Ep. 717 Mike Desideri | Get US Market Ready With Italian Wine People

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. Hello, and welcome to this week's show. This is Steve Ray with another edition of how to get US market ready. With Italian wine people for the Italian wine podcast. This week, I'm joined by Mike Desideri, and Mike specializes in, US beverage alcohol market. Price structures. And we're happy to have him. Mike, welcome to the show. Thank you very much for having me on. Yep. It's a pleasure. Can you give us a a little background on on yourself? I you told a funny story to me earlier about how you got your job. So I should tell that again. Sure. Sure. So I was still in college, you know, going for accounting. And that's where I got my accounting, my bachelor's in accounting was at Sunil Westberry. So I was actually going to my doctor's office and then just to get a regular checkup. And as I'm leaving there, I was in search at that time for an accounting position to put on my resume. So I saw, you know, sitting on the fourth floor waiting at the elevator, and I see, I'm one of the office stores that says accounting. And and I don't know anything about, you know, the firm or anything else, but I knocked on the door. The young lady in in the front let me in. And I said, hey, you know, I'm I'm here. My name is my oldest Dairy. Looking for an accounting position. You know, do you have anything available? She said, you know, I'm not sure, but let me call the the CFO or controller to the front to to let you know. And, I spoke to the the CFO and the controller at that time. I got their contact information, and then sent over my resume. And then within six months, I started in the alcohol beverage industry in the accounting department for for an importer. Here you are. So you started, your own company. Why did you start a company and what what are you seeing in the marketplace that you felt there was a need for this service? So I felt there was, working at the importing company. I saw a lot of clients not understand where all of their expenses were going to, what are their products priced correctly, So in doing that, I said to myself, you know, that there is something that every brand needs. And they may not have the best understanding of the alcohol industry. So I create a company that helps them out with creating pricing for their brand, including all selling expenses. To the best of of my knowledge and their knowledge. And then also, you know, a a cash flow piece so that they could see, you know, how much money are they actually making after variable and fixed expenses? So they're they're that's the reason I had add mic on. I mean, I find, in my consulting practice, one of the most common lacks that people have and recognize is they don't understand the three tier system. Yeah. There. Right? And then they don't understand how that impacts price structures, margins, taxes. Right. Yep. Some of the terms laid in cost FOB, we're gonna talk about some of that kind of stuff. So what I found is Mike brings a a a real clarity to the subject. So what we're talking about is people getting involved with things they don't understand. They need somebody or some tool that helps them do that. What are the the top things most people don't understand about the US market? So the the one is definitely all of the expenses that come into play. In regards to, you know, extra fees that you don't think about, you know, whether it's, you know, state beverage taxes based off of the states, bill backs is another one. Those those are the main ones. So explain bill backs. Sure. So bill backs is when you're selling to a distributor, you know, there's a an agreement between your own brand and your own company and the distributor. And with that, there's samples that have come into play tastings. If you're doing events in that state, any POS material, and most of distributors, if it's split fifty fifty are gonna bill you back for your fifty percent as a brand, which is not always taken into consideration. And it could be, you know, thirty to sixty days later from when it happens, which you need to have the cash to cover that. You get a bill, and you weren't expecting it. Right. Yeah. And and people whoa, they get all but it is normal in the business. And, once again, if you understand what's what's happening, and once you get your feet on the ground as a supplier, you you have a much better feeling of that, but my point of view and mics is prepare for that so you know what's going on. So the question I get asked a lot and let's put this into perspective of, you're an Italian producer and you're exporting to the US and you've got, import solution is the first time that you're working in this market. And you explain, oh, you tell them, well, if if your brand ex works is three euro fifty cents, how does that work out to fourteen ninety nine on the shelf? The question they ask How come everybody else seems to be making more money on my wine, and I'm the one who produces it, and I have to buy the glass. I have to own the vineyard. I have to deal with the weather and all this other stuff. This does not make any sense. So how do you respond to that question? It's ever a good response. It's the answer, but but it happens. You know, there's a lot of things that go into, you know, into building in a price structure. The first one is, you know, the the producer cost, right, what that goes into tail. And and with the increase in shipping, The next part is your ocean freight or, you know, transportation to get it over into the US. It doesn't matter where it comes from. And, you know, due to the increase in shipping, you know, you need to be prepared for that as a large part two this, especially now, because people are increasing their prices now because shipping has gotten up so much, and they weren't prepared for it previously. Not only the shipping itself, but but the timing of it and the availability of containers and ships. I think everybody's hearing about that. But Right. I find is a lot of people when they actually confronted for the first time that gee, I can't get bottles had never thought that that was going to be a problem, but now it's it's definitely a big hiccup in the system. Right. Right. So so the first part is definitely the freight forward and the next is the taxes and duty. You have to pay to import it into the US for your customs clearance broker or you could do it yourself. The next part of you is storage, handling, you know, and all that to get it into a warehouse in order for you to sell to a distributor or retailer for them to pick up there. To to clarify, let me just jump in here. So most public warehouses are going to charge in and out charge on a per case basis. So if you're if you're backed in sixes, you're gonna pay whatever that charge is per case, not per nine liter case. And then there's also a storage cost of so many cents per case Correct. Per month. And you have to factor that in your pricing structures anticipate that you you're gonna be in storage, for, you know, average of three months or, you know, it's very hard to predict, but you'd better incorporate that into the forecast. But sorry. I interrupted. Go ahead. Yeah. No. No. So so you're absolutely right. I averaged anywhere between three to six months for my clients, you know, just to have a cushion in there for for storage. And then it's any any importer's fees. For for doing all the paperwork on their behalf, you know, whether it's it's a percentage of sale and and that's where kind of the markup and and the margin will come into play here. So you have imported fees and then you'll, then you have the delivery cost to get it to the the retailer in a specific state if you're selling in it. Well, then, well, there's from the port of entry to the warehouse and then enter a US from the warehouse to whatever retailer or distributor warehouse, it's got to go. Correct. Correct. So so those are just kind of the variable expenses, but that's just to kind of bring it in and and kind of sell it. Now after it's sold, then you have taxes to pay on it. Right? Then there's advertising and marketing to come into play for moving the brand within the state, any brand support as we discuss such as bill backs with the distributors. And and that all has to be taken into consideration, which is how we get from three fifty x works euro to fourteen ninety nine MSRP. Okay. So we're we're talking about in import. So I talk about import solutions, and that was the word I used earlier because there are a number of different ways of getting a brand imported. And, a lot of export brands are not really aware of the difference between importer and distributor in the US. And what what is the difference between an importer and a distributor? And are there variations on the theme? You know, we've heard of clearing wholesalers and clearing importers. Can you explain the difference? Sure. So an importer to me is someone who handles all the logistics to get your brand from where it's being produced, Copact, or distilled, and imported into the US with all the necessary you know, customs, or or customs and logistics options to get it into a warehouse. It is my understanding of an importer, and then to be able to sell it to whichever distributor or or retail you sell to in that state have those licenses to me as an importer. So the difference is an importer license is called a basic permit. It's issued by, the TTB, which is the regulatory entity, and it's a national thing. Correct. The distributors work on a state by state basis. And usually, there's a separate distributor entity, each state basis, and that's regulated differently separately from TTV. Yeah. Yes. Correct. Correct. So the distributor on the distributor end, it's by state, basically. And there are distributors in multiple states. Alright. You know, don't don't get that wrong. So they you kinda work with them to sell the actual brand. The importers don't do really the selling. The distributor portion, or or your own brand itself does the sell. So the distributor is gonna figure out how much the markup is that they're gonna make or the margin that they're gonna make on the brand in order for them to sell it to a retailer within that state. So the question I get a lot is, well, either what are the margins or markups? Usually, the question is phrased as what are the margins distributors or importers and distributors will charge. And after the surprise settles down, then, you know, they say, well, what are they doing to validate that value. Can you address that issue? Yes. Yes. So so a traditional importer, my understanding, you know, is gonna mark up the brand. And so it's taking the price that they're that they're buying it from and, you know, increasing it. Okay. So here we go. We started on that. Gonna save it till later, but let's get right into it. Now what is the difference between margin and markup? So, ma'am, markup is taking the actual price that they're buying it for and increasing it by a percentage. K? A margin is basically what are they making by increasing it by that amount from what they're buying, from you for. So I get asked this question a lot. And actually, I I covered in the book. And by the way, for anyone interested, if you go to my website, how to get or get US market ready dot com, you can download a glossary, which has these terms and also includes these formulas. But There's a lot of confusion about importer margins, first of all, between the concept of margin versus markup, as well as distributor margins. And their ranges, and the ranges get adjusted by a whole bunch of different things like contributions, sample contributions that usually are are shared costs between the two, but when it's a new brand, instead of two percent, you might be allocating five percent, and that may or may not be shared. So it's important to understand when you're talking about all of these things that you fully understand the definition of the words that are being involved and the component pieces of it. Well, you might think, oh, gee, I'm I don't wanna sound ignorant. I'd rather be thought of as ignorant than lose money. So I mean, that's my point of view on this thing. There are no stupid questions. And if you don't understand, it's important for both sides to make sure that you do. So don't be afraid to ask and get clarification of what's going on. Mike, why don't you give us the difference in the the actual mathematical formula that defines margin and markup? So markup is profit divided by cost, times a hundred. You could put it to a hundred percent or or, dollars wise. And then margin is your, your sale price, less you cost of goods sold, divided by your sale price. And that yields two numbers that are related. I like to say they're two sides of the same coin. But it's really absolutely critical that there's clarity in any conversations you're having with importers, distributors, retailers on premise accounts. There's a a lot tendency in the industry to talk about points and not a lot of definition of points. So my advice to people is to make sure you understand these equations and that you're using the right terminology and the people that you're working with. They're using the right terminology. So, another example of where some of that confusion can come in and it really is manner of a simple definition is FOB. Now my understanding of FOB is free on board or freight on board, and that is the price of the product over the rail on a ship. So not x works. X works is the loading dock of the, production facility, then what gets added to that is the shipping cost to go from the production facility to the port, get it onto the ship, and that's the FOB. But there's another use of the word FOB that distributors use. Can you clarify the difference? Yeah. So FOB means where they're picking up the product from at the warehouse, right, which then the distributor has to pay delivery a a a trucker to to do that, and then there's more expenses on the distributor. And if they're picking up from the warehouse that you're storing the product compared to you actually delivering the product to their own facilities in the state, So it kinda is really the formal definition of FOB, but it's really important when someone at a distributor is talking about FOB. They're talking distributor FOB. Right. Meaning the price to them. Correct. And once again, it's very important that you understand the terms because it's all a function of money. And if you're not absolutely hundred percent clear, you're probably gonna lose some. Okay. So you have a tool that you're that you've you've developed and we obviously can't show it on a podcast and we're gonna be, for the audience, we're gonna be working on ways to make this available to you publicly. But you kind of boil things down into a couple of buckets. And can can you separate kind of how that whole price structure thing falls out? Yes. So so depending on what you're kind of paying for. Right? The bucket the first bucket is what is it costing you to buy from a supplier, a distiller, or a co packer? Right? That is the first bucket. So we know what that cost kinda looks like. The next bucket is, you know, the shipping cost to get it to the warehouse, or to to a port. All the logistics, both over the water as well as in country. Yep. That's logistics for that. The next part is the tax and duty. If you use a customs clearance broker, you know, there's other fees involved. So, you know, there's like three or four line items that that can go into just customs clearance, which is tax and duty, broker fees, any other fees that they may charge or if it's, you know, overweight or something the container that they're gonna charge for that and stuff like that. So Or demerge in the port or something like that. But this is all related to FET federal excise tax. You know? It does not include the state taxes because that's something that takes place at the distributor level and is related to the late in cost. Correct. At this point, we're we're just in the stage of getting it to the US and and imported. Okay. Yep. That's bucket two. Okay. The, next bucket is going to be your important fees, or anything else that's related, you know, to them handling the paperwork for you, whether it's administration fees, per case fees, per percentage of sales fees, you know, any of that would be the next would be the next bucket and anything else they charge, whether it's, you know, insurance, and things like that. The bucket after that is your is your storage. Or your warehouse fees, which is your in and out, like you mentioned earlier, handling fees, storage fees, pallet fees, repacking material fees, anything that's related to. Coming into the warehouse. And if it's not properly put on the pallet by your either supplier or or your producer, and they have to redo it that, you know, there's all fees associated with that. It's not any free charges. So are there some touch points or a checklist of things to keep in mind to make sure that all the people involved in a negotiation are clear as to what's going on and not operating under any false assumptions? Yes. So, and this is exactly where my firm kind of comes into play. It's, one, is definitely the cash flow. Right? And and and this is what I I do for other clients. We have an updated cash flow either weekly, biweekly or monthly, and we go over where does the company sit or or, you know, how much cash is sitting in the bank? How many cases do we need to sell? You know, over the next call it three to six months? You know, in order to make sure that we are just even breaking even and or making a profit. And this is based off of their own business expenses that we add into this as well. Something else is, you know, we take the FET based over the production runs, the ocean freight, and the storage, which is all basically paid for upfront. And then, you know, what people don't understand is that ninety days later or sixty days later is when you're gonna start receiving cash from from sales. Right? And those sales are basically being Isn't sixty days optimistic? It it is. Yeah. I agree with you, but but, it can be where, where as soon as the product comes in, if even if you're out there pushing and and you get, you know, five cases of sales to a retailer, you know, you'll be paid in in, you know, thirty five to to sixty days hopefully is the answer. Yeah. And one of the other complications is, federal excise taxes are due when it clears customs at the port of entry. That has to be paid immediately usually by the importer having a bank account that the taxing entity can deduct the money directly from. So cash flow becomes, you know, an absolutely critical piece of this thing And my experience has been and it's certainly not my area of expertise, but my experience has been that's kind of a rude awakening to people, and it takes them a couple of shipments to start to get comfortable with all of the things that happen or involve Correct. Okay. We're kinda coming to the end. I like to ask at the end of every, and and we could go on for hours on this because I don't understand it all very well, and and I've had a lot of experience doing it. So I know it's confusing for most people. But it is very important that, that they understand all this to go. So if of all the stuff that we talked about, all of it is mission critical, what is the one big takeaway somebody can use here about, how am I gonna manage my business in the United States or what should I be paying attention to. What would that be? Now a cash flow analysis for sure. A forecasted cash flow analysis, for anywhere from one to you could even do five years if you want, but I would I would suggest one to two years is gonna be the most important because then you could figure out when you're gonna have to produce based off of estimated forecasted sales, based off of a marketing budget, you know, based off of hiring a salesperson, when you have to pay, for for certain, transactions such as, you know, FET, Ocean Freight. When you get paid for those sales, right, that's all in a cash flow analysis, and and that to me should be part of of every business. Okay. So, we're talking with Mike Desideri. The company is s j n solutions. And, Mike, you wanna give us your email and, social handles. So if somebody wants to contact you, they can. Yeah. Sure. My email is m desderi. That's m d e s I d e r I at s j n solutions dot com. And the website is the same thing where it's s j n solutions dot com. So a big thank you to to Mike If you have any questions about any of us, you can reach out to him. Obviously, you can reach out to me as well. And we wanna thank you for listening to this week's edition of Get US Market Ready with Italian blind people. This is Steve Ray. Thanks again for listening on behalf of the Italian wine podcast. 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. This is a labor of love and we are committed to bringing you free content every day. Of course, this takes time and effort not to mention the cost of equipment, production, and editing. We would be grateful for your donations, suggestions quests and ideas. For more information on how to get in touch, go to Italian wine podcast dot com.