1. ENTERING THE US MARKET
For Canadian Wine, Beer and Spirits Producers September 17, 2018
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R. Scott Winters, Ph.D.
Presented by: Chelsea Washburn
The American Spirits Exchange

2. American Spirits Exchange
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As the US alcohol industry’s foremost Representational Importer, ASE bridges international companies and American consumers. The company’s FoundationsTM program provides a turn-key solution for international clients seeking to enter the US market.

3. 1 2 3 4 Background Requirements Models Resources
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4. 1
Background
Following the repeal of US Prohibition, the US government adopted two policies which set in motion a body of law that shaped how alcohol beverages could be sold.
The key to understanding the US system is to understand the combined effect of these two policies.
Everything flows from this.
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5. POLICY 1: The 3-tier system
SUPPLIER
The US government limited one’s ownership rights to a single role in the supply chain: supplier, wholesaler or retailer.
Companies can only conduct business in one of the three tiers, thus promoting competition and commerce.
WHOLESALER
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RETAILER

6. POLICY 2: state level distribution
The middle tier – distribution – is governed at the state level.
SUPPLIER
WHOLESALER
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Each state regulates what alcohol can be sold within its borders, how it is distributed and the conditions under which it can be advertised and sold to consumers.
RETAILER

7. Consequently, selling wine and spirits in the US can be complicated.
Federal approval is required, but insufficient. State governments have their own evaluation criteria, transportation regulations, advertising limitations and taxation schedules.
Since states control distribution, there is no true “national” distributor; distributors can only do business within their state.
Therefore, one does not sell into the US; rather, one sells individual state regions.
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8. 50
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mini countries

9. The combined effect of a three-tier system and state-level distribution results in a two-stage approval process in the US.
Brands must first be approved at the federal level; then they need to be approved by each state in which they are to be sold
Companies must first be permitted by the federal government; then they need to be permitted by each state into which they want to sell.
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10. COLA Federal basic permit Out of state shipper Brand Registration
Federal Requirement
State-level Requirement
Federal basic permit
Out of state shipper
US companies must have a federal basic permit (as importer, distillery or winery) to conduct business.
For each state, the holder of a Federal Basic Permit must also have state-specific, out-of-state shippers permits.
Company
COLA
Brand Registration
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Granted by the federal government and required for each brand to be imported or sold in the US.
Each brand must be registered with and approved by the state where it is intended to be sold
Brand

11. 2 Getting your brand approved
Before your brand can be sold in the US three things are required.
Food Facility Registration (FFR)
Federal Review and Approval Process (COLA)
State Review and Approval Process
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12. Food Facility Registration
Getting your brand approved
The US Food and Drug Administration (FDA) requires registration of all food manufacturing facilities, including international facilities.
A Food Facility Registration Number (FFR) is required for all imports.
Registration is free and immediate.
You will need to have a US-based agent. Often this will be your importer, but it does not have to be. Alcohol industry consultants, lawyers and representational-importers frequently fill this role for international companies evaluating their import options.
Food Facility Registration
Federal Approval
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State Approval

13. Food Facility Registration
Getting your brand approved
The US government evaluates all alcohol beverages to determine if they are safe for sale in the US. They review the method of manufacture and the packaging.
The agency that reviews the applications is the TTB and the permit that is issued if approved is a COLA.
All alcohol beverages coming into the US must have a COLA.
Only US-based companies that have a Federal Basic Permit can apply for a COLA.
Food Facility Registration
Federal Approval
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State Approval

14. Food Facility Registration
Getting your brand approved
Here are the key points that international companies must consider:
Only US-based companies can apply for federal approval of a brand (the COLA). If they do not own the brand, then they must be the exclusive agent in the US.
As an international company you will need to provide an authorization letter naming the US company as the exclusive agent.
The requirements for these letters are strict and you can not limit or contractually bind the company - they either are, or are not, the exclusive agent in the US.
Once the COLA is approved, only the US-company that submitted the application can import the brand and offer it for sale. No other party can do this without their written, explicit permission.
Food Facility Registration
Federal Approval
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State Approval

15. Food Facility Registration
Getting your brand approved
The implications and consequences:
The US-company that filed for and received the COLA (its “holder’) has exclusive and full control of the brand in the US.
If you want to sell to a different US company etc., then you need the COLA holder’s explicit permission. If you terminate your relationship, then your new partner will have to apply for a new COLA.
Using one company for two distinct roles – COLA holder and customer – can limit your negotiating position and control since they, not you, control the brand in the US.
It is possible to separate these roles and use one company as the representative of your interests (the COLA holder) as distinct from your customers.
Food Facility Registration
Federal Approval
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State Approval

16. Food Facility Registration
Getting your brand approved
Nearly all states require that a brand be reviewed and approved before it can be offered for sale within its boundaries.
Each state has its own evaluation criteria, submission forms and fees.
State brand registrations are submitted by the COLA holder, or its designee.
Food Facility Registration
Federal Approval
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State Approval

17. 3
MODELS of Market Entry
There are only three ways to enter the US market; the differences come down to whether your customer controls your brand in the US.
One Party – do everything yourself
One Party – customer as COLA holder
Two Party – customer distinct from COLA holder
Across the models are varying degrees of brand control, cost and profit.
There is no one, correct model – it depends on what you want to achieve.
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18. MODELS of Market Entry MODEL1: MODEL 2: MODEL 3: YOU control Brand
You sell to State Distributors
Expensive / high margin
You sell to “importer”
Importer sells to state distributors
MODEL 2:
Customer controls Brand
Inexpensive / low margin
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MODEL 3:
YOU control Brand
You sell to State Distributors
Inexpensive / high margin

19. MODELS of Market Entry MODEL 1: MODEL 2: MODEL 3: COLA PURCHASE YOU
State Distributors
Purchaser who resells to State Distributors
MODEL 2:
Purchaser
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MODEL 3:
Your Agent
State Distributors

20. MODEL 1: Do everything yourself
State Distributors
Set up your own US presence and act as your own importer.
PROS
High per-case margin and profit
Complete control of the brand identity
Protection of the brand by holding the COLA
Direct relationships with state-level distributors who will be purchasing the product for sale to consumers
CONS
High up-front, fixed costs
Lead time of many months to years to obtain all of the necessary permits, bonds and company registrations
You have to establish and staff a US-based company
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21. MODEL 2: Customer as COLA holder
Purchaser who resells to State Distributors
Purchaser
The most obvious model to international clients is have their customer be the importer and COLA holder.
Since they hold the COLA they have complete control over the brand in the US. Since distribution is regulated at the state level, they still need to sell to state-level distributors, thus adding another margin to the end consumer’s cost.
These transactions amount to you – the brand owner – accepting a lower margin in return for the importer having the responsibility of selling to state-level distributors.
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22. MODEL 2: Customer as COLA holder
Your disadvantage is that because of US system you have granted them full control over the brand, limiting your negotiation power.
PROS
Low capital investment
Straight forward sale of product (no worries about what occurs to brand in the US).
CONS
Lower margin and profitability
No control over the brand identity, sales and marketing
No market connections with buyers (state-level distributors) or customers
All control of brand is relinquished to your customer
You may be subject to sales and agreements following the termination of your customer
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23. MODEL 3: separate sales and control
Your Agent
State Distributors
Use a party to represent your interests in the US such as holding the COLA as distinct from your customers.
Representational Importers hold a federal basic permit, are licensed importers and hold state-level permits for sales. They act as your agent in the US representing your interests.
Finding state-level distributors remains your responsibility. Therefore, it does require you to play a part in the sales process, visiting the US, as opposed to being passive.
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24. MODEL 3: separate sales and control
This model is appropriate for international clients that seek to build their brand identity in the US, protect how their brand is positioned and sold, and who want to develop their own relationships with state-level distributors.
PROS
High per-case margin and profit
Complete control of the brand identity
Protection of the brand by holding the COLA
Direct relationships with state-level distributors who will be purchasing the product for sale to consumers
Lower investment of capital
Immediate access to market
CONS
Need to take responsibility for one’s own sales
Low fixed case fee for service
Limited number of reliable, national representational-importers
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25. MODELS of Market Entry
TO REVIEW…
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26. MODELS of Market Entry MODEL 1: State Distributors YOU
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27. MODELS of Market Entry MODEL 1: YOU control Brand
You sell to State Distributors
Expensive
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28. MODELS of Market Entry MODEL 1: MODEL 2: YOU control Brand
You sell to State Distributors
Expensive
Purchaser who resells to State Distributors
MODEL 2:
Purchaser
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29. MODELS of Market Entry MODEL 1: MODEL 2: YOU control Brand
You sell to State Distributors
Expensive / high margin
You sell to “importer”
Importer sells to state distributors
MODEL 2:
Customer controls Brand
Inexpensive / low margin
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30. MODELS of Market Entry MODEL 1: MODEL 2: MODEL 3: YOU control Brand
You sell to State Distributors
Expensive / high margin
You sell to “importer”
Importer sells to state distributors
MODEL 2:
Customer controls Brand
Inexpensive / low margin
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MODEL 3:
Your Agent
State Distributors

31. MODELS of Market Entry MODEL 1: MODEL 2: MODEL 3: YOU control Brand
You sell to State Distributors
Expensive / high margin
You sell to “importer”
Importer sells to state distributors
MODEL 2:
Customer controls Brand
Inexpensive / low margin
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MODEL 3:
YOU control Brand
You sell to State Distributors
Inexpensive / high margin

32. resources
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…that are useful.

33. 4 American Spirits Exchange White Papers Calculators Case Studies
The US Alcohol Beverage Industry Structure
US Alcohol Industry Permits for Suppliers
Understanding Pricing in the US
Calculators
Calculating Importation Costs
Calculating Price to Distributors and Consumers
Case Studies
Impact Study: $377,000 in realized savings for international wine company
Information about American Spirits Exchange
Foundations Program
Overview of Services Provided by American Spirits Exchange
Warehousing
Capital Solutions
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34. 4 Contact Email us for an abridged copy of this presentation:
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35. Thank You!
American Spirits Exchange
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