Assess the risk and return of your customer mix
It is very easy to get very busy in the food and beverage business. You are trying to accomplish many things and get the job done. You have heard us say “Any shelf is not the right shelf”, where we challenge you to focus on the right stores, where your products have the best chance for success. This week we want you to take a step back and look at your customer mix. Who are you selling to and what is the return?
It is common for food and beverage producers and processors to get focused on one channel or one segment of this industry. It can be beneficial to develop great execution in one channel. Your salespeople develop the contacts and become very good at this sales process. You should consider the options. You do have options:
Selling direct
- Your own store front
- Markets
Online
- Direct
- Online marketplace
Retail
- Specialty stores
- Conventional food retail
- Mass markets
- Club stores
- Discount stores
- Dollar stores
- Drug stores
Food service
- Quick service restaurant
- Casual theme
- Independents
- White tablecloth/fine dining
Institutional
- Ingredients
Benefits of selling into different channels
There are a number of benefits when you have the ability to sell into different channels. Some drive topline sales and some will allow you to increase your profits.
Better saleable yield-Often different channels have different requirements or expectations for product quality, size or visual appeal. If you produce fresh produce usually high end specialty stores and conventional retailers will be looking for the best you have. Discount stores and processors (buying ingredients) are less concerned about the look. The more you can sell, after you have all of the costs of production and harvesting, the better your bottom line should be.
Reduced risk-When you have a large proportion of your sales into one channel and something unpredictable happens your business can be impacted, even though you did everything right. Certainly there were not many to predict the pandemic but food producers and processors who were selling into different channels were better than those exclusive with food service.
Logistics savings-If you can fill half a truck for a retail customer and half a truck for an institutional customer, and the warehouses are close you can win. This can require some work to coordinate but in the end your freight costs per unit can be better which is a win for you and your customers.
Better overall sales-We used to say in retail “sales hide a lot of sins”. When you can spread fixed costs over better sales, because you find more customers for existing or slightly different products you should win.
More dependable volume-Many food and beverage companies we work with sell into retail. There is a lot of competition and you need to satisfy two stakeholders; retailers and consumers. If you sell products as an ingredient, you sell to one customer. When you make the sale and they are happy, the purchase orders should keep coming. You do not have to build demand with consumers. Customers buying ingredients are knowledgeable and have specific expectations. There is competition but unless there is a reason to switch, these customers are more likely to stay with you if it is working well.
Buy local-We know consumers want to buy local, governments do too. They control significant food and beverage purchases for health care, education, incarceration and other government funded operations. Many are looking for the opportunity to tell voters how they were able to support industry in their own province.
More profitable SKUS-Selling into different channels can provide the opportunity to change formulations, sizes or other variables to deliver more profit. When you can find the right fit with a customer in a different channel they might want larger sizes with no consumer packaging. This can change the economic model of an item and deliver a better bottom line.
Downside of selling into different channels
We have quite a few benefits, but we also need to be realistic. Customers in different channels have different requirements. It is not that easy to just create some food service options and go to some trade shows.
Increased complexity-Operating your business right now is probably a challenge. Different channels will have different requirements, different packaging etc. etc. Every time you add more complexity to your business it can increase costs and reduce your ability to execute for existing customers.
Reduced focus-This business is a tough business. To succeed you need to be good at what you do and deliver for your customers. If you are running all over trying to keep several very different customers happy you run the risk of keeping nobody happy. This is also true for your employees.
Do not assume success is transferable-Each channel has a unique sales process. If you are selling into retail, you need to create demand for your products with consumers and convince retailers to put it on the shelf. We would call this a push strategy. In food service you need to get restaurants wanting your product and telling their food service distributor to list the item. This is a pull strategy. Very different and you need to be prepared to sell differently.
Increased costs-Complexity and more people add up to increased costs. Selling into a different channel might require investments to build your reputation and your volume.
A complicated financial picture-When you add different product lines and more people it can be challenging to really understand what is happening in the business. One product might be much more profitable and you cannot tell because the financial picture is not clear.
Autopilot is not an option-When sales opportunities present themselves and companies respond this is great. Make sure you learn how to sell into the channel and put the right resources on it. If you don’t the opportunity might be gone as fast as it appeared.
Work on your business
It is great to be busy working in your business. You have to remember to work on the business too. This includes a review of where you are selling and if there are opportunities in other channels. Every business is unique and you need to understand the best options to optimize your results.
Peter
SKUFood Recipes for Success Podcast
The response to our SKUFood Recipe for Success podcast has been great. We want to thank everyone who has been with us as a guest. So many interesting conversations about our industry.
The story of Cedar Valley Selections is a great one. You might have seen them on Dragon’s Den. I was fortunate to meet Ameen and Surria a number of years ago when I did a workshop for the Windsor Essex Small Business Centre. They were just starting and Ameen asked a lot of questions!
If you would like to be a guest send us a note. We are always working on the upcoming episodes.
Sobeys reports results
Canada’s second largest food retailer just reported their Q4 and full year results. They have finally decided their e-commerce model was not working. The partnership with Ocado has been terminated and they will implement a new vision of the Voila segment of the business. I think most people would agree the e-commerce offering at their competitors has been stronger since the growth experienced during the pandemic.
E-commerce grabbed the headline but the number I see as a challenge is same store sales. They reported a -.3% same store sales number in their fourth quarter. We know food inflation has subsided, but it is still positive and the Canadian population is growing fast. This should lead to positive same store sales numbers. When they eliminate fuel sales this number changes to +.2 which is still a concern. Farm Boy and Longos and even discount are smaller proportions of the total but it probably means same store sales in Sobeys/Safeway are down. They will have to get this fixed.
