On a weekday afternoon in late summer, an order arrives by e-mail at the headquarters of Fontanafredda in Serralunga d’Alba to purchase several cases of wine for shipment to the US. Wheels start turning, and 21 days, six hours and 35 minutes later, a young couple looking forward to a nice dinner at Eataly in New York City orders a bottle of Fontanafredda’s Barolo, just added that afternoon to the wine list.
How this classic red wine, whose origin is the vineyards of Langhe, makes that voyage from Northwest Italy to New York – or to any city in the US – is a tale of countless forms filled out, multiple fees paid, costs added and attention paid, however briefly, by dozens of workers and specialists in business and government.
A complicated business
Americans and their elected officials have long had a love/hate relationship with alcoholic beverages. This has led them to a regional armed rebellion against federal taxation in post-colonial days, a period of national abstention called Prohibition lasting from 1920 to 1933, which – in theory – banned the production and sale of alcoholic drinks except for religious ceremonies and, finally, a post-Prohibition invention called “the three-tier system” that makes life complicated for producers. Every state, and in some cases individual counties and towns within the state, has its own methodology for administering the three-tier system. In spite of its variations, the process basically requires that a wholesaler and a retailer be intermediaries between the producer and the consumer.
In the theoretical example of how an American couple orders a bottle of wine made by a foreign producer, there is another intermediary, perhaps the most important one. It is the importer, Palm Bay International, with headquarters on Long Island, just outside New York City.
Palm Bay and its importer colleagues can be thought of as maze runners, a vital cog in the international wine and spirits business.
The beginnings
In 1977, David Taub and his father Martin founded what was to become Palm Bay International by linking up with two Italian wine producers, Principato and Cavit. Almost 40 years later, Palm Bay is still a family-owned company, one now headed by its third-generation president and CEO Marc D. Taub. But now it represents 50 producers in 15 foreign countries, and sells its wines and spirits in all 50 of the American states, plus Mexico and the Caribbean.
“Unlike in some other countries, American importers such as Palm Bay are dedicated to brand building and to create value for those wineries we represent,” Taub says. “Because of the constant evolution of the market, with consolidations at the wholesale and retail levels, we have to constantly add people to educate buyers about our brands.”
For Palm Bay and other large importers, some of the primary logistical decisions must be made even before an order is placed to a winery or distiller, whatever the country of origin. Giacomo Turone, Palm Bay’s senior vice president for brand planning and development, explains the process. “The first decision is whether the shipment from a foreign winery will go to our warehouse – or will it be shipped directly to a wholesaler’s warehouse?” he says. The latter is often the case with huge wholesalers such as Southern Glazer’s, which distributes in 44 states and has a warehouse in Miami, far from Palm Bay’s main warehouse in New Jersey just outside New York City. “If it went to our warehouse first, the only people who would make money are the truckers and the warehouses,” Turone explains. In either case, Palm Bay will hold some of the wine shipped as inventory in its warehouse for smaller wholesalers.
This primary decision triggers a secondary decision. Will there be a consolidation of shipments in the country of origin, and, if so, who will do it? If Palm Bay is handling it, it may decide to consolidate with shipments from other producers it represents within the country of origin. “For example,” Turone says, “we may start a shipment with producers in the Rhône Valley and pick up more cases in Champagne on the way to a port like Le Havre. Or, the other way around, on the way to Marseilles.” The wholesaler might, alternatively, consolidate with shipments it has ordered in the same country but from other importers.
Either way, Palm Bay will “officially” receive the shipment as the importer of record and will handle basic customs paperwork, on occasion working through brokers. There are also differences in how European countries determine where a shipment begins, and thus, the paperwork involved. “In France, the shipment is ex-winery, while in Spain and Portugal, the shipment is ex- the port,” Turone says.
Generally, shipments from Europe land on the East Coast, while those from South America, Australia and New Zealand go to the West Coast. Shipments from Europe, such as in the hypothetical example, take about three weeks to arrive on the East Coast. If the ultimate destination is the West Coast, passage through the Panama Canal will take another two weeks. Shipments from Australia and New Zealand take about four weeks. Normally, cases of wine are shipped on pallets and – hopefully – in refrigerated containers.
An added headache can be ordering wines from Argentina during that country’s winter. “Shipments from Argentina go through the Chile port of Valparaiso,” Turone explains, “and you don’t want a truck filled with wine stranded in the Andes during a blizzard.”
Once the shipments clear customs and arrive at a Palm Bay warehouse, the next step is getting the wine, usually by truck, to wholesalers who may do business only in one large state such as New York. More typically, wholesalers are regional, covering a handful of contiguous states.
Lots of red tape
As with being an importer, being a wholesaler or distributor is not a simple life, as each state has its own regulations. Additionally, there may be more regulations at the city or other sub-state levels. “The wholesaler has to have a dedicated system in each state,” Turone says, “which typically means an order department, a warehouse, a trucking system [for filling retail and restaurant orders] and a sales force.” A primary requirement of most states – and one of the biggest headaches – is that wherever a wholesaler’s regional warehouse may be, the wine has to be “at rest” at least one night in a warehouse within the state where the wine will be sold at retail.
Palm Bay understands the retail business well because it once was a wholesaler itself, a dual level of operation that causes its own complications and rules. “Strategically, we felt that having a national platform rather than a regional one was more advantageous,” Taub says.
Neither does Palm Bay’s role end when it fills the orders from wholesalers for the foreign producers it represents. While a huge wholesaler may have fantastic marketing reach because it represents so many brands, a large company pays the most attention to the largest one at the expense of smaller ones – a Catch 22. Even though a medium-sized French or Italian producer may have its wines “available” in more places, they get minimal marketing and sales support.
“Ultimately, as importers we have to set the path from the winery to the consumer,” Turone says. “Southern Glazer’s has about 18,000 individual SKU’s [stock keeping units], so we have to go to the marketplace for them.” Like many larger retailers, Palm Bay has its own marketing and sales teams, although it is the wholesaler who must officially record sales to retailers. In essence, Palm Bay is in the same position as the producers it represents: Each is dependent on the wholesalers to make current sales and encourage repeat sales. It is the classical marketing operation of “pulling” a product through a system, while depending on its brand publicity, social media operation, and less frequently, advertising, to provide the “push”.
Turone notes that there is a constant need to understand state and local regulations. For example, the importer may arrange for a winemaker from Italy or France to visit trade customers in the US, but it may be restricted as what services it can provide when visiting local retailers. Consumer events such as tastings and dinners may be terminated, for example, if the importer has not obtained wines being tasted through the local distributor, or if the importer opens bottles or pours wine, both of which are prohibited in some areas.
Additionally, each state has its regulations about where different kinds of alcoholic beverages may be sold. For example, in some states, food or grocery stores may not sell any alcoholic beverages. In others, they may be able to sell beer, but not wine or spirits.
Even more frustrating are the arcane regulations of few states, most notably Pennsylvania, which is in the alcohol business, operating their own monopolistic retail stores to sell wine and spirits. In a few cases, some towns or counties are still “dry,” never having progressed beyond Prohibition.
“Being an importer means that we employ a lot of people in a lot of different positions,” Turone says, counting them off – “logistics; legal, which includes labeling and packaging work with the TTB [the Alcohol and Tobacco Tax and Trade Bureau]; finance; my team of strategy, pricing, budgets and incentives; marketing department, which prepares shelf talkers and other sales material, as well as PR and advertising; and, of course, we have our own tasting team” that does quality assurance.
In the end, however, Turone hesitates to be overly critical of the American system. “It gives us a lot of headaches, but actually it’s no different than selling wines around Europe,” Turone says. “I tell the Europeans, you have Sweden. We have Pennsylvania.”
