Ep. 1855 Small is beautiful How to establish and grow a successful partnership with boutique US importers | wine2wine Business Forum 2023

The Italian wine podcast is the community driven platform for Italian winegeeks around the world. Support the show by donating at italian wine podcast dot com. Donate five or more Euros, and we'll send you a copy of our latest book, my Italian Great Geek journal. Absolutely free. To get your free copy of my Italian GreatGeek journal, click support us at Italian One podcast dot com, or wherever you get your pods. Official media partner, the Italian One podcast is delighted to present a series of interviews and highlights from the twenty twenty three one to one business form, featuring Italian wine producers and bringing together some of the most influential voices in the sector to discuss the hottest top fix facing the industry today. Don't forget to tune in every Thursday at three pm or visit the Italian wine podcast dot com for more information. Morning. And welcome to this, very interesting session. My name is Luzocastaldo. And before I introduce, my court chair, Giuseppe Locastro, I would like to briefly a bit about me. I was invited here along with Giuseppe to talk about This is a very interesting, topic. Small is beautiful, which is, something that, almost eighty percent of the wine producers from Italy should really have the right perspective of how to integrate and most of all interface with the American market. But let me just give you just a three minutes of, by myself. So you know who you're talking to and, and who to listen to. I've been working in these, great sector called wine business for the past thirty five years or more. I worked my career as very boring because I only worked for, you know, two companies. Thirty two years with one and five and a half years with another. So The one that I, worked for for, most of my professional life is called Weinbo. And, I'm closing my, kinda, like, most important phase of my professional life with the company that resembled with the the weinboe of many many years ago. When I started with weinboe, the company was literally delivering cases from a garage from New Jersey. When I left Weibo, I resigned from Weibo, the company revenue was, above eight hundred and fifty million dollars. Weibo has been one of the greatest, I will say basket for Italian wise. Not only was a point of a reference, but it was a final destination for many producers from this beautiful land called Italy. Well, I decided to go back on my roots. So in two thousand eighteen, I acquired that this company founded by a gentleman called Levo Panipianco that, unfortunately, passed. And I took over the company. And since then I go back again, reevaluating and seeking and dealing with the small producers. With a very, a typical varietals and so on. So to my right is a Giuseppe Locacho, which had the pleasure to know him for more than twenty years, not because it was part of the family that owned obviously wine by that time, but also because I had a pleasure to work with him. He traveled with me. He tasted with me. We lost planes. We spent many, many, many dinners. We basically were at one point the gatekeepers, keepers of the two portfolio of Italian portfolio and the Austrian portfolio. Giuseppe decided to branch the way from the company before me And, after many other things that he did, has been very influential for, again, you know, to take it by the hand, small producers and teach them how to enter and stay and consolidate and is a very articulated, a very important, but very difficult and challenged market, which we call USA. He's the co founder and managing director of, LucyD Y merchants, which is an important distributor, in California, and he also seeking to have a a more regional platform. So I'm very, very pleased, you know, to be with him. And I will ask some questions. After he will, show, a presentation that he prepared. It's very short. Thank you. Good morning, everyone. Thanks for the introduction, by the way. So, I'm gonna try to keep this short, hopefully. So this is kind of the topic of today. And even though we both are on the smaller size for import companies in the US, many of the things we're gonna say today apply to the market in general. So these are the learning objective that we hope are gonna stick with you today. First of all, let's try to understand how complicated and complex this market really is. Okay? And this is kind of continuing the conversation that started yesterday with Danny Braggler and Mr. Monzavi, which already touched on some of these topics. Point number two, let's understand what kind of options do you have as a wine winery or a winemaker or a company to enter and manage the US market? Number three, we're gonna try to give you a few recommendations on how to pick the right model for your company, hopefully. And number four, in which way you can try to establish a relationship and a stress long term that is fruitful for both you and your importer. Okay? So why is this market so complicated and expensive? Everything starts in nineteen thirty three. Okay? America understands provision does not work. At the same time, they know that they cannot make a free market of the beverage I'll call it business because the abuse of alcohol obviously has cost in society. So they found a really clever way of controlling the way the alcohol beverages are bought and consuming the US. Okay? And this very clever way is something we call the orderly market principle, meaning you cannot let this industry run free. Okay? So you have to have some little, a little room, more than a little rule, making for it. So first thing, they decided to split the legislation on two levels. So we have a federal, level of legislation and taxation. So your wines get taxed twice. Okay? And then you have a second level of legislation, which is at the state level. Now the federal level is relatively straightforward where the fund really is is at the state level because with the twenty first amendment, federal government has delegated to the state the way of making laws about consumption and sale of our colleague beverages. So basically when we say the US market, it's not really accurate. We should really talk about fifty different markets. And what I mean different, I mean sometimes dramatically different. Okay. So what works in California might not work in New York or works in New York might not work in Florida, so on and so forth. Okay. So this is the very first thing that I hope way makers understand. It's really not one market, but it's a collection of different markets all regulated differently. Okay? Are you enjoying this podcast? There's so much more high quality wine content available from mama jumbo shrimp. Check out our new wine study maps. Our books on Italian wine including Italian wine unplugged, the jumbo shrimp guide to Italian wine, sangiovese Lambrusco, and other stories, and much much more. On our website, mama jumbo shrimp dot com. Now back to the show. I'll give you an example. So this is not just theoretical. Okay. For example, in California, when I'm selling wine, I can pretty much make up any price I want. I go to, I don't know, Giovanni, and I sell a Kianti for five. Then I go to Luigi and I sell the same Kianti for ten. So I don't really have an obligation to publish those prices. Okay? I can do pretty much whatever I want. It does not work the same in, say, New York where Nouncio has to publish those prices one month in advance. Okay? I'm telling you these things because all these regulations at the state level really have an implication on your strategy. And these are things you should be addressing with your important distributor. The other thing that the, legislation so that Congress decided to put together to make this a very complicated market is called three tier system. Okay. So basically what they did was to artificially structure the supply chain in order to have a very long chain. Long chain means you basically each step you have a markup. So your product or every product really gets marked up and so ends the idea behind this the price of alcohol is higher consumption should be somewhat managed and should be a little lower. Okay? No outstanding that this became the largest market for wine in the world, but this is really this was what, the the legislation really wanted to do. Make a long supply chain so that your product is gonna cost a little more, and so consumption should be less. Three tier system means, domestic winery has to find a distributor in every state, an imported winery has to first go through an importer and then a distributor, and then eventually the one is gonna go into a restaurant or a shop or or a hotel or a wine bar. So these are the two columns, okay, of the system. Very, very important to understand why it's so complicated. The final effect is what we call the four time In this case, four point five is before COVID, this was four time. Now it's four point five sometimes five times your accelerate price. So if you're selling a wine for, say, five euros, you can expect the wine to be on the shelf in America, everywhere be between twenty and twenty five. Okay? This is not accurate. It's not rocket science. It's not, a a very precise formula, but it's a relatively good approximation of it. Okay? Very important because sometimes you feel your product is kind of, you know, midland product in America. It's actually a bit more expensive. This also means that this is a really expensive market for you to manage and for us to work with. And this is a huge country. It's expensive to live in America. It's expensive to travel in America. It's expensive to have dinner in America. So everything you do in America is just much more expensive than here. So Take away. This is a really expensive market to manage, and I'll tell you why I'm I'm bringing all these things up when it comes to choosing the model to work. So, but yesterday, Danny Brecker spoke a lot about how to really fine tune and find the right market for your product. Let's try to do the math again, and I promise this is the only slide where you have to do a little bit of mental math. Okay? I'm gonna give you two big numbers. Okay? One is four fifty million. Which is the amount of wine that give or take was consumed in America in twenty twenty one. And these are nine liter equivalent cases. So twelve bottles per case. Okay. So try to keep in mind this four fifty million. Okay. The other big number is three hundred thirty four million, which is the total population of the US. Is this year's market? Nope. As a smaller or even medium Italian winery, these are just generic number you should really not rely on them. The give you kind of a big picture, but I wouldn't base a strategy on this on these wines. To do that, you might want to do something that in marketing one zero one is called segmentation. Okay? So try to fine tune the numbers, try to refine the numbers and see really what is meaningful and usable in your strategy when you want to work in the US. Okay? I'm gonna give a bit more of a mathematic, queue to you guys now. So the first number I wanna give you is ten percent. Italian wine roughly is ten percent of the total of of the wine consuming America. How do we get to that ten percent? So for other than fifteen million cases, two thirds of two of those cases are actually made in America. So imported wine is about a third. Italy is one third of that third. Okay. Now, I would argue since we are talking to a smaller producer that that isn't your number either. If if you're selling wine that is above fifteen or twenty dollars retail, forty million cases isn't really the market where you're gonna be playing because a lot of those forty million cases of Italian wine, there is a lot of prosecco, there is a lot of pinot grigio, Malpolisa and La basicanti, huge brands, Long story short, if you are, a winery that is, let's say, less than two hundred thousand bottles, you're probably, playing in a category that is about one point five million cases big. Okay? So, thanks for doing the math with me, by the way. So a little bit more math, very important. The other numbers to remember are fifteen percent and eighty five percent. So fifteen percent is a share of core drinkers. So these are people that drink at least twice a week or at least once a week, I think. I believe everyone in this room does way more than that, so I don't think we count in the core. We probably super core at this point. But these are the people that have the knowledge, the means, the interest, the intellectual curiosity, of buying Italian. And these are not just the chianti drinkers. These are the Frapata drinkers. These are the La Camadi Morod alba drinkers. These are adventurous. People that love Italy, I'm Italy, go see one race. They have that kind of commitment. They have that kind of passion for the Italian wine product. Okay? So it's in this kind of arena that you're really playing. However, fifteen percent means roughly forty four million people that are a cold one drinkers However, the Italian cold one drinker arena or or, area, if you wish, is smaller. Way smaller than forty four million because you're wondering, we'll have to face three different forces in the market. One is a deeper competition or hyper competition, I should say. Your voice will compete with Austrian, Spanish, Australian, Argentinian, Chile, American. Everyone is selling one in the in the US. So there is a lot of competition. There is a lot of distributor consolidation, which is something that Mr. Mondawi, pointed yesterday, to give an idea the two largest groups of national distributors account for seventy percent of the market. Okay? That's a lot. It's about, I think, seventeen billion dollars in sale. These two large, super large companies. And then we are facing a, slowdown in consumption, which is, unfortunately, due to a demographic changes. So if you put all this thing together, basically, your core market is gonna be about forty million cases and eighteen million consumers. That's roughly the size of Ecuador. Okay? To give you, something in perspective. The wine consumer, it's about eighty million people. In total, these are people that casually buy a wine every month or every two months. And eighty million people is a little less than the population of Germany. Okay. So, again, I'm trying to put everything in perspective because at the end of the day, if you are a small winery and you have limited resources, you might want to make sure which condo market you are addressing. Okay? And how to address that market boils down to something called import model? How will you go to the US? Normally, we we we talk about two major approaches, okay, one is called a national importer, the national importer, it's typically a larger company, very well structured, very well organized, typically also very well funded. It's a one stop shop. So basically you're giving the keys of the market to this important. Okay? It does everything for you technically. And it will be the one deciding the distribution for your wine. You don't have any say in that decision. Okay? And they obviously cover the entire US. The somewhat opposite option, it's something smaller, which we normally call a regional, distributor. And it's these are typically integrated company. Okay? So they're typically importers and distributors, which is something you can legally do in the U. S. So typically, a small importer, does distribution in its own state. And normally, it will activate distributors kind of in the same region. Let's say the West Coast or the Midwest or the Southeast, they typically are regional players. There would be a third option, which we, normally refer to as a direct import option. Basically, this is The Italian winery setting up a company in the US, staffing that company, and then determining the market for its own products. This is a solution that has been chosen by large Italian wineries, like, say, Santa Margarita, for example. But also medium size one is like Avinonesi, for example, there are a number of them even by at one point was importing, was self imported. Okay? It's not a solution for everyone. It's obviously very focused on the products of the company. But it is obviously a bit more of an expensive, expensive solution. Now, how do you pick, how do you choose among this? These models. Now, typically, as a consultant, I like to bring up someone that is a bit more it's a bit smarter than me. Okay? So one is, oh, this is the next slide. Sorry. Let's dig up a little bit more into this, into these models. I put together what I think it's a qualitative table. Okay. This is not, mathematical or anything like that. It's just a approximate, evaluation of the specific characteristic of every model. For example, in terms of cost, how much is gonna cost you to work with a national importer versus a regional importer versus going direct? Typically, the most expensive solution is the national importer because it will probably ask you to, mark down your export price quite a bit because they have to make margin for their own operations. Okay? The other two options are a little less expensive for you. Obviously, if you're setting up your own office in the US, Probably you might want to to to, to get financing, but it's not super expensive. Market risk. Well, if you lose your national importer, you are basically starting from scratch again. You will start from zero. Okay? While if you lose your your distributor in California, full is not me, you can find another one. Okay? So typically, it's a little less risky. You're not putting all your eggs in one basket as we say. Okay? Relationship with the end consumer. Typically, national importers are, kind of, filtering your presence. So they will tell you when they wanna see you in the market, and it's very difficult to establish relationship with the final customer, say, the restaurant in Seattle, or the one shop in Miami. Okay? It's much easier, obviously, if you go direct or if you have a smaller importer, which is usually someone that is a bit more agile and is gonna let you come to the market a bit more often. Control over distribution with the national importer you at zero. You are basically going with whatever network they are using. And that means that when you select your importer, your importer will be a section of the total book of a distributor. So let's say this distributor maybe has five Italian import company, each of them has, I don't know, ten Italian countries. So you are sharing the same distributor with, say, fifty other Italian brands. Okay? So just just keep that in mind. You don't really have that with, with a smaller distributor because you're really only sharing your direct, contact with the distributor. So you don't really have another layer in between you and distribution. Depth of assortments, how many different SKUs, how many different wines can you sell? Typically, a national importer wants to be very focused. So if you're making ten wines, they will probably tell you, give me one that is very important for you. We'll see what we can do with the next few. And maybe one day in the long term, we'll gonna bring something else inside. Okay? So if you're going national, it's really shrinking down the option of how many SKUs they're gonna work with. Okay? You don't really have that option the problem if you're self imported and really a little less complicated with the original regional distributor. This is not, again, the model every model is different for every company. The perfect model does not exist. All of these models have pros and cons. They might be excellent for one company and not so good for another one. And I, and I think we can agree on this. It's not so much about your size or it's not just about your size because I know small wineries in Italy, they're very happy with their national importer. You know, it's easy. It's one relationship. It's fine. And I also know large Italian companies that decided not to work with a national importer and manage directly five, six, seven different imported distributors in the US. So this doesn't really, matter the size as much as what makes the most sense for you. And how do you determine what what makes the most sense? Again, we are business partners. This is why we love to bring in the smarter people. One of the smarter people was Socrates, used to say, no thyself, know yourself. And in so many years of of of of of of working in this industry, it's amazing on many one is do not do that kind of introspective work of understanding exactly what they want from the US market. It's it's mind blowing. So in management one zero one, they tell you, okay, if you have to come out with goals, make sure your goals are realistic. Oh, I wanna sell ten thousand cases in the US. That's really not realistic. If you are new, it's gonna take a little time. Measurable, put a number, obtainable. So, again, not just realistic, but can your structure deliver deck and the result, and then time sensitive. Give it a little time, two years, five years, ten years, whatever that is. But you have to do that work, and you really have to know what you want from this market. The other, quote that I wanna bring from another philosopher more or less from the same time was which used to say, if you wanna go to war, you should really do the math first. My uncle used to say, leave the dream, but do the math. Kinda do the same thing. Again, what are your resources? Do you have? What it takes? Do you have number one? Do you have the money? Because this is an expensive market? And number two, do you have the time? Can you commit time to come and work in the US? And and it really boils down to are you ready for this market? No one said you have to be in the US market. No one said you have to be in the US market immediately. It's something that you might want to achieve and work on progressively, perhaps. Okay? So this is what what we call an approach that is resource based. So you might want to do this kind of work introspective. And at the same time, try to understand if you have the resources to do that. At this point of the presentation, I was kind of tired of all these boxes and texts. So I decided to do this one with a little bit more, you know, images. Going back to the differences between a national importer and a regional importer, this is how a national importer is gonna look like a little bit. Okay. So probably the guy on the front is the vice president, you're gonna see the the the president, you're gonna see maybe once in your life. Then in the back, you're gonna have, like, the vice president, and then somewhere in the middle, you have the portfolio or brand manager, which let me tell you, if you go this route, it's gonna be he or she is gonna be your best friend. Because the brand manager or the portfolio manager is your liaison with the old company. It's gonna be in charge of determining everything you need from this particular importer. And then the guys, the little guys all the way in the back, Those are the reps that will go to the restaurant or the shop selling your wine. I've exaggerated a little bit. This is, again, a little bit of a generalization. There are importers that are much more, nimble and and leaner than this. Obviously, But by a large, if you are with a national importer, you probably will be in a very structured, very well organized company. Okay? What about the regional importers? Well, we kind of like to call ourselves Lending us a little bit. Right? Why? Because we are typically leaner companies. We are talking about, companies that are probably less than fifty, forty employees. It's eight in my company. And this allows us to be a little bit more, a little bit more agile we can execute things quicker. You don't really have to go through a lot of people to talk to me. I pretty much do everything. But, obviously, if you are, if your company, requires a bit more of a structural approach probably we are not meant to be working together. So again, try to match your needs with the, capabilities of your partner. Okay? And this, again, this is a simplification, but, it it's fairly, fairly accurate. A couple of tips, a couple of suggestions on what to do, what not to do. And I would love to stress. This is not just about the regional importers. This kind of applies to everyone. I would recommend you do this with whatever kind of model you're working within the US. Okay? First of all, we are, as I said, before, business partners, very much like a marriage. Okay? Your ear for the long term changes in the US are very hard. The structure of the market that you see, as you see before, does not really lend itself to quick rapid rapid changes. It takes a while to process changes. So if you're changing a distributor, it's it's a very difficult process. In some markets, it's actually, almost impossible because they own your brand unless something happens. Okay? So long term vision, it's a must. With that said, plan with us, plan with your importer, plan with your partner, tell them what you need, let's agree on what we can deliver because we'll have to kind of find a, a middle ground on this, but let's work on shared goals. Okay? Support execution, and this works with everyone. National important, local importance doesn't really matter. But you really have to commit your resources to work with them. Ask them what they need, and let's try to to to put it together. Communication, early often, but not too often, I would say, and and promptly. Don't come up like the week before you're launching a new product and you let us know, oh, you know what? We have a new account, you know? Well, you know, we probably should have heard that before. So again, communication needs to be prompt clear and hopefully often. Very, very important. Listen. Listen to us. If we tell you, Sandy doesn't work, it's probably not because we don't wanna do it because it doesn't work. And then, you know, I think we've been taught that you have to explain things, even numerically, and that if it's a partnership, we'll tell you exactly why it doesn't work, and we'll tell you what is gonna work. But listen, let's have a conversation, let's try to understand each other. Obviously, conversely, what not to do, I would recommend you do not, put yourself in a transactional relationship. Your job is not done when your wine is picked up at the winery. Okay? Your job is done with the wine. There is someone in in a bar in Seattle drinking that wine. That's when the job is done, all of us. Okay? So obviously, as I was saying before, Noah's meter changes, give us a little time. Do not make assumptions because a product works in New York. It's not sad. It's not natural that the same product might work in Chicago or in San Francisco. Okay? Going back to listen to us, we will tell you exactly what works in every market. No lack of support. It's a no no. If you're not there, if you're not spending time with us, you're kind of falling down in our priority list. Okay. And then lack of communication, which is obviously a given with what we said before. Last but not least, takeaways, and I think we're gonna open the mic for questions and answers. So number one, I think we now understand why the US market is so difficult and expensive. Number two, it's important to choose a business model, an import model that makes sense for you. Okay? It might not make sense for your neighbor, but it has to make sense for you. Importors and distributors are long term partners. It's very difficult to change these relationships. And we share your visions, your vision and your goals. That's important. And then, obviously, how to try to get, be to be successful in the US market, understand the complexity, calibrate your expectation, and this is something that it's really difficult to do. I understand, but you really have to calibrate your expectations and then work with us on those shared goals. And I think that's it in terms of around the show. Thank you very much, Joseph. I think that, was a really great journey through slides, and then I'm sure that, people are very eager to go back again and release it to those points. I would like to leave, you know, also with another takeaway. Despite all these, I would say, alarming projection in front of you, the American consumers love Italy. They love Italy. They love them in Italy. They like to drink, dress, eat, vacation to Italy. And we have something that, other wine country, they don't have. You know, we have this, value of, that it's very immeasurable, you know, quite often when I go in front of, customers, I said, Noushio, it's amazing in the wines that, you know, that I tasted with you because I mean, I will even pay like a ten dollars ten dollars more, you know, that is an equity. There's a capital that, you know, that, other countries they don't have. And then we have diversity. Let's always talk about diversity. You know, we can talk about tatserege from Trejuri. You know, we go with Hacheta, and we could talk about, you know, like, the the the the the the the current Karicante from Etra in the same conversation. No other, no others, you know, wine region can do that. So let's use those weapons, you know, to always, you know, put ourselves in front of a potential customer or consumer that, you know, that is willing to explore with you this journey. Because at the end of the day, what we sell either in California or in New York is experience, you know, and no, not only experience, but, you know, it's like, you know, like, some sort of a feeling emotion emotions that we have to translate through, you know, or transfer through a wine glass. Don't be scared about these articulation, but be aware and be conscious, you know. I like when, you know, a producer that only makes, twenty thousand bottles, you know, he's willing to, put himself in front of these giants, you know, but you have to be cautious, you know, you have to be realistic as well. So, I wanna thank you very much for listening to Giuseppe, and I hope that this session was very useful for you. Thank you. Listen to the Italian wine podcast wherever you get your podcasts. We're on SoundCloud, Apple Podcasts, Spotify, HimalIFM, and more. Don't forget to subscribe and rate the show. If you enjoy listening, please consider donating through Italianline podcast dot com. 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