Food and beverage producers and processors are usually very engaged in developing and producing great products. The task of getting them to the market can be a challenge and limit your company’s success. Distributors are in business to move products to retail or food service and they might be a necessity to get your products to your customers. This year we are helping you define different industry terms. We share insights into the terms and also how they are important to suppliers in the industry.
Distributors take possession of your products and then take them around to stores to re-sell. You ship your product to the distributor and then they create orders for stores or put your product on a truck to generate orders.
Distributors should be able to get your product on the shelf in independents and specialty channels. If you are using them to service stores that are part of a larger retail chain you will need to develop the head office relationship. Usually the distributor is focused on getting the product to the stores, not working with the office. Some larger distributors like UNFI will perform both functions. They have established relationships with retailers that can shorten the time it takes to get your product on the shelf. They should also have better insights into the opportunities for your products.
Advantages of distributors
Given that distributors take possession of your products, they have added incentive to sell your product. They have purchased it so they want to sell it. Most distributors focus on independents and specialty stores which is where they have the best chance of getting products on the shelf. Many distributors also focus on specific departments where they have an expertise and relationships in retail. Specialty stores and independents are looking for different items from the big players and the volume is usually lower so a distributor is the best choice for selection and efficient distribution. People working in the stores like it because one truck can supply several items and it is one invoice. Dealing with every supplier in small orders is time consuming and take focus away from the retail floor.
Distributors have established relationships with the stores. As we discussed last week with brokers, they act as a gate keeper to only bring in items they see have a good chance at sales. They do not want to buy inventory that will be hard to move. Often distributors will be more excited to work with products that have established some volume in the market. An example would be a company in the Sobeys local program that is doing their own distribution to learn and build their volume. There will be more buy in with the distributor if you can prove you are selling 20 units per store per week.
Most distributors will charge 20-25% for shelf stable products and 25-35% for refrigerated or frozen. Distributors operate on a margin. You will sell your product to them for a delivered price to their warehouse then they will apply the margin to the product and sell to retailers or food service. If you are in the Sobeys local program and you are selling to Sobeys for 4.00 per unit, and you want to use a distributor you will need to sell to the distributor for 3.00 (assuming distributor margin is 25%). The retailer will never pay more because you are using a distributor. This is a consideration when calculating your selling price in the Sobeys local program. You might be comfortable doing distribution to 6-7 stores and not allocate enough to really pay for distribution. Hopefully your volume will grow and you will need to allow for some form of distribution. This is once significant cost processors do not account for when they do their own distribution. It takes a lot of time and there are a lot of costs to having vehicles on the road, especially with the price of gas.
Read the distributor’s agreement carefully. They will expect you to invest to grow the volume. Examples of investments are free fill (free case of each SKU in every store), specials, markdowns etc etc. These fees or charges can erode your profit very quickly. They come out of your pocket, not theirs. These fees are on top of the margin they make. They will deduct the charges, so you never have a chance to even argue about it.
Distributors will not develop sales and marketing programs for your products. The good ones will implement them. They can provide perspective on what will be needed for retail programs (free fill, discounts, demos, o&a etc etc) but they will not build your budget. You still have to do that. Their focus is to move your product from their warehouse to many stores, as efficiently as possible and generate sales.
Finding a distributor
To find a distributor search for companies that want to grow the volume the same way you do. You need to find people who have the relationships where you need them. Geography is important. They need to cover the part of the retail/food service world you want to sell into.
Ask retailers about distributors. Ultimately, they will determine if your product makes it, so the best chance is with a distributor they want to work with. Similar to checking references before you hire a person, check references for potential distributors.
If they come looking for you that is not always a good thing. It is more important to find the right distributor with relationships where you need them.
Once you narrow the list be very clear about fees. You need to make sure you can budget for everything. It will never be less than you plan. Be very clear about the reporting you will receive. You need to know what is selling when and where. This is the only way you can determine if it is working. Plan to go to some of the calls with the distributor. Retailers want to know who you are so do not put all your faith with the distributor.
Distributors can be valuable in your business, but they need to be the right ones, or they will cause you more work. They are the face of your brand to your customers, so you need to be confident they are representing you properly. They can be important components of a successful business, but they do not replace the work you must do in sales and marketing.
If you have any questions or require help finding or working with distributors, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
How well does your packaging stand out?
Is it true I am talking about work too much when my daughters start sending me examples of packaging? I am hoping it means they are interested! This example of unique packaging comes from my daughter Georgia and obviously it resonated with her.
We talk a lot about how you can stand out on the shelf. Packaging is so important. This idea does stand out but do not depend on your retailers to put it on the shelf in the right order. If you are doing display ready pallets you can pack it on there in the right order.
Interesting to see the comment the person would want the different versions
Large CPG companies changing ingredients due to shortages
It can take a long time and significant investments in packaging to get a product just right. With many processors facing shortages and changes in consumer perception Unilever is reacting. They are being forced to consider alternative ingredients.
Suppliers do need to assess if they will get all of the ingredients they need. If you risk your ability to fulfill orders it is advisable to consider options. It can be very difficult and time consuming to make these changes so better to start ahead of when they are really needed.
Some valuable information for food processors from FCC. JP Gervais is very knowledgeable but he also has a way to explain these things that we can all understand! I know I will be watching
When is Peter speaking?
United States Department of Agriculture- June 28
Ecommerce in the Canadian Food Industry
