Written by Vanessa Ting, Founder of Retail Path and Food-X Mentor
The Benefits Of Scaling Retail Distribution Slowly
Recently, I was at Target HQ to present an organic food brand that recently launched in market.
How they were invited to Target for a line review is actually a crazy story. They launched their brand in retail markets at Natural Products Expo West during which a Target buyer visited their booth and collected their information. They thought nothing of it.
Fast forward a couple months later, out of the blue, they received a call from (a different) Target buyer inviting them to Minneapolis to present their line for consideration for the 2015 assortment. The retail buyer this brand met at the trade show had passed their information on to this retail buyer.
Let me be clear. This rarely happens.
So what does a new brand do when a huge retailer is knocking on their door?
I’ll answer that in a second.
While my client was excited by the prospect of selling in Target stores in their first year in market, I was worried for them. As we prepared for the meeting, they began to realize what selling to any large retailer would entail. They had to figure out:
- How to negotiate lower ingredient costs to meet Target’s margin requirements
- Get a new manufacturer who could handle Target’s volume and do so with short order lead times.
- Find a warehouse and fulfillment center who could affordably provide this brand with just in time replenishment shipping, which is what any large retailer expects.
- Figure out the optimal distribution method (consolidator or direct) without any volume history or shipping cadence to base price quotes on. And get those costs down to meet Target’s margin requirements.
- Get an expert in demand planning and inventory management on staff to manage operations.
- Get set up on EDI which is time consuming and expensive.
- How to compensate for their low brand awareness typical of new brands and how to amplify and fund their marketing quickly in order to support national retail distribution.
- $$$$ to: fund these large inventory orders, pay for all their partners along the supply chain, fund their marketing plan, and to hire a broker to help manage the account.
- And after all that, their profit margins were shockingly slim.
All of a sudden, selling to Target sounded like a scary and financially risky idea to my clients.
I have another client who did make the leap into Target “overnight”. They were selling to local boutiques in Napa Valley and received an email out of nowhere from Target!
While they were able to get through the hurdles of scaling their operations for Target which included absorbing the costs to build the necessary infrastructure, they underestimated how difficult it would be to drive sales to Target given their limited brand awareness. Even with 25K+ followers on Instagram, they still struggled to meet the sales expectations of the Target retail buyer. As such, they had to spend more on marketing, and lower their retail price in market in hopes of boosting sales turnover at shelf. But it was not without being hit with $10k in chargebacks for unproductive inventory.
These stories show the reality of selling to large retailers. This is why it is rarely good to sell to a large retailer immediately. In fact, not only does it behoove brands to hold off on big retail, but it is wise to scale up smartly, slowly, and be choosy about which retailers you sell to and when. A former merchant from Whole Foods Market explains this well.
So what does a new brand do when a huge retailer is knocking on their door? Evaluate the stage of your business:
- Make sure your cash flow is diversified across many retailers so that you are not dependent on one retailer to be providing all your cash flow. Producing for that one retailer should not tie up all your cash – certainly not for very long. Remember, those payment terms can go as long as 120 days.
- Sell to retailers that are well matched with your current levels of brand awareness. This is a judgement call; there are no hard and fast rules here.
- Work with retailers that will give you sales history, which is the “currency” needed to sell to larger retailers. It also helps you assess – with hard data – when you are ready to move to the next tier of retail.
- Sell to retailers that are within range of your infrastructure and operational capabilities.
Do NOT be afraid to say no. Ultimately, saying “no” is the defining difference between smart profitable companies and companies that seem like “overnight successes” but then crash and burn. Which one will you be?
About the Author
As a former Retail Buyer at Target and product development and brand marketer at Neutrogena, Vanessa Ting now works with emerging brands. She works with product companies as an outsourced Director of Sales to build distribution strategies and retail pitches that hit the sweet spot of major retail buyers nationwide.
She has landed shelf placement for product entrepreneurs in stores like Target, Walmart, Walgreens, Nordstrom, Toys R Us, major grocery stores and many independent retailers. Client list includes ABC’s Shark Tank entrepreneurs and The Honest Company. Vanessa has been interviewed on TV as a retail expert on MSNBC. She has been featured in Inc. Magazine, Wall Street Journal’s MarketWatch, Entrepreneur Magazine and other respected media outlets.
Vanessa holds a BA from University of Southern California and an MBA from Georgetown University. She has 16+ years of marketing and retail experience from Neutrogena, Target Corporation and how operates Retail Path, a retail consulting firm, and is a co-founder of FreshKids, the first natural, non-GMO, clean-label salty snacks brand just for kids.
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