The last step in distribution is the shortest, it is also the toughest to get right
Developing and producing food and beverage products is very challenging. Getting them to the market can be more difficult and definitely more frustrating.
We get asked often about distribution.
How do I find a distributor?
How do I work with a distributor?
Can we have more than 1 distributor?
All good questions and there is no one size fits all answer. You need to understand what you are looking for and assess the options in your market.
Distribution is a 3 step process
After you have done the work to get your product produced and packaged, if you are selling in retail, you need to get it to consumers. You have 3 steps to get there:
1. Get the product from your production facility into a distribution network.
2. Get the product to the store
3. Get the product to the shelf.
Step 1- Getting into a distribution network
For this step you have some choices. You could develop your own network, work with a distributor or take your product to the retailer’s warehouse. You do not always have the three options and it can start with your own distribution and evolve into the retailer’s warehouse as your volume grows.
Doing your own distribution requires a lot of coordination and you have to pursue orders. You cannot sit back and wait for them to call. Stores are managing tens of thousands of SKUS and it is easier to face over your space than track you down for another case. Many retailers are using auto replenishment, which means ‘the system’ will order for them. Once the on-hand inventory falls below a certain number the system will generate an order to the warehouse and the product will show up on a truck. If you are doing direct store distribution you usually have to visit stores, assess the inventory level and get the approval to deliver product. Stores are much less focused on ordering products than they used to be. You need to do this work for them.
Distributors can be an effective option to reach a lot of stores. They should have the relationships at store level to get your product into the store. Many will specialize in one department such as produce or natural food products. They will charge you a fee based on the volume they distribute.
Make sure you have a good agreement with your distributor, so it is clear what each business is responsible for. You also want to have a common view of how to build the business. They will be eager to spend your money in manufacturers charge backs (MCB). You need to agree on how much is realistic and what the return on these investments should be.
There are many sizes of distributors. Large national companies who list thousands of items and small regional operators. Find the best fit for your business. If you are a regional brand a national distributor will hit all of the stores but your product will not be on their top 10 list. As your business grows they might be the best option but not at the beginning.
Retailers see their own distribution network as the most efficient. They want the trucks to be full and their own deliveries are given priority at the back door of the store. If you are in their warehouse you are probably in the plan o gram which means you have a dedicated spot on the shelf.
Unfortunately, retailer’s warehouses have become a place where retailers try to earn money. They have very specific standards for products being shipped in. Make sure you understand them and understand the consequences if you do not deliver it how they want it. You should also stand up to them if they are not being fair. This is one area where you might have to defend your business if they are trying to assign fines that are not fair or justified.
Step 2- Getting to the store
Once your product is into the distribution network, it needs to get to the store. You should never assume because you have got it ‘into the network’ things will be smooth. The larger the network the more they probably rely on systems to manage the work. That means data integrity and bar codes and correct item set up.
If you are doing direct store delivery (DSD) you need to set up a schedule to generate orders and deliver products. Some stores will turn inventory faster than others and might require more frequent deliveries. Some retailers will limit the time you can visit and have a defined process for visiting the store and bringing product in. Understand their rules, it is their store. Do not underestimate the cost of doing your own distribution.
For companies using a distributor, you need to check to ensure they are generating the orders and keeping the stores in stock with the right amount of inventory. Resources at distributors are limited, just like everywhere else. They will focus on high volume items that pay the bills. We recommend you ride along with your distributor from time to time to see how they are doing and how they are received at store level.
Retailer’s warehouses can be efficient, but they are also very data driven. Everything needs to be set up correctly to move through the system. Track first orders into and out of these facilities. If you have a pack size change or any other alteration to your product or case follow the trail of inventory carefully.
You can develop relationships with warehouse people. They are not going to negotiate cost of goods or put you in the ad, but they can have a big impact on how things go for your items, especially in fresh departments.
Step 2- Getting to the shelf
As we said earlier, this is the shortest distance but the toughest to get right. Once your product gets in the store it has to get to the shelf. If it does not get to the shelf, all of the hard work and money you have spent will be wasted.
You will be judged by your ability to ensure the product gets to the shelf.
Consumers cannot buy your product if it is out of stock, out back or on the top shelf in back stock inventory.
You should be auditing the shelf to ensure you have a good in stock position… Regardless of the methods you choose in step 1 and 2, you need to monitor the shelf. This is tedious work and some would say ‘not my job’ but it is very important.
One would think retailers would want the shelf full and maximize the sales opportunity. This is true, in theory. Reality is they have thousands of items to manage and similar to distributors they will focus on the high volume, high profile items. Yes, if Tide or Coke is empty on the shelf they will notice. If your product, that has 1 or 2 facings is missing they will move on.
Next week we will dedicate the newsletter to step 3, getting on the shelf. There is lots to talk about to ensure you have the right in stock position and maximize the sales opportunity.
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.
In this episode, we're thrilled to feature Ameen Fadel, Cofounder and President of Cedar Valley, a Canadian food manufacturer known for its authentic style pita chips made with better-for-you ingredients.
Ameen's entrepreneurial journey began at just 16 years old as a high school project. Together with his mother, he has transformed Cedar Valley into a fast-growing business, employing 16 people at their 5000 sq ft facility in Windsor, Ontario. The company has gained national recognition, appearing on CBC’s Dragons’ Den and earning accolades from TELUS Business, Desjardins, and the Food Network.
Recently named to Forbes 30 Under 30, Class of 2024, Ameen continues to drive Cedar Valley's success. Join us as Ameen shares his inspiring story, insights into building a successful food brand, and strategies for navigating the challenges of the industry. Whether you're an aspiring entrepreneur or a seasoned business owner, this episode is packed with valuable lessons and inspiration for achieving success in the food sector.
Customers are having an impact
Some of the largest consumer packaged goods (CPG) companies are being forced to react to consumers fed up with package downsizing. Although these are U.S. based numbers it is scary to see how much these products have increased in price per volume. Perhaps Loblaw had some justification when they pulled chips off the shelf? We will never know but it is tough to justify these increases.
Good to see consumers shifting their buying behaviour to impact change.
I do have travel coming up to Calgary, Saskatoon, Winnipeg, Vancouver and Lethbridge so if you want to connect or have an even in any of these locations give me a call or send me an email.
