Distributing Your Product

In order to get your product to the consumer, you have to go through certain distribution channels-the paths that your goods, and title to the goods, follow.

Distribution channels serve various functions, including:

• reducing the number of marketplace contacts and resulting in a more efficient system;
• matching the requirements of individual consumers to the outputs of various producers;
• standardizing to improve the efficiency of the system;
• holding inventory to increase market response and lower transportation costs;
• physical distribution of products to ensure that they are available for customers to purchase on demand.

It's important to build good relationships with your distribution channels; remember that they are acting as "babysitters" for parts of your business that you aren't interested in focusing on. For example, a retail chain partner acts as your retailing arm to consumers.

The following terms are used in relation to distribution channels:

• Direct selling occurs when you sell products directly to consumers. Methods include catalogues, home parties, door-to-door selling, telephone sales and retail craft shows.
• Indirect selling occurs when you sell to an intermediary, as opposed to an end user. Methods of indirect sales include selling your product to a retail store as well as using a wholesaler/distributor or broker/agent. Indirect sales can include club chains, hotels and institutions as well as any kind of retail shop.
• Wholesaler and distributor are two different terms used to describe the same distribution channel. A wholesaler/distributor buys products from producers and normally sells the goods to retail stores.

When you use a wholesaler/distributor, you must still convince each individual store to stock the product. That's why it's best to use this distribution channel when you have detailed information about retailers or previous sales experience. A wholesaler or distributor usually represents complementary products and takes title of the goods. In most cases, you will be responsible for advertising and for getting listed with retail chains. However, a distributor may share some responsibility for promotions, especially for smaller retailers.

• Broker and agent are two different terms used to describe the same distribution channel. Unlike the wholesaler/distributor, a broker/agent doesn't take title of products. Instead, he or she provides a sales force to sell your goods for you. You may want to use this distribution channel if your product falls into a mainstream category such as frozen food, dry grocery, deli or beverage.

When you're making decisions about direct selling/indirect selling, broker/agent or wholesaler/distributor, look at competitor practices and consumer needs.

You don't always have a choice about distribution channels; industry norms often determine which channels you have to use. For example, large retailers (grocery chains, department stores and club chains) may prefer to purchase exclusively through wholesalers/distributors and agents/brokers

Types of Distribution Channels

Seven distribution channels are available for food companies.

Direct Channel

Producer to End User:

• This is preferable when technical specifications or rigorous performance requirements apply.
• The volume of the product delivered to a customer must be of an economic delivery size so that freight isn't a penalty, or of such value that transportation costs don't matter.

The One-Step Channel (Consumer Markets)

Producer to Retailer to End User:

• In consumer markets, the intermediary is usually a retailer.
• You negotiate directly with the buyer for the retail chain.

The One-Step Channel (Hotels, Restaurants and Institutions-HRI Trade)

Producer to Wholesaler to End User:

• The wholesaler takes title to the goods that are being handled.
• The wholesaler's sales force is responsible for selling to the end user.
• The wholesaler can reach hundreds of HRI accounts more economically than the producer can.

The Agent Channel (HRI Trade)

Producer to Agent/Broker to Industrial User:

• The agent becomes your sales force, making the sale but never taking title to the product.

Traditional Small Retail Channel (Consumer Markets)

Producer to Wholesaler to Retailer to End User:

• This channel is used by small processors who are producing limited lines of products and trying to sell to small retailers.

Agent/Wholesaler Channel (HRI Trade)

Producer to Agent/Broker to Wholesaler to End User:

• Use this channel if you are attempting to market a product into a new market area.
• An agent/broker familiar in the new market is used.

All-Aboard Channel

Producer to Agent/Broker to Wholesaler to Retailer to End User:

• This channel is used when products are produced by a large number of small companies that then use a broker to bring buyer and seller together.
• The broker is an independent sales force used to contact large, scattered wholesalers.
• This channel is also used if your product can deteriorate and you must find a buyer quickly.

Building a Customer Base

You can go to a number of sources to develop a list of potential customers for your product. These contacts are given in the Resources section of this guide.

Deciding On a Distribution Channel

You need to look at a number of factors when you're deciding on a distribution channel.

Market Factors

Short channels of distribution tend to be used if:

• potential customers are geographically concentrated in a specific region;
• there is a small number of buyers;
• orders are relatively few in number but large in size; or
• specialized knowledge, technical know-how and regular service are required by the customer.

Product Factors

Short channels of distribution tend to be used if:

• the product is perishable; or
• the product has a high per-unit value.

In general, the lower the per-unit value of the product, the longer the channel.

The Producer

Short channels of distribution are more likely if:

• you have adequate resources so that you can hire your own sales force rather than relying on that of the wholesaler; or
• you have a broad product line, making it feasible to cover the selling costs over a large volume.

Competitive Factors

Short channels of distribution are more likely if you feel that independent intermediaries aren't adequately promoting your product.

Information for the Distributor

The distributor will want certain pieces of information from you, including the following:

• a description of the product;
• the product's size;
• whether the product is fresh, frozen, etc.;
• what the product's shelf life is;
• whether the product is seasonal;
• packaging (Is the package prone to breakage? Who takes credit for breakage?);
• what market the product is in currently, or what market you would like it to be in;
• the distributor's costs (what he or she can sell it for);
• the store's costs (suggested retail selling price);
• current and future sales promotion activities (sampling, merchandising, coupons or allowances); and
• the distributor's territory and responsibilities to you.

If you're dealing with multiple distributors, providing this information (and more) in a standard electronic format is an appealing approach. You may wish to investigate the option of an electronic catalogue based on your products' barcodes or other identifying marking.

An electronic catalogue could include "public information"-such as size and description- that is accessible to all of your customers. It could also have several private sections, where partner promotion activities and other more confidential information can be stored.

How to Get Your Product Listed

When a retailer puts your product on the store's shelves, this is often referred to as being "listed." The term comes from larger grocery wholesalers that sell to a network of stores. The store buyers make their purchases from a central product list of available items.

In most cases, store operators within a chain purchase at least 60 percent of the products they carry from their wholesaler's pre-approved lists. Smaller, independent stores operating outside of a chain may have more discretion to buy from a variety of suppliers.

Food products proliferate on the market, so getting a listing in a large retail chain isn't a simple process. Generally, to make room for new products, another product will need to be bumped off the shelf (be "delisted") or assigned less shelf space.

You need to convince the buyer that your product is unique. You will also have to provide specific product/market information that shows how the product will succeed in the marketplace and bring more returns to the retailer than a competing product.

Although traditional grocery store shelves are dominated by national brands and private label products, there are opportunities for smaller businesses to enter the retail market with unique, quality food products that meet consumer demands.

Choosing the Right Stores

By this stage, you will probably have decided the type of stores you are interested in selling to; this is part of developing your marketing package. To ensure that your product sells well, it must be where consumers who are likely to buy your product shop, available at the quality/price/value they want, and meet their needs.

Look at your business goals and resources. If all you want is for your business to provide a part-time income while you sell locally to two or three stores, you will likely want to consider small, independent stores run by local businesses.

If you have a unique gourmet or specialty product, you may want to approach gourmet stores and cooking schools in your town, the province, the country or export markets.

If you have something that you think would appeal to a value-conscious consumer, you may want to consider the mainstream grocery retail stores that are targeted at the budget shopper, such as No Frills™ or Food Basics™.

Larger chain stores generally have their own in-house distribution system for stores across the chain. However, specialty or health food stores tend to be supplied by a combination of local suppliers and wholesalers/distributors that aren't affiliated with their stores. Much of the information that follows is aimed at giving you help in selling to wholesalers/distributors.

Who Decides What to Buy?

You should investigate very carefully the buying policies of the food retail companies you want to approach. The rule of thumb for new products is that buying decisions are made at the retail company's headquarters, not at the store level. Some managers may have input in identifying potential new products for their particular store. However, the majority don't have the authority to secure listings. You may risk non-payment if you close a deal at the store level, even if it's an independent store of a corporate chain.

Within each organization, identify the buyer responsible for purchasing your product. Buyers are classified by product category or by specific products. Get information about the organization's purchasing policies from the buyer before you present your product.

Some food retail companies make decisions about buying new items by committee. This process allows buyers, category managers, merchandisers and executives to pool their expertise so that they can achieve the right balance of merchandise categories within overall company strategies. Committees usually meet biweekly or monthly to review new product applications.

In some organizations within certain product categories, buyers are authorized to approve or reject items on the spot if they feel strongly about the product. If the buyer is uncertain about the item, he or she will bring it before the committee.

You need to provide sufficient relevant information about your product so that informed buying decisions can be made. In addition to basic product/vendor information, buyers and committees expect details about consumer preferences, shelf space, distribution allowances, test market results, advertising and consumer promotional support.

Purchase Planning Cycles

Retailers/distributors may have specific cycles for certain product categories that fit in with seasonal promotions. If you want to sell products for the Christmas season-such as bakery, confectionery and poultry products-you should approach retailers/distributors at least six months in advance.

If you have perishable items such as produce or fresh meats, buyers may order three to six weeks in advance of promotions. What's more, some retailers/distributors may forward-contract production of horticultural products up to one year in advance of actual product sales.

Purchase planning cycles can differ greatly between product categories and retailers. You need to familiarize yourself with buyers' seasonal order deadlines and contracting policies and target your sales efforts accordingly.

Presenting Your Product

Your critical first step to securing a listing with a retailer/wholesale distributor is presenting your product. Your presentation skills, level of detail of the information you present and adherence to correct protocol according to the company's policy will influence the buyer's decision to list.

Once you have identified the buyer, telephone him or her to make an appointment to present your product. Allow at least two weeks to get a meeting scheduled.

Before this meeting, you may have to complete a "New Product Presentation" form from the organization. This form is often used for grocery items. It may be mandatory if you are presenting new grocery items to retailers. However, if you're selling perishable items such as produce, meat and bakery goods, you may be able to complete a shorter version of the form or even just negotiate a contract on the spot. The protocol differs among retailer/wholesale distributors and product categories. Check it out before your appointment.

If you do need to complete the form, you will be asked to provide basic information such as address, telephone, fax and sales representative/broker. You'll also be asked for general product information including item description, pack/case dimensions and weights, Universal Product Codes (UPC), pallet patterns, pricing information, trade terms, deals, allowances, promotional support, order sizes (that is, minimum quantities) and delivery information.

At the Presentation

It's important that you provide as much information as possible when you are presenting your product. This may be the only opportunity you'll have to try to convince the buyer (and the buying committee, which you won't meet) to list your product.

You should also provide several product samples, company and product brochures and details about the following:

• the unique benefits your product provides;
• its planned positioning in the marketplace;
• suggested positioning in-store;
• cross-merchandising options;
• planograms (schematics for shelf-space positioning);
• a one-year marketing plan that includes proposed purchases of ad support;
• the distribution system;
• delivery arrangements;
• options/costs;
• special terms and allowances;
• additional marketing support such as advertising, in-store product demonstrations, point-of-sale material, consumer product information and special events;
• a list of competitors who are currently carrying your product; and
• relevant market research on the product, category, size and growth of the market, and test-market results.

Buyer Preferences

Ontario retailers generally state that they would prefer to purchase Ontario products over imported products when everything else-such as quality, price, supply and allowances-is comparable. When approaching a retailer, you should emphasize that you are a local supplier, because you may be more likely to be listed, even on a test basis. (However, once an Ontario supplier's product is on the shelf, it is expected to perform as well as any other successful product-slow sales will result in delisting.)

Planograms

A planogram is an electronically generated representation of a section of shelving in a retail environment. Retailers use the information to develop planograms, which help them to plan for optimal use of shelf space. The planogram is given to the stores to show the merchandisers how to set up the shelves.

A planogram can be an impressive part of your sales presentation, providing a mockup of what a shelf would look like if your product were on it. For more information, contact:

GS1 Canada
1500 Don Mills Road, Suite 800
Toronto, Ontario M3B 3L1
Tel: 416-510-8039
Toll Free: 1-800-567-7084
Fax: 416-510-1916
E-mail: info@gs1ca.org

After the Presentation

Once you have presented your product to the buyer, you may be given approval or rejection at that meeting. However, it's more likely that you'll have to wait two to four weeks, depending on the product category and whether a committee is involved in the buying decision (perishables tend to have a faster response time).

In some cases, the buyer will agree to test-market the product in a few stores for a set time (for example, two to six months) before committing to listing the product. However, this is more the exception than the rule.

If your product was rejected after the initial presentation, that isn't necessarily the end. You can approach the retailer again if you have made appropriate product modifications or enhanced trade terms to meet the needs of the retailer. Be aware, though, that many retail organizations only allow previously rejected products to be reviewed for listing again after three to six months have passed.

How to Be a Successful Supplier

Retailers have used adjectives such as “professional”, “efficient”, “well-informed”, “ambitious”and “creative”when asked to describe a successful supplier. However, effective actions leading to results speak louder than words

Communication

A successful supplier must consider the buyer's needs and communicate all relevant information concisely and on time.

Important information includes:

• price changes;
• promotional deals and allowance;
• product shortages and date of availability;
• new products;
• discontinued items;
• changes in packaging, labelling or size; and
• promotional activities.

You should always have product samples, price lists and deal information readily available for the buyer.

Frequency of Contact

When retailers were surveyed, they indicated that successful suppliers contact buyers on a regular basis-for example, every two weeks-to ensure that supplier and product are meeting retailers' needs and expectations.

Getting a product listed doesn't mean that it will stay listed. You will have to follow up with adequate merchandising and promotional efforts to ensure that the turnover rate of your product meets or exceeds expectations.

Turnover Rate

You and the retailer should agree on the expected turnover rate of your product at the store level. Then you need to constantly monitor this rate and adjust deals, allowances and promotional efforts to ensure that retailer expectations are satisfied. Keep in mind that the number of times a case of your product sells (the "case turns") and the size of cartons are extremely important. When buyers check velocity reports, they usually look at the number of turns, not the case size. It may be to your advantage to package 12 units per case instead of 20, because increased turns are perceived to equate to increased sales volumes.

Merchandising

Merchandising focuses directly on using the trade and the purchase environment as vehicles for enhancing consumer sales. It affects the trade's acceptance of and support for the product in-store. Merchandising is an ongoing activity.

Aspects of merchandising include:

• In-store location;
• Shelf space;
• Shelf position and layout;
• Shelf communication materials;
• Distribution;
• Brand;
• Size; and
• Inventory.

Merchandising tools include:

• Display bins;
• Signage;
• Racks; and
• Point-of-sale materials such as signs.

Suppliers often hire merchandising companies to monitor in-store product displays, product stocks and so on, to ensure that their products are being presented as expected.

Warehousing and Distribution

You should identify any shipping problems, stock shortages, over-shipments and damages. Then you need to take immediate action to correct them. It's also important to monitor the service of freight companies to be sure that they are meeting your needs and those of your buyers.

Category Management

The industry often uses terms to refer to its buying practices and the process of effectively moving product from the raw stage to the consumer.

Category management is a distributor/supplier process of managing categories as strategic business units. This is a process of maximizing profits on the basis of product movement by category, not by brand item. It's done through efficient use of item assortment, pricing, promotion, shelf presentation and other techniques to move goods out of warehouses to consumers.

You should identify which buyer has responsibility for the category that your product falls into. Talk to retailers about your profitability and provide factual support. For example, you can indicate the incremental sales gains from merchandising programs and discuss distribution of support.

Be prepared to follow up promotional programs with reviews of the results, and share the information with retailers so that they can modify efforts to increase mutual benefits

E-Business and Electronic Data Exchange

These days, it's becoming increasingly important for producers to understand electronic commerce and the ability to use the Internet to receive orders. You should be prepared to invest in the equipment that will make this possible.

Becoming an affiliate member of a grocer trade organization should give you a pipeline to public information about electronic commerce initiatives.

Find out what type of computer system the retailer operates and how you can interface with it. Retailers who are wholesalers may have integrated warehouse and store computing; they may be prepared to allow dial-in access for suppliers. This would enable you to exchange information about purchase requirements, purchase orders, etc.

Choosing a Broker

Make sure that you need a broker's assistance before you hire one. For example, if you're selling to President's Choice, you may need a broker, but if you're dealing with Sam's you may not.

When you use a broker, it's like hiring a sales force, and can be immensely important to the success of your company. Here are some of the benefits of a broker compared to a salesperson:

• Food brokers represent the products of many companies and can achieve better market coverage for lower cost.
• You will get a sales force at minimal cost.
• Brokers offer you the link to electronic commerce functions.
• Most brokers offer a menu of services that covers every area of the business cycle except the actual manufacturing. Services can include head office contact, retail and end user coverage, invoicing, warehousing, developing marketing plans, tracking of promotional spending, retail audit and much more.
• A broker can give you wide geographic coverage for less cost.

.The food broker's main strength is local market and account knowledge.

Your best approach to finding a broker is to contact the Canadian Food Brokers Association (CFBA). CFBA works, without charge, to educate processors and help them in selecting a broker. The association also offers a service to aid manufacturers in contacting suitable firms, and you can get a list of members from the association. Contact:

Canadian Food Brokers Association
c/o Food and Consumer Products of Canada
Tel: 416-510-8024
E-mail: info@fcpc.ca

You can get lists for the United States from the Grocery Manufacturers of America. This organization offers several documents on choosing a broker, including:

• How to Select Your Broker;
• Handling Competing Items;
• A Guide for Developing Food Brokers-Principal Agreements;
• Professional Working Relations Between Manufacturers and Food Brokers; and
• Guidelines for Manufacturers and Food Brokers Serving the Food Service Industry.

For more information, contact:

Grocery Manufacturers of America
2401 Pennsylvania Avenue N.W., 2nd Floor
Washington, DC 20037
Tel: 202-337-9400
Fax: 202-337-4508

Food manufacturers' associations often hold exhibitions, inviting brokers from target markets to attend. Federal and provincial government trade development groups also plan and manage trade shows in target market areas. These are often cost-efficient because a variety of discounts due to group participation are available.

There are also national associations of brokerage firms that hold annual exhibitions. At these shows, companies searching for representation exhibit their products in a trade show format.

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