Product distribution is a key component in the marketing cycle with others being production, product pricing, and product promotion. Distribution involves the movement of products from the producer or manufacturer until it reaches the end users. During the distribution chain, as the product leaves the manufacturing location, it goes to a wholesaler or distributor who then distributes it to a retailer. The retailer finally takes it to the end user at their location which has foot traffic. The retailer has identified themselves as being a convenience store, grocery store, big box store, and or a specialty market store. The convenience store is the focus for this article but most of the same logic applies.
When focusing on the C Store trade, you have to first identify that your product and brand goes with the logic of the store. If you were in a rush and grabbing gas or a quick snack, then would you purchase your product at that time is the logic we are talking about. Candy, Tobacco, Drinks, and other fast need items are the staples of the convenience store industry. Another key trait is can your product be a traffic draw or is it dependent on the foot traffic. Lottery tickets are a traffic draw for example. Not many items fit into that category as they are normally staple brands and have a mass following.
Distributors and wholesalers are only the middle men in the transactions. Your first call should be selling your product to distributors, which you can find on our home page. Once you are off that first call you will understand why we came up with Check Stand Program. The key for the distributor is that your product moves, in other words, it does them no good to purchase the product unless they can sell it multiple times and not worry about having it spoil or not sell. The logic starts with the stores themselves. They have so much money wrapped up in their square footage that they have to have a profit per square foot inside. There is an infinite number of products and brokers calling on them to sell them products. The only thing they need to be convinced is previous sales experience.
Previous sales experience comes directly from the fact that you have X number of stores that sell X number of units per month. Why are we talking about the distributors and yet talking about the stores? There are several different transactions and types of stores. Let’s take a moment and explain those relationships first.
Take for example the convenience store Sheetz.
Sheetz now has more than 400 locations across six states — Pennsylvania, Maryland, Virginia, West Virginia, Ohio and North Carolina — and more than 13,600 employees. All Sheetz stores are company-owned-and-operated. The company has no plans to sell franchises.
Sheetz has a few distributors. These distributors, even if they purchased your product could not guarantee entry into that particular store. Most of the larger franchise or chain stores have a buyer and a process for becoming a new product in their locations. This normally involves a slotting fee.
A slotting fee, slotting allowance, pay-to-stay, or fixed trade spending is a fee charged to produce companies or manufacturers by supermarket distributors (retailers) in order to have their product placed on their shelves. The fee varies greatly depending on the product, manufacturer, and market conditions. For a new product, the initial slotting fee may be approximately$25,000 per item in a regional cluster of stores, but may be as high as $250,000 in high-demand markets.
In addition to slotting fees, retailers may also charge promotional, advertising and stocking fees. According to an FTC study, the practice is “widespread” in the supermarket industry. Many grocers earn more profit from agreeing to carry a manufacturer’s product than they do from actually selling the product to retail consumers. According to retailers, fees serve to efficiently allocate scarce retail shelf space, help balance the risk of new product failure between manufacturers and retailers, help manufacturers signal private information about potential success of new products, and serve to widen retail distribution for manufacturers by mitigating retail competition. Vendors charge that slotting fees are a move by the grocery industry to profit at their suppliers’ expense.
Some companies argue that slotting fees are unethical as they create a barrier to entry for smaller businesses that do not have the cash flow to compete with large companies. The use of slotting fees can, in some instances, lead to abuse by retailers such as in the case where a bakery firm was asked for a six figure fee to carry its items for a specific period with no guarantee their products would be carried in future periods.
That buyer will normally ask for the slotting fee, free first product, and will tell you who they would like to be the distributor. The difference is that some of these major chains let the manager choose a few items to buy on a regional basis. This process normally involves a regional manager and item approval. You will probably have to deliver as a D.S.D. item and placing a restock as demand needs. They will review your item every three months and if you ever run out then you will never hear the end of it. Little Debbie, Bon Appetite, and Frito Lays are delivered D.S.D. and it is a great option if you can economically support it.
DSD is used effectively for full truckload orders where bypassing distribution centers makes economic sense. DSD is also a favored approach when there is a strong requirement for supplier knowledge or service such as is the case with greeting cards for example. Having said this, there is pressure building up in the food supply chain to reduce the retailer’s reliance on DSD and push more volume through centralized distribution channels
The distributors to start with normally have a lot more “mom and pop” convenience stores. These are a franchise that is owned locally by one person or a group. They normally own less than one hundred stores in total. Many are one store operator/owners. Convenience Store Distributors that have their route made up mainly of these type of stores can grow your product distribution much faster than going with the Chain Stores.
One reason these distributors can help you so much is that they will employ an edge for you. They are usually having to sell the owner on products and has a relationship with them. It is a smaller circle of people so easier to penetrate with your product. This focus on growing your product doesn’t mean it is easy though. The product still has to turn and that means that the product will have to have marketing, sales support, customer education, and a great product. Convenience Store Distributors are just one piece to the puzzle. The puzzle has to complete or you will not get reorders.
One thing you will start to hear and you will probably gripe about at some point is the “Big Boys.” The larger companies that have been around and gained distribution and have deep pockets. These companies represent over eighty percent of the space you are competing for. They own the floor space, have rebate programs for the distributor and store, have a direct sales staff or core team of brokers to sell and educate about their products, and they have a mega marketing plan. They constantly have new spins on products and promotions. They also have the entire process backed up with in store specials, posters, commercials, sponsorships, celebrity endorsements, and many other value added reasons to participate in their product and brands direction. Don’t get mad but really learn from what they are doing. Know you have an uphill battle and take smart steps in synergizing your campaigns to market.
Some of THE BIG BOYS…
The first-ever CSNews Supplier Excellence Awards winners are:
• Marketing & Advertising Excellence: Anheuser-Busch Cos. Inc.
• Partnership Relationship With Retailers: The Hershey Co.
• Effectiveness of In-Store Promotions & Merchandising Displays: Mars Inc.
• New Product Innovation: NJOY
• Speed to Market: Monster Beverage Corp.
• Best Order Fulfillment of On-Time & Complete Deliveries: PepsiCo Inc.
Read on to see what retailers had to say about this year’s top suppliers
— Don Longo
So the larger convenience store distributors, such as McLane, are really only trucks. They have a sells team but they are order takers for large brands. The company doesn’t want it only that way but demand drives it that way. These hard working sells reps only have time to make sure the big brands are filled and the high turning items are stocked. Then the new promotions from the already successfully turning items have to reviewed and presented. Then if time allows with the few accounts they can they can upsell the new up and coming brand. Fiscally it makes sense for the company and they do a wonderful and great job promoting and distributing to retail giants and chain stores by keeping everyone happy. So make sure you know who your target is. Find out who the core market is for that convenience store distributor and make sure your product can withstand the movement needed for their stores along with the sales support needed to be developed and implemented.
McLane is an American supply chain services company, providing grocery and foodservice supply chain solutions for convenience stores, mass merchants, drug stores and military locations and chain restaurants throughout the United States. McLane is a wholly owned subsidiary of Berkshire Hathaway Inc. and is its single largest non-insurance business.
There is heated competition for accounts across the C Store distributors industry. These distributors are constantly trying to chisel away at each other. This is great when your product gets some proven movement because it is the driving factor why every wholesaler and distributor has their eyes and ears open for the next five hour energy, chip brand, or fast moving consumer goods.
Fleming, the grocery distributor, said yesterday that it had won a contract to supply 114 convenience stores for ConocoPhillips in five states.
To sum it up. Product and demand are the major factors in the buying decisions of any good wholesaler, distributor, buyer, chain store, retail store, outlet, regional franchise, and or anyone in this industry. The major buying decisions of a Convenience Store Distributor are made as a business that has to reap a profit. Understand their business, each one is different, but there are certain categories to understand of the distributors. Look for wholesalers and distribution that makes sense for your brand and what stage of development you are in. When you are ready to start the process make sure you are ready. Look at the adversity you are going to face and be ready for it. Not all days are going to result in a closed sale. You have to just “kick the can” every day and make sure you are moving it forward. The forward progress will pay off in the long run if you have the right product.
Good Luck, Check out the directory of stores, directory of distributors, and the check stand program for ways to get your product moving the right direction today.