Big Market, Big Commitment:‌ ‌An‌ ‌Interview‌ ‌with‌ Brian Baker,‌ ‌Expert in Three-Tier, DTC, and Export Channels
09.16.2021  |  by Milton Cornwell

Brian Baker is managing partner at Cultivar, a wine sales and marketing company specializing in three-tier, direct-to-consumer, and export channels. We spoke with Brian last year on tasting rooms and the changes that came with the COVID-19 pandemic; now, we turned to him again to talk about imports and how foreign wine brands are now looking at direct-to-consumer (DTC) channels.

You‌ ‌can‌ ‌listen‌ ‌to‌ ‌the‌ ‌full‌ ‌interview‌ ‌here‌ ‌or‌ ‌read‌ ‌the‌ ‌abridged‌ ‌version‌ ‌below‌:‌ ‌


Milton Cornwell: Today, I have Brian Baker, who really needs no introduction. His background in the wine and hospitality space is extensive and includes senior leadership positions at Jackson Family Wines, Chateau Montelena, and Mayacamas Vineyards. We first caught up with him in 2020, right after the pandemic had hit, and got into many topics, most of which were related to winery strategies to navigate the closing of tasting rooms. Most of Brian’s insights have become reality across the wine industry. So welcome back, Brian.

Brian Baker: Thank you, Milton. It’s a pleasure to be back with you again.

Milton Cornwell: So today we’re going to focus on another interesting trend involving international wines in the U.S. and how they continue to grow. Begin by telling us what you are doing now and what you are seeing out there, in general.

Brian Baker: Generally, we’re seeing an increase in the number of import brands that want to assess, and access, the United States DTC market. They are looking abroad, and the United States is the largest consumption market. They’ve seen that COVID [induced] online strategies have been proven, and they want to get a piece of that. They want to come in and figure out how it can be done.

Milton Cornwell: So let’s start with how international brands have traditionally entered the U.S. market—how those brands got here in the first place.

Brian Baker: Traditionally, an import brand would hire an importer here in the U.S., and that importer would bring their product in. The importer would then depend on their license structure to help retail [the wine brand]. [So] the import brand had a certain amount of control in that, if they so chose, they could be over here helping to do those sales in the market. But for the most part, it was conversations that took place by phone and fax and email. “You’ve got the container coming, and I hope we can get it moved through the accounts you set up for me.”

Milton Cornwell: So, today, what’s driving their interest is the direct-to-consumer model, what with the pandemic…

Brian Baker: Yes, it’s the pandemic. It’s the shutdown. As we saw all over the world of on-premise channels, wineries are looking at inventory that they can’t move anymore…. And in some cases they may not have been that sophisticated in online [sales] or in direct-to-consumer traditional loyalty programs, like a club. 

I can certainly tell you that the tasting room model that we take for granted here in the U.S. is not widely distributed or understood in other markets (Australia being one of the exceptions). So the pandemic forced them to say, “Where else can we sell this wine?” And when they started looking at the math, they went, “Well, we have our own backyard, but hey, look out across the ocean: We’ve got the United States with the largest consumption of wine in the world. Why don’t we go there?”

Milton Cornwell: So as we all know, three-tier is completely different from direct-to-consumer. Can you elaborate on some of the nuances and differences?

Brian Baker: [Three-tier] implies that there’s three different levels of transaction on a supplier. The brand owner sells the wine to a wholesaler, and that wholesaler then sells to a retailer (a restaurant or an independent wine store, or a chain or grocery store with an import brand). [With international] you actually have a fourth tier because you’ve got an import partner that has to bring the wine in (legally) to the U.S. and then it has to go into wholesale and into retail.

Compare that to a direct-to-consumer channel, which means that the supplier, the brand owner, is essentially selling their product directly to that consumer—for example, through a shopping cart on the website. And then that product is shipped to that person, that buyer, and it doesn’t have to go through a restaurant. It doesn’t have to go through a grocery store. It doesn’t have to go through a wholesaler. That’s the traditional domestic DTC model, which with many, many years of struggle (with efforts by Free the Grapes!), we’ve been able to get access to 46 states. 

[NB: For more on this struggle and laws around domestic DTC, see our expert interview with Jeff Carroll, Board Member of Free the Grapes! —Milton]

Now that’s different for an import winery, because 19 states in the U.S., including six of the top 10 revenue markets for wine, specifically forbid import brands being sold DTC in their state regulations. And the simple phrase that they have in their regulations is that the product must be produced or bottled in the United States.

Milton Cornwell: Let’s dive into the process for [international brands] moving into DTC.

Brian Baker: There are three pathways that I have found that all have varying degrees of margin and footprint. [First] there are a number of marketplaces that are springing up, particularly in the last couple of years…in which an import brand could become a part. They’re still going to have to find a legal way to transact that. And maybe that is through a sale to a traditional wholesaler who is helping them do that. 

Secondly, there’s a modified three-tier method that allows the brand owner to have a cardt on their site and work through platforms that are set up, but it is three-tier. They’re moving through a technology company, into a retailer, with a step in between in which the wholesaler is a part of the transaction.

Finally, some import brands are just realizing that if they come to the U.S. and set up their own offices, they can apply for and own an import license, a retail license, and a wholesale license. California is a very friendly state for that….You could do that as an import brand…working from that office as your place of registration. So that’s yet another way, but that’s limited because then you are acting effectively as a retailer, which as we know in our country, any retailer is kind of limited to 15 states plus the District of Columbia. 

Milton Cornwell: One thing is for sure, we also know that anything involving alcohol and the shipping of alcohol is going to be complex and highly regulated. 

Brian Baker: It’s very important that the importers understand that, and that those rules are followed. I had an interesting conversation with a client recently where I was explaining why they had to get a place of business first, before they could apply for their license. And they were saying to me: “Well, in Europe, we don’t do it that way. We do exactly the opposite. Why do I have to have a place of business?” And I was trying to explain that, because the license application requires you to have a place of business. That was completely foreign to the way they do business overseas.

Milton Cornwell: It just points out the differences in the model. What are the things that international brands should be thinking about and be prepared to do as they contemplate trying to break into the U.S. DTC market?

Brian Baker: First, they need to follow the rules. They need to operate in a manner on this side of the bright line, as we’d say, and they need to do that and be conscious of that. 

Second, to do this effectively, they have to understand what resources they’re going to put against their direct-to-consumer effort. It’s not just finding a pathway and turning the store on and hoping wine gets sold. They need to understand that there’s going to have to be someone managing that process. They’re going to have to do list-building. They’re going to have to do e-commerce work. They’re going to have to create emails, are going to have to create campaigns. There needs to be someone dedicated to—and, most importantly, a budget dedicated to—the effort to help get the direct-to-consumer efforts started.

And, candidly, it can’t be operated from a remote time zone, because you’ve got genuine customer service issues—issues which you would not have in a traditional three-tier model, because those would be handled by the retailer, the restaurant, the distributor, et cetera. But when you’re dealing directly with consumers, things happen, right? So that’s the most important thing I think they need to understand: Live by the letter of the law and really understand how much you’re going to put into your DTC effort in [terms of] time and budgets.

Milton Cornwell: I think another thing that goes hand-in-glove with that concept is the fact that the entire domestic market has woken up and has really upped their game. When you and I spoke last, we said that COVID kind of acted like the old Y2K impetus. It really created an inertia around digital marketing and marketing technology upgrades. So the entire U.S. market, all the wineries here, have upped their game. They know that you have to do a better job to take advantage and ride this wave. So the international brands are looking at this market and how big it is, and get very excited about it, but they also have to be able to understand that the competition has gotten greater. 

Brian Baker: Correct! Here’s a great example of that: About June of last year, I was talking to an industry colleague and they said, “You know, I was looking at some numbers. And if you think about the average rate of growth of e-comm in the wine space in the last 10 years, we have as an industry grown 10 years in three months.” So yes, people who were doing it stepped up their game. People who didn’t know what they were doing were trying to get into the game. And then there’s another whole cohort of people that didn’t even know the game was going on, trying to figure out “How do I sell this one?” So yes, that’s something an international brand would be competing against.

Milton Cornwell: So, Brian, I know you have a handful of international clients that you’re helping bring into the states. How exactly do you help them or advise them? 

Brian Baker: First and foremost, I need to determine if they’re the kind of a brand that understands the two things we talked about: I want them to operate in a legal manner and I want to make sure they have resources. I then work with them to find the right pathway to market.

Then the next thing is [working] on best practices—who are the right vendors to work with? Who are the right companies to align with? How do you do list-building? How do you build e-commerce strategies? How do you do an email? Things like that. I talk to them about brand-building, which is also important because these are brands that are established in a foreign country but that may not have a lot of awareness here in the U.S. [And there are thousands] of wineries they are competing with.

Milton Cornwell: Well, I can’t thank you enough for giving us your time today. This is obviously going to be an area that continues to grow!

Brian Baker: I very much enjoyed this once again, Milton. Thank you very much for spending some time with me to talk through this. It’s a fascinating area. It’s kind of a fun area, a little geeky. It’s a little scary, but at the end of the day, you know, what drives me is introducing more people to the beverage of wine, and enjoying that beverage. And this is just one little way that I can do that. And you’ve helped me do that today. So thank you very much!