Understanding your routes to market

How will you get your wine into export markets?

Your ‘route to market’ is the path you take to get your wine into an export market.

Some winemakers and exporters use one pathway while others use a combination of routes to market. You should consider both market access and requirements and your business goals to work out your strategy.

In some markets you won’t have a choice about which route to use – you will need to work with either an importer/agent or distributor. In other markets, you might need to rely on several channels to reach your target consumer.

Distribution channels

Selecting a distribution channel is not just about pushing your wine products into a new market – known as ‘placement’. It’s also about who is going to buy your wine – known as ‘depletion’.

At a high level, there are two ways you can get your wine into new markets:

• Importer/agent
• Self-importing (including direct-to-consumer)

While the vast majority of wine exporters choose to enter new markets with an importer or agent, that doesn’t mean you can’t find success with alternatives.

Navigating different distribution models

Every country you plan to export to will be different from the others. For newcomers to wine exporting, it can get complicated if you are trying to manage multiple export strategies in markets with wildly different distribution models. Connecting with an experienced distribution partner can help you overcome these regional complexities, so it’s important to do your due diligence and build strong relationships with established importers/agents in your chosen market.

Because every market is different, it is impossible to walk you through the potential avenues for exporting your wine in every country. For the sake of demonstration, we will examine some of the different business models that Australian exporters are using to get their wine into the United States of America (USA). While the three-tier system is the most common, it is not the only way to export wine.

Distribution model case study: The USA

Typically, there are four different strategies you can deploy in the USA:

1. Three-tier system
2. Self-import
3. Joint ventures
4. Direct-to-consumer

1. Three-tier system

In this model, an importer is responsible for:

• ordering product from your Australian point of entry at winery FOB pricing
• working with the winery to create a US-compliant label and submitting that label to the Alcohol and Tobacco Tax and Trade Bureau (TTB) for a Certificate of Label Approval (COLA)
• owning product in the US, warehousing said product, and drawing upon that stock as orders come in
• submitting wine to US scoring publications as well as participating in trade/consumer events
• appointing distributors across the country; and
• managing the day-to-day relationship with their distribution network.

The benefits of this system are that it provides a ‘full-service’ sales and marketing advocate for your brand. They come with existing relationships in the US market with key distributors and off-/on-premise accounts, and your product may be part of a larger portfolio. Standard payment terms are also usually 90 days once the wine leaves the docks, although it’s wise to conduct your own due diligence regarding any distributor’s credit-worthiness. Due to ongoing supply-chain backlogs, we expect this standard payment term to stretch out.

The downside of this model is that it’s a highly competitive process to secure a top-tier importer. Once you sell to them, it’s their product, which means they can sell your wine to whomever they see fit. Plus, if you’re not a ‘priority brand’, you may be disappointed at the lack of attention you receive in a multi-branded portfolio. For example, the Southern Glazer's Wine & Spirits company manages thousands of brands from around the world.

2. Self-import

Many wineries have employed a ‘self-import’ model for the USA in recent years. This involves a licensed third party, sometimes referred to as a ‘clearing house’ importer, who provides a list of services such as:

• acting as your importer for the US market
• warehousing your product in the US (typically New Jersey on the East Coast and California on the West Coast); and
• fulfilling orders, compliance, logistics and accounting.

However, a self-importer does not appoint or manage distributors, replenish inventory, or actively sell your product. While this model might seem overwhelming to those who are new to the USA market, there are several well-regarded brokers who can represent your brand.

Usually, a broker network will work directly on your brand in select markets in the USA. Brokers usually get paid based upon a retainer and/or commission, and will be less expensive than a full-time US-based employee. The downside is this is a shared resource that represents other brands.

The pros of a self-import model are that you have total control and don’t have to abide by an importer’s preferences – or be a small fish in their portfolio of bigger fish. You can also more directly influence the destiny of your wine brand in your chosen market.

the drawbacks are that you will need to finance a broker network to sell and represent your brand. You also don’t get paid until the product is ordered by the distributor, which may not be feasible for some wine exporters who are managing tight cash flow margins.

3. Joint ventures

Joint ventures (JVs) can take many forms, from a sales and marketing platform to offsetting the costs of consultants, brand ambassadors, trade and promotional activity. This model could be used to offset costs in both traditional and alternate routes to market. Small European JVs, for example, are prolific on the East Coast.

Forms of JV include:

• multiple Australian wineries entering a consolidated JV together
• JV with a domestic producer in the US — great for direct-to-consumer opportunities; and
• JV with an importer/distributor in the US. You share in the market success of a given brand.

Another possible strategy is to use your global expertise and market savvy as the centrepiece of a broader global JV. There could be mutual interest to share in each other’s distribution channels on a global level.

4. Direct-to-consumer and direct-to-retail

While the USA direct-to-consumer (D2C) business represents a tiny percentage of total wine volume, it’s a growing and profitable channel that’s definitely worth considering. There are some legal considerations, including specific D2C shipping laws. So it’s worthwhile getting some expert advice before embarking on D2C distribution. 

Another option, which is similar, is the direct-to-retail (D2R) model. In this instance, the retailer purchases products direct from the winery using a third-party importer. In some cases, that importer might only clear wines for said retailer. The retailer then sells as an ‘exclusive’ to their customers. This is usually done through both a brick-and-mortar store and via online sales. Examples of US-based retailers using D2R include Total Wines, K&L Wine Merchants, Wine Library and First/Last Bottle. The advantages of D2R are that the product is sold quickly with minimum sales effort from the winery. The downside is that the retailer is typically reticent to pay your frontline FOB pricing.

A quick comparison: Canada’s distribution model

To demonstrate just how unique each market is, let’s briefly look at the USA's neighbouring market. Wine sales in Canada are regulated on a provincial level, resulting in very different market rules and restrictions between its provinces. 

Major markets such as Quebec and Ontario work within a government monopoly system, with provincial liquor boards acting as the sole importer and distributor of beverage alcohol. Sales to end consumers can be through a number of retail channels including government retail, grocery, convenience stores and through on-premise channels. 

British Columbia is a mixed-model system, with a government run distribution channel and retail stores as well as a private store network. Alberta, on the other hand, has a completely open and private alcohol market, allowing for the numerous, privately owned shops to work with importers and distributors or on their own to source imported products.

As you can see, each global market and even individual provinces have their own idiosyncrasies when it comes to distribution channels. Do this research when choosing an export market, and consider how it will impact your strategy and approach. Then it’s a matter of finding experienced distribution partners who can help you navigate the relevant regional complexities.