Every industry has their own language and it can be a challenge to really understand some of the terms. Google can provide definitions, but it does not always help you understand the pros and cons or the reason for one option vs. another. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
D.S.D. or Direct Store Delivery
This is a term I would use a lot and many times people will ask me, “What is DSD?”
There are two ways a product gets to a retail store-
1) Warehouse distribution-The product is shipped to the retailer’s warehouse, received and goes back out on a truck, usually owned or operated by the retailer, for delivery to the store. This is more common with large suppliers where full pallets and trailer loads of product can be shipped to a warehouse and then distributed to stores. This should be the most efficient method of distribution in that freight is optimized into the warehouse and then the same is true when the truck is sent to the store.
2) Direct store delivery or D.S.D.- We see this happening more with smaller suppliers, short shelf-life products or products that sell lower volumes. There are some huge companies such as Coca Cola, Hostess and Canada Bread that employ a DSD model. Anything that is not shipped through the retailer’s own distribution network is referred to as D.S.D.
There are benefits and challenges with D.S.D.
Benefits of D.S.D. are:
You know exactly what is going into and selling in each store. This is very valuable information that you can use to assess your results. It does take some investment in resources, but you can determine your sales per week or per month per store. This should be one of the most important numbers in your business to determine if you are being successful or not. Set targets for sales per store and measure the results. If your products are distributed via the warehouse, you know what you ship in there but have no idea where is goes and when. This can be very challenging to assess performance and you are at the mercy of the customer to ship it out on time for that big holiday weekend promotion.
If you are selling D.S.D. you will know what is happening at retail. This is very valuable to assess the performance of your products. You will also be in the stores to see what is happening in the category and with your competition. You can track promotions and really try to assess the category. We can say we will visit the stores but often it gets pushed to the bottom of the to do list and we do not get ‘out there’ as much as we should. Your contacts at the retailer might tell you your products will be on a certain shelf but that is not always reality at retail. Never assume it will happen. When you are in the stores you can check and even make sure the price is what you expect it to be.
When you are doing D.S.D. you can develop relationships with people in the stores. They can be very valuable to you as you grow your brand. They are there every week, talking to consumers and hearing the good and bad about your products. They know if there are returns or if you keep running out of stock because demand is high. They can also be great advocates if they understand and like your product. Never under estimate how much the people working in the store can teach you and help you.
When you are in the stores often you can add things to your products or the shelf to help sales. You should always confirm your customer is positive about the program you plan to implement. Many times, with smaller suppliers they will be more reasonable whereas with larger companies they see it as a revenue opportunity. In other words, they will charge you to put up signs or recipes. You must be careful not to make the shelf look cluttered or impact other supplier’s products with your POS. If you are incurring the expense of visiting the stores you can find opportunities to add POS where approved.
Challenges of D.S.D are:
It is very expensive. It can be very exciting to get access to the shelf but it is also very costly to visit stores across a broad geography and take the time to re-stock each shelf. There are options such as distributors who will buy your product and re-sell to retailers. They employ a D.S.D. model as well. In the early stages of a product’s growth entrepreneurs will see this as ‘their time’ and not really determine the cost of distribution. We recommend you should consider between 20 and 25% of your delivered price for distribution. In other words if you are selling your product to a retailer for $3.00 then .50 - .60 per unit should be built into your selling price for distribution.
It can be very time consuming. If you are in an urban market, stores will be closer together, but you will have to deal with traffic and if you are in a rural market, you will have longer distances to travel between stores. It just takes time and if you plan to talk to people in the stores and develop relationships this can take a lot of hours.
D.S.D. can get monotonous. There is lots to do but after a while the excitement of visiting stores when you have to is different. Our experience has been that people are full of ideas and excitement in the early stages. The stores can wear you down. They are not always receptive and you can travel a considerable distance to find out the department manager is off that day and there is no one to help you.
Often D.S.D. is your only route to the shelf at the beginning. It is best when you plan for it, share the workload if you can and really learn from your results.
If you have any questions or require help with any other terms, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
As we start into the new year we are going to focus on some terms in the food and beverage world for upcoming weeks. I am going to select a different term each week and give you a good definition and also some insights into why it could be important for your business. If there are any terms you would like me to focus on just let me know.
If you see things happening let us know so we can share them with our community. We also want to hear if you find this helpful and benefits your food and beverage business!
Sustainability impacts more than food and beverage
Sometimes we focus so much on our own industry we forget trends impacting food and beverage impact other sectors. It is very interesting to see how much sustainability and environmental impact affect the purchases of clothing.
When is Peter speaking?
Food & Beverage Atlantic Masterclass
Sales & Marketing for your food business Jan 12-Feb 16
A weekly course with Norm Purdy and Al Archibald