Most CPG businesses are looking for that next step to increase sales. Some of us dream of seeing our products in stores like Target or Whole Foods, and others just want to have a few independents and stay local. Either way, you need to have your strategy and offering together before you get in the ring with a retailer! This article will focus on the larger retail accounts, and what steps you should take to ensure a successful entry. Selling to retailers isn’t always easy, but this guide will help you get started.
1. Know your pricing for selling to retailers
You’d think clear pricing would be a given right? You may say, “I already have my pricing figured out; I can skip this part!” But, wait! Let’s chat.
I can’t tell you the amount of times I’ve spoken with a client about pricing and had to offer some perspective. First, know your margins. If your cost of goods sold is $3 and you’re selling your product at $3.10, your business won’t survive. Every product category is different, but I often suggest a margin of 30-50% after all expenses are deducted.
What are your direct competitors doing? If your direct competitor is on shelf at $14.99 and you’re asking for a $34.99 retail price, your product won’t move in a retailer. Why? Because it isn’t marked competitively enough. Unless your product has a substantial difference in features and added value, your pricing needs to be close to that of your competition to gain traction and do well on shelf.
2. Know your “walk away” point
Another really common mistake I see with clients is that they say yes to every contract and deal that comes their way! It’s money, right? Wrong.
If a deal is going to land you in the negative, don’t take it. Very few companies have the capital to go into a market at a loss and gain massive placement and recognition. If a retailer is pushing you lower on price and it just doesn’t make sense, walk away. Be transparent that you have reached your net price and can’t budge any further. Selling to retailers at a loss is rarely worth it.
3. Understand the supplier contract
Before you get carried away sending out pricing and agreeing to terms, ask for the supplier contract. This usually massive, legal contract will tell you all the ins and outs of working with said retailer. Here are some things to look out for:
- Do they purchase on consignment? (this automatically makes me run for the hills!)
- What are their payment terms? Common ones are: 2% 10 Net 30 (this means they take a 2% discount if they pay within 10 days after receipt of goods, or no discount if they pay within 30), 1% 15 Net 30, Net 30, Net 60, and even Net 90
- Do they have an automatic defective allowance? If so, how much is it?
- How do they handle defectives and how does that impact your business?
- Do they have an automatic advertising allowance? What percent is it?
- Do they require markdown money?
- What is the process if your items are taken out of stores?
- Are there slotting fees? If so, what are they?
There are so many variables that go into a retailer contract, and no two contracts are the same. Make sure to read every line and know the fine print! If you don’t understand what you’re looking at, ask your retailer. If you want to be extra certain, I recommend looking for a contract attorney, or an experienced sales negotiation expert that knows contracts!
4. Have a compelling sales presentation for selling to retailers
Let me say this bluntly, buyers do not have the time to look at your 40-page PowerPoint presentation on why your company is the best thing since sliced bread. Think of buyers as a mom with three toddlers clinging to her while running through a grocery store. They are on a mission, and rarely have time or patience to get sidetracked. I can say this because I’m the mother of one very active toddler!
That being said, sales presentations should be short, concise, and get right down to business. When cold prospecting, I don’t recommend sending pricing in an initial presentation. Instead, list an MSRP (manufacturers suggested retail price) and a starting margin for the retailer. This could look something like: $14.99 MSRP – starting at 50% margin! This way the retailer gets an idea on margins, but you aren’t locked in until you know more details on their operations. Include great product imagery and key differentiators, eg: Highest protein content on the market, made from premium tempered glass, highest safety rating, etc.
5. Know your target market
Seriously, you have to know your target market and demographics. Is it women over 40? Millennials? Men in their 20’s? Who are the likely groups to purchase your product? This goes back to pricing; is it attractive to your key demographic?
Another mistake I often see is CPG companies going after every retailer out there to expand their distribution. That isn’t always the right strategy. For example, let’s consider a new premium meal replacement shake that is plant-based. The average cost per serving is $5, and the consumer is usually plant-based or vegan, a millennial on-the-go, with no kids or spouse.
Would this product do well in a Walmart store? What about a Whole Foods? Which would you pick? Short answer, this product wouldn’t fit into a Walmart store. Why? Their EDLP strategy (every day low price) mixed with any current competition, and the fact that their main demographic is cost-conscious families means this premium meal replacement product would likely flounder in a Walmart store. But put it in a Whole Foods, and it takes off!
Know your target market and the retailers that serve your market well.
6. Manufacturing capacities don’t lie
Know your limits! If you can only manufacture 1,000 units per week and you are staring down the barrel of a retailer contract that would require 2,000 units per week, you will not succeed. I don’t care who says anything different! You can only push so much out the door at one time, and trying to do more without having the right capabilities in place can put you out of business.
A common misconception is that working with a large retailer means fulfilling for all of their stores. I can tell you that after a decade in the CPG space, this couldn’t be further from the truth!
I have personally signed deals for 1000 Walmart stores, 200 Publix stores, 50 Kroger stores, and so on. Retailers actually want your products to succeed. Why? Because it costs them money to set your product in stores. Think about it – it costs retailers tens of thousands of dollars to set your product on their shelves. Why would they bring it in just to hope it fails?
Working with a retailer is a partnership. If you tell a retailer you can fulfill all 4,500 stores and you know you can’t, it’s your fault. It’s okay to say no. It’s okay to say 4,500 stores is too much but 500 is just perfect. The majority of buyers will appreciate the transparency and work with you on growing your brand.
Wrapping Up: Selling to Retailers
Landing a retail account is a big deal. One large retailer can keep your business going or shutter it completely if you don’t understand the dynamics of working with them. Thousands of businesses fail every year, not because the product isn’t fantastic or they don’t have the right employees, but because they didn’t understand the demands of selling to retailers. I’ve seen so many mistakes over the years, but I’ve also helped many companies learn, grow, and prosper! YOU. CAN. DO. THIS.
Still feel like you don’t know where to start? Contact me and I’ll see how I can help!
About the author:
Emily Gillam is an experienced sales leader with over 17 years of experience in the consumer-packaged goods industry. Having been raised by two serial entrepreneurs, she was thrust into small business in her youth, and carries that passion for startups to this day. Working with several CPG manufacturers over the years, she’s assisted in bringing new products into stores like Walmart, Target, Meijer, Publix, Kroger, and many more.