Distribution seems simple – but it’s definitely not easy.
There are many choices for distribution from traditional retailers, convenience stores, food service outlets, eCommerce and even social selling through Instagram or Facebook. How do you get listed with these places? Who will you use to distribute and deliver it to these outlets? How do you sell in and ensure the stores you are selling to are merchandising in the right way?
Every touchpoint in this value-chain will want a percentage of sales, too. So, how do you maintain some profitability at the end of it?
A client of ours was ecstatic when they were listed in Whole Foods along the East Coast of the U.S. But they produce their snack product on the West Coast, and by the time they factored shipping and logistics into the pricing model, they were $1.00 – $2.00 higher in price on shelf than the competition, on a product that usually retails at $3.00. The product needed to justify a whopping 40–60% premium over the competition. It couldn’t and consumers didn’t buy it. That was a short-lived experiment.
Distribution is also where you’re going to find the greatest short-term success or fluctuations. If you see a sharp increase or decline in sales, check the distribution channels – you’ll discover that something occurred in that space.
When I was working at Frito Lay, we would get weekly sales reports and updates. Each Wednesday felt like Christmas. If, all of a sudden, we saw something that was out of the norm, whether sales spiked or dipped sharply, it typically meant there was some type of activity happening with one of our key retailers – for example, a big promotion from a competitor in Loblaws. Whatever the case, we’d see a drop in our sales for that week or some other repercussion.
At CREW, we have an eight-step process that we walk our clients through to develop a comprehensive marketing strategy. This process looks at the classic 4 P’s of marketing: Product, Price, Place and Promotion. Place is where distribution comes in, and we typically dive into this at the fifth step of our process. Place represents where the target audience purchases or experiences the benefits of the product or service.
The Number One Metric in Marketing
I believe that the number one metric for marketers in food is SPPD, which stands for Sales Per Point of Distribution.
When you’re growing a food company, you’re gaining volume and increasing sales by getting new stores listing your product and that can cover a lot of issues. But what we want to see is habitual buying behaviour.
That means someone tried your product for the first time, whether they heard about it or found it in the store. They buy it, they like it and then buy it again, and again. That habitual buying behaviour is the goal. You’re going to spend and invest most of your marketing dollars on creating awareness and trial, but you make up all your money at repeat.
When purchasing sales data (i.e. Nielson or IRI scan data), you want to look at the SPPD and see if that is increasing or decreasing compared to the competition. For a marketer, this metric needs to be your focus.
Choosing Distribution Channels
Finally, you want to match your distribution or retail channels to three elements:
- The maturity of the business
- Target audience shopping behaviour
- Using distribution as an opportunity to gain trial
Business Life Cycle
First is looking at the maturity of the business in terms of the product life cycle. A business starts in the Development stage, then goes through Introduction, Growth, Maturity and Decline (see below).
Most emerging food brands spend a lot of time at the front end in the Development stage, perfecting the recipe, getting the formulations, nutritionals, packaging and brand, then setting up all those components well.
When it’s time to introduce a product into the market, which channels do you introduce it to? And when do you do that? This is such a critical decision that it can make or break a lot of companies.
In the Introduction phase, you typically start in the closest proximity to your production and where your target audience is looking for it. For very small food companies, farm markets are good incubators, as well as your own eCommerce platform.
The next step is restaurants or independent retailers. As you grow your sales and capabilities to produce, you can start to take on bigger customers, expanding geographically as your production yields better economies of scale.
The key is not to rush it. You need to go through each stage to build the right number of base consumers who can spread the word and continue to buy from you.
Client Example: Open Blue
As a company grows, they will experience different growth stages in other markets.
For example, we worked with a client who was introducing a relatively new fish to the global market: Open Blue Cobia – a premium white fish developed through innovative and sustainable growing methods. Looking for help with their go-to-market strategy, we started with the product life cycle.
We found that throughout Europe, Panama and in most of the United States, they were in the Introduction phase. In the Southeast US, in states like Florida, people already knew about Cobia and liked it. Here they were in the Growth stage and were already in restaurants, shops, supermarkets and grocery stores. Going into Asia, however, they were still in the very early Development stages as nobody knew about this fish.
This required different distribution strategies for each market.
We broke out the strategy into four levels, then applied to each region separately. It’s important that you separate regions and have a different strategy for each accordingly, depending on the maturity of the brand in that region.
Level One: Distributors
At level one, fresh fish markets are still dominated by distributors who ship to independent fish markets, restaurants and specialty retailers. They take a chance on new products, dealing with lower volumes. The strategy here is dependent on your sales team’s ability to meet with, negotiate and excite distributors to sell your product to their customers.
Level Two: Food Service / Restaurants
The second level for Cobia was growing sales at restaurants and food service places (higher-end cafeterias, etc.). When you think about the first time you tried a new type of fish, it was probably at a restaurant or your foodie friend’s house. If your product is high-priced, consumers are unlikely to drop $20 on a couple pounds of a fish without tasting it first. It’s too big of a risk for them.
Restaurants and food service allow you to gain trial without spending a lot.
Restaurants and food service also allow you to educate the audience, using servers at restaurants to introduce the product.
“Tonight we are serving Cobia, a delicious white fish. It’s like a cross between Halibut and Chilean sea bass.”
People try it for the first time, decide if they like it and then look to purchase it on their next shopping trip.
Beyond Meat did this with A&W. When Beyond Meat first launched in Canada, they had an exclusive with A&W, leveraging A&W’s reach to get consumers to try their product. The meatless offering was a hit and when there was enough demand, Beyond Meat launched at retail.
Level Three: Retail
Choosing the retailers to work with and paying the listing fees (sometimes $50,000+ per SKU) is the next step. Consider the retailer’s locations, volume needs and required promotional spend to ensure you can meet it.
I still remember a client that finally got listed at Target in the US. We were so excited, we were high fiving. It was amazing! What we soon realized, though, is that Target had about 1600 locations and we couldn’t service them all. The brand wasn’t mature enough, as we had skipped over several stages of growth and we didn’t have enough money to educate consumers to get them to try it fast enough.
What we learnt is that you can list it, but if you can’t support it and get that velocity on shelf, you’re going to get de-listed relatively quickly. Target dropped us down to 400 stores.
INSIGHT: If you don’t have good connections with retail buyers, I would recommend you work with a sales broker. They take about 5% of sales but can be worth every penny by saving you a lot of time. You just need to treat them, and hold them accountable like you would an employee, but they can be the credibility and start you need to be successful.
Level 4: Consumer Engagement / Advertising
Once you have retail listings, you move into level four: Consumer Engagement.
If you start spending money too early on promotional activity and brand awareness, you’ll end up wasting it. For example, a consumer will see your TV ad or Insta campaign, but if they don’t see your product at the store they shop at, they can’t buy you.
Consumers also have short-term memory. You have to constantly remind them of yourself, and you don’t typically have enough money to keep up expensive advertising for too long. You want to make sure that you have the right amount of distribution first. My rule of thumb is 60% ACV (All Channel Volume) in a certain region before any mass advertising is taken on.
This means we’re on the shelves in the stores that sell 60% of all the volume of that category. Nielsen, SPINS or IRI data will give you this info. Before this level of distribution is achieved, we recommend digital activity, sampling and in-store promotions/activity.
Other Ideas For An Effective Distribution Strategy
Whether you retail at a natural independent grocery or turn to e-commerce or Amazon, you work through your distribution strategy to gain access to your consumer. Understanding your audience’s shopping behaviour will help inform your distribution strategy.
For example, right now during COVID-19, we are seeing a dramatic increase in direct to consumer online retail. More and more, consumers are turning to branded e-commerce stores, Amazon or online marketplaces to purchase consumer goods. Many food businesses are building their own e-commerce platform where they’re selling directly to consumers. Though branded retail is still seeing lower volume due to the effort required to drive traffic to the site, we are seeing some companies get good traction.
It can also be beneficial to look at foodservice distributors (ex. Gordon Food Service or Sysco) to get your product into hotels, restaurants, schools and hospitals. Things are slow at the moment and it may be a great time to have conversations for when things pick up again.
A strategy we deployed at Frito Lay with Miss Vickie’s was to leverage the Subway and Quizno’s relationships to get people to try Miss Vickie’s before heading into the retail stores. People started to try it and we gained a bit of a following. Once there was demand, we moved from up into retailers. Like the Beyond Meat strategy, once people tried it, there was demand – and then they went into the retail market.
For an effective distribution strategy, timing is everything.
You can also look at alternative channels like duty-free, airlines, golf courses, parks and recreation or sports venues. With Hardbite Chips, for example, we got the product into the Vancouver Parks and Rec board where we saw great trial from local consumers and tourists.
Even though margins and volume weren’t great, we saw thousands of people trying Hardbite Chips for the first time. We experienced a similar scenario with Porter Airlines out of Toronto. The margins were low, but we were getting people within a closed environment to try it. Essentially it was a free sampling program.
If costs break even, these can be great avenues to build up trial.
One emerging trend is social selling – which is selling through Instagram, Facebook, etc. It’s still in the early stages and there are some glitches to work out, but I think brands should be experimenting here. They’re only going to get more sophisticated, and my hunch is that in a few years from now, we’re going to see this channel becoming a much bigger part of the overall mix.
Key Points to Remember
Distribution is critical to your success, so remember these key points:
- Distribution is where short-term success resides
- The number one metric is sales per point of distribution (SPPD)
- Match your distribution strategy to your stage in the product life cycle for each region you’re in – or want to enter
- Start close to home and don’t invest in campaigns or big media dollars until you’ve achieved 60% ACV
- Use a broker or a good distributor who will get you listed and provide credibility with retailers. Do not try to bootstrap this – it will take far too long and cost you in the end
- Understand where your target audience shops and how they buy
- Look for alternative channels to gain trial, where consumers can experience your product
All the best and keep growing.