In previous posts I discussed the overall meaning of specialty food and how it is best to think of it as an umbrella term that covers gourmet, imported, natural, organic and the emerging trend of local food products. We also talked about the distribution of specialty food through Specialty Food Distributors, and how most new products from emerging companies will need to utilize the network of Specialty Food Distributors to find success getting on the shelf of the groceries of America.
Today I want to begin to discuss Specialty Food Distributors in more detail. Specialty Food Distributors are complex. Even seasoned food manufacturing professionals have difficulty articulating how SFD’s work and at what level the sale takes place. Nor do they often understand that SFD’s should not be thought of as customers, even though they buy your product and take ownership of it in their warehouse. A SFD should first and foremost be considered your partner in building your brand.
SFD’s want your product to be a huge success. They look at your product opportunistically. They love new products that are winners because they end up with more sales to grocery stores and the markup they charge is how they make money. They are huge fans of emerging trends because they know that often new trends spawn new products and new categories, which often end up in the their portfolio. The Natural and Organic trend is a good example. Most Natural and Organic items are supplied to grocery stores by SFD’s and because interest in Natural and Organics has increased, SFD’s have a winning category on their hands.
While the SFD wants your product to be a success, and wants to partner with you to get it on the shelf, the many levels of organization that need to be sold within the SFD as well as the grocery chain itself, can be daunting, time consuming and frustrating.
Here is how a SFD works. The SFD has member retailers that have contracted with them to supply Specialty Food in their stores. The number of items that the SFD brings into a particular store can vary dramatically dependent on the location and clientele of a particular store. A relatively large retail store in a metropolitan area will often carry many thousands of items that are sourced from the SFD. There are a number of SFD’s throughout the country and they compete with each other to earn the business of major chains where they can control a large share of sections and shelf space within the store.
Let’s consider an example using a fictional grocery and SFD. Let’s assume there is a retail grocery located in Dallas, Texas called Really Big Grocery. RBG has 1700 stores in Texas. Each of the 1700 stores carries approximately 37,000 items. RBG has a warehouse in Dallas, and buys 18, 000 items direct from manufacturers. The other 19,000 items are brought into the stores directly from Dairies, Beer & Wine Distributors, Bakeries, Snack Distributors, and Specialty Food Distributors. In our example let’s assume that the Specialty Food Distributor for RBG is Smith’s Specialty Food Distributor. Smith’s has 18,000 items authorized to bring into RBG, however most of the RBG stores actually carry only 12,000 of the 18,000 authorized items.
Let’s assume in our example RBG has a full service contract with Smith’s and so provides retail people in each of the 1700 RBG stores to service the authorized items that RBG carries from Smith’s. Each of Smith’s retail personnel is responsible for ordering, rotating, and maintaining all of the Smith’s items in RBG. In doing so they can only handle four or five stores each. They have enough time to service one store one day each week. Smith’s maintains 350 sales reps that service RBG. Each of the reps is paid on the number of units that sell through their store’s register. Because of this, each of the Smith’s reps has discretion within the 18,000 authorized Smith items to place and maintain in each of their stores the items that sell the best and bring the most revenue to them personally.
Confused yet? I‘ll help you understand what all this means to you as an entrepreneur attempting to get your product on the shelf of all of RBG’s 1700 stores. First and foremost, Smith’s should be considered your partner not your customer. If you sell them a truckload of full pallets of your product, recognize that your selling has just begun. Not a bottle of product will move from Smith’s to RBG unless you sell many folks in both the Smith’s and RBG organization. That’s what I will help you understand in my next post.
For now, keep working….to the grocery shelf!