Convergence Consulting assists in a variety of alcohol producing businesses with regulatory requirements. For wineries, breweries and distilleries, we offer services to develop and organize the business structure to meet compliance requirements of the TTB, assist with excise tax accounting/reporting; import/export contractual agreements; federal/state license applications; COLA's; and general business transactions. Whether you are well established or just opening, we can get you on the right track and help you stay there.
Sometimes you need one and sometimes you don’t. Regardless, it is best to find out before you apply for your Certificate of Label Approval (COLA) or you will not be allowed to receive your COLA – rather, you will be directed to submit a request for Pre-COLA Product Evaluation – otherwise known as formula approval.
You don’t always need a formula approval, but rather, TTB regulations require formulas most commonly when flavoring or coloring materials are added to an alcohol beverage product. If you are putting something in the wine bottle other than juice from a grape, we suggest you don’t assume that a formula is not needed. This is a better safe, than delayed, decision!
The actual regulations relating to formulas only shed a bit more light on the requirements, making it all the more important to contact TTB if you have any questions about whether or not a formula is required. The regulations state that a “proprietor shall, before production, obtain approval of the formula and process by which special natural wine, agricultural wine, and other than standard wine (except distilling material or vinegar stock) are to be made.” This begs for some definitions. Some of these terms are in fact defined in the regulations as follows:
• Special natural wine. A product produced from a base of natural wine (including heavy bodied blending wine) to which natural flavorings are added, and made pursuant to an approved formula in accordance with [these regulations].
• Agricultural wine. Wine made from suitable agricultural products other than the juice of grapes, berries, or other fruits.
• Standard wine. Natural wine, specially sweetened natural wine, special natural wine, and standard agricultural wine, produced in accordance with [these regulations].
Of course, no special natural wine, agricultural wine, or, if required to be covered by an approved formula, wine other than standard wine may be produced prior to approval by the appropriate TTB officer of a formula covering each ingredient and process (if the process requires approval) used in the production of the product. Basically, you are stuck until the formula is approved.
On application, the proprietor shall on each formula filed designate all ingredients and, if required, describe each process used to produce the wine. The addition or elimination of ingredients, changes in quantities used, and changes in the process of production, or any other change in an approved formula, will require the filing of a new application. After a change in formula is approved, the original formula must be surrendered to the appropriate TTB officer.
TTB has a chart known as “Pre COLA Product Evaluations for Wine Products.” This chart is designed to show a listing of numerous products and whether or not those products require a formula, for example. Though the chart is useful, keep in mind that it is limited by the following statement on the chart: “This chart is provided as general guidance. Particular circumstances may dictate the need for a pre-COLA product evaluation for a specific product even though no such requirement is indicated on the chart.” A helpful tool, but you certainly can’t totally rely on it. If you have questions regarding whether or not your product needs a formula approval prior to application for your COLA, please don’t hesitate to contact our office. While we’ll be happy to comment on our thoughts about whether or not you need a formula approval, but we’ll make sure we contact TTB for final determination prior to assisting you with your formula and COLA application.
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Five things to consider when drafting a Grape Purchase Agreement Between a Grape Grower and a Winery
Protecting your grape growing business means more than protecting your agricultural harvest. You may have to work just as hard at finding a proper purchaser of your harvest as you have at growing your grapes. Once the buyer is found you need to think about memorializing your agreement with a proper business contract so that your investment comes to full fruition. Here are five things to think about:
1) In an ideal world, you would have a buyer for your grapes long before they are ready for harvest, possibly even years before. Just as the grower wants predictability, so does the winery. Long term pre-planting contracts are certainly a possibility for both grower and winery. Having a long-term contract in place could be very important to the business growth of both parties to this agreement. If lending is in place or required to fund the ventures of either the grower or the winery, a proper contract will be of high interest to the business lender.
2) All parties want their customers to be pleased with their product. Growers are wise to consider the winery’s concern for product quality and consistency when executing its viticulture practices. Expectations relating to viticultural practices can be very specific in the contract and related to issues such as diseases control, production levels, irrigation, pruning, thinning, cultivation, etc. The best practice for all concerned it to discuss and draft specific terms for viticultural practices to enhance the likelihood of contract renewal for the grower and source consistency for the winery.
3) A detailed plan for harvest and delivery should be considered in the purchase agreement. Clearly the input of all parties is important. While the terms of this part of the agreement may need to be flexible due to the fact that grapes are an agricultural crop that is dependent in part on weather, it is still important to set out expectations relating to a projected harvest date, prior delivery schedules, labor availability, equipment needs, storage space, etc.
4) Clearly both parties want to deal with high quality product, however, the definition of a high quality grape may differ and as such, grape quality and inspection rights will be important to define. Some contracts will set parameters for Brix, pH, and total acidity that reflect optimum levels along with minimum and maximum content levels which vary based on the type of grape. The winery will generally want to have the right to inspect and test, but the grower will not want to be put in a position where a winery has an absolute right of rejection absent pre-defined quality standards. It may very well be appropriate to identify an independent third party to act as an inspector should the parties disagree.
5) Pricing of the grapes is one of the most important terms of any contract. And, there are many ways that pricing can be determined. Per acreage price or price based on tonnage is common. An escalator for long term contracts may be useful to pre-determine prices for future years. Or, some growers and wineries prefer to negotiate each year. If that is your preference, then you should establish a date in your contract by which the price shall be determined and consider language that creates a default if the parties are unable to agree – which could be as simple as a percentage or multiplier of the price of a prior year.
These are just some of the terms that should be considered in a Grape Growers contract. All parties stand to benefit from conversations and decisions made and set forth in writing. Should you require any assistance with contracts of this type as a grower or a winery, feel free to contact our office.
We can help you with everything from marketing strategy, brand development, TTB compliance, state licensing, distribution and more! We can take the burden of the paperwork off of your shoulders and put it onto ours, so you can focus on what you do best, making a great product.
For wineries, breweries and distilleries, we offer services to meet compliance requirements. We help to develop and organize the business structure for wineries, distilleries and breweries in order to best comply with TTB regulations. We assist with import and export contractual agreements; federal and state license applications; COLA's; niche marketing and product placements. Whether you are well established or just opening, we can get you on the right track and help you stay there.
Alcohol and Tobacco Tax and Trade Bureau is responsible for collecting revenue due from excise tax returns and auditing taxpayers for compliance with the Internal Revenue Code and other laws and regulations. Whether you are an existing member of the alcohol beverage industry, brand new to the industry or considering getting into the industry, we are here to assist you.
We submit requests for certification of label approval (COLAs), permits, and bonds, which are required of all industry members in order to be in good standing. We also offer guidance on keeping and maintaining records for your business.
If you are interested, please contact us and we will set up an appointment to give you a free quote on your expansion idea.
Before even beginning operations in the production or sale of wine products, a business owner must first decide on what type of wine activity that the new business will engage in. Doing this will not only determine the specific application procedure needed to be completed, but will also allow the business owner to initiate the application process for that area of wine activity.
When all of the forms and other required application materials are submitted to TTB, a discovery process will verify confirmation of those involved in the businesses legal eligibility. Any successful completion of application will result in the authorization by the TTB to begin wine operations.
Identify the type of wine operation you want to start:
This is possibly the most important, and in many cases, the hardest decision made prior to getting started in the wine industry; deciding which type of operation to initiate. There are four different subdivisions within the Wine Industry:
The application process among these four types of wine subdivisions has many similarities, being all in the same industry. However, there are definitely significant differences among them which effect how a business can become qualified within that subdivision of the Wine Industry.
Bonded Wine Premises
If the decision for the direction of the business is to assist in the production, blending, cellar treatment, storage, bottling, and/or packaging of wine, then the business will need to apply for a Bonded Wine Premises.
There are two types of Bonded Wine Premises:
Taxpaid Wine Bottling House (TPWBH)
Vinegar Plant (VP)
Volatile Fruit-Flavor Concentrate Plant
Application to TTB
In order to complete the TTB Application process you must not only complete and pass the qualification process, but submit all of the forms that provide the TTB with all the needed information to consider your application.
The original qualification requires completing the process of providing the TTB with all of the information requested in the application requirements of the Internal Revenue Code and, for producers and blenders, the Federal Alcohol Administration Act.
The purpose of this is to:
In order to complete the screening/investigative process TTB will determine that the business is legally eligible and qualified to conduct a wine industry operation. This research is not an overnight process and can take sometimes as long as 90 or more days, but when the research is completed, the applicant(s) will be notified if authorization to proceed with the business has been granted or not.
If someone signs the application on your behalf, you need to give signing authority.
This application can be submitted online or through standard mail delivery to the National Revenue Center’s TTB location in Cincinnati, OH.
Incomplete applications cannot be processed by the NRC.
If supplemental documents or information are missing, the application will be returned.
If someone will be signing the application and/or supporting documents or act on your behalf, you must submit one of the following with your application. If you are filing as a sole owner and someone will sign documents on your behalf, you must file TTB F 5000.8 – Power of Attorney. If you are opening a Experimental DSP, you need to complete TTB F 5000.8.
A TTB Winery Application Specialist will review your application and, if necessary, contact you by telephone to conduct an interview, make necessary corrections or additions to the application and discuss supplemental information or documentation. When the application is correct and the interview process has been completed, one of two things will happen:
This is a rather lengthy process, and this is only the first step of many between the federal and the state government in order to begin producing, labeling and selling your product are continued applications prior to approval. If you have any questions, or would like to utilize our experience and ability to streamline the application process with obtaining your own Bonded Winery please contact us.
The alcoholic beverage world is not the same as it used to be. It isn’t just the fact that breweries, cideries, distillers, meaderies, and wineries are popping up at record paces. It isn’t just the fact that there are more stock keeping units, or more commonly referred to on the non-consumer side of things as SKU’s (skyew’s is how it sounds when spoken), than retailers can possibly keep up with. It isn’t just the fact that technology has advanced where there is now a system that allows people to automate brewing a batch of beer in a small volume at home named Picobrew, much like a Keurig system, and it isn’t just the fact that social media has allowed what was once an obscure local brand to be thrust into the national spotlight based on the quality of their product, such as New Glarus and their Spotted Cow. It is the fact that the consumer, for the most part, can’t, and won’t make up their mind on what they prefer.
Social stigmas are gone. Beer and bourbon isn’t “just for men” anymore, and that is who they’ve been primarily marketing to for decades. In one evening a consumer at an on-premises location is more likely to purchase a draft beer, a cocktail, have a draft or packaged cider, and a glass of wine of, all in one night, especially of there is food offerings, than there is a chance of any consumer in the same establishment sticking with the same drink the entire night. Brand loyalty is a thing of the past. In the beer segment there was primary the Bud crowd and the Miller crowd. Now it is the what is new, what is seasonal, “What haven’t I had yet?” crowd. This is the new normal of the industry, and while the past few years the market segment has shifted in the beer category to reflect this trend, with macro beer companies losing market shareto the smaller more diverse in brands and styles craft breweries. We’ve seen this shift with the resurgence of bourbon, and the boom of hard sodas, like the alcoholic “hard” root beer boom. Everything has changed, and it isn’t going back any time soon.
More and more producers have spread their wings and produce within more than one category, sometimes 3 or more. There are some companies that are breweries, wineries and distilleries that also make ciders via their breweries and wineries. Retailers have begun to catch on and at the on premises level, if they have an option of a case of four 6-packs, or two 12-packs, they are going with the smaller package size. Why? Not because of the sales margins, but because of the length of the time spent on the shelf. Consumers do not want to be committed to a package size as large as a 12-pack anymore, unless it is something that is in limited supply, they need a large quantity for a gathering, or it is simply their favorite. The casual consumer wants to try it all, they do not want to be locked down by a 12-pack, or even a 6-pack if they can. That is why in states where by the bottle sales are legal, the mix-a-six, mix and match 6-packs are one of the consistently highest selling SKU’s in the entire beer category. The same goes for the wine and spirits categories. The larger the package the slower the sales, unless there is a deep discount creating it to be a value brand, or there is another factor. The consumer seems to be more worried about missing out on trying something than they are on finding something that they like and sticking with it. Brand loyalty is dead, and that is trouble for everyone in the industry regardless of size.
If the primary driving factor in the market besides quality, is the brands “newness”, and that even trumps the price on most occasions, then that is a battle that is expensive for the producers. Rebranding, reinventing, and developing new marketing strategies constantly is not easy nor cheap. What used to be a staple of the industry, the core brands of a producer, are usually the first to suffer. They suffer because they are always there. It is like living in New York City and always planning on visiting the Statue of Liberty, but always telling yourself you’ll do it next month, because there is something that you can’t miss each weekend this month. Then you move away 6 years later and you never visited, because it was always right there.
The consumer base is a driving force that has created this new normal, and the industry has been slow in many areas to react to it. There are still perceived lines between the categories, where someone is a beer guy, or a wine girl, or a spirits expert, and there is little to no industry cross over, save the companies that are diversifying themselves into multiple categories. Majority of the conferences and tradeshows are segmented as well, with educational tracks that actually apply across the board, but only one category base taking advantage of them. This hybridization of the pallet of the consumer needs to drive a hybridization of the way that the industry educates and re-educates itself. That is the new normal that the industry needs to catch up to, the consumers are driving the pace at the moment, and that is new for an industry that used to utilize its marketing power to steer the consumers in the directions that they wanted them to go. The new normal is scary for some, but that is okay, because it is hard to tell what to expect, and not knowing if you’re doing the correct thing with your company, and for your employees and their families is scary, it would be not normal to not feel uneasy. The positive to it all is that the consumer base is massive and it is growing, the volumes are up and there is opportunity for everyone to stake their claim in this pie of the new normal. Breweries can benefit from learning from distillers, distillers from winemakers, and vice versa. The more the industry adapts to the changing climate throughout all segments, and cooperates as an alcoholic beverage industry, the rising tide will raise all ships. It is time to stop segmenting ourselves and drawing the lines between the categories, styles, sizes, locations, and goals, and realize, we’re all in it together, and the consumer, they are drinking a lot and a little of everything, we just do not know yet how this new normal will show up in our metrics and analytics once we figure out how to determine the pattern to the randomness.
In the meantime, go out, have a shot or a cocktail, a glass of wine, and a beer during the course of a meal and experiment for yourself.