Direct to Retail: Path to Market
In dealing with independent food stores it is quite common, when getting started, for the vendor to present products directly to the store owner or store buyer. It is also quite common, when getting started, for the vendor to arrange all the shipping, handling and invoicing of the products to be shipped to the stores. However, over time and as the business expands, many companies look to alternative ways of selling or shipping to the stores. At this point in time, these companies often begin to look for a broker to help with the sales to the stores or a distributor to handle the sales, shipping and servicing of the products to retailers in a specific geographic area or to a specific class of trade.
Shipping Direct To The Store
When getting started many small companies choose to approach retailers directly and arrange for their own shipping of products to the store. It is considerably easier to approach an independent or specialty retailer than a national or regional chain. The independent or specialty retailer normally has fewer “gate keepers” to protect them from the solicitations of new companies with products to sell.
Direct Approach to Retail
Pros
- The direct approach by a new company or new vendor to an independent or specialty store may work quite well, if you are prepared to invest the time and energy it will take to capture a new account, the same approach may not succeed with a regional or national chain.
- 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.
- Works well with independent and specialty.
- Easier to launch products at retail with independents.
- Independents are receptive to new and innovative products.
- Establishes relationships with the retailer.
- Better feel for acceptance of the product by consumers.
Cons
- Servicing independent stores can be quite costly when consideration of the order size is compared against the “drop cost”. The drop cost is the cost of time and resources such as fuel, vehicle lease cost, insurance and other considerations against the gross margin of the order. If the order size is $20.00, not unusual for a small store, then the gross margin may total $10.00. If the cost of delivering the product, including the opportunity cost of time and transportation and administrative and other costs are factored against the gross, the net margin may be lower than dealing with a distributor.
- Difficult to get an appointment with majors Majority of products delivered by distributors
- The opportunity cost of time with independents and hundreds of stores with majors
Cost of establishing logistics links to retailers Service costs and inventory financing costs - Full program costs are the responsibility of the vendor
- Set up customer service, sales reps, return logistics, collection procedures, credit procedures, storage, inventory control
- Better feel for acceptance of the product by consumers.