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   Copyright © Ric Einstein 2009

 

 

 

 

Desperado and Drugs of Addiction

 

Most Australian wine producers realise the huge opportunity the US market represents, and many are now reliant on selling their wine in that market in order to stay alive financially. For many others, who are having trouble moving their product domestically, breaking into that market is seen as a “life saving” opportunity, and they are desperate to get into it.

 

Finding the right agent to represent your wine is key to success but particularly so in the US market, because of its asinine, antiquated, bloated and anti-competitive three-tier distribution system.

 

Recently I received a copy of an email which was sent to a US importer by an Australian winery, who was soliciting their help in distributing their wine, but from what I have been able to unearth, this email has been actually sent to not just this one importer, it was sent to at least three of them. In some ways, many people would think that it would be easy to find an importer for their wine in the US but that is no longer the case. The “good guys” have an attitude that says they will restrict the size of their portfolios so that they can properly represent their client wineries. Not all of them are this conscientious and many don’t care how big their portfolio is and are happy to take on almost anyone; it’s easy to get on their books, but they don’t have the commitment to make the relationship work.

 

All importers have to make a profit, but some do it by building long-term relationships and some do it by short-term “opportunist actions” which don’t take into account building a long term relationship with either the producer or the consumer The opportunist importer (and I am not referring to grey market importers here, that’s a whole other different story) is happy to gouge the customer and doesn’t care what damage is done to the brand, but more about that later.

 

The Email

 

Back to the email from the winery to the importers: All the names, which are all easily recognisable, have been (very irreverently) changed to hide the identity of the people involved. Here is the email, it makes fascinating reading. (Words in CAPITAL letters are as per the original email.)

 

“Dear Fred Nurks,

 

I hope that you actually get to read this email...common sense tells me I might have more chance connecting with God!!?...however, I am determined to have my wines placed where they deserve to be !!!!

 

Fred, I have been urged to contact you by my (region omitted) winemaker, Mr Well Respected, of The Highly Respected Wine Co, and formerly of That Well Known Winery; and also Mr Knobby Knees of US Shitraz and Rosé Imports.

 

My label is “Wombat Dung Wines,” and I too, like many of your South Australian clients, produce very classy, and uniquely styled artisanal wines. Rocky, of Bull-Winkle Wines, and myself share the same Australian distributor.

 

We have more of a nod to the styles of the Rhone Valley with our reds than most. The Rhone has been my inspiration to produce dry red wine. I produce a flagship red, "Top Stuff" Shiraz off 100+ y.o. (region omitted) vines. The current release, was recently awarded 9x/100 by James Halliday and according to him, is in the top yz wines in Australia!!. My Rhone blend, "Frog Imitator" is a shiraz/mataro/grenache blend from 80 y.o. (region omitted) vines. The xyza vintage was awarded 9a/100 by Mr Halliday.

 

Our xyza “Rocket Fuel Wine” was awarded 94/100 by Wine Enthusiast, and rated very highly in their top100 wines.

 

We also produce a Two Top Area Blend Riesling and a classy Chardonnay from my home vineyard in ABC Region in South Australia.

 

Some of our third party endorsements are attached for your perusal.

 

I currently export to UK and USA. I am eager to change my USA importer because I have recently discovered that “Wombat Dung Wines” is within what is essentially a bulk wine portfolio, as one of a couple of quality producers, and the distribution network is very small and limited because of the portfolio quality weighting. We are not being shown as widely, or to the quality marketplace that we deserve to be in.

 

We have been unable to achieve a 'Parker Rating' with our current distributor, Great Plonk Imports. Albeit, our winemaker at The Highly Respected Wine Co, and his former employer’s wines at That Well Known Winery HAVE been assessed and appropriately rated by Mr Parker. Our wine styles are VERY similar!!! Both our wine maker and his former employer are mystified that we have not been rated by Mr Parker via our USA importer.

 

The fact of life in this wine business is that every producer NEEDS Mr Parker's NOD OF APPROVAL to succeed. My wines ARE good enough for a positive rating, so I am approaching you to PLEASE help me achieve a rating.

 

Obviously, I need YOU more than you need me; however, variety IS the spice!!!...and it would be equally advantageous commercially.

 

Hope this catches you in a positive, receptive mood !!!?

 

My website will give you more information about me and my wines.

 

Thank you for your time, and I hope that you see Wombat Dung Wines as a prospective client. I look forward to hearing from you in this light.

 

Kind Regards,

Drongo Wombat”

 

A Quick Buck

 

Hope you got a laugh out of the irreverent name changes, but the messages in this email are damn serious and should not be overlooked amongst the fun and frivolity.

 

The first and most obvious point is that this producer has realised the importance of the US market and the critical need to get “the right” importer to promote his wines and that is not an easy task. Building a brand takes a huge amount of work and commitment by the importer and not many of them are prepared to do so.

 

Unfortunately many of the importers are just out to make a buck, and as a number of wineries have already found out, the making of a quick buck by the importers gouging the price can cause a long- term positioning problem for the producer.

 

Recently Gerald Weimax of Weimax Wines provided his perspective on my article, “Trouble at the Top End” and these were posted in the Drops n’ Dregs Section. Our exchange of emails continued and then he provided this gem.

 

“Here's another reason some folks might lose interest in wines from the great Down Under:

The price of Yalumba's Galway Pipe Port is listed as $200 a case in the distributor's catalogue for April-May and June.  I ordered some and it seems the price has increased slightly.  It’s $312 a case now. This translates to a retail price of about $35-$39 a bottle, up from $24; just a slight increase! 

What's that item cost in your part of the planet?”

 

To answer Gerald’s question, it’s about $25-$30 a bottle in Oz, so here we have a classic example of a distributor (or the importer) applying a 56% price increase, gouging the end-user, and potentially wrecking the brands position in the market place. I bet Yalumba will be impressed!

 

Gouging is only one of the problems with getting hooked up with the wrong importer or distributor. The second is in some ways just as damaging to your business. Let me give you an example. You are a winery owner; it’s just after vintage and your US importer comes over, tries the barrel samples and says “we want 15,000 cases of this wine when it bottled.” Fifteen months later, before bottling the wine, the importer is hedging about taking the full 15,000 bottles.  Your importer sends you an email saying “things are a bit tough here at the moment, send over 5,000 cases now and another 5,000 in three month’s time, and we will talk about the balance later.”

 

You do as requested, bottling the lot but only labelling 10,000 cases, you can always label the balance later. Just before you are due to send the second batch out you get another email saying the wine is not moving and please don’t send it. You now have 10,000 bottles, half of which are labelled with US labels on them that you know are unlikely to be taken. Think this sort of thing doesn’t happen? It does!

 

Drug of Addiction

 

The most salient point here is the winery’s desperation to obtain a Parker Rating. Now in all honesty, I have not tried their top wine; but it is possible that their contract winemaker is telling the owner “what he wants to hear” and that the wine may not be rated well by Parker.

 

For the record, I have tried the second wine (the one awarded 9a points by Halliday) mentioned in the email and rated it as Recommended with *** for value and amongst other things said “It’s attractive and enjoyable with agreeable complexity; it’s a firm, solid wine with adequate length and persistence It will improve in the short term but is very drinkable now and something a bit different.” It’s a nice, drinkable wine, but I could not see Parker rating it highly.

 

Becoming reliant on selling wine because of a high Parker rating is analogous to being hooked on heroin; you feel great when you have got it, but you are in trouble when you can’t get a fix! Any winery owner that does not realise this fact is in trouble! There is a lot more to building a brand then having the blessing of Mr Parker. Yes, it can help sell a vintage or even two, but as the US importers, distributors and retailers are now finding out, a high Parker score for an Australian wine is not a long term solution to moving a brand.

 

According to Michael Opdahl of Joshua Tree Imports, “There are simply too many labels coming out of Australia right now, and there is no way the US market can support even a small percentage of them, and the US market is exactly what they are all aiming for.  I can't overstate how much of a glut there is in US bottle shops of Aussie wine:  just too many $40+ bottles languishing on the shelves.  Because of the influx of new labels/brands, and the total reliance on a Parker score, the US Aussie boutique market has about a 30-45 day window after Wine Advocate’s Australian issue to pump as much wine as possible into US consumer's cellars.  After that, the rush is over, and the ongoing sales, because of a complete lack of brand-building by the producer/importer/distributor, are miniscule. On the whole, Australia wineries/importers have done an absolutely terrible job building their image as a high-quality, exclusive wine producing country.  All the major producers are rushing for volume, hence prices have plummeted and demand has completely stalled; the public perception is that Australia is great for value (<$20), but over $40 everything is a Parker 95 point wine.”

 

There is so much more involved. Brand awareness is a critical factor, but there is a huge difference between “brand awareness” and a “fashion brand.” The former is required to build a long-term business; the latter is a wine marketing heroin fix. “Value” to the consumer is becoming more and more critical in all markets. Notice the word “value” was used, not ‘cost.” People are prepared to pay a sizeable price for quality wine, provided they perceive it as value. If they try the wine and they don’t think it represents value versus the competition, it doesn’t matter if the wine costs $10, $100 or anything in-between, they won’t buy it again.

 

Distribution

 

There is another aspect to all of this that should also be considered. The selection of distributors and retailers for premium wines in the US is critical and will have a huge long-term impact on the success of the brand. Some of the examples of the way Southcorp (and others) have managed the distribution and retail placement strategy for some of their wines could be used as Harvard MBA case studies; studies of exactly what should not be done!

 

Gerald Weimax provided further Californian retail examples that are worth examining. He wrote, “This morning I heard a radio advertisement for the chain of stores called Beverages & More.  They're offering Lindemans 2001 Limestone Ridge, St. George and 2000 Pyrus wines for a retail price of $12.99 a bottle. Looking in the catalogue from the California distributor, our best price on these is $101/6pk or $16.83 a bottle which equate to a retail price of $23-$25. Of course, the price books given to us from various distributors are often a work of fiction. (TORB’s Note 1: As an aside, the Lindemans Trio has a recommended retail of around $50 in Oz, so even the full retail price of $US25 is a bargain in comparison to the market positioning in Australia.)

 

(TORB’s Note 2: It looks like those lucky people who paid US$12.99 for the 2000 Pyrus were ripped off! The 2001 Pyrus, which is a better wine, was subsequently available for $7.99 at Trader Joes.)  

 

We like some of those Lindemans wines and would probably make more of an effort to sell them if they had a coherent marketing program.  But when you're catering to one chain store, that says your brand is "ill" and you're desperate. It's not a very good marketing plan to be "dumping" wine in these stores, as everyone suddenly becomes "allergic" to your products.  It's a situation of "putting all one's eggs in one basket" and this is not a good, long-term option.

 

Here is another example. A crew from Louis Vuitton/Moet Hennessy came in one day to show me a few wines they need help in selling.  I asked the woman who is the distribution manager for the state of California what percentage of Dom Perignon they sell through the "club/discount" stores called Costco.  (I imagine it's a huge number, since Costco sells Dom Perignon for $108 a bottle and the distributor asks stores and restaurants to pay $111 a bottle or $104.75 for two cases.)  She professed to not know.  I looked at her business card a second time to be sure it read "State Distribution Manager". 


I told her their portfolio is huge and they have a lot of brands that need hand-selling, including the ones they were showing me at the time.  ‘Unfortunately, the customer to whom I could be selling your product is currently standing in line at Costco buying a bottle of Dom.  They're not in my shop.’

I could see the light go on.  Clearly they have not given this any thought.  These big companies are so in love with the huge sale they make to these chains, but they cannot figure out that, in the long run, this is a dangerous marketing strategy for the balance of the portfolio.

 

Too bad nobody seems to have much long-term "vision" in marketing their wines.” 

 

According to Gerald, in California some distributors are pretty much like "The Bermuda Triangle of Wine Sales."  Some brands get housed under their "roof" and are never seen or heard from again; this is something that producers and importers have to try and avoid. As our mate from “Wombat Dung Wines” and many others have found out, just having an importer to distribute your wines in the US is not going to guarantee short-term success, let alone long-term brand awareness.

 

It’s not only Gerald who thinks this way. Mike Opdahl has more wise words on the subject.

 

“Because of the marketplace glut in new brands and labels, some importers who traditionally handled boutique Aussie producers have had to turn to the value end of the spectrum to generate the day-to-day cash flow needed to survive (because so much of the high-end inventory is moved only when the Wine Advocate or Spectator comes out with a high score).  These importers need to create a value brand to cover their expenses during the slow times, so their focus is aimed at building an inexpensive <$10-15, self-owned (by the importer) brand, and not on building their traditional (Aussie) producer's reputation and or market share.  However, the importers need to do serious volumes (30-100k+ cases) in this niche to make it worthwhile, so they need distributors that are capable of handling that volume; but then these larger distributors don’t want to handle the boutique/small producers (at least not until the scores come out). The result is the little guys get dropped or neglected until you/they have two vintages in the warehouse, and then you have a fire sale to get rid of inventory, destroying the brand in the process.

 

It’s a vicious cycle!”

 

What’s the Answer?

 

The market is literally awash with new labels; (gone are the days when experienced wine lovers had a fair handle on the brands available) and those new labels don’t just sell themselves; they need to be promoted or they just get lost in the confusion. Recently I received an email from an online wine retailer with a large number of offerings; almost all of them were rated 90 points and above by “someone” and those that didn’t have a point rating had a “few words” comment extolling the virtues of the offering. In short, it was all a haze of number confusion where the numbers are so overdone that it all becomes rather meaningless. So would many “unknown” premium labels be sold through that advert? I doubt it! Quoting numbers is not brand building; and brand building is what is required for the premium Australian wines in the US market.

 

Mike Opdahl shares his thoughts again.

 

“We've made the same mistakes and learnt along the way, but most importantly, we have curtailed our main brands to just five (Binder, Dutschke, Kilikanoon, Chapel Hill, Fetish) plus Razor’s Edge, our value driver.  Our five ‘core brands’ are the day-to-day focus of the company’s business.  These brands were specifically chosen for their reputation, price differentials (from each other), and most importantly, their commitment to building their brand and volume in the US through aggressive marketing programs.  We still handle about a dozen boutiques, but that number is dropping every year.  Most of the boutiques are just too expensive and just don't understand the situation they are in.

 

My advice for the little guys?  I tell all of my producers that it is only going to get worse over here before it gets better, and they should concentrate on building their other markets and don’t solely rely on the US.  Dutschke is great at this; they are selling into 30+ countries besides the US so they have a safety cushion.  Ditto Binder; hell - before we came along <10% of his production went to the US. 

 

The small guys have got to have a strategy to succeed in the US; that means finding a distributor without other brands that compete at same price points/region. I have yet to understand why a winery would want to be with an importer who has several, if not dozens, of brands/labels at the same price point!  If an importer has many brands that sell at the same price points (and all seem to be from the same region), they can't keep hoping that Parker is going to give them all 95+, which is the basis on which they are relying on selling the wines, as there certainly isn’t any brand-building being generated.  I think that Parker gave out over eighty five 95+ scores in his last Aussie Wine Advocate; a 95 point score doesn't carry the same weight it did 5 years ago, unless the price is <$30.  This isn’t to disparage Parker; if anything, he has been one of the driving forces behind the boom in Aussie wine over the past decade: rather I lament the absolute reliance that the entire industry puts on these scores; some use them as their sole brand builder, which is a recipe that guarantees eventual failure.

 

The analogy I use for the US market is an hourglass:  5 years ago there were 25-30 Australian brands that were the sand in the hourglass, and the hole was the volume that the US market could absorb.  Now, the hole is only slightly bigger, but the number of brands/labels has increased exponentially; there just aren’t enough buyers for the available product, especially at the high end.  I was talking with Kyle Meyer from The Wine Exchange in Orange CA, arguably the most knowledgeable (and by far the biggest) US retailer of Aussie wines, and he told me about the owner of a winery visiting a while back & trying to flog his new $100+ Barossa Shiraz-----the guy just wouldn't listen when Kyle told him there was no market for his wine.  I remember four years ago when Tony DeLisio came over and I put him in touch with the WineX boys. Tony walked out and claimed they didn't know how to sell Aussie wine (this to a single store that should do $40-50 million this year).  What have his brand(s) done in the four years since? 

 

The Australian producers/industry have got to spend the time to build the Barossa/McLaren Vale/Margaret River names at the grass-roots level, and be willing to put in the time and sacrifice necessary to succeed in the long-term.  However, I've never seen the Barossa Valley willing to band together to accomplish such an endeavour; this is in part why some of the unscrupulous, gouging importers continue to succeed (and trample some producers), while some of the good guys (on both sides of the pond) in the industry struggle.

 

Whenever a new winery approaches us (about 1 per week), the first thing I ask them is, “What is your marketing strategy?  Then what is their marketing budget? Then what their by-the-glass program will be?” 

 

None of them have an answer to those questions besides "we have some posters & I'm willing to come over & work the market." They are clueless about the market they are trying to penetrate and how to succeed in their endeavours.  They see that their neighbour or brother-in-law's wines are (supposedly) selling for $40-60 in the states, so they price their wines the same way.  Or, they think that just because So-And-So makes wine for them (at $25-50 per case surcharge) they believe their wines should/will get 98 points too and their brand will be easy to sell.  They all want to know when they can meet Parker, or Steinman.  All they want is a score, so they can sell some cases:  they never talk about brand building.  When I tell them that what they are trying to do won't succeed unless they can put the necessary resources behind their brand, they get pissed off and storm off, and then believe some unscrupulous importer who tells them their wines should get a good RP score and to go out and make all they can.  Then the producers wonder why they have 3,000 cases in tank in two years without anyone there to buy it.

 

This past year we have been approached by about a dozen wineries that I would have killed to represent when we were just starting out five or six years ago.  There is a sense of desperation in their emails; they have been mostly complacent, sitting on the sidelines while their US importer has run their brand into the ground.  There is literally little or nothing I could do to save them—their brand is next to non-existent in the US marketplace—and they don’t have the resources required to properly restructure and build it from the ground up. In the next 4-5 years, you are going to see lots of the little guys go down in flames. If I sound bitter it is because it’s tough over here right now, and the Australian industry is not doing anything to correct the situation. ”

 

 

No wonder our mate from “Wombat Dung Wines” is desperate; so many new labels, so much competition, and so few really good importers, distributors and retailers to service a crowded US market place. (For the record, the email from our mystery winery that started the thought process for this whole story was not sent to me by Joshua Tree Imports.)

 

Feel free to submit your comments!

From: Paul Fritschle

03/10/2007 11:44:57 Your observation on Yalumbas Galway Pipe port losing market is apt. Cost Plus World Market is no longer carrying it because of the price increase. Wine.com and other internet retailers all list it as out of stock, most likely for the same reason. I hope the distributor comes to their senses soon!


 

Copyright © Ric Einstein 2006

 

 

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