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Businesses are constantly looking to evolve and expand, and this is no different in the beverage alcohol space. However, this is a more heavily regulated industry than most others, which makes bringing new products to the marketplace a unique challenge for a brewery.

In addition to the standard logistical issues businesses face like market analyses, licensing, and distribution, a brewery also has to cope with a bevy of regulations from the federal government, state governments, and, in some places, even local jurisdictions. Compliance can be tricky for companies in any space, but it is an especially difficult aspect of selling alcoholic products in the U.S. because of the murky regulatory landscape.

But, never fear! Everyone struggles with expanding their footprint, to some extent. These are natural growing pains, and it’s best to embrace them. In that spirit, we’ve put together a guide for beer producers looking to introduce new products to market and widen their distribution networks: 10 Steps to Expanding Your Brewery.

10-key-steps-to-expanding-your-brewery's-footprint

1. Know Your Brewery

What does your internal team look like? Is it equipped to handle an influx of new responsibilities and obligations? Are you prepared to meet each state’s requirements for registration? Do you have the financial resources? The key to successfully entering new regions is to have everything in place before entering new markets. Identifying openings in the market is important, but you also have to identify your own capabilities before making moves, and then identify the right time to do so.

Speaking of identifying openings in the market – you need to consider the state of the market. Keep an eye on what’s trending right now, and maintain a close watch on newer products that could possibly explode onto the scene. To expand your footprint, your brewery needs to have products that both reflect what’s currently popular and also are different enough from everyone else that you can stand out from the crowd.

Are your products diversified enough from what everyone else is offering in a certain region? What are the top-selling beer types and brands there? How did your beer perform at regional events? A comprehensive grasp of the markets you intend to enter is critical to the success of your expansion campaign, so you should be sure to follow those markets for quite a while before making a commitment to them.

3. Know Your Brand Story

Every business needs to know how to sell its products, but half the battle is figuring out how to sell the brand itself. Not only are you competing with hundreds – and, depending on the product, possibly thousands – of like-minded brewers for shelf space in stores or bars; you’re also selling to a consumer base that can be influenced by the visual design of your products. You’ll need to distinguish your story from everyone else’s – many breweries today cultivate an image reflecting their “passion” for beer. How can you put a unique and personal twist on that?

Maintaining a positive image surrounding your brewery, winery, or distillery is crucial to attracting buyers. This can be achieved via aesthetically appealing packaging, an emotionally compelling brand story, and even a unique value proposition like a beer crafted with an uncommon ingredient or collaboration with another company. Does your brand effectively tell your story and convey a positive message to your audience?

The most important part of any brewery expansion strategy: Understanding your audience. First and foremost, you need to identify which demographics are most likely to buy your products. Where do they live? How old are they? What are they looking for in a wine, beer, or spirit? What other brands do they currently buy?

Once you figure out what motivates your consumers to buy certain alcoholic beverages, you can begin speaking their language. If you’re trying to introduce locally successful products to a new region, learn about the audience in that area and appeal to their interests. A product that resonates with the locals and sells well in, say, San Diego might not have the same impact in Tennessee.

5. Know Your Strategy

Expanding into new territories is an exciting prospect – but it also needs to be meticulously planned in advance. There are many examples around the industry of alcohol producers attempting to grow too quickly, and being forced to scale back their operations as a result. You need to figure out your distribution strategy in each new area you intend to enter, but you also need to refine your sales pitch so you can hit the ground running once you enter these markets.

Will you sell your beer in bottles, cans, growlers, or some combination of the above? Are you going to approach local markets with individually designed plans? Will you take a more broad regional strategy? Or do you plan to target a national audience and use the same messaging and product placement in every market you enter? Each of these approaches has worked in the past, but you have to commit to the strategy once you determine which route you plan to go.

6. Sort Out Your Logistics

Ok, so you have your product strategy in place. Now you need to make sure you can go out and execute on it. This means getting your logistics sorted out, from supply lines to infrastructure. These factors will vary by area and by the ingredients included in your beer you sell, so it’s important to understand the ins and outs of each place and product.

Once you get your supply chain in place, you can start selling beer in new areas and leveraging distributors to help expand your reach.

Distributors are in many ways the lifeblood of the bev alc industry, so don’t take your dealings with them lightly. Ensure they will care for your products and be upfront with the them regarding the time and resources you need. Verify that your products fit in with their sales model and establish clear goals that you can use to measure success (and write those down in your contract). Taking the time upfront to check that your distributors are set to meet your needs can save a lot of headache down the road.

So, how can you form a positive business relationship with a distributor?

Good question! First, you have to prove your products are valuable. What do your sales figures look like? Are you producing varieties of drinks that are popular enough to sell in new areas? Once you demonstrate to distributors that your brand has a worthwhile product (or products), you can begin to attract attention. Certain distributors will be a better fit than others based on your expansion strategy, so it’s important to choose one that aligns well with your efforts based on regional infrastructure, shipping capabilities, and localized networks.

Next comes the “fun” part: Negotiation. You can easily be trapped in a bad deal if you aren’t careful and sign a formulaic contract. If a states has franchise laws, that can make getting out of a bad deal even harder. Hire a lawyer who will help you draft and clear and enforceable contract. A legal advisor experienced with beverage alcohol can negotiate on your behalf to strike the best possible deal and avoid future problems.

Another key component is establishing good partner relationships. If your brand managers, ambassadors, and solicitors (or anyone else representing you) develop a positive rapport with your partners, they may be more likely to help promote your brand.

Your brewery is very close to being ready to enter new markets now! This means it’s time to obtain all the correct licenses and registrations you need to legally distribute your brews in new regions. Each state has its own unique requirements and you’ll be responsible for knowing when and what you need to do to ensure you register properly and are in compliance. Between excise taxes, shipping reports, licenses, registrations, price posting, Certificates of Label Approval (COLAs), compliance for a brewery can be complex.

If this seems overwhelming, Sovos ShipCompliant can help your business obtain all the necessary licenses and registrations with our Market Ready solution. Learn more about Market Ready.

Once you acquire the licenses and registrations you need to operate in new areas, you need to make sure you stay on top of compliance. This means regularly paying taxes and filing shipping reports, but it also means being proactive. Track your data and measure the performance of your brewery periodically – are you meeting goals and expectations? What is and is not working with your compliance processes? Are you in good standing with each state where you have sales?

Getting behind on state filings can put your business at risk of incurring penalties and interest, or even worse: Potentially losing the license to sell your products in states where you are not in compliance. Sovos ShipCompliant’s 3-Tier Reporting solution can help you stay on top of revisions, license renewals, and any other challenges you may have.

You’ve tackled your brewery expansion successfully and have moved your products into new markets. Congratulations! But you aren’t done – now it’s time to measure your successes, learn from any mistakes you’ve made, and get right back to planning for further expansion. This might mean moving into even more new regions, or it could mean expanding your product lines and increasing product diversity.

Are you in a position to introduce new beers or other products to the market? Are you ready to take the next step toward being a nationally recognized brewery? Are you positioning yourself to be acquired by a larger brand, or to make an acquisition to grow your own brand?

Whatever route you choose to take, you have the tools to go out and conquer the world...or, at least the beverage alcohol industry.

In addition to a winery's standard logistical issues like market analyses, licensing, and distribution, wine producers also have to cope with a bevy of regulations from the federal government, state governments, and, in some places, even local jurisdictions. Compliance can be tricky for companies in any space, but it is an especially difficult aspect of selling alcoholic products in the U.S. because of the murky regulatory landscape.

But, never fear! Everyone struggles with expanding their footprint, to some extent. These are natural growing pains, and it’s best to embrace them. In that spirit, we’ve put together a guide for wine producers looking to introduce new products to market and widen their distribution networks: 10 Key Steps to Expanding Your Winery’s Footprint. These are by no means in chronological order; every winery’s timeline may differ.

10-key-steps-to-expanding-your-winery's-footprint

1. Know Your Winery

Before you launch a new product or expand your presence into new areas, it’s imperative to have a complete understanding of your company’s ability to successfully complete the registration process and meet all unique compliance requirements in each area. It’s also important to make sure you don’t overextend yourself at first – focus on a small number of products you think will perform the best, and then expand your offerings from there.

Some questions to ask yourself: What does your internal team look like? Is it equipped to handle an influx of new responsibilities and obligations? Are you prepared to meet each state’s requirements for registration?

The key to successfully entering new regions is to have everything in place before entering a market. Identifying openings in the market is important, but you also have to identify your own capabilities before making moves, and then identify the right time to do so.

Speaking of identifying openings in the market, the second thing to consider should be the state of the market. Keep an eye on what’s trending right now, and maintain a close watch on newer products that could possibly explode onto the scene in the coming years. To expand your footprint, you need to have products that both reflect what’s currently popular and also are different enough from everyone else that you can stand out from the crowd.

Are your products diversified enough from what everyone else is offering in a certain area? What are the top-selling varietals of wine? How have your product categories been performing there over the past several years, and what are their projections? Having a 90+ rating or score can help catapult you into the limelight, but if you don’t make the list, don’t fret. Use data to make decisions to improve your performance.

Pay attention to demographics and what’s trending in any new areas you hope to enter. Resources like our annual Direct-to-Consumer Wine Shipping Report can help you stay on top of recent trends and identify the right products to introduce to each new targeted region.

A comprehensive grasp of the markets you intend to enter is critical to the success of your expansion campaign, so you should be sure to follow those markets for quite a while before making a commitment to them.

3. Know Your Brand Story

Every business needs to know how to sell its products, but half the battle is figuring out how to sell the brand itself. Not only are you competing with hundreds – and, depending on the product, possibly thousands – of like-minded alcohol producers for shelf space in stores or bars; you’re also selling to a consumer base that can be influenced by the visual design of your products, varietal, or region in which your wine is produced.

Maintaining a your winery's positive image is crucial to attracting buyers. This can be achieved via aesthetically appealing packaging, an emotionally compelling brand story, or even a unique value proposition like the experience at a wine dinner or your tasting room. Does your brand effectively tell your story and convey a positive message to your audience? Once you have your brand story identified, make sure it goes to the right audience.

The most important part of any expansion strategy: Understanding your audience. First and foremost, you need to identify which demographics are most likely to buy your products. Where do they live? How old are they? What are they looking for in a wine, beer, or spirit? What other brands do they currently buy from?

Once you figure out what motivates your consumers to buy certain alcoholic beverages, you can begin speaking their language. If you’re trying to introduce locally successful products to a new region, learn about the audience in that area and appeal to their interests. For example, if Pinot Noir is more popular than usual in your newly targeted market, start by promoting that varietal to gain a foothold.

5. Know Your Winery's Strategy

Expanding into new territories is an exciting prospect – but it also needs to be meticulously planned in advance. There are many examples around the industry of alcohol producers attempting to grow too quickly and being forced to scale back their operations as a result. You need to figure out your distribution strategy in each new area you intend to enter, but you also need to refine your sales pitch so you can hit the ground running once you enter these markets.

Are you going to approach local markets with individually designed plans? Will you take a more broad regional strategy? Or do you plan to target a national audience and use the same messaging and product placement in every market you enter? Each of these approaches has worked in the past, but you have to commit to the strategy once you determine which route you plan to go.

6. Sort Out Your Logistics

Ok, so you have your product strategy in place. Now you need to make sure you can go out and execute on it. This means getting your logistics sorted out, from supply lines to infrastructure. These factors will vary by area and by the types of wines you sell, so it’s important to understand the ins and outs of each place and product.

While you can’t really control how quickly you produce your wine, you can still take proactive steps to make sure everything is in place when you’re ready to begin distributing. Finalize your winery's artwork, bottles, corks, and all the other little things that could cause headaches later down the line.

Once you get your supply chain in place, you can start selling products in new areas and leveraging distributors to help expand your reach.

So, how can you form a positive business relationship with a distributor?

If you have your licenses and registrations in place, it’s time become compliant in every new market you intend to enter. Each state has its own unique requirements – though many are similar – and you’ll be responsible for knowing when and what you need to do to ensure you register properly and are in compliance. Between excise taxes, shipping reports, licenses, registrations, price posting, Certificates of Label Approval (COLAs), your winery's compliance can be complicated and complex.

If this seems overwhelming, Sovos ShipCompliant can help your business obtain all the necessary licenses and registrations with our Market Ready solution. Learn more about Market Ready.

Once you acquire the licenses and registrations you need to operate in new areas, you need to make sure you stay on top of compliance. This means regularly paying taxes and filing shipping reports, but it also means being proactive. Track your data and measure your performance periodically – are you meeting goals and expectations? What is and is not working with your compliance processes? Are you in good standing with each state where you have sales?

Getting behind on registrations and taxes can put your business at risk of incurring penalties and interest, or even worse: Potentially losing the license to sell your products in states where you are not in compliance. Sovos ShipCompliant’s 3-Tier Reporting solution can help you stay on top of revisions, license renewals, and any other challenges you may have.

You’ve tackled expansion successfully and have moved your products into new markets. Congratulations! But you aren’t done – now it’s time to measure your successes, learn from any mistakes you’ve made, and get right back to planning for further expansion. This might mean moving into even more new regions, or it could mean expanding your product lines and increasing product diversity.

Are you in a position to introduce new wines or even take on new product types to the market? Are you ready to take the next step toward being a nationally recognized producer? Are you positioning yourself to be acquired by a larger brand, or to make an acquisition to grow your own brand?

Whatever route you choose to take, you have the tools to go out and conquer the world...or, at least the beverage alcohol industry.

Rapidly changing regulations and increased scrutiny on shippers are ratcheting up the pressure on wineries to get compliance and sales tax right. States including Texas, Illinois and Michigan are getting serious about enforcement. If wineries can’t successfully report, they face increased oversight of their direct-to-consumer (DtC) wine shipments, and the threat of fines, penalties or loss of licensure.

One way wineries are shielding themselves as they expand their DtC sales is through the use of real-time compliance checks and real-time sales tax determination. With these software tools, wineries get immediate confirmation during checkout that an order complies with the destination state’s rules and regulations. Such tools also provide an accurate sales tax rate for the destination, down to the street level, based on the products in the order. When the point of purchase is a digital shopping cart, it’s more difficult for wineries to manually track compliance rules and sales tax rates. This is not an accounting challenge; it’s a technology challenge—one that wineries can and should solve to make the most of the DtC opportunity.

Real-time winery compliance checks

“Non-compliant” is a scary thing to hear. When wineries find themselves in this worst case scenario, it can mean costly penalties or even loss of licensure. In an environment of heightened enforcement and with each state maintaining its own set of rules regarding DtC wine shipping, getting it right has never been more difficult or more important.

For example, in Massachusetts wineries are limited to shipping no more than 12 cases per individual per calendar year, but in Oklahoma the limit is six cases and in Colorado there is no limit. Not only do these three states have different shipping volume restrictions they also all have different rules and reporting timelines for excise tax.

How to stay on top of all of that? DtC wine shippers can automate their real-time compliance checks to make sure they are following all laws and guidelines related to the ship-to (destination) state. Real-time compliance also streamlines and automates a once slow, manual process while improving accuracy and performance, thus eliminating potentially costly issues before they arise.

No winery wants to find itself in the unenviable position of having to let a customer know their recent purchase cannot be fulfilled, or worse, face disciplinary action from state regulators. By recognizing at the point-of-sale whether a DtC shipment of wine is compliant, a winery can avoid complications with both consumers and the government.

Compliance, as it turns out, is key to customer experience. Today’s DtC customer is not only more likely to opt for higher-value wines, they are also more likely to apply the same expectations for exceptional service they bring to any other luxury item they purchase online. They want premium packaging. They want two-day delivery. They want the prestige of finding something unavailable at their local big-box store. And they want to know that when they click “purchase,” the winery with which they’ve chosen to do business can handle the rest. All of these expectations make compliance and sales tax automation crucial to building and expanding a loyal customer base.

Compliance, as it turns out, is key to customer experience.

Risking it without real-time compliance checks

Maintaining compliance is difficult and there are penalties to pay if you get it wrong. Without real-time checks on your licenses, the contents of each order, and the ability of each purchaser to receive the wine shipment, it’s nearly impossible to ensure compliance.

Varying by state, there can be limits on the alcohol by volume (ABV) per shipment, the size of the order and packaging, the amount an individual can receive DtC in a time period and specific shipping label requirements.

States are increasing “sting” operations on DtC shippers. For example, a state agency will attempt to purchase wine with an underage or invalid license. If they are able to complete the purchase it’s clear that particular DtC wine shipper is illegally selling wine and not following the state’s rules and regulations established. States are also instituting more audits to ensure that DtC shippers are reporting correctly. Real-time checks ensure that if you are part of a sting or selected for an audit, your business is protected.

What to look for in real-time DtC wine shipping compliance software

Real-time compliance checks prevent the awkward situation of having to go back to a customer after their purchase and say “Actually, we can’t sell you that wine, sorry.” When looking for real-time compliance software make sure it includes the following capabilities:

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Address validation to ensure correct address, not only for shipping but also for tax calculation
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Instantaneous checks against the destination state’s rules and regulations to ensure the winery can legally ship to destination state
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Tax calculation to make sure the winery is not over- or under-collecting sales tax at the time of purchase

Real-time sales tax determination

Wineries are not only responsible for complying with all state and federal regulations on DtC wine shipments, but they are also required to collect and remit the correct sales tax amount on those shipments. These obligations come as a precondition to having a DtC license or from economic nexus, the legal requirement to collect and pay tax on income in a state where they conduct business. The landmark South Dakota v. Wayfair supreme court case in 2017 ruled that nexus is no longer determined by physical presence but based on the sales revenue and transaction volume generated in a given state, regardless of physical presence. States like California are moving to get their share of the revenue by adopting the new standards established from the South Dakota v. Wayfair case for determining economic nexus.

Let’s say a medium-sized winery in Oregon gets three orders for their limited release Pinot Noir. The customers are in Minnesota, Florida and New Mexico. If the winery attempts to collect sales tax for each order using the Florida rate of 6 percent they will end up overcharging the customer in New Mexico where the rate is 5.125 percent and undercharging the Minnesota customer where the rate is 6.875 percent. This miscalculation at the point of purchase will require the winery to make up the difference to the state from undercharging the Minnesota customer and to return the overages from the New Mexico customer, a situation that doesn’t inspire confidence or foster a long-term relationship with that customer.

If wineries are not collecting the appropriate sales tax for each jurisdiction at the time of purchase, a tax gap is created. This puts wineries in the crosshairs for legal action from both states and consumers.

Real-time tax determination can ensure accurate address-specific sales tax rates based on the products of the order when shipping DtC. This eliminates the risk of charging the incorrect sales tax rate in a specific city or county with destination-based rates.

What is a tax gap? And why does it matter?

A tax gap occurs when a business over- or under-collects sales tax. If a winery over-collects tax from a consumer, the winery is prohibited from keeping the “extra” tax that was collected and is legally mandated to return it. If it does not comply, it may be sued by the consumer for deceptive practices. In addition, the state may also take action in the form of levying fines or pursuing criminal prosecution.

If a winery under-collects from a consumer, the winery is required to pay the balance out of their own pocket. If remittance of this payment is not timely, the winery will face additional penalties. An under- collection of sales tax hurts the winery’s bottom line and may cost a winery its ability to conduct business if it doesn’t satisfy the difference to the state.

This is not an accounting challenge; it’s a technology challenge—one that wineries can and should solve to make the most of the DtC opportunity.

Inconsistent state and local sales tax rates

Each state sets its own sales tax rates, and many allow individual counties and townships to add their own rates, creating a tax landscape that is nearly impossible to navigate manually. A majority of states also require DtC wine shippers to collect the local tax in addition to the base state rate. In order to be compliant, wineries must be able to accurately assess both state and local rates across all relevant jurisdictions, which are constantly changing. This can be extremely difficult without real-time software. Last year alone, Sovos processed over 900 sales tax rate changes across the United States.

Instead of trying to manually track and manage differing sales tax rates from the more than 12,000 different tax jurisdictions in the U.S, automated compliance software for shipping validation and reporting can help save significant time and mitigate risk.

Real-time wine shipping compliance and sales tax software is a necessity

Now is a perfect time for DtC shipping. E-commerce makes it easier than ever for wineries to reach more consumers, whether their labels are on the shelves of liquor stores across the country or not. Along with this opportunity, however, comes added tax and compliance complexities. In the constantly changing regulatory environment, having real-time software that enables sales tax collection, filing and remittance with the press of a button has become a necessity. The DtC wine shipping market grew 7.4 percent in value and 4.7 percent in volume in 2019, with more room to expand. Take advantage of DtC shipping while protecting operations and ensuring a positive customer experience with real-time software to verify a purchase is compliant and the correct sales tax rate is being collected at the time of order. In DtC shipping, the risks are far too great to leave tax and compliance to chance, protect operations with real-time software.

10 Steps to Expanding Your Brewery

10 Steps to Grow Your Winery’s Footprint

How to Grow Your DtC Wine Business with Real-Time Software

Risking it without real-time compliance checks

What to look for in real-time DtC wine shipping compliance software

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What is a tax gap? And why does it matter?

Inconsistent state and local sales tax rates

Real-time wine shipping compliance and sales tax software is a necessity