Check Your Answers

Export and International commerce is challenging and complex. Here are the Cheval rouge team’s thoughts on the Export Readiness Quiz…

In fact the most likely candidate for the cheapest shelf price is Sweden. Unusual as we often think of the Nordics as having the most expensive alcohol due to their very high excise and state liquor control, (along with Australia!). However in both Hong Kong and Korea, tax is applied on value and not just alcohol content.

In Korea for example where Cheval Rouge team member Peter Park works with our clients, non-domestic alcoholic products have an extra 30% duty applied BEFORE you add the standard 72% of value (that’s right!) excise tax on top of the price plus freight plus insurance. Then there is an ‘education tax’ which is 30% of the liquor tax meaning the effective excise rate is 93.6%. Then you have sales Tax of 10% on the total of all of these taxes plus the product cost, freight and insurance. At this stage your importer then wants to make a margin of 20%, then the retailer wants 30% margin. So that $200AUD EXW Bottle will be landing at around $530AUD and will be on shelf at around $1000AUD!

All three of these markets have challenges but in this case New Zealand is the most straightforward. While many local heroes do well in NZ, Gin is a traditionally strong category for this small market with moderate 5 year CAGR. The familiar tax treatment, common language, similar consumption occasions, and shared regulatory environment for labels plus tariff free trade, makes this an ideal test market for craft gins. However their challenging macroeconomic conditions are causing some retailers to reduce ranging though this is mostly in more value priced SKUs.

Indonesia is a very challenging market entry due to the arduous market registration requirements for your chosen distributor. This generally takes 12-18 months - a period which has recently lengthened significantly with new laws on governmental agency transparency adding to the burden of paperwork. However consumption is high and FOREX is favourable to the AUD, and the cost of activation can seem very reasonable compared to domestic channels.

The UK is a great gin market but also is extremely competitive. With around 6 million 9LC sold in the UK last year, Gin is big business. However 50% of sales are from one producer, and 80% are at the ‘standard pricing’ or below - at which imported brands struggle to compete. The UK is a ‘pay to play’ market that requires significant investment to stand out from the crowd.

This is a trick question as all of these ‘brands’ are likely to be rejected by the TTB COLA (Certificate of Label Approval) review board:

Tasmanian Pure Gin - the word ‘Pure’ is now strictly controlled and treated as a ‘qualitative claim’ that is expressly prohibited by Title 27.A.5.91 of the Federal regulations. You would need to prove that there is an ingredient that is specifically ‘Pure’ and the bar is high for this. That being said there is a way around this type of restriction but it requires a very narrow interpretation.

Salmon Ponds Tasmanian Vodka - It seems crazy, but Salmon Ponds would be rejected on the basis that the label would need a warning to indicate whether the product contained fish products! The TTB is very literal and would not recognise place names that contained a food item unless you explicitly stated the product was ‘Salmon Ponds Tasmanian Vodka: Contains no Salmon’!

Saint Helens Tasmanian Whisky - Similar to the last example, Saint Helens in Tasmania would clash with the name of Mount Saint Helens in Washington State. Famously affecting Montana Wine from New Zealand, the TTB always gives precedence to well known US place names over foreign equivalents. This even applies within the US where the whisky ‘Virginia Black’ carries the warning label ‘Note: not produced in Virginia’.

Bruny Island Bourbon Matured Single Malt - this falls down from the use of the word ‘Bourbon’ which is carefully protected by DISCUS - the distilled spirit council of the USA. The TTB will claim this label ‘confuses a consumer to think this product may be bourbon whiskey’. Often they ask for this to be removed or to be clarified to the point of absurdity - ‘Bruny Island ex-bourbon whiskey barrel matured Australian Single Malt Whisky’ might be more likely to pass muster.

The TTB and COLA system can trip up even seasoned exporters. If you want to learn more about the US regulatory environment - get in touch!

Amongst these three options, FOB is the clear winner and in fact will most often be requested by Asian buyers. CIF places the insurance obligation on you the seller, and often maritime insurance is insufficient in coverage and excess to really protect you in case of loss. More importantly if you are selling a rare and irreplaceable whisky, these terms will put the burden on you to replace the goods which may not be possible.

DDP, while very attractive to the buyer, is particularly challenging in value based excise markets like China. Not only do you have to cover the cost of duty and excise, last sector delivery is rarely well priced to an overseas seller, plus the risk of loss is exponentially greater once the goods are out of the duty suspended zone. These might be the right terms to ship a few samples, but not for ongoing orders.

FOB means you need to get the goods from your distillery or warehouse to the port. You cover the local freight, export paperwork, and the movement guarantee under bond. This is attractive to your buyer who might not want to deal with Tasmanian Freight or Australian Customs paperwork. Once the goods at are the port, the responsibility passes to your customer.

In fact Flemish is the only language where this billboard would have no problems to be put up. In Finland, alcohol advertising is prohibited everywhere for products over 20% ABV. This even includes your product websites which theoretically should ban any Finn from visiting and seeing promotion of ‘hard liquor’ (though this is not well enforced. You would have nowhere in Finland to put up your billboard legally!

While Alcohol advertising is allowed in France, the well established ‘Loi Evin’ was put in place in the early 1990s to make very specific rules about the content of alcohol ads. These must not involve any human beings or anthropomorphic animals consuming alcohol, preparing it, serving it or in fact being near it. The only exception is a distiller, or producer is allowed to be shown in the manufacture of the product, but most don’t bother with any people in their ads at all. While there are many other markets where French is the official language, most of these are in Africa where similar strict laws apply.

Flemish - the language of Belgium, similar to Dutch - would get you some attention in the BeNeLux countries where alcohol is consumed (responsibly) in reasonable volumes with extensive outdoor advertising.