What to expect when you sell your food product in local stores
Selling your food product in local food stores requires you to establish brand awareness, a price that will absorb supply chain mark-ups, a shelf life that works for you, and perhaps multiple products if you are targeting large retailers.
So you have that recipe perfected, it is packaged and labeled and now you are ready to sell it at the local grocery stores. Or better yet, you think, at a larger retailer. Before you walk through the door of a local retailer to pitch your food product, here is some information you will need to know.
First, ensure you have built brand awareness through selling at local markets and perhaps to restaurants. Second, ensure your product fills a gap in the market. If it doesn’t, and it has several national brand competitors, you had better ensure you have a large marketing budget and a plan to guide it as you try to establish a local following.
The mark-ups on your product, after you capture your 35 percent margin, will likely be as follows: around 50 percent if it is in the deli section, around 30 percent if it is frozen or refrigerated, and 18-25 percent if it is shelf stable. If you use a distributor between you and the store, you will need to anticipate an additional mark-up around 20-30 percent, depending on if they are full service and put your product on the shelf for you. Since you will most likely be delivering the product at first, you will pay yourself that distribution cost so the wholesale price to the retailer will reflect that.
As you can see, taking the time to ensure your pricing structure can absorb these mark-ups and still land your product on the shelf at the price consumers will pay is critical.
Target small stores in the beginning and, if you have the capital and desire, graduate to larger stores. This will enable you to get use to the transportation needs, stocking your own product, sampling, and how to develop relationship with the store manager or aisle clerk. Once in the stores, you may experience a surge and then a lull. Because of this, make sure you have a good shelf-life for your product. Shelf-life issues can be costly as the store may fine or charge you for product loss. Finding the right package can make all the difference in getting a good shelf-life for your product.
Before you go to a larger distributor like Meijer, Kroger and Spartan stores, realize that this is a game changer. Even when you have a distributor, you will still have distribution costs to get the product to the distributor, unless the distributor goes right to the co-packer making your product. Also, expect a slotting fee, which is a fee to get the product on the shelf or to have warehouse space. Stephen Hall, in his 2009 edition of “sell your specialty food”, said, “most small companies are unable to afford the cost of introducing a new product through distributors” due to the increasing incidence of slotting allowances.
If the slotting allowance still allows you to make the profit you desire, you will want a family of products to sell in these large locations. Otherwise, your one product will get lost on the shelf with the other families of products. Since you will be paying a distributor to deliver to those stores, you will be wholesaling your product for less but more products means more sales. Multiple products, however, will mean multiple inventories which means more production cost for you.
To help develop a regular customer base within a store, sampling will be a key to success for you along with perhaps temporary price reductions or coupons that coincide with the sampling. The sampling and temporary price reductions every three weeks of products will mean less profit from your product for both you and the store. Anticipate that the business will not profit from large retailer sales until after a considerable investment of time and capital has been invested, so be financially prepared for such a venture.
The MSU Product Center, in partnership with Michigan State University Extension, provides free business counseling to Michigan entrepreneurs who want to commercialize high-value, consumer–responsive food products. For more information, visit the MSU Product Center website or call 517-432-8750.