The Distribution Dilemma
On at least one occasion in your journey as an emerging food brand, you will stand in the grocery aisle and wonder, “how do I get my products on that shelf?”
While the demand for new and innovative food and beverages continues to grow, every retailer applies their own listing criteria. While your product may be bang on trend, it’s simply not enough to seal the deal. Buyers will consider food safety, the ingredient deck, packaging, and price (of course!) as well as the number of competing products already on offer.
Even with all of the boxes checked and approval at hand, it takes planning and preparation to get on the shelf and marketing persistence to stay there.
Most brands start out in a handful of stores in their own community that can be manage in-house. This is a great way to launch your product into retail. If you have aspirations to scale your brand beyond your own backyard, a distribution solution should be on your radar which means build it into your price from the get-go.
Historically, retail buyers have preferred the efficiency of distribution solutions over direct to supplier. However, with the advancement of technology and rising costs, some retailers are going direct with the expectation of better margins.
Before making any decision, be sure you have a solid understanding of what’s out there and carefully analyze
There are three options that can get the job done. All of which have their merits and should be weighed carefully against your business goals.
Self-Distribution
Conventional Distribution
Distribution as a Service (DAAS)
Self-Distribution
If you are an entrepreneur with strong sales ability as well as the time and equipment to get the job done, a hands-on approach is always an option. However in business, time is money so the resources and assets you or your staff allocate to coordinating or making deliveries, conducting sales calls and collecting receivables must be factored into your COGS (cost-of-goods-sold). Every self-distributing supplier should know and stick to a minimum order shipping rate that makes sense to their business. This is often a balancing act as all too often, minimum shipping rates cause friction with retailers.
Some brands are delivering using non commercial equipment. This can compromise the safety of a product that requires temperature control, and could be refused at the receiving dock. Be sure you are meeting food safety requirements.
If your goal is to turn a passion into a business or generate a healthy return on investment, you must work ON your business not just IN your business. The self-distribution method is effective for boatstrapping start-ups and mature businesses with a high volume sales shipping into retail distribution centres.
With time and assets being finite, emerging brands that used this method will “hit the wall” at some point in your life cycle, slowing or even stopping sales growth.
One of the main perks to handling your own distribution is quality control. You maintain control of the quality of your products and the quality of your customer relationships. This is where you need to ask yourself the question: “Do I want my business to grow? Am I satisfied with where my business is at?” There is no wrong answer to these questions, but you definitely need to know the answer when you are planning for your future.
Conventional Distribution:
A conventional distributor’s price tag ranges from 25% to 40%. They offer retail brands a range of services from delivery and warehousing to sales and point-of-sale merchandising. The distributor purchases the product from the brand so they “own” the products in their possession. It is important to read your contract carefully for terms that outline costs and mitigate distributor risk.
A distributor enables a brand to scale their business much faster than on their own. They offer a fleet of trucks to cover a predetermined area with boots-on-the-ground and delivery logistics. This frees you up to focus on product development and marketing your brand.
Your customer database should match the geographic reach of the distributor. Most distributors concentrate on high and medium density areas and may not have the reach into rural and low density markets.
Be mindful of long-term contracts that guarantee exclusivity in exchange for services. Before signing, it is important that you have confidence in their track record and ability to represent your brand. The level of communication and sales data you receive from your distributor should also be a consideration. This is where the greatest range exists in quality and quantity. Be sure to ask for sample data.
Perishable and products with a short shelf life are particularly complicated when it comes to distribution due to the duration of time in storage and transit. Freshness and product depreciation will compromise your product and reflect badly on your reputation; even cause your products to be delisted. So be sure to find a distributor with a specialty in this area.
When considering a distributor, the questions to ask yourself are: Does the math work? Am I getting good value for my investment? Am I confident that I am well represented? Am I willing to give up control of my brand to a distributor in exchange for growth? Sometimes relinquishing control of the customer it the most difficult but for distribution to work, you need to streamline your sales efforts.
Distribution as a Service (DaaS)
Distribution as a Service, or DaaS for short, is a play on “software as a service (SaaS)” which gives you some indication of its software technology leanings.
Technology has been transformative across all market sectors except in our supply chain. That is until the recent pandemic which accelerated adoption. Technology is a game-changer in distribution, transforming the way suppliers interact with their wholesale customers. In fact, the advancement in technology has streamlined the B2B buying process, making it more efficient and convenient for wholesale buyers. When properly implemented, it also has the potential to drive out considerable cost.
A DaaS platform like Purchs uses technology to digitize all of the functions of a conventional distributor in a B2C-like experience. Think of DaaS as middleware not a middleman. Purchs’ DaaS provides the platform on which a brand can conduct business with customers, automating the the order-to-cash cycle and performing post-purchase tasks on behalf of the food brand.
Distribution as a Service is ideal for brands who are skilled at sales and customer relationship management. The brand must also have good cashflow management skills since payment management is the responsibility of the brand.
The DaaS provider takes custody of the product and bills the brand for its services. The average cost of DaaS is 14% of wholesale product costs which translates to a significant savings to brands using DaaS to service their accounts.
DaaS strikes a balance between Self-Distribution and Conventional Distribution. By using technology, a brand has access to a set of tools that manage the order to cash cycle at considerable cost savings. A brand is able to maintain control of the customer experience and better compete in the marketplace.
