Ep. 414 Steve Raye U.S. Market-Ready | Distributors Part 2

Thanks for tuning in. I'm Steve Ray, author of How To Get US Market Ready. And in this podcast, I'm going to share with you 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. I've heard it said that experience is what you get when you don't get what you want. My goal with the book and this podcast is to share my experience and the lessons learned from it with you so you can apply those lessons and be successful in America. So let's get into it. And we're back for working with or in spite of distributors, part two of two. So let's do this chapter as a q and a. Has the model changed? Yes. It's evolved from a pyramid to an hourglass. Now I know it's a podcast. You can't see the picture in the book, but picture in your mind's eye, if you will, a pyramid on the left. And an hourglass on the right. And from top to bottom, those shapes represent suppliers, importers, distributors, and consumers, suppliers at the top consumers at the bottom, and importers and distributors have become this bottleneck, in the hourglass in the middle. So the challenge for brands is how do you get into and through the import and distribution tiers? And what's been driving these changes? In a word, consolidation, w s w a membership tells the story from three thousand members thirty years ago to just under four hundred today. All the distributors that started business after appeal have evolved to the third and fourth generation and have recognized that survival and growth requires scale. The net effect is that the top two wholesalers now represent approximately seventy five percent of the business in the United States, twenty years ago, it was fifty five percent. So how can a small brand get the attention of distributors? Well, we can start off with a list of what distributors want, and a friend of ours once put it, I thought very eloquently. He said the five ms, money, margin, manpower, marketing, and media. We're gonna take each of those individually, but, I kinda like that because it it's a checkbox. If you haven't checked off all of those things, then you're not ready to present. Talk to me about the money. The simplest way to think about this is a phrase that my friend and partner, Howard Bernstein likes to say, and that is distribution in the United States is not free. Getting a distributor is not the end objective. Getting them to sell your brands is. Brands need to allocate funds for and incorporate into price structures, support budgets for discounts, samples, brand ambassadors, advertising, PR incentive programs. You don't have to do all that. But you have to come to the party with something that you're gonna put down on the table and offer. Distribution in the United States is not free. You may not like that, but it's reality. Learn how to deal with it. And a caveat, one of the most important mistakes, is for suppliers to run out of money with the launch and not have funding for future years. We see that so many times. Distributors are gonna be grilling you when you first start talking to them on your plans. So make sure that you address realistic funding and the fact that you have enough cash on hand or access to the resources to be able to fund growth without stopping the funding in the markets where you're already successful. And this is also where the concept of must should could comes in. And in in fact, that was almost the title of the book. I have a philosophy of doing triage on things and breaking them into categories. What you must do should do and could do. And the idea being that must do is mission critical. If you don't do that, get a distributor, you can't sell it. Should do is things that would be great. Market and promote the brand. And could do are things that maybe the bright and shiny new thing, social media and all of these other things that could benefit the brand, but maybe aren't as measurable as others and very difficult to calculate the ROI, or even if it's working at all. So if you think about the must should could concept, our recommendations focus on unlimited number of things. But make sure that you collaborate with your distributor to do them very, very well. Don't think that you can do everything. Big brands can do that because they have the budget and they have the number of years behind them in the marketplace and the existing distribution. For new brands, you need to focus on what you can do really, really well. And a great example of that is the nineteen crimes idea of augmented reality. Not only did they do that really well. They were the only ones to do that. So the promotion of the brand had less to do with the quality of the juice. And very much the interaction that the consumer has with the label. Brilliant. So that was money. The second one is margin. It's a primary tool to use in negotiating deals and setting up price structures. Every distributor can tell you what their targets are for margins and be aware of both the targets and the ranges that they're comfortable working with, whether it's gross profit, GP, margin points, or markup. And make sure you know the difference. Between margin and markup. There's a whole chapter on it coming up. I also, have a post on it on my blog, which you can access at w w w dot bevology inc dot com. It's one of the most highly visited pieces of content on my site. So it tells me, there's a lot of interest in it and perhaps more importantly a lot of confusion about definitions. I also recommend that brands do not try to do quote unquote national pricing. It's like the joke about trying to put lipstick on a pig. It doesn't work, and it annoys the pig. New and smaller brands need to do a customized price structure for every market. And in some when we say market, I mean states, but even in some states like New York, you might have different pricing for upstate. In Manhattan or New York City. You have to factor in all the things that impact the price and the retail environment in that specific state. And you also wanna make sure that you don't leave money on the table. Make sure that when you do price structures, you recognized how it's going to be rounded and back your way into the calculations to make sure you're not giving money away to get to a price target. The way I like to phrase it is, don't leave money on the table. If it's there, you ought to take it. And that's why the price structure tool at get US market ready dot com and a couple of other places where I have it posted is so important. It's a template. It it is not as detailed as you're going to need to actually, come up with your actual MSRP, but it is a great guide to tell you what are the component parts. Manpower. I don't see how a small brand can afford to put a brand ambassador, local, or in market sales rep on the street. That's the question I get a lot. I feel your pain. Unfortunately, having feet on the street has become almost a requirement for new brands and particularly for new brands in new to the US categories. And that applies whether it's spirits, wines, or things that are kind of in between. Like we're seeing with hard seltzers and various mashups of different types of products. This is where you have to be creative and work with your US coach or guide to figure out and find solutions that work specifically and uniquely for you. One example is companies that specialize in managing brand ambassador sales forces. When brand ambassadors were new, say, fifteen years ago, It was viewed as a very significant asset. Now it's almost viewed as a requirement, and oftentimes it's something that gets managed by the distributor and all the supplier does is pay for it. Not the best structure, from the point of view of the supplier, but something to consider. Sometimes and that's especially true for smaller brands, wine brands as well as spirits. It might end up being sufficient to have the export manager commit to two or more market visits per year. Pitching in on actually selling and supporting accounts. And that could be via seminars or webinars. If you can't be there in person because of COVID nineteen, it could be in conducting in store tastings. You could do those kinds of things from the winery itself. A lot of people have done creative things with sending out tasting kits to not only the trade, but consumers. Also work with, work with what we call when a supplier comes and works with a rep for a day or so. Most distributors will offer this as one of the services, and it's a really good service. And it's a great way for anyone who's not from the US to get a better understanding of how the US functions. But keep in mind there's a tendency for the distributor to make it a milk run, which is a phrase we use to mean they take it to their best accounts so that the brand looks the best. When I'm doing a work with, I like to include a number of accounts where the brand is not. So that I can see how the guy is pitching it, and whether that's an area that we need to, improve training of the distributor Salesforce. Whatever you do, you have to plan for it and coordinate with your distributor contact to make sure the support you're offering fits with the way that they work. One example of that is in New Jersey, it's all about rips, retail incentive programs. If you're not familiar with the word, then you probably shouldn't be in New Jersey because that's the way retailers expect it to be presented to them. What's the rip? It gets published in the beverage journal, the New Jersey beverage journal. Our point of view is that you don't want to reward just the one or two guys who make the goal. I don't like the idea of doing sales competitions where only one or two people win. It's better to structure the program so that everybody has a chance of earning something. If not a trip to Italy or Australia, maybe it could be dinner at a local Italian or Australian restaurant. The point is you wanna make sure that everybody feels that they can participate and that the goals are reachable to make them so far out of reach is to basically tell people, don't pay attention to this at all. The key to successful programming is developing it in collaboration with joint contribution in terms of money and resources from both brand, importer, and the distributor. Well, next point in the five m's is marketing. And you seem to be saying that this is my responsibility. Yeah. That's right. It's your responsibility, but with the recognition that execution is a joint responsibility of the wholesaler and importer. You wanna collaborate with your wholesaler to implement local market programs that fit with the way they work. If you're in Miami, with Southern, it might be to participate in the South Beach Festival. In other markets, it could be bar spend. Keep in mind that whatever you do, make sure it's legal in that state. Nobody wants to visit you in jail. Okay. The next one is media. So media. Right? Well, until they start generating some volume, there's no way of money for advertising or PR. And my response is, here's where you have to start thinking creatively. There are lots of ways of making small budgets work when they are targeted effectively. And the way to do that is to make sure that whatever you do, put measurements in place so you can calculate ROI return on investment. With the new label recognition technology that many apps have, particularly VIVino and wine searcher, it's a great way to focus your media like a laser on just those whose behavior defines their interest. Meaning, if they can take a picture of the label, they can probably buy the product at that precise moment in time. I'd be reaching out or coming up with creative ways to promote my brand on Vivino, on wine searcher, and also at the trade level on seven fifty dot com. When we talk about media, it's a generalized term and probably an old and outdated term. What we're talking about is when you spend your money to reach a target audience. And one of my philosophies is this. In the olden days, which is, like, maybe five years ago, we tried to get people to come to us. Right? We were looking for website traffic. We were looking for Facebook followers and so forth. The reality is just the opposite. It's more important that you engage them in conversation where they're already gathered. We may know that magazine like Esquire reports that twenty percent of their readership drinks wine or tequila or whatever it may be. But I can pretty much make a guess that roughly ninety nine point nine percent of the people visiting vine pair are interested in wine and spirits. Same thing with liquor dot com. And since people are gathered there to find out about things, they're in a mode of seeking information, and it's a great place and mindset to engage them in dialogue. So sending all this up, it seems like it's a lot more about me helping them, meaning distributors, retailers, and importers. Rather than them helping me. You got it. That's right. Remember I said distribution in the US is not free. And if you think about it the right way, it can be a very powerful tool. New brands are a risk. They have no track record. So one of your early goals is to establish a track record of success by demonstrating product as velocity. It has traction. It's moving through the system. And the program that supports it is repeatable and scalable. Now you've got a story to tell the rest of the markets that you're in. You know, we were in Miami. We were in forty accounts. We had a reorder rate of thirty percent. And in those accounts, we were turning about a case and a half per month. That's what they wanna hear. Has somebody else been successful to it? And what is the scalable and repeatable program that you put in place that made that work? It's all about replacements, not placements. In fact, at the end of the day, the only metric that matters is repeat orders at retail and on premise. But that's not all. I also highly recommend that you really focus on creating a case history of success and then sell that sizzle via trade PR and word-of-mouth. The net result is you'll get distributors from other markets calling you instead of you being the supplicant and calling them. Wow. It seems like I'm going to have to do all the work. That's that's quite a commitment. I I, you know, I don't at the time. I I run my winery. I have to, you know, work in the distillery. I have all these things that I have to do. Yeah. That's right. Distributors and importers wanna see that you are committed, not just involved. There's a difference there. The distinction, they say in Italy is. Imagine that you're having breakfast of bacon and eggs. Right? You're sitting there and having bacon and eggs. Well, if you think about the chicken and the pig, the chicken is involved, but the pig is committed. And the important distributors expect you to be committed to. I wanna add, story here that I think really communicates well how you can manipulate a set of facts to your benefit. Let's say we have one product in two different stores. In one store, that product is sold in six packs, and the other store is sold in twelve packs. And at the end of the month, the end of a thirty day period, both stores will have sold eighteen bottles, once in six packs, once in twelve. And here's how that works. The one with six packs, say you sell it in on the, you know, first day of the month, they order it. Takes couple of days for it to come in. They start selling it on the first day after, and they sell through six bottles in a week. So on the next Friday, so it's the second Friday that they're in there, they put in another order for another case of six bottles. Another week goes by. This is the third week. They sell another six bottles. They sold twelve. They put in another order. They get another six bottles in, and they sell through those in the third week, and they've sold a total of eighteen bottles, reordered three times, and they're out of inventory. The brand is a success. Now let's take a look at the contrast. Let's say it's in twelve bottles. And and think about the this is a metaphor. It's not a recommendation to put things in six bottle cases, but it's just an example. You sell in a twelve bottle case, That's Monday. It takes a couple of days to get there, set up whatever you're going to do with it. And you sell six bottles the next week. Well, the only guy still got six bottles in inventory, but she sells out in the third full week. Now he's out of inventory. He orders again. He sells another six bottles. He has now sold eighteen bottles. It's the end of the month. He's reordered once, and he's left with six bottles in inventory. The brand's a dog. Now it's the same situation. It's just how the information is presented. And think of this metaphorically as not just an argument for six bottle cases, but how to structure the way you present your brand in making a case history. To remove or address the concern that they have of why should I take a risk? How do I know it's going to sell? Well, that's it for today. I don't want to take up any more of your time. And this concludes working with or in spite of distributors. Part two of two. Thanks for tuning in to how to get US market ready presented by the Italian wine podcast. Hi. This is Steve Ray. The trade wants margin and profits while the consumer wants romance and glamour. Make sure you're sending the right message to the right audience.