Preparation is essential when selling your food product to a distributor
Food businesses that want to sell their food to a distributor can benefit from adjusting their product price, configuring a pallet pack size, checking references and much more.
Many food manufacturers have the common misconception that a food distributor is a marketing solution for their food product. However, large food distributors mainly serve as a logistics solution for food manufacturers who have built up and managed sales in 15-25 stores.
If you have this level of sales and believe you are ready for a large food distributor, start with asking your current stores whether they are open to additional distributors or whether they only use their current distributors. Regardless of who the distributor is, here are some quick tips to preparing your product and business for use of a distributor:
Pricing Your Product
If you have been serving as your own distributor up until now and have been absorbing the costs of delivery, you will need to reduce the wholesale cost of your product to deduct the “delivery expense” from your price. This will then position you to have a product price that allows for a distributor mark-up when they sell your product to the store. Since stores will expect to pay approximately the same price they have always paid for your product, this reduction in your price to the distributor will help ensure consistent pricing of your product on the shelf.
Refrigerated and Frozen Needs
A high volume of unit sales will be expected for most distributors to carry your perishable product. This will assure them of a consistent income from your company’s product. A licensed, temperature-controlled warehouse is critical for refrigerated and frozen products. Low-volume companies will have to find an alternative such as a small distributor or their own refrigerated or frozen cargo van as they maintain and build their sales.
Pallet Your Product
As you produce at a higher volume, your company will need to have your product on pallets to reduce the amount of handling of your product. Understand how many cases high and wide your distributors prefer.
Delivery to the Distributor
You will still need to get your product to the distributor so determine how you or your co-packer will carry out this logistics step.
In-Store Shelving and Expired Product Checks
Determine and understand the distributor’s role. The most common role is to “drop” the shipment at the back door with the manufacturer being responsible for putting the product on the shelf and checking for old product. If the distributor does more than this, the percentage they charge will most likely be more to pay for these services.
Payment and Expenses
When you use a distributor, you are selling your product to them, not the store. Understand how you get paid and what the timeline is. Most commonly you will wait 30 days from delivery. Also, learn about the policy of the distributor for shrinkage (when your product does not sell in the store or expires) as you may end up buying the product back.
Ask the distributor what other product lines they carry so you can check with those companies to determine their level of satisfaction with the distributor.
As a manufacturer, you still need to market your product in the stores. Whether it is coupons, price drops, Buy-One-Get-One (BOGO’s) or demonstrations, you will need to coordinate these with the store yourself and pay part or all of the price for such price drops. Build a relationship with food store managers is essential. Plan to spend time on this critical part of your business.
The MSU Product Center, in partnership with Michigan State University Extension, provides free business counseling for product development, package selection and marketing strategies that will help Michigan entrepreneurs commercialize high-value, consumer–responsive food products. For more information, visit the MSU Product Center website or call 517-432-8750.