To be successful, food product manufacturers need to know ....
Today’s post is written by Ivy Ray, Account Manager at SafeSourcing Inc.
To be successful, food product manufacturers need to know their market and understand how to sell its benefits to consumers. They must invest in market research, product testing and tasting well before they hit the stores. They also need to be sure they have a strong brand presence. Chobani Greek Yogurt started less than ten years ago. Since then it has grown from a one million SBA loan to one billion in revenue securing the number one spot in the U.S. for Greek yogurt brands. Retailers have choices as to how they receive goods from vendors, depending upon their size and specific needs.
- Independent / Direct to Retail
These are a few of the pros and cons for each:
Direct to Retail
PRO: The majority of independent and specialty retailers prefer to deal directly with a small vendor as the service is more specialized and the small vendor can usually react more quickly to their needs.
CON: Servicing independent stores can be quite costly when consideration of the order size is compared against the “drop cost”. If the cost of delivering the product, including the cost of time, transportation, administrative, and other costs are factored against the gross, the net margin may be lower than dealing with a distributor or a broker.
Most food products pass through a distribution network to get from manufacturers to retailers. The largest food distributor in the nation is Sysco Foods.
PRO: Distributors are experts in the logistics of food distribution. The distributor, or “truck-to-door”, typically purchases directly from their vendors, stocks inventory, takes orders from retailers, manages the inventory on the shelf, services the retailer’s needs, introduces new products into retail and delivers the products to the stores via direct store delivery(DSD). A chain buyer may buy for 4-10 categories of products and deal with 6-10 distributors and dozens of major nationals, and also be responsible for category management of thousands of items.
CON: The distributor requires a margin of 20%-30% to purchase and stock inventory, sell, deliver and invoice the products, and may carry between 1,500 and 50,000 stock keeping units (SKUs).The principles of a small line can lose control of their products at retail and lose control of the relationship with the retailer.
U.S. Industrial Commerce defines a broker as “An independent contractor or legal entity who acts as an intermediary between a buyer and a seller. The most common and accessible way to tap into new markets and expand your sales territory is through food brokers.
PRO: Food brokers handle or represent a limited number of food companies in a specific geographic area. Brokers will normally work with retail store staff to promote the lines that they carry and provide the companies that they represent with a varying degree of information and services. Brokers are very selective in the lines that they represent as the cost of servicing these lines is high ($300-400 per sales call) and the sales of these lines must be sufficient to not only pay the bills, but generate a profit.
CON: Food brokers will normally charge a fee or commission of 5-10% of the net invoiced price of all products shipped into the customers that they service. Brokers will normally not be responsible for the shipping or invoicing of products that they represent.
Distributors may also work with brokers who act as a manufacturer’s agent in getting additional distribution for a specific product line. The relationships your brokers and distributors have with retailers play an integral role in growing your sales volume.
For more information on how SafeSourcing can assist you in exploring your procurement solutions for your business or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.
We look forward to your comments.