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Snooth User: humpdog

importers, distributors, and brokers

Posted by humpdog, Jan 9, 2012.

hey everyone--it's been awhile since i posted but i knew the right group to ask this simple (to most of you anyway) question. :)

 

generally speaking, what are the differences between wine importers, distributors and brokers?  how does each group make their money?

 

that's it!  thanks.

 

Kevin

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Replies

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Reply by JonDerry, Jan 9, 2012.

Good questions,

I may not be the best qualified to answer this, but I would think brokers generally are in the business of representing individual buyers, and if they're good, they'll have relationships with retailers, distributors, importers, and maybe even some wineries and based on their volume of clientelle will be given discounts by the aforementioned dealers. Obviously, their job is to get wine for their clients below the retail cost, and with that difference is where they'll make their money.

Distributors and importers will have direct relationships with the wineries themselves and will generally not be in the business of selling or dealing with individuals (like a broker would), but they would be working with the winery itself and likely supplying retail locations with wine ready to purchase by the general public. Distributors typically buy in bulk from the wineries and will get deep discounts for their work, and if it's an international wine, obviously the wine will need to be imported. I'm sure many distributor's import themselves, and that many or most importer's are distributor's but i'll let others weigh in, I know Greg T and others have more 1st hand experience.

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Reply by Richard Foxall, Jan 9, 2012.

GregT, where are you?  Besides being conversant with about a million aspects of wine, he actually imports a little bit of Spanish wine, or has in the past, and knows the supply chain all the way up and down. 

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Reply by gregt, Jan 9, 2012.
Edited Jan 10, 2012

hump - importers import.  To do that you need to get a license from the feds. The TTB (Alcohol and Tobacco Tax and Trade Bureau) regulates that. They used to be called the ATF, but that organization  was reorganized in 2003 as part of the Homeland Security Act, so now it's the TTB.If you don't have a TTB license, and if a winery sends wine to you from overseas, the good folks at DHL will keep it or send it back or dump it. If you want it delivered to your home, you need to send DHL a letter and a copy of your TTB license. So for all the good folks who want to ship themselves a case back home from France, good luck. If you're honest and state that the package contains alcohol, you're stuck.  Better to just bring it back with you and carry it thru customs yourself. Pay the extra 50 euros or whatever for extra baggage - it's cheaper and more certain than shipping internationally if you don't have a license or a friend to clear the package for you.

Distributors sell to retailers. They are the "wholesalers". Distributors are licensed by the states, and the laws in each state are different from the laws in the neighboring states. Therefore, there are very few people who distribute in every state. You can be both an importer and a distributor - there's no conflict at all as you're still the "middle man". The only problem is that it's not practical to get licensed in every state so you seek out licensed distributors in the states where you want to sell your imported wine, or the distributors seek you if they want to sell your wine.

In the NY area, for example, you can be an importer licensed by the TTB and a distributor in NY, NJ, and CT.  You just get a distributor's license in each of the states where you want to distribute and since they're close by, many people get licenses for the tri-state area. But to keep Joe Average from setting himself up as a distributor and getting good prices on wine for his own consumption, most states mandate certain things, like owning or having access to a warehouse of a certain size, etc. 

Smaller importers often hire out their distribution to bigger companies rather than buy a warehouse and distribute themselves. 

Brokers are different from either.  They are just like real estate agents - they bring people together and hope to get something out of it.  You can travel around the world, find some producers, and offer to represent them in the US.  You call a few importers to see if they'd be interested in picking up the wine. Maybe you already have someone to clear it, so you call a few distributors to see if they'd be interested in carrying it as part of their portfolio.  With luck, a few people take it.

You can start out as a small broker, bringing in a few wines and then finding importers and distributors.  Or you can hire someone to bring in a few pallets for you and then hire  someone - maybe the same company or a different one, to store and distribute it for you. You end up with very thin margins if you do that because people will charge you for every bottle they touch.

How do you make money?

Producer sells for 2.5 dollars or euros.  Importer buys for 2.5 and sells to a distributor for 5.  Distributor buys for 5 and sells to a retailer for 10. Retailer sells to the customer for fifteen or twenty.  If you're both importer and distributor, you may shave a few points off to the retailer and if he's cool, he passes it on to the customer.  If you're a broker, you add your commission to the winery price and maybe the importer pays 3 euros instead of 2.5.  Hopefully you get paid your commission - a lot of that has to do with the deal you cut.  Eventually the winery and the importer or distributor will figure out that they can probably cut you out of the picture and save the commission you're getting, so you need to keep hunting around for new clients because sooner or later one of your wineries will leave.

There isn't a separate license to be a broker, at least not in NYS.  If you're going to rep wine, you need a solicitor's permit.  It's the same you get when you work for a distributor.  You're a wholesaler either way.

You didn't ask, but there is a final link - the retailer.  The three-tier system was to keep separate the producer, distributor, and retailer.  Think of Al Capone - he made the gin, delivered it to the speakeasies, and oh, by the way, he was going to be your partner at the speakeasy too. What are you going to do, tell the cops that he's muscling into your illegal enterprise? After Prohibition, they passed laws in all states restricting the ability of someone to make that Al C move.  So the three tiers are the producer, the wholesaler, and the retailer.  A "broker" can work at any level - it's not a defined category so you have people who rep wineries and people who do personal buying for wealthy clients.  But if you're selling to people who will sell later, you're a wholesaler and need a wholesaler's license, at least in NY.

In CA, the retailer can also be the importer and distributor.  I think that's the only state - not sure. That's why you have people like the Rare Wine Company or Winex who get stuff directly and sell to the customers.

In other cases, a retailer will contract with a licensed importer and distributor to bring something in that the importer doesn't usually carry. The retailer will pay less than he would if he'd bought something off the distributor's catalog.  How much he'll end up paying depends on how well he negotiates.

An individual can be a broker and also an importer and/or distributor.  A lot of brokers shop their stuff around. If you get known for your portfolio, maybe because you got some good press for a few of your wines or you got high points for some, bigger distributors are interested in carrying your stuff.  Problem is that a lot of the big guys are unionized and in any case they need to move lots of product to cover their fixed costs.  So if your stuff needs hand selling, it may not move.  It may just end up in a corner of the warehouse. Then one day the customer will find it on clearance somewhere because the distributor gave it up.  So if you're a broker, you need to help actually move your stuff - work with the distributor, call on stores with the distributor, do tastings, etc. Or keep your stuff with smaller distributors/importers.  But even if you do that, once you start developing a market presence for your wine, the producer may think he can do better with someone else and shop around for a better deal, cutting you out. Doesn't always work and sometimes they ask to come back, but remember that everyone is looking to move product thru the system and if they see what they think is a better opportunity, well, they're not family after all.

Hope this helps clarify who does what.

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Reply by dmcker, Jan 10, 2012.

Perhaps another pertinent category would be 'consultant'? Sounds like you've probably gained enough experience in these areas over the years, Greg, to guide others....

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Reply by gregt, Jan 10, 2012.

D - the problem is getting paid.  The entire business is based on cash flow - you get your wine FOB the winery or the port. If you have a desperate winery, you can negotiate some terms with them, like 60 days or more. Then you clear and store it.  You try to sell it. If it sits in your warehouse, you still have to pay. And don't even start on currency risk.  In 2008 and 2009, a lot of people lost out when the dollar fell and they had to pay the equivalent of 20% more than what they would have on the day they put the order in.

When you wholesale it, you either ship COD or give people 30 days. Then the retailer has to move it out or he's got money tied up in inventory. At each stage, there's some term assigned to the payment. In NY, the law mandates that if the retailer or restaurant doesn't pay you w/in 30 days, you are supposed to report them and then they're put on COD with everyone. Some people do it immediately and others don't.  Of course if you don't, then you're screwed because you're not only not paid but you're in trouble for not reporting them. Took me a year to collect $350 one time. Worst is when the restaurant just closes and the owners move back to whatever country they came from. 

As a "consultant", there's not a timetable or anything.  The ideal job, for me anyway, is to rep some wineries who pay on time and not be responsible for clearing customs or selling to retailers.  But every single importer is beseiged by companies trying to get them to pick up their wines, so it's not like you find a wine you think is good and then you start making money.  You're simply part of the noise.

I forgot to mention label approval. You can't bring wine into the country w/out TTB approved labels.  Sometimes the winery has an iconic label/bottle already so there's not much to do.  If it's a new venture or a new company in the market, the importer usually takes care of the approval process.  If he's already sold the wine to some distributor(s), they may have preferences.  And sometimes they or their customers may want a specific label. It's why you often see labels at some retailers that you wouldn't see elsewhere.  They have the exact same wine as someone else, but with a custom label.  That means you can have the same wine on the market with several different labels and in fact, that's not uncommon.  Doesn't mean the wine is bad but that way someone can offer deep discounts without hurting the brand, or you can have 2 different distributors in the same market selling the wine, or you can offer one label to restaurants and another to shops, etc. The humorous part is when you send all of the labels off for reviews and the same publication gives you different scores for the exact same wine.  And it's not bottle variation if they all came off the same line on the same day!  Not saying that's ever happened of course . . .

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Reply by MReff, Jan 10, 2012.

Some distributors also charge an additional fee for being on COD.  I know the distributors/importers that I represent does this.  Then there are those customers who are always on COD, or prefer to be on COD.  I have one client that is always on COD, and prefers to do business this way.  He of course has the capital to do this, and its great for us too, since the invoice is paid immediately.

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Reply by dmcker, Jan 10, 2012.

 

I thought my company back when was was getting a good deal with 30 days payment from invoice. Consulting services and the like, with the standard in Japan at the time 45-90 days. In the wine and other alcoholic beverages industry things are a bit different, yet still nobody pays COD except at small-volume retail. This is still a country of trust, is perhaps one way to put it.

"Not saying that's ever happened of course . . ." Uh huh, Greg....

 

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Reply by Richard Foxall, Jan 11, 2012.

Good to know the Bat Signal still works, GregT.  As usual, a depth of information we mostly-just-drinkers lack.  And a lot of cautionary tales for anyone thinking they can make a killing bringing in stuff they want to drink themselves.  Ain't that simple.

I've toyed with the idea of repping family owned wineries in the DCV/RRV/Sonoma Coast area, just because it's the least capital and overhead intensive area of the business, and I have a few contacts and know the wines pretty well, but reality creeps in and thinking about it remains the extent of it.

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Reply by gregt, Jan 11, 2012.

Well if it's not your full time job it may not be so bad.  Also, you don't have to import, so if you stay local, you only need to work within the laws of CA. Give it a shot. You may get some free wine out of it and you may get to meet some people and one thing leads to another and . . .

The thing to remember is that oddly enough, selling wine has very little to do with how much you know about wine, or even the wines you rep. It's sort of like running a mile has very little to do with how much you can bench press or how good your tennis game is. Physical activity all, but different.  Same with wine. Selling is selling. I think a good salesman can sell cars, pork bellies, jewelry, houses, and wine. A little knowledge helps, but beyond that it's only for your own edification. Basically you need to convince the buyer that he or she likes the wine and that they'll be able to move it. A restaurant doesn't want it sitting on the shelf and neither does a store.  Some people like the story attached to the product, so if you can come up with one for those people, great.  But that's not going to make you any money, at least initially. 

So Fox - if you know some people and you think you can do some good, give it a shot. After all, it's pretty much the same as arguing a case in front of a judge or jury - you're still selling!

Mike - as far as the COD goes - some huge customers also like being on COD.  They don't mind because it's a convenient way for them to blow off the sales reps they don't want to deal with - they just plead cash flow constraints.  And then some get put on it because the sales rep screws up.  I agree it can be great tho.  Sometimes you can work something out and offer a deal if they pay on delivery. If it's compelling enough, they'll take it.

D - it might have happened.  I don't remember.  But if it did happen, it was't every time.  And usually the point difference wasn't more than say, four or five points. So not to worry! You can still count on the accuracy and precision of those scores! I know that means a lot to you.

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Reply by JonDerry, Jan 11, 2012.

It's nice to do business with people who don't mind paying up front. The Credit Card was a great invention to assist both parties. Instead of Net 30, pay me immediately and then pay them in 30 days. The fees are absolutely worth it, organizing those reminder e-mails take plenty of time and energy. I would say 60% of my business is done this way, with larger accounts of course still taking Net 30, which really amounts to Net 45-60 typically.

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Reply by noashleyno, Sep 20, 2012.

Is there a magical place where I can find out which state requires what permits for my needs? Each state has its own web of information on the subject, but it's confusing and some lingo is used differently throughout. We're an importer, who sells to wholesale distributors and also a little online direct consumer sales. I'm new to all this, and help is welcomed.

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Reply by Richard Foxall, Sep 20, 2012.

Well, we'll see what noashleyno has to say when the post is approved, but gotta love that handle.  I keep thinking it comes from Ian Frazier's "Cursing Mommy" pieces in the New Yorker. 

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Reply by gregt, Sep 20, 2012.

Check around.  You can start here:

http://www.wineinstitute.org/initiatives/stateshippinglaws

And the TTB site itself is really useful, believe it or not. Your individual state site, that's going to vary but some are really helpful. 

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Reply by winestreet, Jan 28, 2013.

Does anyone know if the laws work the same way in NJ? Can I be an importer and distribute to NJ, NY and CT? thanks 

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Reply by winestreet, Jan 28, 2013.

Does anyone know if I can be an importer in NJ and distribute to NJ, NY and CT? thanks 

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Reply by Snoother 1183816, Jan 31, 2013.

does anyone know if a wine producer can have more than one importer per state, NY/NJ? I'm under the impression that they can only have one distributor per state. 

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Reply by gregt, Jan 31, 2013.

Does anyone know if the laws work the same way in NJ? Can I be an importer and distribute to NJ, NY and CT? thanks

As I mentioned above, you can do that but you need to be a distributor in each of those states. Otherwise you need to have someone be the distributor for you. If you're importing, you need a warehouse or you need someone who is a licensed imported to clear customs and take delivery at a warehouse for you. There are companies that do this for small importers, which I imagine would include you if you're asking these questions. It's going to cost you. You will need to pass on the costs of purchasing the wine, getting it on a container and shipped to the US, the importer/customs clearing, the warehousing, the delivery. And then the retailer takes a markup. That's why a wine you bought for $2 at the winery ends up costing $15 or more on the retail shelf.

If you try to import and you're not taking an entire container, you split it with someone and your cost is a little higher as well. And if you're not insulating or refrigerating the container, you risk damages wine so you pay a little extra for the protection.

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Reply by penguinoid, Feb 1, 2013.

GregT: "The humorous part is when you send all of the labels off for reviews and the same publication gives you different scores for the exact same wine.  And it's not bottle variation if they all came off the same line on the same day!  Not saying that's ever happened of course . . ."

One interesting test I remember from uni wine tasting classes (no, really) is the triangle test: three wine samples, two of which are identical. Given two fairly similar wines, it can be surprisingly difficult to pick the odd one out. I can easily see how two identical wines lost in a big tasting bracket could easily end up with (slightly) different scores and notes... :-(

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Reply by gregt, Feb 1, 2013.

That triangle test is a great way to decide who's going to be a judge in a wine competition. It is in fact difficult to pick out the same one, counter-intuitive as that may seem. I have a friend who can do it in a line-up of 12 wines though, so I know it's possible. The smart thing to do with the reviews though, is simply label all of the wines as the one that got the best review.

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Reply by Lacucusa, Jan 21.

GREGT

 

I've been offered the opportunity to represent a small winery D.O Madrid in the US. I am a wine enthusiast, not a distributor. But wouldlike to get involved as a broker. You mentioned above that as broker,you need a state license as well. What about the terms on the agreement with the winery/producers? Under what conditions should I represent their wine exclusively?

Thanks!

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