Understanding the Challenging Wine Market in the USA

The following excellent article was written by Cathy Huyghe for Forbes Food and Drink. The article gives one of the best explanations of the “three tier-system of alcohol distribution  in the United States. At Vinitaly, Ms Huyghe was on a panel  discussing this topic along with Alfonso Cevola,  and Jeremy Parzen (as moderator).  I know these two men and greatly respect their opinions about wine.

Ms. Huyghe also writes about the problems Italian producers have understanding the three-tier system and marketing their wines in the US. She uses as her example Liù  Pambuffetti of the Scacciadiavoli winery. I first met Liù a number of years ago when I was the wine director of i Trulli restaurant and Vino wine store in NYC. Liu came to the wine store for a month to learn about Italian wine and the wine market in NYC.  I  spent time with her talking about these subjects and she sat in on the wine classes I was giving at the time at Vino. So this article is of special interest to me. I believe that every Italian producer who has their wine in this country should read this article.

What Makes A Wine Sell, And What Doesn’t: Takeaways from VinItaly

Note: Last week, during the VinItaly trade fair in Verona, I participated on a panel on the subject of the three-tier system of alcohol distribution in the US. This post recaps the discussion. My co-presenters were Alfonso Cevola, Italian wine specialist at Glazer’s distributor; Steve Raye, co-founder of Brand Action Team TISI +0.78%; and Jeremy Parzen, an Italian wine specialist, who moderated the panel.

One van. Three friends. Twenty-five states. And 40 cases of wine. That was Liù Pambuffetti’s life for three months last winter, as she and two friends drove through the midwestern US, visiting restaurant after restaurant and retailer after retailer, tasting each one on her family’s wines from the Scacciadiavoli estate, in the Montefalco region of Umbria. “We can’t understand the American market from Italy,” Liù Pambuffetti said two weeks ago, standing in the courtyard of her family’s winery. “We had to go there. We had to see for ourselves.”

The initiative started because Pambuffetti found herself in the same position as many smaller Italian wine producers who want to export their wines to the US: with a lack of knowledge or experience with the three-tier system of alcohol distribution in this country.

That lack of knowledge is one reason why the three-tier system was the subject of a panel and seminar I participated in last week at the VinItaly International Wine & Spirits Exhibition in Verona, home to more than 4000 exhibitors, most from within Italy and its wine sector that’s worth 12 billion Euro annually.

The four panelists, independently of each other, anecdotally polled different Italian producers on what they knew about the three-tier system in the US. The answer – very little – was consistent across the board.

For the record, the three-tier system (which dates back to the repeal of Prohibition in the US) means that alcohol must pass through three sets of hands. The first tier is the producer; the second tier is the distributor, which is sometimes also the importer; and the third tier, finally, are the licensed retailers, who sell to the public.

Each state complies with the three tiers, but each state also has its own regulations. Which means a producer must multiply those three tiers by 51 – for all 50 states plus a county in Maryland – in order to get a sense of the magnitude and complexity of bringing their wine to the US market.

A reasonable knee-jerk reaction would be to protest such a system but, as Steve Raye pointed out during the panel, there’s no use spending time debating the faults and merits of the system. Raye is the co-founder and principal at Connecticut-based Brand Action Team, who specializes in innovative digital marketing programs for the alcohol business.[/entity][/entity]

The three-tier system is the reality in the US, as Raye said, and it won’t be changing any time soon. But there are ways to work within it and, increasingly, around it, given the always-changing regulations in the US about ecommerce and shipping wine directly to consumers.

Despite how complicated the laws are, and despite how helpful an importer/distributor may be once the wine lands in the US, the responsibility for selling and marketing a wine still lies squarely in the hands of the producer. That realization quickly lead our panel and the audience to a discussion of how producers can find, market to, and sell to their audience.

Which brings us back to Liù Pambuffetti’s three-month “tour” of the midwestern US.

She and her team had planned ahead and scheduled tastings in target markets. In a very savvy move, at each stop they asked the restaurant or retailer which importers or distributors they respect and use to deliver smaller-production Italian wines like theirs.

In the end Pambuffetti identified not only new customers but also four new distributors, giving her family’s wines an exponentially greater presence in the US than they had before. It isn’t just a presence, however: it is a strategically intelligent presence that increases their chances for successful sales.

There are three important takeaways from Pambuffetti’s experience for Italian wine producers who are looking to break into the US market. These points were discussed in details during the VinItaly panel.

Focus, focus, then focus some more on who the audience is. It sounds obvious, but producers can increase their chances of success by homing in on the people most likely to care about their brand. Otherwise the experience can resemble fishing for sardines in the Pacific Ocean. Maybe the audience for a particular producer is white tablecloth restaurants, in the Italian category, with 50 to 100 seats, and two or more staff dedicated to the wine program. If the producer has dug that far down, in a number of different markets, they’ll already know how their audience wants to be communicated to.
Seriously consider the off-the-beaten-path markets, that is, outside the major cities on either coast of the country. When everyone else is zigging, you zag.
The in-person experience is paramount, because that’s the very best way for a producer to deliver their story.
In my opinion, a producer’s story trumps any detail about a wine’s technical profile or even their numerical rating by international publications. A wine’s technical profile – things like the type of wood it was aged in, or its acidity or alcohol levels – are what I’ve come to think of as tablestakes, to borrow a phrase from Kevin Roberts of Saatchi & Saatchi: they are the stakes any player has to bring to the game to earn a seat at the table. Everyone has them, but they aren’t a point of differentiation.

Which means they don’t help a wine to sell.

What helps a wine sell is its story.

When I interview a winemaker or visit a producer from my perspective as a journalist, the story that interests me doesn’t emerge until later, often much later. It definitely doesn’t happen until after the preliminaries – the tablestakes or logistical data, that is – are over with. It’s only then that the lightbulb of recognition goes off, that illuminates what it is that makes that particular wine and that particular producer unique and different than all the others.

This more narrative approach doesn’t come easily – not even to producers themselves whose stories are their own – within an industry long influenced by the split-second recognition of numerical ratings of wines. Yet it’s exactly what a major distributor like Glazer’s, based in Dallas, Texas, has its eyes and ears open to.

Alfonso Cevola, Import Wine Director and Italian wine specialist at Glazer’s, estimated during the panel that he receives about 20 emails a week from Italian producers that are strikingly, almost dishearteningly, similar because they all say the same thing and relay the same information (such as the tablestakes of oak aging, acidity, length of time the family’s been making wine, etc), only with a different brand name.

The problem is that none of that information is going to help him, or his sizable sales staff, sell the wine. What they need to know is what differentiates the brand from all the other producers in the company’s portfolio, which is also sizable.

Convincing producers of the value of their individual story, though it makes valuable sense intuitively, requires an important shift for many producers moving forward. But, as Raye pointed out during the panel, producers are in an advantageous position today because of technology and measurement tools, many of which are openly available for public use.

Producers can experiment not only with the platforms for communicating their story, but also with whether the story resonates with the audience they want to reach. “Try it,” Raye said. “Measure it. If it doesn’t work, then try something else. The tools are at our disposal.”

Follow me on Twitter @cathyhuyghe.


Filed under Uncategorized

2 responses to “Understanding the Challenging Wine Market in the USA

  1. As an Italian producer, I completely agree with this article. I think that we simply need to explain why we produce wine, the reason we work so hard every day and the emotion our wines give to us and to people that drink it.
    Every time there is a person that ask me about acidity, pH, alcohol, sugar, etc, my thinking is: “taste it and just give me your opinion with your heart!”.
    Loredana Vivera.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.