Often for those who run businesses selling consumer goods the big retailers are seen as some kind of holy grail. True they can deliver great economies of scale to your production, they can get your product out the widest audience and yes they can help you break out into being a mainstream product. But is trading with these big national retailers everything it’s cracked up to be and are the challenges and stresses they exert on your business worth the reward?
Working with large retailers such as Asda, Tesco and Sainsbury’s can help get your product out to the widest market possible, lets face it who doesn’t shop in a supermarket at least once a month? These operators can help you turn a fledgling niche business into a big operator overnight. You can go to zero to hero in days! So what’s the issue, sounds great? Big retailers, big orders, your product in the reach of thousands of shoppers what could go wrong? Well a number of things in truth and some you will have no control over at all.
Firstly getting into the big retailers is no mean feat, getting time with the right person can be challenging enough for big manufacturers let alone some small independent producer no one has every heard of.
Lets imagine you got that meeting and its going well, they love your product, but they have a few questions. They have margin targets and your product won’t deliver in its current format, can you reduce the cost or re-engineer the format? Competition is tough on their shelves have you got the marketing budget to make it work? If it does go into high distribution and demand is high can you meet production requirements and will you make them the number 1 priority over your other small but long standing customers?
Of course these were all questions you’d thought they’d ask and deflected them beautifully, now you need to work with their product development and merchandising teams to make sure the product is delivered and packaged in a satisfactory way. The product is tested for scanning at till and despite a few minor hiccups long the way it all gets through.
Supermarkets can have your products in the reach of thousands
So a month or two down the line and your product is set-up, in depot, on-shelf in store and ready to be scanned. You’ve agreed a launch promotion to help get the word out (of course there is a ticket fee for running it and you will be expected to fund the promotion to keep it margin maintained). Your first product is sold and over the coming weeks and months so are many more. You couldn’t be happier and everything in the garden is rosy, before you know it other retailers are taking your product and you are well on the way to being a big deal in consumer goods.
So where is the real problem? Well often further down the line you will need to invest in your infrastructure to cope with the increased demand, you’ll need more people to support and manage the growth. All good things for any healthy growing business. The challenge comes when you need to increase your prices to support this investment and when the retailers demand support on margin because they’ve decided to move the retail price down.
Further pressure comes when they expect you to promote your product to ever increasingly deep mechanics such as Half Price or BOGOFs. You can quickly escalate into spending huge sums of money in driving your product through the retailers, supporting their margins and watching yours erode.
Your brand equity can be destroyed instantly if they choose to crash the retail price or promote to excessive levels. Of course you can stand firm and refuse to promote to these levels or force the price increase through. The result at best a reluctance to work with you and your brands, a decrease in the levels of distribution. At worst de-list!
We would never say working with the big grocery retailers was a bad thing in fact it can often be the best thing for a product or brand. All we would say is manage your expectations and be wary of potential issues and pitfalls of trading with these big players.
