Entering physical retail can be a huge milestone for brands seeking to expand their reach and connect with consumers. Physical retail, however, comes with unique challenges that are often under-appreciated by eager brands. There is no shortage of advice to be found when it comes to the “right” way to enter retail, but it can be difficult for young brands’ leaders to distinguish fact, fiction, and informed opinion.
While we certainly know a thing or two about retail here at Minoa (much of it learned the hard way), we thought it would be interesting to compile the thoughts of category managers and retail buyers. So, we took to the subreddits r/smallbusiness, r/manufactring, r/Entrepeneur, and r/retail to see what advice these (self-identified) retail professionals had to offer. Strap in to read their tips, and a few extra goodies from us.
- Plan Around Category Review Cycles: For many new brands, especially those coming from the worlds of e-commerce marketplaces or direct-to-consumer (DTC), the category review cycle is a foreign concept. Yet, it is critical to understand if you want to enter retail successfully. Simply put, category review is the time period when the retailer is actively evaluating potential new products. Grocery and department stores typically conduct one review per category per year, during which they sift through all the received brand submissions and solicit more information from the ones they find interesting. Convenience and drug chains often review on a rolling basis. Regardless of retail channel, the critical step is to be on the buyer’s radar before review. Review schedules are not publicly available but they are accessible to enterprising individuals. You can try engaging store-level managers, reaching out to the corporate office, or seeking advice from brokers, consultants and distributors who work with your target retailer(s). Persistence here is key, and you may have to try many angles and individuals until you can break through to someone with the correct information.
- Engage Brokers and Consultants Strategically: Brokers and consultants, if utilized correctly, can be instrumental in helping you navigate retail. They are often former retail professionals or successful brand builders with industry (and retailer-specific) knowledge and networks. They may also pitch for you when you finally get that coveted meeting. However, choosing the right partner is paramount. Because they are costly, brands should carefully assess brokers’ and consultants’ track records. Brokers usually charge a monthly retainer of a few hundred to a few thousand dollars, and a 3 – 10% commission on the first year of sales. Brokers are incentivised by commission to represent products they believe will sell well. They are also restricted by conflicts to not represent competing products, making it challenging to find the right fit. Also understand that brokers will not necessarily work for you, as some retailers directly or indirectly utilize broker networks to generate all leads.
- “Partner” with Distributors: The path into many small and medium-sized retailers often begins with a distributor. They can be directly pitched to, and they will usually claim to actively promote your products to their retail accounts through distributor-hosted trade shows and other means. The degree to which this is true varies drastically from company to company, and it is up to you to perform due diligence on effectiveness and costs. Distributors will frequently only accept products which are already selling somewhere in their service region, leading to a Catch-22 situation for new-to-retail brands. If they don’t control distribution themselves, many large retailers are increasingly moving toward requiring all brands to move through a few favored distributors. Receiving is a perpetual challenge at retailers, and it’s in their interest to keep separate deliveries to an absolute minimum. If you successfully pitch to a large retailer and they say “you’re in,” be prepared to work with their distributor(s) on their terms.
- Consider Establishing a Dedicated Wholesale Webpage: Especially at smaller scales, buyers may prefer to order directly from you. To streamline this process, whether for retail or distributor buyers, consider creating a dedicated wholesale webpage. It should provide essential information about your products, wholesale pricing with MOQs, and a contact or order submission form. You will probably want to keep this page closed to the public so you can verify and control who can view your wholesale pricing.
- Prepare for Demand: Brands must be prepared to fulfill reorders promptly and accurately to maintain a strong rapport with retailers and distributors. On-shelf availability is a top priority for retailers, failure to support strong sell-through can result in fines for you, compromised relationships with the retailer and distributor, and headaches for everyone involved. Retailers will usually try hard to assess a brand’s ability to produce at the required volume and speed, and knowing your own production and supply chain inside and out demonstrates credibility and increases your chances of success at the next category review.
- Prepare for EDI: EDI stands for Electronic Document Interchange in the retail world, and it’s a big part of how retailers and distributors interact with you once they have agreed to stock your product. At all but the smallest operators, EDI is extensively used to streamline supply chain operations and reduce reliance on manual email-based document exchange. EDI requirements (data and document formatting, schedules, etc.) are often very strict, and suppliers can get hit with hefty fines for noncompliance. Depending on your technical savvy, implementing EDI for the first time can be expensive and time-consuming. For a small to medium-sized supplier, the annual cost of a basic EDI solution can range from around a thousand dollars to tens of thousands depending on the application requirements and transaction volume.
- Build Unit Economics with Retail and Distribution in Mind: Correct pricing is critical to retail success. While brands will often start with their costs and work upwards toward an MSRP, a better method is to work backwards from what your customer is willing to pay. This not only leads to more sustainable pricing decisions, but you will also learn valuable information about your market and product demand in the process. A very rough guideline is the “rule of thirds,” where one-third of the final retail sale price goes to the brand, one-third to the distributor, and one-third to the retailer. Depending on the category and retailer, however, retail margins exceeding 50% can be standard, and distributors may take upwards of 40% when international logistics is involved. Brands must also account for payment terms, trade spend (promotional discounts, required marketing, etc.), slotting and/or pay-to-stay fees, freefills, and RTV (return-to-vendor) clauses which crop up during retailer and distributor negotiations. Some of these are negotiable but many are not, especially for brands which are new to retail. Remember that while a retailer might see a hefty gross margin from your product, their net margins are often razor thin; low risk and high efficiency are top of mind for them.
- Create a Compelling Story: A captivating brand story highlights your product’s uniqueness, shares the brand’s origin, demonstrates a deep understanding of your target customers’ needs, and emphasizes why you deserve to displace your competition on the shelf. Doing this properly is less common than you might think, and it can be a huge differentiator. Substantiating your story with data is a huge bonus, but many brands struggle with a lack of relevant data and/or the ability to interpret it fully.
- Be an Expert: When you pitch your product, the category manager wants you to come to the table as an expert on your category with the ability to discuss it as an equal. You must not only extol and substantiate the virtues of your product, but convey how it fits into your category, and how your category fits into your retail channel more broadly. Pitching a kombucha to a convenience store distributor will be very different from pitching it to an organic grocer. Retailers love it when you come prepared with ideas on effectively marketing your product to drive in-store foot traffic. If you bring new customers to their stores or cause existing customers to visit more frequently, it’s a huge win for them because that customer is likely leaving with more than just your product.
- Internalize the Finite Nature of Retail Space: As a continuation of points 8 and 9, it is important to emphasize that the competition for shelf space is usually a zero-sum game. If you are going on the shelf, your competitor is coming off. Most pitches focus on why you deserve to enter, but not on why your competitor deserves to leave. A variation of “we’re similar to Brand X but 10% better” simply doesn’t cut it. This can be a tough pill to swallow for digitally-native brands, where “shelf space” is effectively free and infinite.