Beverage School: Understanding Retail Channels

Speaker 1 [00:10] Without further ado, I'd like to introduce our first speaker. He's the managing partner of Cascadia Brand Managing, branding Brands. I almost just said brands. Cascadia Managing Brands, Bill Siper, he's here to talk to you about, uh, understanding retail channels and distribution and making, uh, sense of the differences. Bill, thank you so much.

Speaker 2 [00:35] I keep wanting to say good morning, but it's really not morning anymore. Um, but thank you for coming and thank you for listening and if, you know, you have any questions, we'll be back there later. Cascadia Managing Brands is a brand management company. It kind of can, can finds a, a, a broker, a consultant. A marketer as one, OK, we do use brokers as well sometimes, but you know, the whole idea is that we take all of our experience from all these successful brands and we don't allow you to make the same mistakes that we've made over our career. Um, our most recent success was Liquid Death. We were with them for 18 months from pre-launch to the launch and then to hiring there. Uh, vice president of sales, uh, we have an extensive experience in both food and beverage going back almost 30 years, distribution as well as on the brand side, as well as on the consulting side. So I'm gonna try and tell you or talk to you about the game that you're about to be playing, and, uh, it's not, not always a fun game, but there are several ways that you can get your product to the stores. And every one of them has uh strengths and weaknesses, but I would say that the most powerful is DSD distribution. That's the trucks that you see that say Coca-Cola, Budweiser, MillerCoors, uh, Dr. Pepper, Keurig, Pepsi. That's a DSD type of distributor, and there are, there are also, um, many independents out there. And then you have uh natural specialty distributors like UNFI and Kay. Uh, even I would, you could put DPI in that, um, but they would be more of a wholesaler. Um, then you also have uh convenience stores distributors like McLean and, um, EB Brown. So again, you know, Each one of these routes to market has pros and cons. And if you want more detail, I'm happy to fill you guys in when we, we sit down on what's better for, and it all depends on budget too and how fast you want to go and things like that. So everybody has a little bit of a role in this process. You as a brand owner have a role, and your job is to first sell it to the distributor and then sell it to the retailer or the customer and eventually to the consumer. And unfortunately the brand owner is still responsible for all those phases, even though you have a distributor, even though you have a product on the shelf. If it doesn't sell through, you've accomplished nothing. And in fact, you've made your situation much worse because it's harder to get back on the shelf once you, once you don't do well. So how many people have heard of brokers? OK, how many people have heard positive things about brokers? OK, So there are some good brokers you have to know who they are. Um, traditionally, large national brokers do a great job with things like Clorox bleach, Stella Doro cookies, anything that is a commodity. It's in every store. They don't have to. Worry so much about it. When you get to beverage, it's a completely different game for a million reasons. Startups don't have the same budgets as those big companies have. You don't have the people to manage those brokers and, um, on top of that, um, no one's ever heard of your product before. So the big brokers can be difficult for small startup companies and they're very expensive, um. But you do have to use brokers in a channel like like specialty and natural. Because the way UNFI and Kahi work is they will say to you, OK, I'll take your product if you get me a chain. OK, so you're a brand new product. Now you go to Kroger and Kroger says, great, I'm going to put you in 4300 stores, whatever the number is. And you say, oh my God, this is the greatest day of my life. And then they place an order for like 3 bottles per store. Um, and then they're complaining it doesn't sell and you're complaining that it's only in 30 stores out of the 4300, um, so the broker has another opportunity in the specialty natural food area where they can go to retailers, independent retailers and smaller chains like out here it's Lassen's, uh, Bristol, not even Bristol Farms I would say. Um, and they will go to these and get what they call pre-commits. That's basically a statement from the store that says if You sell your product to UNFI and Kahe or Kahi, I will buy the product. We then take that list back to the Kahe and UNFI buyer. 80% of the time they say, OK, that's sufficient. Sometimes they'll say, get me a small chain. Why do they want a chain? Why is the chain so important? The chain's important because if a chain makes a request for a product, And it fails, it's not the buyer's fault, right? But if he or she brings the product in and it doesn't work out, well, now they have inventory in their warehouses and it's not a good thing for them. So, to a certain extent, you wanna, you do need brokers uh in the natural specialty channel. We always recommend starting with regional brokers and hopefully eventually you're so big that you go to a big national broker like Acosta, um. And you know, again with big brokers, you're going to get proportionally less focus. So You also have to adapt your distribution strategies over time. And In a perfect world, I, if I was starting a beverage company, and I was younger, because I'm not so young, um, I would get a van. I would go into like a market like New York City where there's like 30,000 independent delis. And I would sell it myself and I would put it on the shelf myself. I would merchandise it myself and maybe I can only get 50 or 100 accounts that way, but at least I would figure out what's working for my brand and what's not working for my brand and I'll give you a very quick story. I was at Naked Juice, uh, we decided to come out with some new flavors, new concepts, and, um, loved the label, loved, loved the taste, the ingredients, everything was fine. Minor detail. The flavor on the label was blocked by the little lip in the refrigerator. Big mistake. So you, you do need to start a little bit smaller if you can, OK, uh, in order to achieve, uh, information that's going to help your brand. So for example, if you can't distribute yourself, there are smaller independent little distributors just got to find them that will do a better job for you than some of the bigger distributors. Years ago, uh. Big guys who used to tell us all the time, Bill. You got to get me to 50,000-60,000 cases a year. You build it to 50,000, 60,000, and I'll take it at that point and I'll get you 300,000, OK? Um, but in my opinion, start local and work your way wide. It doesn't mean you don't go into some critical good divisions of Kroger like King Supers in Colorado or, uh, Harris Teeter in, in North Carolina. It just means you're a lot more selective because you know not the easy part is getting it on the shelf. The harder part is getting a consumer to notice it with a very limited marketing budget. In a sea of 3000 other beverages. So I would start with local distribution, try and create a case study. Distributors and investors always look for the average volume per store per week per SKU. So that's what you want to focus on. So instead of putting 12 SKUs into a store, maybe you're better off putting 3 or 4, getting those numbers up a little bit higher, and then introducing more flavors as you go. Um, and then you're going to progress to other accounts and other distributors that are larger over time. This is not a one year process. It's not a two year process. Liquid Death was 18 months and it blew up, OK? In 30, 35 years in the industry, that's the second brand I've ever seen do it, and it was a miracle. OK. A lot of right things happened at the right time. Great product. They did great marketing. We worked really hard on the distribution side, but it all kind of clicked. Um, other brands, and you know, I'll talk to you about this later, Celsius took about 20 years and, you know, invested hundreds of millions of dollars before they finally got profitable. So do not look at this as short term. Um, you also have to target niche markets and regional brokers. Um, we, with natural products, I believe the best way to go 90% of the time. And we do change, you know, we don't believe in a cookie cutter plan. So like Liquid Death had nothing to do with, uh, the Natural Food Channel. It wasn't appropriate for them at first. Now they're national with Whole Foods, for example, um, but in the Natural Food Channel, the specialty food channel, they will give you a a chance to succeed more than a Kroger or an Albertson's or companies like that and. We think it's best to go after them first because they also have the consumers that are going to pay a little bit more money for a natural or organic type product. Um, and again, as I said, regional brokers in that channel is, it's really critical. The right regional broker in that channel is critical because, as I said, there are really good brokers and there are really bad brokers, and you have to know who they are because otherwise you're, you're 6 months into a relationship with them and they've done little or nothing, um, so you've got to be careful and um. Yeah, so and then there's tactical brokers. So we have a broker that calls on Target. He's amazing. We have a broker that calls on Kroger. His office is right across the street from Kroger. He knows what we want. He knows we don't want ubiquitous distribution in every Kroger store immediately. We want 50 at a time, 60 at a time. Um, HDB is another great account that even though you're gonna kind of take a, a smaller approach, they do very well with new products because they handle them very, very intelligently. Unlock unlocking the profit potential, you have to understand when you create a presentation and when you create a sell sheet, the consumer is never going to see that, OK? And if you don't get the distributor and the retailer to, to buy your product, you're never getting on the shelf. So they are your customers initially. And they work by a very uh simple uh uh ethos. What's in it for me? What's in it for the distributor? Because you know what guys, the distributor does not need a new item. They got plenty of volume. They got plenty of headaches. So what's in it for them? How can you differentiate and make your brand a little bit more special to them? And it can be profit, right? Giving them a little more margin. Sometimes that works and sometimes it hurts the product because the pricing at the retail is too high. Um, sometimes just working with the distributor and having a, a really good relationship, we did this with Nantucket Nectars and I had nothing to do with it. Uh, it's something I learned there and, um, we were literally partners with distributors. We would, we had 11 sales people in New York City supporting Big Geyser. We started with 1 and then we had 2 and then we had 4. But they knew they could count on us and they knew that we were gonna do everything that we possibly could to help them become successful. That was what was in it for them, for example. And again, you have to really focus on uh the distributor and the retailer. So your message on your sell sheet, your message on your PowerPoint presentation. It's gotta be a good reason for them to accept your product, you know, again, they probably get, we at Cascadia get probably 2 cases of product a week and we represent about 10 brands a year. So we turned down. You know, an incredible amount of brands. Some of them just don't get our attention. Some of them are probably really good, but we didn't notice it, right? Um, and you've got to prove it to move it. Winning distributor action in a, in a key crowded market. You have to think of a distributor, a new distributor, the first day that you're coming out as UPS. What does UPS do? Anybody? They move things, right? Do they sell anything? Do they sell anything? No, same thing with the distributor. Until they believe your product is going to be important and until you convince them that they're going to make money from your product. They're not gonna focus on your product. They've got too many problems, and I'll give you a very, really quick story. I'm running out of time, but very quick story. I have a friend who was president of UNFI. We worked together in Antic Connectors, super, super guy. When he became president of UNFI, I called my brother and I'm like, oh my God, this guy's now president. I know him. We're gonna give him a call. We're gonna get on a conference call. We're gonna figure out how to, how to really get this going. And I said, hey man, how do I do more business with UNFI? And he said, damned if I know. He said, we don't really sell anything. We're an operations and logistics company. He said, my salespeople go into the average store and the first thing they hear is, your delivery screwed up. It was 2 days late. You're out of the top 4 items I wanted. I've got breakage in the back. You need to give me credit for that. How are you gonna sell after all that? And what are you gonna sell? You're gonna sell something that is already selling very well. You're certainly not gonna go to someone that's unhappy and say, by the way, would you like my new product? That's never been proven and no one, no one has any idea if it's gonna be successful. So, You know, you have to make it important um for the distributor and you have to, in my opinion, you have, if you can afford to, you need to go slowly one market at a time. Take a market like LA which is a heck of a difficult market because you've got a lot of you know chains in this market. But go one market at, at a time, try and prove success. When that works, follow the map, OK? Go north a little bit to Santa Barbara, Oxnard counties, go south a little bit to San Diego, Orange County or whatever. Same thing in New York. Work the East Coast, work in the middle and then work up and work down, but don't try and get overnight distribution because you will not inevitably, unless you have, you know, $40 million and if you do, I'm really happy to talk to you right after this. Um, if you have $40 million for marketing, well, you can do that. I mean, liquid death rate is $200 million. So they could afford to add tons and tons and tons of distributors, but you've got to work with that distributor. You've got to be on the, even if you're the owner and it's a one person operation, you have to spend time on the street with the distributor, teaching them, becoming their friends, becoming their ally, getting them excited about your brand, showing them how to do it, right? Um And focus your, your, your distribution on accounts that you think your product is gonna sell the best. So again, I'm gonna go to New York City because there's so many independent delis. When we have a product, uh, you know, usually it's an upscale product. There are 200 accounts that we want to be in independent product. That's all I want. If I do a sales incentive for the New York salesforce and I say I'm going to give you $10 for every account you get, what's going to happen? It's going to wind up in every account they possibly could place it in whether it makes sense for your brand or not because they want to make money, OK? And then 6 weeks later, 8 weeks later, the, the account's going to complain that the product's not selling. Go pick it up. So you, you want to work strategically and you need to find out where your product sells best. So go back to Nantucket Nectars. Uh, back in the Yellow Pages days we would literally go through the yellow that used to be a big book that had all the names and we would, we would like pick every bagel shop and we would pick every university and college and you know we would build it that way and if that worked then we'd say damn we need 5 more bagel stores. What are the next 5 best bagel stores? What are the next 5 best universities? What are the next 5 X, right? Um, don't try and go all over the place and understand that merchandizing is important and your distributor is not going to do it, so you have to have a plan. If you wind up at the bottom shelf or you wind up at the highest shelf or your pricing is 30 cents more than it should be on the shelf, there's a really good chance it's going to fail, and that's not fair to your brand and that's not fair to you. So merchandizing and getting the right shelf and point of sale things are important, and I always say. Success breeds more success and failure breeds more failure, so you want to succeed a heck of a lot more than you're failing. Uh, how do you win chains? I don't know. I, you know, I, I called the, the Budweiser distributors in Florida who have a nice relationship with the 17 of them. And I say, guys, I've got a great product. You should take this on. And they go, Yeah, no problem. Get me Publix. I go to Publix and he goes, uh, it's November. Uh, the category reviews in 9 months. You know, why don't you present it then, and this is a true story. Bayer told me this the other day about water six months ago. He told me to present during the, the category review in December 1st was the category review. December 1st, I called him and he said, Well, let your Kayrep present it. I was like, Really? He doesn't know much about my product, so it's difficult. They want to see data, most chains. Now, you go to the, the better chains in the system and You take Bristol Farms may not look at data as closely, sorry, Gelson's may not look at data as closely as Bristol Farms. You, you've got to find the accounts that want to take a shot with your product because they're passionate and they love the idea, but they're still small enough that they're not taking on a container of product and having to throw it out. I once sold Shaw's 35 containers of a new 35 containers of a new product. It was a 36 ounce juice. We thought it was gonna be the biggest thing in the world. And when he ordered the 36 cases, 36, uh, trucks, my boss said to me, cut it down. I, I'm not cutting it down. I just got an order for all these trucks. Within a, like a month, the buyer called me up and said, you got to pick some of this stuff up. Now what do I do? I got nowhere else to sell it as we've produced it because he ordered it. So you've got to be really careful. Um, chains want data, they want slotting, they want promotional ads, they want, they also want to know that you have a distributor in place already. Well, now it's a chicken and the egg game. The distributor wants a chain and the chain wants a distributor. Um, and then you have to understand the consumer purchasing behavior. Is your product a product they're going to buy on the warm shelf, which is not, it's still an impulse, but it's more of a planned purchase or in the refrigerator where it's really an impulse purchase and they, they can taste it right there. Every product is different. Um, I'm gonna move quickly, begin small, regional, to specific channels and types of accounts for, um, uh, to start out in and expand strategically as your brand begins to grow. And don't push your brand further than it needs to be. I'll give you guys a copy of this slide. It just gives you basic margin that distributors work on, that retailers work on, etc. by channel. I don't want to go through it now because I'm running late, but it will be in the video, it will be in the presentation, and I will send it to you if you ask me to later. And then, you know, 80% of the business always comes from 20% of your accounts. So again, don't focus on ubiquitous distribution day one. When you're Coca-Cola, you need to be within arm's reach of every, every customer. I have 2 minutes. Um, so 80% of the business comes from 20% of the customers. Make sure you're getting those right customers, um, and don't forget marketing because you have to have a marketing strategy, at least on paper, OK? You can't walk into a buyer or a distributor and say, I'm gonna spend $8 million in advertising and not spend it. But you know, when you talk about social media and doing really good social media content and you're gonna geo target ads to the distributor's neighborhoods. You know, they're not going to know exactly how much you do or you don't do, but you have to have a plan. So I look at local press and social media as the two first places to go, um, but no matter what, inaction is not. A possibility you will fail, OK? So, you know, always have a plan. And if Whole Foods is your distribution strategy, if that is your business plan, I want to get into the 450 Whole Foods locations. You don't have a plan. Because today they're very data-spec. We had a conversation at Bevnet Live with one of the Whole Foods buyers, super nice guy, and he said, Bill, it's just not the old Whole Foods. We don't want to be pioneers of new products. We want proven products that have data that can show it, that you can even show them your Amazon data. They'll, they'll even accept that, but they need to see something. And advice in 14 seconds. Um, go slow and steady. Brands like Snapple and Sparkling Ice are 20 year overnight success stories. Go to one market or channel at a time, uh, determine what's working and not working, fix it and then move forward. Don't be embarrassed to say it's not working. I got to try something different. Thank you.