers. I think many of them will remain customers. Albeit, you know, people are back out, going to restaurants and traveling and doing things like we've always done. But, as a general matter, I'm very bullish on it, and, we've been believers in the channel for a long time. Okay. We're talking today with, Mike Vatto of, Vatto Vines. And, Mike, if somebody wanted to get in touch with you or find some information about the company, how would they do that? I think he's start with our website, which is w w w dot vidovines dot com. That's an easy one. Or, you know, our number at our at our headquarters in Connecticut right on the site, email address right on the site. And so I'll I'll I'll always happy to hear from anybody. One of the things I'd like to do is to end each conversation here with What's the big takeaway? I mean, we touched on and barely touched on a whole lot of subjects that we can do hour long conversations on and with. But if there was one thing somebody listening to this can take away and put to use immediately. And there's a wide range of people who listen to this, you know, everything from importers, distributors, salespeople in the trade, hangers on, my friends, whole lot of people. What would that one thing be? I I think it to your point. I think it really, like, really depends, you know, who we're talking to. But in terms of wineries, right, I think starting with wineries, I think it's you're real you really have to figure out how to differentiate yourself. And and it can't just be the same old, same old story that you make great wine. Because there's a lot a lot of folks all over the world making making great wine at this point. And, you know, a lot of us trying to make it to the US shores. I'm actually more than ever, right, as we're seeing declining consumption in in certain countries around the world. US market is is more important than ever. And so I think you really gotta differentiate yourself. So, how do you do that? Understand, understand competitive pricing, understand, you know, how to how to get your wines in front of the critics, you know, which is not easy, but but I think, you know, talk to your consortium or or or your local resources. Right? So figure out how to tell the story and and really differentiate your products. And that's everything from, again, packaging to, of course, everyone's, you know, constantly working on quality, but packaging and and and really understanding. I think more than anything, understanding, the competitive market set. I can't tell you how many times we get You know, again, inbound requests and export price lists where where the pricing is just so out of whack that we don't even have to we don't even have to look at anything else. We just we just pass immediately because we understand just by looking at the export pricing that this isn't a product that's gonna be competitive. Somebody once said to me something I thought was really interesting, and it was about, telling stories, and we're talking about consumer stories to differentiate your brand. Obviously, there's a business story as we said to the trade. But to the consumer, Everybody has a story, whether you can articulate it, whether you know what it is, or it remains to be discovered, everybody has a story because whoever produces the wine is different from the guy right next door. That's why Chateau Muoton is a lot more expensive than Chateau. Right? It's right across the street, but the wines are are very different. And the same thing is true. Even if you're right across the street from somebody who's, has a really well known and well distributed wine, you have a unique story. Your terroir, it might be. Your history. It could be a thousand different things. The challenge I found is helping wineries figure out what is that unique story that will resonate with American consumers because They don't live here. They don't speak the language. In many cases, literally don't speak the language in other cases culturally don't speak the language. And you really have to understand the mindset of a new two new generations of consumers, millennials, and gen z. And not only is the language that they're using different, the place where that language occurs is all online and is very different. It's no longer things like limited only to things like wine spectator and wine enthusiasts. So I think it's incumbent on everybody along the system to understand what makes your product unique. You said that I I thought that very eloquently. And when you can't ask for help, oftentimes you're so close to what you can see the forest for the trees. So, I I would support that. As I said, we've been speaking this week with Mike Vatto, CEO of Vatto Vines, that's vatto vines dot com, v o t t o v I n e s. Mike, thank you very much for joining us. Thanks, Steve. Really appreciate it. Always a pleasure to chat with you. And, for all of you listening, tune in next week, and we'll have another great interview for you on get US market ready with Italian wine people. And I'll see you next week. This is Steve Wright. We hope you enjoy today's episode brought to you by the wine to wine business forum twenty twenty two. This year, we'll mark the ninth edition of the forum to be held on November seventh and eighth twenty twenty two in verona Italy. Remember tickets are on sale now. So for more information, please visit us at wine to wine dot net. Hi, guys. I'm Joy Livingston, and I am the producer of the Italian wine podcast. Thank you for listening. We are the only wine podcast that has been doing a daily show since the pandemic began. 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