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Role of DistributorPresent/Sell to Customers
Deliver to Customers
Collect Money From Customers
Merchandise Products
Place/Manage POS
Secure Multiple Locations
Place/Manage Equipment
Manufacturer
Wholesaler/Distributor
Retailer
Consumer
What are DistributorsLooking For?
Ingredients
Calories/Fat
Consumer and Retailer Demand
Pricing and Promotional Strategy
Uniqueness
Product Appeal
Margin
Sales Support
Exclusivity
Buyout
Recommendations for PresentingNew Items to a Distributor
Full year recommended promotional and incentive calendar by month
PUSH
Full year recommended promotional calendar by channel
PULL
How you are going to get the word out about your product (demos, social networking, consumer sweepstakes and promotions, advertising, public relations, guerrilla, etc.)
Make sure you can concisely present your strategy in an easily understandable manner
What you are going to do for the distributor and the amount of money they can make selling your product
Distributor ProgramsPromotional Programs—ex. Buy X Get Y free or 15% off per case
Incentive Programs/SPIFFS Can be targeted at distributor sales force, sales management, or distributor themselves
Ad/Catalog Fees
Types of Promotions
Off Invoice
Billback
Manufacturer’s Chargeback (MCB)
Case Stack Deals
Scan Down
Hip Pocket Deals
Coupons
Incentive Programs
Be Prepared to Answer Questions
Consumer Research or testing
Shelf life and spoils policy
Payment terms
Order lead times and minimums
Delivered or Pick Up Price
Exclusivity
Where should it be placed?
Case/Unit Cost
Suggested Wholesale
Suggested Retail
Budgeting and PlanningDevelop Sales slowly 1 Region at a
time/Contiguous Work out the kinks
Logistics Warehousing and
shipping Accounting and
collections Tracking sales by
account when possible Understanding where your
product sells best and focus on that channel
Contiguous market Expansion Understand when you can
afford to go bi coastal Don’t Underestimate freight
Conservative sales projections Need to make sense
First round budget for extra marketing and expenses Compare to reasonable sales
and eliminate what you can’t afford Nice to have vs. Need to
have
The devil is in the details…
Success is in the systems
How Much Money
Will I Need?Realistically $3M-$5M
A little less for a brand almost exclusively focused on the natural and gourmet channels
Don’t need it all upfront but probably need close $500k to really get started
Friends and family are the best route to raise capital
Venture capital is the next best but they will want a lower valuation and a larger portion of the company
They usually want to see $5M-$10M in sales before they are interested in looking at a brand
However, if you have something that is breakthrough they will speak to you sooner
Strategics follow Venture Capital. They will traditionally want to see more sales than a VC, but if they are interested they can help you in a lot more ways than just capital
Purchasing Power
Logistics Costs
Have an exit plan in mind before raising capital
You don’t have to sell the company, but investors want to know how they are going to get their money out
Have a plan
Margins and Pricing
DSD
30%-33%
Grocery
33%-35%40%-44% for
WFM, FM
GroceryProduce or Dairy
Natural Foods Distributor
45%-55%
C-Store
25%-35%
40%-50%
Drug
45%-50%
Club
11%-13%
Manufacturer Gross Profit Target = 45%
6%-8%*
Major Natural Food and Gourmet Chains work on 40% - 44% Margin
Gross MarginGross Margin is defined as the difference between the costs (COGS) related to manufacturing your product and the price that you sell the product for
Is freight a part of COGS?
Margin or MarkupWhat is the difference?
Retailer Margin = Selling Price–CostSelling Price
Retailer Markup = Selling Price – PriceCost
Margin vs. MarkupMargin: If a product costs $2.00 and sells for $3.00
($3.00-$2.00)/$3.00 = 33% Margin
Markup: If a product costs $2.00 and sells for $3.00
($3.00-$2.00)/$2.00 = 50% Markup
Understand the Difference
Build a Sales Organization
• Product• Pricing• Placement• Price• Promotion• POS
• It rarely works the same exact way twice
• No Re-treads• Make sure this is
a symbiotic relationship
• Add structure where necessary
• Start Slow• Need Industry
Execs/Counsel• Keep things
fresh
Entrepreneur Industry Execs
Blocking and Tackling Consistent
No Cookie Cutter
BrokersNatural—separate subject
Helpful in grocery, mass, and drug channels
May interfere with DSD
Usually 3%-5% commission based on volumeSome require minimum monthly retainers
Natural Food Brokers
Necessary for the Natural Food Channel!
Need to be reinforced, at some point, with additional merchandisers
Retainer and Commission
Make Wholesaler
Calls
Make Key Account HQ
Calls
Make In Store CallsBuild Displays
Book Promotions
Channel Strategy
Decide which channels you want to conquer and in what order
There are ramifications to each strategy you need to understand before moving forward
Various channels Independents Food service Convenience Grocery Drug Mass merchandisers Club Vending
Natural, Specialtyand DSD distributors
Hybrid or not?Tough call
You can’t service the entire country and every account exclusively with either DSD, Specialty, or natural distributors
DSD understandably wants exclusivity and protection DSD is very expensive Don’t want to build a brand and lose it after all their hard
work is done and they are finally reaping the benefits
Certain key accounts have “Preferred Vendors” Overall, Depending on the Product, a hybrid system may be necessary.
Yet very few beverage companies can sustain themselves long term with sales exclusively from natural and gourmet retailers. Most beverage companies will want to transition to DSD.
Need to Know About DistributorsDistributors have many brands and you are just a small part
Running a distributorship is expensive
They bring products from their warehouse to the account
Until your brand begins proof of performance, and it will take some time, you need feet on the street to support large distributors
Most will not coop costs until have proof of concept in their market
They can be very powerful once you get them started. Nothing beats the strength of a good DSD system
Need price promotions and incentives
Explain to them monthly what they have achieved and what you want them to do the next month/quarter
Focus, focus, focus
DSD ContractExclusivity
Perpetuity vs. Term
2-4x gross profit for the past 12 months minimum
Invasion Fee
Manpower and marketing commitments
Advice: hire an attorney that specializes in the beverage industry
What Happens If I Can Not Find a DSD Distributor?Think completely out of the box
Search the internet for “distributors”
Other types of distributors Dairy Produce Vending Snack Distributors Etc.
Trade PromotionsTrade promotions are developed to spark consumer trial and awareness in the beginning and to increase frequency of purchase as your brand becomes larger
Poor promotions have poor results
Promotions that are two “rich” will break you.
Speak to your distributor or customer and ask them what has worked in the past and what they recommend for your brand at your sales level
Do not fall pray to the $10 for $10 promotions too often (If ever). Only the big boys can afford this.
Do not run so many promotions or so deep a promotion that you train your consumer to only purchase you when you are on sale
Push vs. pull promotions
Some promotions are designed to get the customer to put you on their shelf, expand the number of your skus they are selling, gain better shelf position, or to secure a display. These are called “Push” Promotions
Promotions that are targeting the consumer are called “Pull” promotions because you want the consumer to “pull” your Product off the shelf.
Managing Trade FundsDon’t expect what you don’t inspect
Make sure you or your accounting folks know each and every promise that your people make to customers.
Track these expenses first by asking your sales people for a sales projection and cost per case before they offer it to a customer.
Make them write it down and submit it for approval
It is critical that these expenses are captured accurately and entered into the G & L correctly
Use the promises and the actual results, as learning opportunities
If something is successful do it again. Success breeds more success
If something is not working well do not run it again, learn from the mistakes and tweak it for the future.
Tracking, tracking, tracking
Analyzing results, analyzing results, analyzing results
Branding and Positioning
The Importance of Syndicated Data
Syndicated data is import because it allows you to prepare for your sales call
It adds credibility to what you are saying Everyone says their brand is on fire
Tells your story
SPINS.COM
More Information
www.cascadiamanagingbrands.com
www.bevnet.com
www.SPINS.com
www.gglaw.us
www.amintalati.com
The EndThis is not a difficult business. Do not make it more complicated than it needs to be;
If you don’t know something, ask for help;
Entrepreneurs need expert assistance as much as expert assistance needs Entrepreneurs;
Focus like a laser beam;
Don’t give up;
Don’t let anyone talk you out of achieving your goals
201.760.9019
