Becoming a Wine Importer

After our two-year journey into the business of wine importing—which included about a year of initial research and learning, and a year of being in business as online retailers—I’m pulling out my journal to share these experiences. There has been so much paperwork, so many licenses to apply for, countless permissions needed, and fees and taxes to pay at every turn. But the upside is that we’ve brought almost 8,000 bottles of Hungarian wine to the US in a year, and those bottles have made so many people happy! And through our Hungarian Wine Club in the US (which is the first, and only one in existence), we are happy to be continuing our mission of spreading the word (and knowledge about) Hungarian wine.

THE RECURRING QUESTION: WHERE’S THE HUNGARIAN WINE?

On my first trip to the US in 1996 I found $3 bottles of mass-produced Egri Bikavér on the bottom shelves of the corner shops and supermarkets that I frequented in DC. That was long before I was in the wine business, and I was just happy to see anything from Hungary available. As the years passed, those cheap Bulls’ have disappeared from the shelves, but few other Hungarian wines have arrived replaced them.

In the DC area, if any shop has a Hungarian wine (and most do not), you’ll find maybe one dry Furmint and a Tokaj Aszú. It’s great that they have those, but where are all the wines from wineries where we take our wine tour guests for what is often their first experience of Hungarian wine? Where are all of the small producers, the garagistes, and the family-owned cellars which we invite to the Tasting Table for our winemaker dinners? Even when some of them are imported to the US by small, independent importers —like Palinkerie in New York, the now closed Blue Danube in California, or Danch & Granger Selections—these wines tend to get lost in the enormous selection of American wine shops.

From our perspective as wine tour operators, it has been frustrating to see how hard it is to get a hold of Hungarian wine in the US. After introducing clients to the beauty of Hungarian wine, it was always bittersweet to hear them talk about how they would love to buy this wine at home, but unfortunately none was available. But that frustration also presented itself as an opportunity. We knew all these great producers in Hungary. And we knew many Americans who have tried these wines (and wines like them), and would love to buy them in the US if they were available. The scale also fit—I would be a small importer, working with small-batch producers, and a handful of great clients.

THE THREE-TIER SYSTEM OF ALCOHOL DISTRIBUTION

Before deciding to start this wine business, I had read up on the US wine business and taken a few classes explaining the three-tier system of the American alcohol trade. I thought I knew something, but it turned out I didn’t even know how much I didn’t know. The three-tier system means that you have to choose your spot in the industry at the beginning, so you can apply for the kind of license that suits your plan. It’s a complex system, but to sum it up there are three basic roles (the tiers):

Importers bring in the wines from all over the place and sell them to the wholesalers.
Wholesalers / distributors buy the wines from importers and American wineries and sell them to retailers, restaurants, bars, etc.
Retailers—which can be online or brick and mortar—buy wines from the wholesalers, and then sell them to the consumers.

You also have to decide whether to apply for a class A or class B license. This determines the type of alcohol you’re allowed to deal with (and the annual fee you have to pay).

Class B licensees can only deal with products that have less than 16% alcohol content.
Class A licenses allow the trade of all alcoholic beverages (wine, beer, and spirits). The fee is twice for Class A.

We thought the best fit for us would be to be online retailers. We would focus on selling wine to our existing clients—all of those people who have taken tours with us, or participated in wine tastings at The Tasting Table—over the past 12 years. I also hoped that Americans with Hungarian heritage would be interested, and that word would slowly spread, and curious wine-lovers with no connections to Hungary would also become customers. So we applied for an online retail license. We were not required to have a brick and mortar shop (just a registered warehouse), and the fees were the lowest in this category. It seemed to be the cheapest and easiest way to enter the market. This was a new type of license, and I believe we were amongst the first few to receive this license in DC in 2018.

In addition to having to work within the three-tier system, it quickly became clear that each state had its own peculiarities—which either make business easier if you’re lucky, or more difficult if you’re not so fortunate. It seems like these infinite rules and regulations are meant to keep taxes in the state where the alcohol is consumed, and also to meticulously track the alcohol’s path, from the producer (or importer) to the end consumer. The system seems a bit outdated, to say the least. It is so complicated and fragmented that it seems like most of the lawyers, and even the regulatory officials, don’t really understand all of it and are typically knowledgeable only in one small area. The three tier system definitely fulfills its purpose when it comes to collecting license fees, custom fees, import taxes, and sales taxes. It is so intimidatingly complex that it also keeps people from entering the business, and creating some needed competition for some of the giants who have been around for decades. This is one of the reasons why it probably hasn’t been changed yet, and why the market is so over-regulated.

To get our license, I found an attorney specialized in alcohol licensing. I formed a company; signed a lease for a warehouse space in DC (which was required to be in a non-residential area); got a clean hand certificate; and paid so many legal and application fees. I waited about six months until all of this was checked, approved, cleared, and placarded. And on one beautiful spring day, the online retail, class B license for Tasting Table Budapest LLC was issued. DC turned out to be a lucky location for us, since it is one of the few states that allow licensed online retailers to also be importers.

Now that we were legally allowed to buy and sell wine, I realized that I still didn’t know any of the practical steps and procedures on how to actually make this happen. We had the wines all picked out which we wanted to import, and now we had to figure out how to do it. Having our wine retail license in Budapest for the Tasting Table didn’t help at all, as things work so differently in America. I now realized that if I wanted to make any progress, I would need to invest some more money and hire a consultant (not another lawyer, please …). I needed someone who knows the business to walk me through the practicalities, and lay out the steps for me, so I could understand what to do next.

I reached out to a few consulting firms who either didn’t reply, or told me that they couldn’t help because they had no idea about how DC works. I was stuck, and getting impatient, so I reached out to a friend who owns my favorite DC wine shop. He connected me with a few DC-based small importers, who already had experience doing what I wanted to do. We ended up working with Tom Natan, owner of First Vine. Tom immediately understood what I needed, gave me a reasonable offer, and walked me through the entire process, giving me a blueprint for what I needed to do.

Join us on May 16th at 5pm EST on Facebook live for a conversation between Gábor Bánfalvi and Tom Natan on the wine importing life!

Having my retail license was only the very first step in the process of importing and selling wine in the US. I still had to register my company with the FDA, register with the TTB in order to get COLAs (Certificate of Label Approval), get a DC import and wholesale permit, buy a customs bond, sign a contract with a shipping company, and register my wineries with the FDA. It was somewhat overwhelming. But we got started, and got to work on getting all of this paperwork done. We brought in our first import batch from Hungary in the early 2019. It included 1,800 bottles of six different wines from four wineries in the Tokaj and Eger regions. We’ve sold all of these wines now, and have imported two more batches of wine since then … with another one on its way over right now!

Read about the wines we have imported!

HOW TO IMPORT WINE FROM EUROPE … WHAT I’VE LEARNED

I now have a much clearer understanding of the process of wine importing—though there are still surprises—and I thought I would share my process here for anyone who may be interested in how it works (or getting into the business).

Select the wines, and agree on the terms with the producers.
If the producer has never exported to the US, they have to be registered as a “food facility” at the FDA. It takes about 30 minutes, but many producers find it challenging.
The back labels, which must be specifically created for all wines sold in the US, are designed by a professional. It is a simple label, but it must meet all of the specific requirements in order to be approved. In addition to the required information, we always give an exact percentage of each wine’s grape varietals.
Get the COLAs for each label. The finished back labels must be uploaded for this. (Here, confusingly they call them brand labels. And what we normally call the front label, here is referred to as the back label!). The approval takes about a week, and it is surprisingly free of charge. If you make a mistake, you’ll get an email and you can make the required changes online.
The producers start their own paperwork. They have to get the customs papers from the Hungarian authorities, proving that this wine is going to leave the EU. I always ask the producers to exit the wines. (We’ll take over entering the wines from the time the shipment approaches US soil.)
The producers print the US labels, and put their palettes together. Wood palettes must be treated against insects. Plastic ones can also be used, but they are not as sturdy.
Send the approved labels to our shipping company so that they can pass them along to the broker in the US port of arrival who will clear the wines for me.
The wineries send the wine and all the paperwork to our shipper in Budapest. The paperwork includes the invoice, a packing list for the palettes, and the EMCS documents that will allow the wines to leave the EU. EMCS stands for Electronic Movement Control System, which alcohol producers must register with to export their alcohol outside of the EU.
The palettes are trucked from Budapest to the port. So far the wines have been leaving Europe from Hamburg or Rotterdam, and entered the US either in New York or Baltimore. I prefer Baltimore because getting the wine to our warehouse in DC is cheaper.
Once the the ship has left the port, the logistics company we use will send me the invoice for the shipment and the estimated customs fee. Once I settle that, I get the final bill of ladings that I need for receiving the goods on the US side.
When the ship approaches the US port of entry, the receiving port will contact me and their broker will do the final paperwork. At this point, I pay their fee and the remainder of the customs fee. When the boat is unloaded, I can get the wines and have them transported to our warehouse in DC. But only after I pay the DC import tax.
A few days before arrival (or upon arrival), I must pay the DC import tax which is based the alcohol percentage of the wine.
Now we’re ready to sell the wine!!!

BUT THAT’S NOT ALL!

I could continue with the saga of figuring out shipping logistics and regulations, which are a nightmare because the situation varies from state to state. This could be its own blog post. This journey has been a pretty bumpy one at times, with occasional mistakes (which I will not share here!). The bottom line is that importing and retailing wine in the US is extremely complex. It took me a good two years to feel like I know what I am doing. I don’t want to add up the amount of time and work that I put into this business (on top of the up-front investment to get the licenses and buy the wines), because I was happy to dive in and learn this new field and develop some new skills. It’s also really rewarding to be able to enjoy these wines in the US, to share them with people who appreciate them, and to get nice feedback from people who buy them. Bringing these wines—made from unique varietals, by small to medium sized producers—let’s us help tell stories that would not have been told if we had not undertaken this adventure into the wine importing world.

If after reading this it sounds like I have this fully figured out, well, I still don’t! But I’m getting there … and at least now I get to drink bottles like this fine Egri Bikavér (which is nothing like those bottles I used to find in the corner shops) as I figure things out!

And, we get also get to enjoy feedback like this …. which makes all of our effort worthwhile:

“I was so excited last night when I saw your ad. I have been searching for good wine delivery all over, and wanted Hungarian wines even sent from Hungary, which they didn’t do. And when I saw your ad, it was around 1 or 2 am and I couldn’t sleep after that because I was so excited to see it! … What a great accomplishment!” — Diane, Florida

“The six bottles arrived. We drank one of the whites yesterday, and it was wonderful. You may soon find an uptick in orders from Western New York, as we are very happy and speak to wine drinkers every day.” — John and Maria, New York