CPG Sales and Distribution

Gene, thanks for your time, I’m looking forward to this session specifically. If you could just give a short introduction to your experience and your background.

I’ve spent a little over 37 years in consumer products. I began my career with Coca Cola USA, worked for Pepsi Cola, at the PepsiCo organization, as well, with Frito-Lay, another large snack food company in the United States called Lance, that ultimately became Schneider’s Lance, which is now part of the Campbells organization.

After spending time in large organizations, I spent the last 14 years of my career helping 3 smaller organizations in the consumer products arena to help get their product distributed across the United States.

I started my entire career at the lowest level of the organization at Coca Cola on a route truck. I worked my way through numerous promotions over the years to become a vice president of sales for the United States for about 16 years. So I’ve had the experiences at pretty much every level of an organization and working with retailers. I think that’s what’s been able to provide me a pretty good background on how to enter the United States retail market, the pitfalls, the barriers, things like that that companies run into.

How did you get started in the CPG sales?

Yes, as a matter of fact, it’s interesting how it happened. I was playing professional baseball, I was in the St. Louis Cardinals organization and was hurt and had to have a job after that because my career was over in baseball and they helped me get a job at Coca Cola, in Greensboro, North Carolina. When I showed up to the job, they told me, your first role is going to be driving a truck and delivering drinks and going to every supermarket, and convenience store, and every other outlet that we assign you.

I had never had one inch of experience doing it. I spent five years doing just that. I learned the business from the ground up of how to roll a hand truck, how to approach customers at the store level, how to approach people that were the decision-makers within those grocery outlets. It gave me a unique experience to be able to learn from there.

Then I was promoted into an account manager role, which really took that to the next level, which was now instead of calling on individual stores, I became calling on the customers themselves. Then I became a national account manager when I was a Frito-Lay. That afforded me the opportunity to start calling on the corporate accounts nationally.

From there, I became a director of sales, where I was managing teams that did that. Then a VP of sales, which managed everything from the distribution to everything across the board. The grounding for me and what I think a lot of organizations and a lot of people who have talked about getting their products into U.S. retail, the real piece for them was that first five years of understanding exactly what it takes at store level to get products displayed properly, priced properly, positioned properly. It was just something that you learned and built on.

If we just take a hypothetical situation: we’ve got a new great tasting product, it could be a barbeque sauce, tortilla chips, a packaged good category of your choice. Let’s say this product owner is looking to get U.S.-wide distribution, what would be the first question you would ask that product owner?

I would ask them, have you done the strategic work? Forget the product taste, forget the product branding, everything that you have, and that you do have a great tasting product. Have you done the strategic work at the customer level to understand what it’s going to cost you from a distribution standpoint and from a placement standpoint? Have you factored that into the cost to understand what your ultimate retail is going to be? Is that going to be competitive? In 99.9% of people I have talked with, had conversations with, or consulted with, the answer to that is no. It’s the biggest mistake that can possibly happen.

What exactly did they misunderstand or not calculate?

It’s almost across the board. Barbecue sauce is a good one. I’ve had somebody with a great barbeque sauce. They would say, ‘I make this in my garage, it costs me about two dollars per bottle. I figure I could probably sell it for $2.99 and I’d still make about 50 percent profit’. I tell them, if it costs you two dollars per bottle, by the time it hits the shelf, and every cost associated with getting it to the shelf and what it’s going to cost you with the outlets to run that product to get the movement you need, you’re going to be at $6.99 retail. They just look at me with this face that is in disbelief. “It only costs me two dollars.” I understand that, but it costs Kraft 0.59c to make that and they’re retailing it for $2.99.

If you’re going to be at $6.99, there’s zero chance you’re going to compete. There’s just a complete misunderstanding. A lack of understanding of all the costs associated with the fact that you manufacture your product and what that cost is. From manufacturer to the point it’s on the shelf at a retail price. Without the experience and understanding, it’s just a total miss because people think, “It cost me two bucks, I can run it in my car down the street and put it on the shelf and it’ll be $2.99.” It doesn’t happen that way.

Can we lay out the cost then? Let’s say you’ve got this two-dollar bottle and you want to get distribution. What are the major types of fees that you’re looking at?

Well, first and foremost, it’s going to be your distribution fees. Let’s take Kroger. Kroger is a great example because they’re a United States company across pretty much 40 states with different brands. Let’s say you want to get your barbeque sauce into Kroger. The first thing from a cost perspective: how are you going to get it to them? Where are you going to send it from? If you have a location, let’s call it Texas, you’re going to have to get your product to all of the different distribution centers that Kroger uses and there are six of them across the country. You’re going to have to get your product from Point A to their distribution center, before it ever gets to the store.

What happens is, a lot of people say “Well, I have a single-route system, I can take it from here. Why can’t I just take it to a Kroger distribution center?” Well, you can’t, you’ve got to take it to all of their distribution centers. Every retailer has that, so your distribution costs all of a sudden become somewhere around, as a small start-up, that’s about 12-15% additional costs.

Then you’ve got to pay slotting inside of those warehouses, not the shelf placement slotting, but the slotting you’ve got to factor in for the warehouse, for them to stock it into the warehouse to send it to their stores. You have another slotting fee there that’s typically 5-7% that they’re going to charge you if you’re going direct. I haven’t even discussed if you have to use a third-party because then it becomes even more expensive.

That’s five percent of what you believe you’re going to sell the final products at?

Correct, yes.