This article was originally published in FoodDive.
While many small brands often start out in a direct-to-consumer model, getting into retail is, much of the time, the end goal and the big leap these companies intend to make. And when the doors to Walmart and Target swing open, it’s certainly an exciting opportunity. But that success can be short-lived when small food and beverage brands fail to understand — and lack the fluidity to side-step — some of the biggest pitfalls when diving into the world of retail.
1. Thinking it’s business as usual
When small companies transition from a direct-to-consumer business model, the first — and likely the most fatal — misstep is not understanding the real differences between the two. According to Dipti Desai, founder and CEO of Crstl, an EDI platform that helps brands transition to retail, “many small food and beverage companies believe that selling through retail is the same as direct to consumer, just on a grander scale — it’s not.”
Desai warned that small manufacturers can’t simply use the same resources and processes and turn the dial from 100 to 100,000. Small companies making a move into retail have to do so with the understanding that the jump requires a “reimagining and reevaluation of everything they might have done to this point,” Desai said.
2. Not adapting the packaging for retail
It only takes seven seconds for shoppers to judge product packaging. Pair that with the fact that 72% of U.S. consumers have said that looks matter, and it becomes quite evident that packaging is key for any company making its way onto retail shelves.
Desai cautioned food and beverage manufacturers to reevaluate their packaging. The packaging that worked up to now, no matter how tried and true, may look different on retail shelves and ultimately affect sales.
Beyond optics, Desai also noted packaging can affect performance. What works and flies off the shelves for one retailer may not work for another, simply because the clientele fits into a different demographic. While a 36-count box of granola bars may work well for Walmart shelves, it won’t meet the same standard for the Whole Foods customer.
3. No reevaluation of operational excellence
Many small food and beverage manufacturers often “fail to reevaluate their idea of operational excellence, aka, how they work with upstream suppliers to procure raw materials and ingredients” on their road to retail, according to Desai.
“Operational excellence in this context refers to how they fulfill retail orders,” said Desai. “How do they fulfill orders seamlessly and efficiently? Have they picked the best 3PL partner (third-party logistics)? What’s the process for responding to customer support inquiries?
“Ultimately, CPG manufacturers must ensure that their processes work just as well the 1000th time as they did the 1st time,” said Desai.
4. Not choosing the right lead logistics providers
Desai noted that partnerships matter, and choosing the right 3PL or 4PL partner to handle your logistics can be make or break when scaling your operations. Ultimately, small outfits who want to survive in retail must do their due diligence to ensure that prospective 3PLs or 4PLs have the manpower, space, and systems to provide effective inventory management, warehousing, and order fulfillment.
Things to consider when choosing a 3PL include:
- Good customer service/reputation
- Security systems in place to protect your data and resources
- Scalability
- Compatible technology
5. Relying on the wrong metrics
“Food and beverage brands often make the mistake of relying on historical data to forecast demand and address supply chain challenges,” said Troy Prothero, Senior Vice President, Product Management, Supply Chain Solutions at SymphonyAI Retail CPG. The problem with doing so, he explained, is that “consumer purchasing and consumption can turn on a dime (as we’ve seen over the past three years). So statistical models based on historical data are no longer an accurate basis for forecasting, as the information is outdated by the time it comes to decision-making.” Instead of falling back on these types of misleading metrics, Prothero said, “CPGs should leverage AI-based technology to stay ahead of rapid changes in demand. Ultimately the predictions will be data-driven, science-based, and as accurate as possible.”
6. Not understanding supply chain requirements
“Retailers have a lot of requirements and small brands that don’t understand those requirements stand to lose a meaningful chunk of their PO in penalties,” said Desai. “So a tightly run ship is crucial.”
Desai said CPG manufacturers just entering the retail fray are usually given vendor compliance manuals that carefully spell out the requirements for package sizes, detailed instructions for printing shipping labels, instructions for the timing of shipments, and more.
These aren’t rules for the sake of having rules. Ultimately, they exist to reduce inefficiencies and keep things moving. Brands that fail to get up to speed quickly are likely to be slapped with breathtaking penalties for noncompliance. “It’s not uncommon for retailers to penalize brands as much as 10% of the total PO,” Desai said.
7. Failing to understand pricing and marketing
“Pricing and marketing that worked for a direct-to-consumer model may not apply to retail,” said Desai. Brands have to grasp rather quickly that introducing a middleman — the retailer — adds another level of costs.
Instead of going from your warehouse to the consumer, the product now has to filter through a supply chain to include wholesalers, distributors, and the like, and logistics add up quickly.
In order to be and remain profitable, Desai said brands should “lean early, often, and hard into leveraging data to inform their pricing strategies.”
8. Failing to approach logistics strategically
“The biggest issue CPG brands face today when it comes to shipping to retail locations is their perspective on logistics as a whole,” said Andrew Lynch, President at Zipline Logistics.
Many don’t realize the cost savings and competitive advantage available to their brand when they approach logistics strategically. Failing to do so ultimately leaves the brand to deal with the aftershocks of not getting on the shelf on time. Lynch explained the fallout of these missed opportunities is steep late fees, missed gross profit, and damaged retail relationships.
“Retailers want the same thing as CPG brands: products on the shelf that drive sales and foot traffic,” said Lynch. “If you’re not on the shelf, you’re only driving frustrated customers to buy the same product elsewhere. This is not good for your brand and not good for retailers.”
Lynch told Food Dive that Vita Coco got it right. “Vita Coco didn’t beat out Coca-Cola and Pepsi for market share just because they produced superior coconut water. They beat them because they had a superior set of operating principles. All three brands were all selling Tetra Paks of coconut water in similar flavors, but Vita Coco cared about getting their product on the shelf on time, all the time. As a result, they won ownership in their category and created a multibillion-dollar brand.”
Lynch added that brands like Fever-Tree and Poppi dominate their categories in much the same way because they operate with a similar set of philosophies.
“The road map to category leadership isn’t shaving pennies off transactional transportation costs,” he added. “It also isn’t breaking the budget to get the product on the shelf come hell or high water. You can’t buy logistics performance in retail; you have to be strategic, adaptable, and proactive.”
As to what this looks like, Lynch said, “It’s increasing order visibility and analyzing performance data using shipping intelligence software. This kind of technology provides shippers with high-powered visibility and data to track shipments, create organizational alignment, and analyze logistics performance data. It also reveals the inner workings of your supply chain and helps identify areas that can be improved to maximize efficiency and cost savings.”
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