10 reasons for self distribution.
I got a call last week from an employee in the Seafood department of a large grocery store in Southern, VT. He was talking up our Jalapeno mustard to his customers at the fish counter until, one day, the grocery buyer could no longer bring it in because of a distributor switch (a company we don’t sell through).
That got me thinking: Why doesn’t the grocery store purchase directly from me? The seafood clerk was psyched and I had control over another store.
Which prompted today’s article. One of the best ways to increase your gross profit and net profit margins is to bring some distribution in house (called Direct Store Distribution or DSD).
That’s what I’m working on in 2016. Currently, about 40% of my accounts are handled through GMM. I’d love to get that back up to 60% to regain more control. So, without further ado, I’m going to try and convince you that self-distribution is fantastic.
10 Reasons Self-Distribution is the Best Way to Sell Your Food Product:
1. Better Margins
I don’t have to tell you twice: selling direct to customers is a MUCH better margin than going through a distributor. Sure, you have to take a couple minutes to pack the order up or deliver it. But, would you take an extra $18-20/case if you could sell it direct. Um, yes. (If you said no, you’re crazy). Over the course of the year, if you sell 500 cases direct, you’re talking almost $10,000 in extra profit. Sign. Me. Up.
2. Control Over Delivery
I worried about control over delivery when I learned some of my customers who purchase our mustard through distribution waited up to 3 weeks for delivery. Not only is that awful customer service, but I’m losing sales every day my product is out-of-stock. When retailers buy through me, I ship orders in 1-2 business days and it’s there in 3-5 days. Much faster turn-around and a happier customer. Win-win.
3. Ability to Run Promotions
In recent years, this has been a large part of my retail sales strategy. No studies here: promotions increase your sales dramatically. When you work with a distributor, your sale may last a month, it’s not pushed unless you advertise in the catalog nobody looks at, and then after all that, your promotion may not hit the shelf. That’s why working directly with your buyers, you’re able to make sure the promotion hits the shelf – and at a price you can stomach. The other bonus? Knowing almost immediately how well your promotion did and asking for tips to improve the next promotion. Soon, I’ll share my end-cap results for promos in City Market — it made a HUGE difference.
4. 1-on-1 Relationship with the Buyer
There’s something about knowing you and your buyers are on the same page – and your friendly about it. While not all buyers will grab a beer with you, the majority of buyers love that you’re making an attempt at building the relationship, to learn more about how the store works, and how your products work to make the category successful for the buyer (their #1 goal). Use this 1-on-1 relationship to increase sales, get the inside scoop, and help the buyer help you.
5. Know What Products are on the Shelf
If you’re lucky, distributors send you a sales report that shows what flavors are where. Many don’t do this because they want you to stay loyal and not steal accounts. If you’re not so lucky, you struggle to answer customer questions like, “Does City Market carry your strawberry rhubarb jam?” and “Do you know what stores carry your maple syrup in Boston?” By going direct, you know what skus are where. While it may get out of hand remembering all of your direct accounts, at least the answer will be easier to come by.
6. Make Your Entire Product Line Available
The seafood employee I talked about at the top of the post? He had no clue we sold 9 different flavors of mustard. Why? Because distributors only carry so many skus. If you have a large production line (usually beyond 6 skus), a distributor is going to ask you what your top 3 are and the maybe take another couple skus. By going direct, you give your store buyers access to your entire product line. Ultimately, you get more shelf space and your customers don’t have to go to five stores just to find one flavor. Sounds like a win to me.
7. Better Knowledge of Store-Wide Events
Sometimes, you don’t have a clue what’s going on at a local store unless you look on a community calendar or scour the store’s Facebook page. By working with the buyer, you get direct access to upcoming events, promotions, harvest days, large demo days, etc. This insider knowledge not only lets you build a better relationship, but it helps you increase awareness with customers who shop at those particular stores. Plus, maybe you can create a store-wide event by partnering with a few other local companies.
8. Control Your Manufacturing Costs
When you know every store you’re sold at and you have an idea of how many units you sell per month, you’re able to control your manufacturing costs by producing X cases / week or Y cases / month. Compare this to a distributor who may place a purchase order beyond your manufacturing means. If you can’t hit the PO within a week or two, look for another manufacturing alternative or keep building your self-distribution empire.
9. Build a “Brand Ambassador” Team
When I last talked with Lisa from Yummy Yammy, we talked about building a Brand Ambassador team, both locally and regionally. Without the benefits above, this is hard to accomplish. By selling direct, you’re able to educate your buyers and demo coordinators about a member of your team who is a “cheerleader” — someone who represents your brand and encourages customers to try your products at stores and events. That’s much easier to do when you have control over your distribution channel.
10. Meet other makers in your area
This may sound like a strange benefit, but I’ve met so many people delivering to stores around Burlington: new food entrepreneurs and industry veterans who still hop in the car to make a delivery. These connections have lead to other store leads and general camaraderie for producing a product people love.
With many companies growing into the millions with self-distribution (GOYA and Stonewall Kitchen come to mind), it’s possible to build your empire this way. While many of you may say “UNFI and KEHE have done wonders for my business” (they may have), there are also pros and cons to working with the big guys.
In fact, there are pros and cons with every distribution strategy. You have to find the right blend of control and growth to be successful in this business. Control, to have your finger on the pulse of changing consumer preferences. And growth, to make sure you’re building a profitable business – not just a business with a big number on top of your income statement. Be smart about your growth. Do what’s right for your products and your company goals.
Do you have anything else to add about self-distribution? I’d love for you to join the conversation.
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