Post-Covid Reality: 5 Steps to Success in 2021 for Wine Importers and Wine Distributors
Our world has been rocked. Producers are anxious, cash is low and our confidence is shaken. While many small importers and distributors have closed or are looking for their exit strategy, many more still want to survive. The decisions we make in the first half of 2021 will determine our destiny for years to come.
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In March 2020, Nielsen showed that wine sales in the US were up 66% over 2019. It seemed people were hoarding alcohol along with their frozen vegetables and toilet paper. Without a pesky commute, workers were discreetly having an afternoon glass in their coffee mug during Zoom calls and, let’s be honest, drinking a bit of the stress and uncertainty away. The upward trend has continued throughout the pandemic, albeit not as aggressively. By summer, I was getting emails and WhatsApp messages from producers in Europe wondering, if sales were up so much, why weren’t importers placing orders.
The reality is that the increase in sales was funneled almost entirely to big box retailers and the top four largest alcohol wholesale companies. Small retailers did an amazing job offering curbside pick-ups and online ordering too. Consumers, however, were not getting the experience of shopping in the store, asking questions and getting guidance on their purchases. They bought cases of things they were familiar with or what was available through Instacart and Drizly.
I explained to many small producers and négociants, that a significant number of their importers rely on On-Premise business. Getting a placement at Safeway or Whole Foods doesn’t happen quickly. So while everyone scrambled to get a piece of the sales increase, those companies heavily leveraged in restaurants were behind the eight ball. As restaurants and hotels went dark, so did their sales. Even upon the gradual reopenings, businesses wanted to sell what was on-hand or could only order 10-25% of their previous volume.
The significant loss of business activity and revenue forced most to make the decision we all fear, cutting staff. Sales Representatives, especially if they had a base salary, were first to go. No one was tasting wine, changing menus or hosting wine dinners. Marketing and Accounting teams are gone or bare bones. There aren’t events to promote, market visits to plan or many invoices to process. Most companies now have one or two employees, doing the job of ten. Where does this leave us entering 2021? Operationally; incapable of running at 100%. Financially; unable to hire back the team they need.
However, this same environment has created some significant advantages. We’ve learned to streamline, adapt and innovate. There are also now more ‘wine curious’ consumers than ever before. The Barefoot/Yellowtail drinkers of today will be the wine-exploring consumers of tomorrow.
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In the last few weeks, vaccination against Covid-19 began. The Sun is coming up again and we have the opportunity to be hopeful.
There is a path to recovery for wine importers and distributors. Through all of the hardship there have been lessons. We can be more successful than ever before. Start here.
Hard Conversations. The most common complaint I’ve heard from producers is that their import and wholesale partners went silent. Maybe you were afraid to tell them you couldn’t pay your last invoice? Maybe you were drowning in new duties and didn’t prioritize these relationships? Start picking up the phone. Now. If you have outstanding payables, work out an installment plan or set a future date as a goal to pay-in-full. Ask if you can pay based on depletions. Prepare a monthly or quarterly report and send checks for only what you’ve sold. No matter what, communicate. You may not be able to send them a Purchase Order, but openness and honesty will go a long way to ensuring you have access to product when you DO need it again. The last thing you want now is to have to entirely restart your procurement process, file COLAs and replace wines that once sold well.
Personnel. Reach out to anyone you let go in 2020. Check in with your people! Even if someone found a new job, they may have lost it already, especially if they stayed in food and beverage. Relationships with customers take time to build and good team members are hard to replace. Distribute your payroll budget and delegate critical tasks efficiently. If you had a Sales Manager or Rep that was smart, flexible, capable etc., consider an adjusted role to get them back onboard. Maybe this is a small monthly base to perform office duties a few days and ramp up sales, on commission only, the rest of the week. Can they manage daily A/R and A/P? Could they conduct the producer and customer outreach or restart basic marketing strategies? You instinctually know who adds the most value to your organization. Just as important, is checking in with the employees you kept. Not the impersonal “How are you doing?”, but make sure they have what they need. Ask if you can do anything to help them succeed. Do they have any ideas they want to share? Do they need a little extra time off after this hectic year? Hiring and employee retainment are more important than ever. You do not want to have ridden out the storm only to have a mass exodus once the job market opens fully. Show your appreciation in any way you can right now. Also crucial to your efficiency will be your outsourcing strategy. There are companies that can handle your compliance reporting, saving you time and potential fines. Review your freight partners and consider a full brokerage if your logistics and warehouse team is smaller. A company like Common Fuel Consulting is ideal if you are unable to rehire, anywhere from a General Manager to a Procurement team. We can source products, prepare and analyze financials, offer guidance and support for your future goals, and even handle negotiations for approximately 30% of a typical salary.
Get Creative with Compensation and Rewards Models. As the world opens, do not rely solely on your previous customer base. Buyers will have changed, businesses have shuttered for good and the bounce back will be slow. Consider bonus plans that emphasize new customer acquisition, prioritizing even further for Off-Premise. If your state allows, increase discounts on quantity drops and then increase sales commissions on volume. You’d rather make 30% on a $5000 invoice than 40% on $500. Offer aggressive rewards for closing out older SKUs and vintages. If you have salary-only team members, incentivize with a percentage of quarterly revenue or an overall target that, when reached, everyone gets a slice of the pie. Your delivery driver is customer-facing and even their interactions with your customers can increase sales. Build an environment where all employees are working towards common goals. And be clear and transparent to what those goals are and what you need to get there.
Treat Inventory as Cash. Almost every wine distributor is offering discounts. All markets are full of people liquidating their warehouse or selling at cost. Don’t be above that and don’t lose out because of it either. Your inventory is likely paid for. It’s your largest asset and your easiest path to keeping money in the bank. Do a full inventory analysis and separate your products into four “buckets”. First, your top-selling wine that you are confident you’ll sell through. You can maintain your pricing on these products and even consider an incremental increase. These are your work horse wines and probably what you’ve continued to sell the most of. Second, wine you have a lot of and that doesn’t sell as fast. These are things you may have a 10+ pallet minimum order for and you had a container arrive before the shutdowns. Try a break even plus+ on these. Calculate landed cost and that’s your price for large drops. Whether it’s a 10 case order and that’s the set price, or it’s buy 5 get 5 and the number works out to break even, whatever you want. Keep the pricing above that mark for small orders and scale accordingly. Third, vintage sensitive wines (think dry white and rose). Target 80% of landed cost. Take 80% now or you’ll be adding these to the fourth bucket before you know it. Fourth, “dead SKUs”. These have been in your warehouse for 18+ months and move slowly. They are items you may have already decided you won’t reorder or you keep just to round out the portfolio. Try to recover 60%. Offer Mix & Match deals or shop them as a package bulk offer to discount retailers. Lastly, encourage COD payments. Give your customers an additional 5% discount, or whatever you’re comfortable with, to pay on delivery. You will reduce hours needed for accounting and increase your cash forecast accuracy.
Spend Smart. You may be used to ordering your rose every January, introducing new products in Spring and planning an annual tasting event in a hotel ballroom. This is not the time for business as usual. First, see which vendors will offer you favorable terms for the next year. There may be additional products you can add from the most flexible vendors. If you have half of your 2019 rose still in the warehouse, don’t order the 2020 vintage. If you have an allocation product, that only has bottle list placements, pre-sell it or don’t take this years allotment. If you need foreign product, work to reduce your minimum bottling requirement and find a good consolidator for shipping. If you have three similarly priced Rioja Tempranillos, let one run out. Offer the alternative and place your reorder simultaneously. The 6-8 weeks it will take to come back in stock usually isn’t too long that a customer won’t allow a reasonable substitution. No matter what, do not over-extend your resources. Be intimately familiar with your numbers. Forecast every single week. Go in-depth at least once a month.
The list above is by no means exhaustive or universal. It’s a place to start, things to consider and advice to apply where it works for your business. Best of luck. As we emerge from the most challenging period in a century, there can be positive change. Be proud of what you’ve already accomplished and excited about what the future holds.