Pop Quiz - and, yes, we’re starting with a quiz. How many CPG brands launch a product that fails within the first two years of business?
If your answer was “a lot”. You’d be correct. In fact, the majority of products fail within the first two years - 85% to be exact.
But that’s just because the product was bad, right? Right?
One of the biggest issues brands have when trying to launch a product in the CPG and Natural Food Industry is setting up a Distribution strategy that works for their unique product.
Large distributors like KeHe and UNFI aren’t connected to your brand’s story or vision. It’s just a numbers game. Will your product make them money?
And, pitching your product to them is only the first hurdle to get over. Once you get them on board to work with you, there’s many more hurdles to come.
Unfortunately, creating a Distribution strategy that will work for your brand isn’t a “one size fits all” approach.
But that doesn’t mean there’s nothing you can do about it.
In this article, we’ll go over:
The Different Channels of Distribution
As your brand considers which natural food distributor to choose, it’s helpful to know that there are two main buckets of distribution:
National - The biggest, and most widely known are UNFI and KeHe. With distribution centers all across the U.S., they have established relationships with major grocery chains like Sprouts, Whole Foods, and Safeway.
Regional – These are smaller distribution pockets that are driven by region and have their own distribution centers. They are concentrated in places like the Northeast, the Midwest, SoPac, the South and so on.
Which Channel is Right for My Brand?
At Dirty Hands, we usually suggest that Emerging Brands aim for regional distribution at launch. There’s no such thing as starting “too small” when it comes to Distribution. However, starting too big is a mistake most brands can’t afford to make.
Regional distribution is a great place to start because those distribution channels are a more accessible, less expensive way to get into distribution.
Things to Know Before Signing the Dotted Line
Take into account the amount of funding you have and what growth phase you’re in (emerging, established, etc.) . Funding is probably the most important factor to consider when choosing a distributor.
Guard against setting up too big, understanding that there will always be room to grow. While you may want to sell your products in all the major chains, your brand may not be ready for the level of intensity that level of distribution requires. Starting off too big can overwhelm/bankrupt a brand.
Understand what promotional tools to use within a distributor. These promotional tools keep your products moving within the distributor and help grow the distribution of your brand’s products.
Understand the different forms of ad agreements. There are a variety of agreements, but they typically involve brands paying a sum of money upfront in exchange for discounted fees.
Be prepared for the variety of fees and upfront costs to avoid chargebacks down the line. It’s important to set up billing so that going forward, the fees don’t continue to grow as your brand does.
The Common Challenges Brands Face When Setting Up Distribution
Dealing with an Unpredictable Supply Chain: Brands will need to consider: how this will impact when their products can get to market, the timing for purchase orders (POs), and how to minimize out-of-stock issues. These things can vary and are subject to change depending on the distributor.
Distributor Spending: This includes a variety of fees, including OIs (off-invoices). OI is the amount expected to be discounted from invoices. OI is typically 15% and is deducted from the invoice.
MCBs: Manufacturer Chargebacks are one of the most common deductions from a distributor for running brand promotions at a retailer. Chargebacks are the percentage amounts discounted off of items scanned at full wholesale price (which the brand won’t see the charge for until 3 months down the line - surprise!)
Marketing Fees: These give brands access to data and other marketing projects, like space in Circulars and Expo’s.
Timing of Payment: How the timing of payment from distributors will impact the brands’ operations. Payments from distributors can take from 45 to 60 days. This lag time in payment can negatively impact brands that aren’t prepared for it.
What are the Alternatives?
Distribution is a complex process that is integral to your business operations and critical to the success of your brand. Beyond being the means by which your brand is able to sell and deliver goods to retailers, who are then able to sell your products to customers, it’s also a way of setting the financial foundation of your brand. An effective distribution strategy for your brand allows you to make and save money, while allowing you to allocate more attention to other areas of your business.
With distributors shipping more SKUs than at any point in the past, it’s important for brands to establish strong retail relationships. Having strong retail relationships positively impacts the entire distribution process. It raises the quality of service a brand receives, saves the brand money, and minimizes the issues that can ultimately result in a loss of sales.
To give your business the best advantage, it may be helpful to work with a brokerage to help you set up and manage channels of distribution for your brand. A good broker can serve as a valuable business consultant because they typically have good retail relationships that can provide you with valuable feedback from both retailers and customers. This data can help you adjust and fine-tune aspects of your business that aren’t working as well as they could, and enhance the elements that are.
Not All Brokerages Are Created Equal
The word “brokerage” has almost become as tainted as the term “used car salesmen”. You hear it and your guard immediately goes up.
But not all brokers are bad (and not all used car salesmen are bad). So, how can you pick out the good apples from the bad ones?
Try taking a deeper look into their portfolio:
A good brokerage focuses on the long-term goals. A bad brokerage focuses on the short-term gains.
A good brokerage has deep-rooted relationships with distributors and team members at stores. A bad brokerage will pressure people that they have no relationship with and stifle a brand’s potential.
Finding the right brokerage for your brand can be a challenge. But it’s a worthwhile endeavor. A good brokerage will do all of the heavy lifting and help you:
Select the best distribution channels
Set up distribution effectively
Figure out what promotional tools to use within a distributor
Grow within a distributor
Plan out distribution goals
Sell items that are already in distribution
Gain commitments from retailers if you are looking to get distribution
Though it may seem costly, the ability of a good brokerage to help your brand thrive and grow is often well worth the expense. Though they serve multiple brands, a good choice for a broker is one that manages limited portfolios. A brokerage that serves a limited number of brands with dedicated teams helps ensure that your brand will get the high-quality care and attention it needs to flourish.
If you think your brand could use a hand, schedule a consultation with us today.