Breaking Up is Hard to Do

I can remember the first time I ever had to “fire” a distributor—I was given the directive by my boss, and for a week, I sat and stewed about how I would do it. I finally wrote myself a little script, and with some resolve got my nerve to pick up the phone to call—my stomach was in my throat, my heart was beating rapidly and my mouth was dry. As the phone rang, I silently recited what I would say. The person on the end of the line answered so good-naturedly—I felt awful for what I was about to do. We exchanged some pleasantries and I awkwardly blurted out, “The reason I called is because I have some bad news. Unfortunately, we have decided we’d like to take the winery in another direction and we have decided to move to another distributor.” Of course, this is when the conversation veered off script. The person on the other end of the line started throwing out numbers and percentages about how our business had grown, and how this was a complete and total shock. As they talked, I realized that they were probably right—that they HAD done what they thought was, at the very least, a decent job, and that the winery had never approached them about the fact that we were unhappy with their performance and given a chance to try to change it.

I mostly just included this picture because it came up when I did a google image search for “awkward phone conversation.”

Even though I’m not working right now, I see my friends at wineries around the country wrapping up their fall travels, and begin looking towards the New Year, while taking stock of the progress and challenges of the previous one. This is a time where people start forecasting for their year-end meetings, and in some cases, start making plans to change distributors. The worst conversation you can possibly have in the wine business is the one where you tell a distributor you are planning to leave, and they have no idea that you were unhappy. I had a friend tell me once that when she left a distributor, it felt like a breakup—they weren’t even on speaking terms anymore.

So before you decide to make a move, please learn from my mistakes and consider the following:

Have you told them exactly what you expect?

  • No one can read minds—and even if it might be obvious to you, remember that distributors have hundreds or thousands of wines they represent so being pointedly honest and well prepared about what exactly it is that you expect is extremely important.

Have you asked them if they think your expectations are reasonable?

  • The sales you want to achieve might seem like a no-brainer to you, but distributors know their business and their market better than you do. They are your partners and so it’s important to remember that you need to listen to their side of the story and take into account their honest assessment of what can reasonably be done.

Have you visited the market regularly or supported them in any way?

  • If you haven’t been to their market, how can you even conceive of how much business they can do for you? San Francisco and Indianapolis have roughly the same population, but the markets are drastically different. Evaluating what one market might against one of a comparable size is like apples to oranges.

Do you have relationships with their Reps?

  • They can often offer valuable feedback about how your wines are received, or if they take them out regularly, if at all.

Have you gone over pricing? Have you offered any programs? Samples?

  • No one can sell your wine if no one knows what it tastes like.

Have you been consistent in your follow up?

  • People have a lot on their plates these days. Gentle reminders (maybe once every month, not daily as I have heard from some brand managers) can be effective—spreadsheets with information on depletions and shipments against expectations have proved helpful for me.

If ultimately you decide you need to make a change, I offer the following suggestions for a smooth transition:

  1. Make sure you are not breaking any franchise laws.
  2. Make sure that before you tell them you are moving, you have paid them for all bill-backs and that they do not have any outstanding invoices.
  3. You have a plan and the money to pay them for their existing inventory—will your new distributor buy it? Will you buy it back?
  4. Make sure IT IS NOT A SURPRISE. One of the people I admire greatly is a guy who has left any number of distributors over the years, but he has been able to do it with class, grace and a sense of dignity—each of the companies he has left has not been surprised—they’ve been a part of the conversation, have been given ample chance to correct or improve business, and ultimately both parties came to the table mutually agreeing that while it was sad, the winery was not a fit for them any more. In all cases, they have remained friendly years down the road. I think that’s something we should all aspire to. 

Franchise States

I have a lot to say about creating a well-oiled distributor network, but most of that can wait till later. However, if you are looking to be successful in your business, choosing the right distributor partners is crucial. There is a huge amount of research and skill that goes into setting up a lasting, mutually successful distributor network.

I think a lot of times, small winery sales people and owners are excited just to be adding more sales dollars and they don’t always think about the many factors that go into finding the right distributor fit, and as a result they end up stuck in relationships they can’t get out of, and lose out on potential sales.

One huge thing to consider before beginning selling wine in certain states is to determine whether or not it is a franchise state. Basically, if you sign up with a distributor in any states where franchise laws are in place, you cannot leave the distributor even if they don’t meet your standards for sales. As Barry Strike and John Hinman put it, “any state where a distributor can use state law (sometimes called a “franchise act,” sometimes called something else) to shield itself from the consequences of its own actions is considered to be a franchise state.”(“Franchise States: Dealing with Under-Performing Distributors.” Wine Business Monthly. Nov. 2002)

In some states, you cannot leave under any circumstances unless a distributor agrees to voluntarily release your brand. Laws by state vary, but generally speaking, the only time you can get out of working with a distributor is if they voluntarily release you, which to that I say, “fat chance.” Even if you have “good cause,” which is usually a provision written into many state franchise laws, most distributors will be unwilling to simply accept this. If you choose to move forward with the termination it can lead to costly litigation, and at the very least, a very unpleasant business relationship if the termination is not accepted.

In my experience, voluntary releases are few and far between. I do know there are some great companies out there that are extremely professional and recognize that sometimes, certain brands just aren’t a good fit. But for the most part, most distributors are very reluctant to release any winery. You would be taking dollars and business out of their pocket, which from their perspective is a very good reason not to release a brand.

Before you sign up with a new distributor, I highly encourage you to look into the state laws governing wine sales via distributors. If it’s a small market, it may not be worth the hassle of doing business there, and if it’s big, make sure you really do your homework. If any one thing doesn’t feel right about the fit, it’s probably best to wait until circumstances are better and you can find a company that fits your goals and plans for that market. Remember that working with distributors is a PARTNERSHIP, and particularly in franchise states, it is more like a marriage, where divorce is illegal and you’re there for better and for worse, till death do us part (hopefully it’s mostly the better part…)

One thing you can do to protect your business is to ask for a letter stating that, should you at any time wish to terminate the business relationship, the distributor will voluntarily release your brand. Many distributors are reluctant to do this but if it is a concern for you, it couldn’t hurt to ask.

Here are some of the franchise states that can create challenges for small wineries:

Virginia–this state has very tight franchise laws. It’s rare to get a voluntary release in this state under any circumstances, so I’d advise anyone looking to get into Virginia to choose carefully and wisely.

Ohio–there are some provisions for getting out of the franchise agreement (essentially you have to prove you have “good cause”), but it is by no means cut-and-dried. Be careful…

Georgia–If you want to switch in Georgia, you either must be released (probably ain’t happenin’), or you have to leave the state and sell NO wine for a number of years, which kind of defeats the purpose…

North Carolina–there is a case limit on this one; if you sell fewer than the state mandated amount (last I checked it was 2,000 cases) you can switch at will. After that, forget it.

New Jersey

Massachusetts–this is a little easier because even though it is a franchise state you can “dual,” meaning if you choose to terminate and the distributor does not accept, you can sell wine to two distributors. Be careful though–it’s a slippery slope and there are laws concerning how much you have to legally sell to the old distributor.

And some smaller ones:

Maine, Montana, Tennessee, Vermont, Idaho, Michigan, Connecticut, New Mexico

Let me know if I’ve forgotten any…

So what do you do if you are signed up with a distributor in a franchise state and they are underperforming?

If the distributor is underperforming but it’s not enough for “good cause” termination, you can create a new written agreement that outlines your goals and other considerations (eg. timely payment–a big issue for many wineries). Bear in mind you must make the goals reasonable! If a distributor refuses to sign on to a written agreement, it could potentially be used as grounds for termination. If they do agree, there’s a chance they turn their act around. At the very least it sets the stage for what can be considered “good cause,” and you have a clear plan going forward.

Planning Meetings

It’s January, so for a salesperson at a small winery, that means distributor planning meetings. I think for a lot of people on both sides, distributor and winery personnel alike, these meetings are a waste of time; winery reps often come unprepared, and they don’t have a clear picture of what they want to accomplish. I also think it’s hard for many winery reps to clearly express what their expectations are, 1) because they actually don’t know what their expectations are, beyond the vague wish to sell more and/or 2) they have unrealistic goals and no plan of how to accomplish them. Then you have the weird winery/wholesaler dynamic: the wholesaler is both a customer and also your winery representative in that given state—it’s awkward to be like, “Pretty please buy more wine and also your depletions and number of accounts sold are so bad it’s embarrassing.”

I spend a lot of time thinking about how I can be more successful in my job, and the New Year is always a good time to reflect on the past year’s successes and failures. Success in wine sales means not only meeting and exceeding case volume and dollar goals, but also doing it in a way that is sustainable, and can help me build better relationships with my distributor partners and account base. If a distributor has a clear idea of what I expect from them, and we have a plan of how we’re going to get to a mutually agreed upon goal, much of my work is just keeping the ball rolling. Everybody can be happy. My goal is always, always, always to be PROACTIVE vs. Reactive. Obviously it’s not realistic to expect this 100% of the time—sometimes a wine just needs extra help, or you get a good score and the wine sells out, but it’s the ultimate goal.

A crucial piece of information in my proactive plan is the FOB/Availability matrix that I send out to my distributors once a month. I have been working on this format for the past couple of years and this is the newest iteration. It includes a number of key items, which are incredibly useful and make the spreadsheet an awesome reference tool not just for distributors, but for me too. I’m all about transparency so I put LOTS of info on the spreadsheets. I’ve revamped my matrix for 2012 a little bit and I wanted to share this because I’ve gotten a lot of positive feedback and think it could help my other supplier friends.

This essentially includes all information about the wines, both currently available and upcoming releases. If it’s on the matrix, distributors often include the info on their website or price books. Often wineries do not update their tech sheets regularly so it’s good to at least if you have the wine info here. Always include:

 

  • Wine name
  • Varietal breakdown (e.g. 100% Cabernet),
  • AVA and/or vineyard
  • Pertinent farming info (e.g. natural, organic, biodynamic, etc.)
  • Amount produced. I know a lot of small wineries are reluctant to include this number because they either worry that their status as a “boutique” winery will be lost when people find out that they make 12,000 cases of their “reserve” pinot. Additionally, you may have distributors that get angry because they don’t get what they feel is their fair share of the wine. If you don’t contextualize it, sometimes that number either seems way too small, or way too big. Which is why I always include the next item…
  • Availability schedule. This means I have a column for the following things: release date, projected sell-out date or sell-through cycle, and how much I have left.
  • Allocation/goal. I try to update this as much as I can, but sometimes it’s tough with 35-45 distributors to do on a monthly basis. At the very least you can put in projected goals or allocations for your planning meeting and then update them once a quarter.
  • Billback policy. I get hundreds of billbacks every month it seems, and there is always confusion about it. Our policy is a flat 2% off the top of every invoice, but I’m constantly getting invoices for 50/50. I just like to have it in there as a reminder.
  • Finally, I always like to add important technical details like
    • FOB
    • UPC
    • Case Size
    • Alcohol percentage
    • Cases per pallet
    • Suggested Retail Price

Hopefully this will make your year more successful!