Many new companies face a decision early on:  do we sell in retail or do we sell on Amazon and focus on e-commerce.  For a small, unfunded or privately funded company, retail distribution provides significant challenges with a very long path to profitability. It is almost never the best path for a new brand. Given how challenging this breakthrough into retail can be, using a fractional CMO can be greatly beneficial. They can provide you with a high level of expertise without stretching your budget more than you can afford. In this article, I walk through the experience of one new brand’s attempted entry in retail.

Most Consumer Packaged Goods (CPG) brands strive to get their products on retail store shelves.  There are many choices of retail channels, and for "Better-for-You" food brands, the natural grocery channel is usually the starting point.  The allure of selling your products at Whole Foods or Sprouts is a strong one, and many millions of dollars have been spent trying to do just that.  

But retail is complex to navigate and there isn’t a whole lot of information regarding what it takes to penetrate retail for small brands.  This post offers a summary of one company's journey.

Our Retail Approach

Our goal was to gain distribution by landing anchor retailers to open distributor warehouses. This is a common approach and involves selling directly to stores like Whole Foods, Sprouts, Albertsons and Kroger. In order to do this, we had to complete countless category review processes.  A category review is the process that these retailers use to determine additions and subtractions from their retail products on the shelves. Even when we were successful in these sales processes, we often had to wait up to 9 months to be placed on the shelves after we were selected.  We also initially gave price breaks to almost everyone, in addition to free fill and slotting fees. Free fills and slotting fees are upfront investments made by the brand in the form of free products (usually one case of each SKU per store) or discounts off of initial purchases.  We aggressively participated in specials at both retail and distributor levels to try and drive trials all while paying all of the fees required to do so. Oftentimes we had to wait months to get paid from the distributors while trying to figure out why half or even three quarters of the invoice is not paid because of deductions and spoils.

The result of our approach

This approach is not novel: it is simply the way new brands gain retail distribution. We worked with a leading broker and contract sale organization that had tons of experience. We never made a profit in retail, even after 4 years and placement in more than 3,000 stores. Our production calendar was thrown into chaos by erratic distributor orders that bore no resemblance to actual store sales or turns. One distributor ordered enough product to provide nearly a year’s worth of inventory and insisted that it was just for 8-12 weeks. Months later, we paid nearly $100K to dispose of the product that expired sitting in the distributor’s warehouse. The entire time we were out of stock on our website, leading to significant lost sales.

Our Decision

We decided to suspend new distributor-based sales efforts. This meant that we stopped all current category reviews and didn’t complete any new submissions. We also evaluated our current business partners and discontinued the products and retailers that were clearly unprofitable. We significantly reduced our spend on promos and specials, especially where we had to pay a fee. We continued selling the direct business and drove more direct wholesale. We also focused on our Direct to Consumer (DTC) business and Amazon business to regain overall profitability.

Mike Morris is the founder of Kettle Hole Partners. When he is not trying to figure out mathematical models for marketing and customer acquisition he is probably riding his bike.