Distribution channels are the paths that goods – and title to those goods – follow from producer to consumer. Section 11 introduces alternative distribution channels and a number of factors to consider when deciding which channel to use. The process of obtaining and maintaining a listing with a retailer is discussed. The entrepreneur’s selling skills are extremely important in all distribution scenarios. Selling begins at identifying prospective buyers, investigating their needs, demonstrating the company’s capability, and finally gaining a customer’s commitment.
The Food & Beverage Processing in Manitoba Reference Manual (Third Edition, 2017) provides more detailed analysis of options to sell directly, or indirectly by using a broker/agent, a wholesaler/distributor, or hiring a merchandiser. A detailed discussion is presented on how to choose and work with brokers and distributors. A process to develop skills for a sales presentation is provided.
Distribution channels are the paths that goods, and title i.e. ownership of those goods, follow from producer to consumer. Distribution channels are also referred to as “supply chains”.
Well-designed distribution channels serve various functions, including:
- Reducing the number of participants and resulting in a more efficient system
- Matching the requirements of individual consumers to the outputs of various producers
- Standardization to improve the efficiency of the system
- Holding inventory to increase market response and to lower transportation costs
- Physical distribution of products to ensure that they are available for customers to purchase on-demand in the right location, at the right time and in the right condition
Types of Distribution Channels
When making decisions regarding the appropriate distribution channel (i.e. direct selling, indirect selling, broker/agent, wholesaler/distributor or merchandiser), businesses should look at competitor practices and consumer needs. As well, food and beverage processors do not always have a choice on distribution channels, as industry norms often determine which channels to use. For example, large retailers (grocery chains, department stores, and club chains) usually purchase exclusively through wholesalers/distributors and agents/brokers.
However, some larger retailers are making exceptions to this practice as they become more focused in featuring foods and beverages from smaller-scale local suppliers. Food & Beverage Manitoba works with specific retailers to gain access for its members through the Building Capacity Program.
- Food & Beverage Manitoba
Processor ⇨ End User
- Preferable when customized individual technical specifications or rigorous performance requirements apply
- The volume of the product delivered to a customer must be of an economic delivery size so that freight is not a penalty, or of such value that transportation costs do not matter
The One-Step Channel (Consumer Markets)
Processor ⇨ Retailer ⇨ End User
- In consumer markets, the intermediary is usually a retailer
- The processor negotiates directly with the retail chain’s buyer
The One-Step Channel (Foodservice Markets)
Processor ⇨ Wholesaler ⇨ End User
- The wholesaler takes title to the goods they handle
- The wholesaler's sales force is responsible for selling to the end user
- The wholesaler can reach hundreds of foodservice accounts more economically than the processor
The Agent Channel (Foodservice Markets)
Processor ⇨ Agent/Broker ⇨ Industrial User
- The agent becomes the manufacturer's sales force, making the sale, but never taking title to the product
Traditional Channel (Consumer Markets)
Processor ⇨ Wholesaler ⇨ Retailer ⇨ End User
- Used by thousands of small processors who are each producing limited lines of products and trying to sell to many small and medium size retailers
Agent / Wholesaler Channel (Foodservice Markets)
Processor ⇨ Agent/Broker ⇨ Wholesaler ⇨ End User
- Used when attempting to market a product into a new market area
- An agent/broker familiar in the new market is used to facilitate the wholesaler’s efforts with their customers
Processor ⇨ Agent/Broker ⇨ Wholesaler ⇨ Retailer ⇨ End User
- Used when products are produced by a large number of small companies who then use a broker to bring buyer and seller together
- The broker is an independent sales force, acting for the processor that is used in contacting a large number of scattered wholesalers
- Used when a product can deteriorate and a buyer must be quickly found
DECIDING ON A DISTRIBUTION CHANNEL
There are a number of issues to consider when deciding on a distribution channel, including:
- Market Factors - for example, short channels tend to be used where potential customers are concentrated geographically, there is a small number of buyers, orders are few but large and the customer requires regular service
- Product Factors – short channels are typically used for products that are perishable, highly technical or have a high per unit value
- Financial Factors – short channels are more likely where costs can be spread over a broad product line and where the processor has its own sales force
- Competitive Factors - Short channels of distribution are more likely if the manufacturer feels that independent intermediaries are not adequately promoting the product
When a retailer puts a product on the store’s shelves, this is often referred to as being “listed.” The term comes from larger grocery wholesalers that sell to a network of stores. Store buyers make their purchases from a central product list of available items. In most cases, store operators within a chain purchase at least 60 percent of the products they carry from their wholesaler’s pre-approved lists. Smaller, independent stores operating outside of a chain may have more discretion to buy from a variety of suppliers.
With each retailer’s shelves always being full, obtaining a listing usually means that someone else's product will have to be bumped. Although traditional grocery store shelves are dominated by national brands and private label products, there are opportunities for smaller businesses to enter the retail market with unique, quality food products that meet consumer demands. A manufacturer must convince the retailer/distributor of the value it brings to the consumer and the retailer/distributor (i.e. margin and volume-turnover).
To ensure that a product sells well, it must be available where target consumers (i.e. the ones who are likely to buy the product) shop. It has to be available at the quality they want, meet their needs and satisfy their perceptions of value.
For example, in the case of a unique gourmet or specialty product, it is better to approach gourmet stores and gift shops on a region by region basis. If the product would appeal to a value conscious consumer, consider the mainstream grocery retail stores that target the budget shopper.
New food and beverage processors, and existing businesses exploring new retailers, should investigate very carefully the buying policies of the food retail companies to be approached. For most situations beyond an independent single store scenario, new product buying decisions are made at the retail company’s headquarters, not at the store level. With some chains, managers may have input in identifying potential new products for their particular store. However, the majority don’t have the authority to secure listings.
For each chain, identify the buyer responsible for purchasing specific products and get information about the organization’s purchasing policies from the buyer before presenting the product. With some chains it may be necessary to negotiate repeatedly with various departments and regional/national levels.
Purchase Planning Cycles
Retailers/distributors may have specific cycles for certain product categories that fit in with seasonal promotions. For example, to sell products such as bakery, confectionery and poultry products for the Christmas season, approach retailers/distributors at least six months in advance. Become familiar with buyers’ seasonal order deadlines and contracting policies and target sales efforts accordingly.
Presenting the Product
The critical first step to securing a listing with a retailer/wholesale distributor is presenting the product. A person’s presentation skills, the level of detail of the information presented and adherence to correct protocol according to the company’s policy will influence the buyer’s decision to list. Most retailers will require all suppliers to complete a New Product Presentation form. A focus on the business and profit criteria, from the buyers’ viewpoint is required.
Food & Beverage Manitoba’s Building Capacity Program encompasses a number of services and training courses that are designed to prepare companies for introducing their products to retail and foodservice buyers. Market development experts provide one-on-one professional guidance with information that members need to effectively create a brand, market and distribute their products, and increase sales. Specific services include:
- Assessment of new products and package design
- Peer-to-peer mentoring
- Assistance in presentation skills
- Contact Food & Beverage Manitoba:
Distributors AND Brokers
Distributors typically purchase products from processors and resell them to foodservice establishments or to retailers. The distributor requires a margin of 20% to 30% to purchase food products directly from processors, stock inventory, take orders, manage the inventory on the shelf or in the kitchen, service the customers’ needs, introduce new products, deliver the products to foodservice establishments or retail stores, handle returned products and assist in any product recalls. They normally specialize in a category area such as frozen or in a number of areas such as fresh, grocery, or deli but not frozen.
Using a broker is equivalent to hiring a sales force. Before hiring a broker, make sure that the product requires the broker’s assistance. For example, products sold to a large national retailer like Loblaw may need a broker while goods sold to a smaller, regional group of stores like Foodfare stores may not. As a rule, brokers are not responsible for the shipping, invoicing, or inventory control of products at the store level. The broker’s role is to make the sale, represent the line to the retailer, and assist on the pull of the products at retail.
Food brokers will normally charge a fee or commission of 5-10% of the net invoiced price of all products shipped. One of the disadvantages in using the brokerage model is that the broker will not know a product line as well as the manufacturer, and may not be as successful in getting the line listed.
Finding Broker and Distributor Candidates
Food & Beverage Manitoba assists its members identifying potential brokers and distributors. Associations are also good sources of potential candidates:
- Food Brokers USA
Food & Beverage Manitoba organizes a number of events that brokers and distributors attend. Attending these member-only networking events provides an opportunity to meet them directly and to meet other processors to get their opinions on good brokers to work with. Federal and provincial government trade development groups also plan and manage trade shows in target market areas. These shows are often cost efficient as a variety of government support programs are available.
Selling AND SELLING SKILLS
As described in Section 10, marketing defines the target markets and identifies the competitive advantages that a business’s product offering has over the competitor’s offering. It is only after the marketing research, competitor analysis, and intense analysis of the target market’s needs and values are defined that the selling activities can be well designed.
Whether selling directly to the end user (direct selling) or selling to a wholesaler, distributor, broker, agent or retail store (indirect selling), company personnel must utilize selling skills. These skills involve moving beyond the marketing information/strategy and for each customer or customer segment, undertaking the following process.
Selling involves four steps:
- Preliminary research
- Demonstrating capability
- Obtaining commitment
Before contacting prospective buyers, the processor sales rep must identify the background information on the customer to be certain the customer has:
- The authority to purchase
- The financial means to purchase
This is the most important stage to a sales call's success. Its purpose is to determine the implicit needs of the customer and turn these into explicit needs. Implicit needs are statements by the customer of problems, difficulties and dissatisfactions. Explicit needs specify customer statements of wants or desires.
Throughout the investigation (both before and during the sales call), the salesperson uses four types of questions in order to move the customer from implicit needs to explicit needs.
- Background Information Questions: a good salesperson gathers as much of the information on the customer’s existing situation as possible in the preliminary research
- Problem Questions: questions designed to explore problems, difficulties, and dissatisfactions in areas where the seller's products can help. These questions uncover the implicit needs
- Implication Questions: take the customer's problem and explore its effects or consequences to help the customer understand a problem's seriousness or urgency.
- Value of the Solution Questions: questions designed to show that the seriousness of the problem warrants the cost of the solution. The problems that have been uncovered must grow and become big enough to get the customer talking about action (explicit needs). Through questions, the salesperson tries to get the customer to talk about how a solution will help by describing the benefits of the product in his or her own words.
For the four question categories above, a food or beverage processor must keep in mind they must address the needs and problems of their customer i.e. the retailer or distributor, and the needs of the end consumer i.e. the retailer/distributor’s customer. The retailer/distributor’s needs include margin and inventory turns. While the end consumers’ needs include tangible and psychological issues such as value, good nutrition for their family, comfort, convenience and a general sense of well-being.
To properly demonstrate the capabilities of a product, the sales person must understand the difference between features, advantages, and benefits. And the sales person must be able to see and describe these from the perspective of the buyer.
- Features: describe facts, data, and product characteristics. Highlighting features has little or no impact on the success of a sale
- Advantages: show how products or their features can be used or can help the customer. Highlighting advantages has a slight positive impact on the success of a sale
- Benefits: show how products meet explicit needs expressed by the customer. Stating benefits has a very positive impact on the success of the sales
- Develop the relationship - spend adequate time in the Investigation Stage so that customers realize they have an urgent need for the product
- Understand their needs - check to ensure that key concerns are covered by asking the buyer whether there were any further points or concerns that needed to be addressed
- Summarize the key points of the discussion, especially the benefits
- Propose a commitment as the appropriate next step for the customer as it will:
- Advance the sale or move it forward in some way
- Be within the achievable limits of the customer
- After-sales follow-up - following up with the customer is an important step to build goodwill and repeat business.