Abstract:

Alcohol regulation in America is complex and culturally specific. Yet American demand for Japanese alcoholic beverages continues to increase dramatically while demand for other alcoholic beverages continues to decrease creating an unprecedented opportunity for Japanese alcoholic beverage producers. Gibson andJeffery, LLP has advised Japanese companies doing business in the American alcohol market for many years now. This article shares some of our firm’s insights into how the Japanese alcoholic beverage industry can capitalize on this market opportunity.

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Introduction:

While much of the alcoholic beverage industry in the United States is experiencing a decrease in demand,[1] the US’s demand for sake has continued to grow year over year. In fact, in 2024 the US showed a 25% increase in sake imports both by value and volume.[2] This trend appears to be stable and increasing.[3]  In other words, the US market is presenting an unprecedented economic opportunity for Japanese alcoholic beverage producers.

While the economic opportunity is unprecedented, the fact of the matter is that US alcohol regulatory agencies are numerous, ridged, and often lack truly basic knowledge about the Japan’s alcohol industry. Moreover, America’s ban on vertical integration[4] within the alcohol industry, and layers of federal, state, and local regulators are all legacies of prohibition that may create a cultural and regulatory context, which foreign alcohol producers find difficult to understand.

Navigating and compiling all the layers of regulation can be quite challenging even for American companies. Without a firm understanding of the history, culture, and law that informs American regulatory oversight of alcohol it may be next to impossible. Moreover, President Trump’s tariffs and trade policies[5] have made the American market even more, intimidating, to say the least.

Despite these difficulties, the American market opportunities for Japanese alcoholic beverage producers remain strong. Gibson and Jeffery LLP has developed relationships with key industry operators, a deep expertise in obtaining federal and state approvals, permits, and licenses for Japanese alcoholic beverages, and a passion for negotiating mutually beneficial cross-cultural agreements that comply with the complex American regulatory system.

Localizing

One of the most important components to success in the American market is brand localization. Localization is a difficult balancing act for imported alcoholic beverages. On the one hand, each country is going to have specific legal requirements for the artwork and information on an alcoholic beverage.[6] On the other hand, most alcoholic beverages come from deep cultural traditions and their producers often have specific ideas and feelings about their brand and product that are derived from that specific culture and history. Communicating these feelings and ideas to consumers in a manner that sells the product can be challenging when consumers don’t have the cultural and linguistic touchstones from which the producer has derived their brand and product’s message.

Good localization for a product must comply with the local laws while transforming product and brand message into something that respects the originating culture while also speaking to consumers in way that sells the product. For example, from a legal perspective, the US Alcohol and Tabacco Trade and Tax Bureau (the“TTB”) approves every alcoholic beverage label in the US market. It requires a translation of all non-English words on the label and requires specific information on the label to be in English. The TTB also gets to review the artwork on a label with the intent of ensuring that the trade dress of an alcoholic beverage does not mislead American consumers.[7] On an aesthetic level, a bottle covered in kanji calligraphy may be beautiful and exotic looking to an American consumer. But a consumer that does not understand the language or the cultural and artistic significance of the calligraphy may also not know what to expect from the liquid in the bottle.

At Gibson and Jeffery, LLP we take pride in working with producers, marketers, and artists to help clients create labels and trade dress that both express the brand owners’ message to American consumers while respecting cultural legacy and complying with American law. This work is both about communicating with regulators to get a label approved and about coordinating with localization and marketing vendors to negotiate a contractual relationship that facilitates a cross-cultural business understanding.

Cultural Issues in Negotiating Key Vendor Agreements

Whether you are a producer in Japan or an American company looking to import Japanese alcoholic beverages, your supply chain is going to involve working with many different outside vendors and at least some of those relationships are going to be cross-cultural. In this context, much of what parties might consider standard legal and business practices do not apply.

An especially stark example of possible misunderstanding centers on formula ownership.  In America often when you hire a company to develop and manufacture a liquid for your brand, all the IP created for that liquid, including formula and manufacturing methodology, is owned by the brand not the manufacturer. In Japan, this is not the case. In Japan, if you hire a brewery to make a beverage for your brand, it is standard for the brewery to retain ownership of the formula and methodology.

The deadly part of this potential misunderstanding is that, unless experienced counsel is involved in the negotiation, it’s common for both parties to fail to address IP ownership in their agreement. Everyone walks away from executing the agreement with opposite assumptions because of their cultures' standard business practices. The moral of the story is that in cross-cultural agreements both parties must identify the unstated terms of the agreement that they are relying on that come from their own culture’s standard legal and business practices. Then, parties need to make strategic choices about whether to explicitly state theses terms in the agreement.

These strategic choices can be quite difficult for American companies dealing with Japanese counter parties because of both the inferential nature of the Japanese language and because it is often considered rude in Japanese culture to ask direct questions, especially if the question is about something that is culturally standard. These strategic choices are just as difficult for Japanese parties dealing with American counter parties. How does one know which questions the American counter party is expecting you to ask, and how do you ask it directly enough without being rude?

It is also important to note that many Japanese beverage producers will choose to partner with American companies, importers, marketers, and distributors rather than deal with licensing and regulatory oversight in the American market. Not only will many of these agreements be mandatorily subject to American law, but they will also be critical to a beverage’s success in the American market.Therefore, the issue of effective cross-cultural negotiation and understanding will come up repeatedly.

Supply Chain Issues

One of the biggest issues facing companies that want to import Japanese alcoholic beverages, particularly traditional sake, is cold storage. In Japan, the entire sake supply chain is set up to keep sake refrigerated at about five degrees centigrade. While there are cold storage options in the American alcoholic beverage distribution and retail system, those options are just not available for mass market products that are sold for less than a few hundred dollars a bottle. What this means is that most sake sold in America will stay refrigerated in Japan and while being shipped to America (unless it’s the dead of winter). But once the sake is in the hands of distributors and retailers, it will be stored at ambient temperature.

For many traditional sake producers, the lack of cold storage in the American distribution network is a nonstarter. They just won’t ship it.  Understandably, sake brewing is a tradition that is over 1000 years old. Respect for the beverage, and the people, standards, and practices that make it is crucial to appreciating how a mixture of rice, water, kogi, and yeast can create the dazzling variety of flavors, aromas, and textures that one can find in sake. At the same time, American distributors and retailers have no interest in boiling, freezing, or otherwise ruining the beverages they are trying to sell. Ambient temperature does not mean that there is no climate control at all.

Arguably, America’s track record of handling vast quantities of extremely temperature sensitive wine shows that unless the circumstances are exceptional, ambient temperature storage does not ruin these beverages. However, little is known about how temperatures in the American supply chain effect traditional sakes. Such sakes are either not shipped or the blind taste tests that would be required to determine the effects of ambient temperature storage are perceived as disrespectful.

Government Permits and Approvals

Like any “food product” imported to the United States Japanese alcoholic beverages must get the standard approvals from US Customs and the Federal Food and Durg Administration. However, there are two additional systems of regulation that all alcoholic beverages must face:  federal regulation from the US Alcohol and Tabacco Trade and Tax Bureau[8] (the“TTB”), and regulation from individual state alcohol administrative agencies.[9] The particulars of which permits and licenses and who needs to hold them shift depending on how the supply chain and American business entities are set up. However, regardless of the particulars, if a product is distributed in every American state there will be approximately fifty state agencies plus the federal government that will have oversight of the product.

Federal Regulation:

There are three main requirements that Japanese alcoholic beverages need concern themselves with:

(1) import licensing[10] --- All alcohol brought into the United States must be imported pursuant to an importer’s permit issued by the TTB. Japanese companies have the option of either working with an American vendor that already possess a federal import license or if they are willing to undergo the necessary, ownership, financial, and criminal background checks, a Japanese company can obtain their own license from the TTB.

(2) liquid approvals[11]  --  Before an alcoholic beverage can be sold in the United States a sample of the imported liquid along with a detailed description of the manufacturing and bottling process must be submitted by the TTB license holder responsible for the product to a TTB lab. The TTB refers to this process as formula approval.

(3) label approval[12] --The TTB reviews and approves all labels on alcoholic beverages through their Certificate of Label Approval process (“COLA”). Each alcoholic beverage on the American market must have its label submitted to the TTB by a party holding a TTB license. The TTB will review the label to ensure that all government required warnings and information are included in English, and that any geographical certifications on the product are compliant with treaty requirements. The TTB will also require a translation of all foreign text on a label and will also review the general trade dress of the product to ensure that consumers are not mislead.  

While the above three steps may seem relatively straight forward, common-sense consumer protections, the reality for industry operators is that all three steps heavily rely on the judgment of whichever regulator gets assigned to an application. The regulator gets to decide if further investigation is needed based on a potential import licensee’s initial submissions.  It’s up to the regulator’s judgment as to whether the narrative you submit with your formula approval application adequately explains your methods of production. It’s up to the regulator’s judgment if your label or trade dress is somehow misleading to consumers or whether your geographic certifications are compliant with American treaty obligations.

In the United States, regulators often have great discretion. However, the difficulty facing Japanese beverages is that the TTB regulators will often lack some of most basic information about products like sake and shochu, and regarding Japan in general. In our experience, this lack of basic knowledge leads to heightened scrutiny on applications for Japanese beverages. Accordingly, it is extremely important that anyone obtaining federal approval for a Japanese alcoholic beverage be able to walk a regulator through the nuances of the beverage manufacturing process and more generally the nuances of the Japanese alcohol industry.  

State Regulation

In addition to the TTB, each state has their own alcohol regulatory agency.[13] Generally, states will refuse to issue any approval until all required federal approvals are issued.  The degree of oversight and licensing requirements vary dramatically depending on the state. That said, it is generally true that the states with large markets such as California, New York, and Texas, will have more oversight than smaller jurisdictions.

It’s important that Japanese alcohol producers understand that state regulators essentially have co-equal authority with federal regulators, as far as their own state is concerned. State regulators will often duplicate if not intensify the investigations done by the TTB. A state may also have additional requirements such as price posting, mandatory label language, additional licenses, and additional investigation disclosure. Moreover, one can expect that state regulators will also lack basic information on Japan and its alcoholic beverage industry. Accordingly, it’s very important that any plan to import a Japanese alcohol beverage include not only a strategy for obtaining federal approvals but also a strategy to obtain the subsequent state approvals.

Conclusion

This article is intended for informational proposes only and does not represent Rik Jeffery or Gibson & Jeffery LLP's formal opinion of law. Neither should this article be construed as legal advice. This article is based on various experiences our firm has had with different regulators and industry operators. While past experiences can be informative, they are not a guarantee of future results. The American alcohol industry and its oversight are constantly evolving. Gibson & Jeffery, LLP is happy to assist both Japanese and American companies looking to bring alcoholic beverages into American markets please contact us for an initial consultation.