Upcoming IP Investor Dialogues: Spirax Sarco, FAST, COST, CPRT, POOL, SNOW, DDOG - Register your interest at help@inpractise.com 

Anonymous

{audio:00:00:00} 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.

{audio:00:00:07} 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.

{audio:00:01:20} How did you get started in the CPG sales?

{audio:00:01:30} 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.

{audio:00:03:24} 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?

{audio:00:03:48} 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.

{audio:00:04:33} What exactly did they misunderstand or not calculate?

{audio:00:04:38} 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.

{audio:00:06:10} 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?

{audio:00:06:21} 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.

{audio:00:08:05} That’s five percent of what you believe you’re going to sell the final products at?

{audio:00:08:13} You mentioned the final retail price of $6.99 and you’re saying the 5% to 7% warehouse fee is on the retail price or wholesale?

{audio:00:08:23} No, that percentage is what you’re selling directly to them at your cost. Not the retail cost, because you won’t set the retail cost. That’s the next thing, you have to understand those two costs.

Then you’re going to pay a slotting cost, which is a shelf placement cost in the United States. They’re interchangeable. A lot of people got away from calling it shelf fee and shelf placement fee, because it’s borderline illegal; so they started calling it slotting. It’s the same exact thing. If you have your barbeque sauce, you better have at least two flavors before you can even get an appointment. Let’s call it two SKUs of my barbeque sauce, a smokey and a sweet. Each of those are going to cost you a $75,000 shelf placement fee per SKU. You’ve got to factor that $75k in your budget. You get nothing for it, except for a slot on a shelf, one facing on the shelf.

If you’re going to use a broker to get distribution, you have one of two choices: you’re going to pay a person, which is my recommendation, or the only other way is that you pay a broker. Brokers are trying to sell ten other barbeque sauces at the same time. It’s a waste of time. It’s the only two methods you can use to go see any retailer. Let’s say you use a broker. The broker fee for a small company, a start-up brand is another 5-7%. If you’re an established brand, it’s 3%. What they call a hunter’s fee, they’re going to charge you 5-7% of total sales.

{audio:00:10:26} You mentioned Kroger. They have five to six distribution centers across the 40 states they operate in, and they charge a slotting fee to have your product in the warehouse for distribution to their retail units, which is 5% to 7% of the wholesale price?

{audio:00:10:47} Yes. Every single retailer, without fail, is different. That’s the strategic part that I was talking about earlier. You only have two retailers in the entire country who do not charge slotting fees. Two large retailers, one is Publix and the other is Walmart. They don’t charge you slotting fees. Most people laugh when I say Walmart because people say, “They don’t charge you slotting fees, they fee you to death in other places, but they don’t charge you a slotting fee.” Strategically, people, when I tell them, the two places to focus is Publix and Walmart, they just kind of laugh. It’s your cheapest entry of the retailers, but it also has to match your brand. Sometimes that’s a problem.

With any center store item, the retailer is going to put a 38 to 45 margin on top. That’s pretty much center store margin, not mark-up, but margin. They’re going to have a gross margin on that product of at least 38-45%. When you place these fees on top of what it costs to manufacture the product, you start to see why that retail ends up at $5.99-6.99.

{audio:00:12:10} You mentioned Walmart don’t charge slotting fees. Where else do they make up the margin?

{audio:00:12:15} They will charge you pick fees. Walmart is probably the best at distribution, but for themselves. They have, I want to say, well over 100 distribution centers. You’ve got to get product to those distribution centers. That costs you a lot of money. Sometimes you’ve got to send ten cases to one distribution center and fifteen to another, so it becomes very costly. They don’t charge slotting fee at the shelf. They have very strict turn guidelines. If you get product into Walmart, you have to turn the product. If you put your barbeque sauce in there and it turns two units, when they’re expecting it to turn five, cost goes the same way. If it doesn’t turn that within the first six months, that product is out, and you’ve spent tremendous amounts of money.

Walmart do a lot of promotions and markdowns that they expect you to pay for. They get their money in different ways. I like to tell people; I’d rather put my risk on me selling my product that I believe in and not paying upfront $75,000 and get zero for it. The risk/reward is better in a Publix or a Walmart. You’ve got high risk in places like Safeway, Kroger and those places. Where they’re making a lot of their gross profit is off slotting fees. Then they put the risk on you to turn the product or lose it. I’ve seen tons of product come into Kroger, new items come into Kroger and stay there four months and then they’re off the shelf because they didn’t turn fast enough. You lose your $75,000. I noticed one of your questions is about a contract, there is no contract with retail customers, you have no contract.

{audio:00:14:16} How does the retailer look at it? Obviously, they all have different hurdle rates and targets to turn inventory, but do they look at it on a gross profit per square foot for example?

{audio:00:14:29} They look at revenue. Revenue per square foot is the key measurement. That’s based on turns, obviously. They worry less about the gross profit per square foot. What they do is, they go back, they’ll go to Kraft, for example, they’ll bump Kraft prices up because they can because it’s Kraft, for instance. They know what their gross profit is that they have to deliver out of that four-foot, for example, so they’re not going to require you to really focus on that. Say you’ve got 80 facings within a four-foot section, which are all equal. You’ve got to be generating x amount of turns per week out of those one or two spaces, or I’m going to have to replace it with something that can. At the same time, I’m holding Kraft accountable to turn. I may hold you accountable to turn 3 units per week. I’m holding Kraft accountable to turn 12 because of their branding and the fact that they’re established. It’s more about generating that revenue that you’re expected to generate out there. They combine all of that into their gross profit dollar. Does that make sense?

{audio:00:15:52} Let’s say you get into Walmart, is there a certain trial period or minimum dollar inventory amount required?

{audio:00:16:11} The difficulty and daunting part with Walmart is their location, which is Bentonville, Arkansas. You better have a relationship. There’s just no other way around it. There’s a lot of people there. There are a lot of buyers there, a lot of category managers there. I’ve worked with Walmart for 26 years. It took me six years to get a yes. I continued to work my way through and with different buyers who moved to different places. There are buyers right now that I still have relationships with that have left Walmart or retired that I still talk with. They can still help me with these other folks by getting me an appointment with somebody that they used to work with. It’s a very close-knit community, the people who live there and work there. It’s very daunting for somebody who doesn’t live in Bentonville or work in Bentonville.

The thing about Walmart is that you’re guaranteed tremendous amounts of points of distribution if you get the product in. You can go work with X, Y, Z grocer and they’re going to put you in maybe one district. You may have 100 stores, for example, those 100 stores may be confined to a small area somewhere in Podunk. You have no control over it. When you go in and Walmart says, “Okay, I really like this product.” They have sampling kitchens. Your barbeque sauce would have an appointment in Walmart with the culinary kitchen, where the buyer comes over and you get to cook. I’m going to cook some ribs or something, I’m going to use that barbeque sauce, that’s how they’re going to sample the barbeque sauce. He’s going to say, “I love that barbeque sauce. Here’s what we’re going to do. We’re going to put it in half of our stores.” That’s almost 2,700 stores that you get distribution immediately from. It’s work, but they’re not difficult to deal with.

People think that they’re extremely difficult to deal with, they’re not. The key to them is to get them sold on letting you come in and sample the product in a way that’s not just some broker in there holding up your bottle and putting it back in his bag. You work hard for it, but once you land there and then you go to places and “Hey, I see your product is in Walmart, it’s turning well. We need to put it in here.”

I’ve used Publix and Walmart my entire career. I’ve got my product in Publix and then Kroger immediately takes it, or Safeway takes it. It’s a great way to jumpstart your brand. It’s just critical to either work with somebody who has great relationships in the building or develop those relationships yourself, one of the two. Then you’re off and running. I’ve helped three companies in the last five years get into Walmart. The rice company, they were doing zero business in Walmart, they’re doing nine million dollars two years later.

{audio:00:19:13}  If you take the barbeque sauce example again, would you then say that they have to be manufacturing at a dollar or much cheaper because otherwise you’re going to be a very premium barbeque sauce on the shelf and that may affect Walmart looking at you?

{audio:00:19:33} You have to convince a retailer how you’re going to grow your category from where it is today. Retailers have 50 barbeque sauces on the shelf today, and they’ve got another 200 trying to come into the store. You’re going to have to answer two questions to retailers: firstly, how you’re going to take your category from where it is today and grow it with your product. And secondly, how your product differentiates from the 50 you have on the shelf or the other 200 that’s going to come in here and tell you.

One of the biggest mistakes I see happen is people who aren’t experienced enough to talk to category managers. These people are worried about the category. They don’t care about much of anything else. How are you going to grow my category? Why should I put you on the shelf? I’ve already got five other sweet barbeque sauces. People walk in, they’ve got their bottle. That’s where the broker fails. They walk in, “Hey, I’ve got this barbeque sauce, they’re from New Jersey and it’s a sweet.” It’s going to fail.

If you walk in there and you say, “I’ve got this barbeque sauce, it’s sweet, the spices we’ve put in it have come from Philippines or from Thailand or places like that.” If there’s something exotic about it that’s different, it gets their attention and it’s going to get you the time you need to really put your product forward. If you don’t do that, you’re not going to be able to proceed with those category managers getting further, they have to understand how you’re going to grow it. If I take out Joe’s Barbeque sauce who’s turning two units a week and I put your barbeque sauce in and it turns two units a week, I’ll just leave Joe’s there.

You need to do the competitive homework ahead of time, and really understand who’s turning what in the category. There’s data out there. You can buy the data. You can get a one-time run from Neilson and it’s $10,000-15,000, but it’s critical to have because now you have every retailer and you understand that Joe's is turning two times, so I've got to ensure my product is turning 3 times, or 4 times, and why I believe that will happen. And if it does, you're good, you're not going to be replaced. And the next guy that comes in is going to pick off somebody else who's turning 2 units.

{audio:00:22:03} Is that who you approach at the retailer, is it the category manager rather than the buyer or what is the role?

{audio:00:22:07} Yes, buyers have disappeared in the United States. They’re category managers now. You might find these little ten-store chains, supermarket chains, still may have somebody they call a buyer, but at all retailers they’re now gone, they’re category managers now.

{audio:00:22:22} They’re in charge of putting the products on the shelf and growing category revenue?

{audio:00:22:25} Yes, where you used to have a buyer, for example, the buyer may buy barbeque sauce, he may buy pickles, he may buy salty snacks, as well, he may buy soft drinks. Those days are over now. Now, you have category managers who are focused on soft drinks. They’re doing the entire carbonated soft drinks. One on salty snacks. A category manager on pickles, salad dressing, olives, those kinds of things are all together. Yes, it’s very focused now. They stay in those jobs for two years, then they’ll move to another desk. If you were on pickles and condiments, now, if you were doing a good job and you’ve grown that category, they’re going to move you over to salty snacks, for example.

{audio:00:22:08} You mentioned the slotting fees are roughly $75k per SKU. How do retailer’s price that?

{audio:00:23:25} It’s whatever. It’s crazy. One of the things I built and have still today, I keep it, it’s like my bible. It’s a retailer synopsis of every major retailer across every category. I have slotting fee requirements, what their margin requirements are, you name it, I’ve got the whole thing. It is a massive build. It’s crazy. When I’ve been able to work with them, it’s like, wait a minute, it’s $5,000 here, but it’s $75,000 there. That’s exactly right. There is no rhyme or reason to it.

For Kroger, once you get some establishment inside of the building with good people, you can negotiate those fees. If you’re a start-up company coming in, it’s going to be $75,000 because you don’t know anyone. It’s going to be $75,000 and people pay it. I go in with the rice that I had, sit down with the buyer and he tells me, “I’ve published slotting $75,000.” I said, “I know that. However, I’m going to give you $40,000 and I’m going to take the other $35,000 and we’re going to invest it into promotional goods, or we’re going to do something at store-level with that 35,000.” They agreed to it because I’m going to have the $35,000 working for me, turning my product. You can do that with certain retailers.

It’s so crazy, and there are chains that charge $15,000 per SKU. There are chains that charge $100 per store for instance. You’d think, “That’s great. I’ll go in five stores.” Well, five stores, you’re not going to turn your product. It ends up costing you money no matter what.

{audio:00:25:25} Does it depend on how much market share the category incumbent has?

{audio:00:25:31} No, it doesn’t matter if it’s beans, it doesn’t matter if it’s barbeque sauce, it doesn’t matter if it’s rice, it’s $75,000. When you go over into frozen foods, it may be $100,000 because they’re putting electricity behind it and that kind of thing. If you’re a DSD (direct-to-store delivery) company, that's where all bets are off. That’s why I enjoyed having worked on both sides of the business for years. Frito-Lay, for example, or Coke, they don’t pay those fees. They don’t pay any slotting fees because they’re bringing the product to the store themselves. They have 15-feet and they’re keeping that space worked for that retailer all the time.

The retailer will tell you, “I charge you slotting fees because my people have to put your product on the shelf all the time, they’ve got to stock it every day.” That’s what that fee is really for. There’s just no rhyme or reason to it. People have asked me, how do they come up with it? There is no formula. They could decide tomorrow they’ve been charging $25,000; I think we could go to $40,000, and they’ll do it. If you want to stay in there, you pay it, or you don’t. The one thing to remember, I need to preface this, that’s a one-time fee. You’re not being asked to pay every year. That’s a one-time fee for that slot.

{audio:00:26:53} Is there an ongoing yearly placement fee?

{audio:00:26:56} No. Once you pay it, as long as you’re turning product, you don’t pay it again. Now, what happens is, again, this goes back to once you’ve established a relationship with a customer, so let’s say you have those two barbeque sauces. You think, wait a minute, this one is not doing it. I don’t want the smoky anymore, we’re going to come out with a tangy. You go to that retailer and you say, “I’m going to pull the smoky out but we’re going to replace it with tangy.” What they’re going to tell you is, you’re going to pay another $15,000. If you’re going to let go of that slot, then I may bring in somebody else that I’ve been wanting to bring in that may pay me $15,000 for that slot. You don’t just get to switch a product out. Now, if you’ve got a relationship, you can go in there and you can pull that off without having to pay that fee. If you don’t, you’ll pay it again, if you decide to change.

{audio:00:27:49} Do retailers expect any promotional spend on the shelf?

{audio:00:28:07} That was the last part of what I would tell you, the cost that people fail to realize. When I tell people that they’re not going to make money the first two years, they just laugh at me. You’re not. You’re going to lose money as a start-up the first two years in retail. The expectation is that that first year, you’re going to spend somewhere between 30-40% on promotional activity. Now, ongoing, and for established business, it’s between 15-22% annually on promotion.

You will promote, and you’ll have to promote. Two reasons you have to. One, to keep your turns at that relative number that you need to make sure you’re hitting, and more importantly, because your competitors are going to be doing it. If they’re out there promoting it and you’re not, there’s no way you’re going to hit your turn numbers. That first year, they expect you to have new item in induction, which is part of this 30-40% promotional activity. You’ve got to have a new item introduction. You’ve got to have sampling; you’ve got to have trial. It’s just monumental activity that you’ve got to put forth to get that barbeque sauce to turn. That ends up costing, for a new item, around 40% that first year. 40% of all the revenue you turn is going to be promoted product.

{audio:00:29:29} Let’s assume it’s a great sauce and you get into Walmart and start turning the product. You add a couple more lines that are also turning well. What does the incumbent do?

{audio:00:29:49} The great thing about U.S. retail, they like small companies. They don’t like dealing with large organizations. They have to do it, but Kraft, PepsiCo, Coke, brands mandate their terms as much as the retailer does, so it’s always a butting of heads. My success and enjoyment that I had was working for second tier companies’ underneath those. Lance is a great example. Having left Frito-Lay, where the connotation was negative to the category managers. They just did not like dealing with Frito-Lay because they told them, “This is what we’re going to do, and this is how we’re going to do it.” When you were a smaller company, you’d go in and you’d basically say, I’ll take the scraps that are left over from Frito-Lay, you don’t try to attack Frito-Lay. You get protection from those retailers.

Say you have five sauces now and you’re doing well, one of those is just turning eight or ten units a week. They’re going to go copy it. They’re going to do it. Frito does it all the time, Kraft does it all the time. All the big guys do it. They’re not going to worry about you turning four or five units – you’ve got to remember, they’re being told, “You’ve got to turn 12.” You’re fine as long as you’re turning 6-8. When I was helping the guys at Otis McAllister, they had a ready-to-serve rice that was from Thailand, and Uncle Ben’s ready-to-serve rice as a competitor. You know how big those guys are. Well, they didn’t worry about it. All of a sudden, we had a white jasmine coconut milk rice that was turning 16 units a week and they were turning 9 units a week. Well, within three months, they had a coconut milk jasmine on the market.

The hope is for small companies, they’ve built that brand recognition up enough at that point with that product that even if the big guy comes out with it, it’s not that big of a deal. You may lose two to three, four units a week, but you’ve established that product as the go-to product at that point.

{audio:00:31:57} Were they priced cheaper?

{audio:00:32:00} Yes. Unless you have some tremendous resources in manufacturing, they’re always going to be able to do it because they’re doing it out of six or eight plants that are close to the source. In many cases, you have just one. They’ll always have that leverage and that’s where CPG money is made. It’s made in manufacturing and distribution. It’s not made in retail. You’re going to really be making your money on efficiency that you can develop within manufacturing and distribution. It’s just the way it is.

{audio:00:32:32} Over the last 20 or 30 years in your experience, have you seen the larger CPG companies lose any power due to the ability to go D2C today?

{audio:00:32:52} No, it’s interesting, those guys, they wield the power. I’ve always said, if there were a way to get some of these small start-ups to get a type of consortium together where they were able to go in and power broker to a customer instead of using a broker where they could team up with ten or twelve items, I do believe they would garner much more power. Individually, the way it’s done today, if I go in with two barbeque sauces, and the guy behind me in the lobby is coming in with two rices, and the next one, there’s just no power there. If one person was coming in there representing those start-ups, that was not a broker but was invested in the 8 start-ups, I think you’d start to chip away at it.

{audio:00:33:55} You would advise not to go to market with a broker then?

{audio:00:33:59} That is the worst of my entire 37 years, I’ve told every single person, if you can avoid the broker, avoid them. Sometimes you can’t, I get it, they’ve been able to put their niche where they need to put it, but they’re useless for your brand. Especially as a start-up brand. They just are. They don’t care. They’re making very little money off of your brand, because you’re not selling anything yet, so they’re not making a lot of money. They have 30 minutes on a call and they’re representing 10 brands in that 30 minutes. You can do the math.

{audio:00:34:33} Do the retailers prefer using brokers just because it’s easier?

{audio:00:34:37} No, they see brokers the same way I see brokers, they’re a necessary evil. I go back to these three companies I helped in the last ten years who all used brokers when I arrived. I told them when I come aboard, we would not use brokers. I would hire my own team. The customers love it. The rice company that I was just talking about, for 40 years the CEO said he had tried his best to get into Publix. I said, “How have you been trying to get in?” Through some broker company. I said, “Well, let me see the presentation. Showed me the presentation.” I just laughed. I said, “This is not the way you talk to Publix, this is not the way you get to see Publix.” He said, “Can you get us into Publix?” I said, “I can get an appointment with Publix, I’m not telling you I can get us in.” I did get us in, now they’ve got six items in there and this year, they’ll do about six million dollars in Publix.

{audio:00:35:40} It’s about that relationship. About having someone onboard with experience dealing with these customers to help you get a foot in the door.

{audio:00:35:50} Yes, truly, you walk in and you’re as humble as you can be, and you’ve built enough trust. I wouldn’t bring a product in here to talk to you if I didn’t think it was going to help grow your business and grow your category and your consumers wouldn’t love it. This is why I’ve also had two dozen companies that I’ve told: “No, I have no interest,” because I’ve looked at the product or tasted the product and I tell them, “I couldn’t help you with that.” It wouldn’t work. It’s critical to have people I believe who have spent a lot of time in the business but who are very humble about the business too, and know when to tell a customer it’s right for them and when not to go present something that’s not going to work within their customer system.

{audio:00:35:59} You always hear that a product can be the best product in the world, but if it’s not on the shelf, it’s nothing. How much do you put down to concentrating on having a really great product or really concentrating on getting solid distribution?

{audio:00:36:40} What’s the right term? Don’t let great get in the way of good? As you’re getting started, distribution is everything. If you don’t get it in front of people and get people to sample it. You can spend a lot of time having the perfect product and never get it to the shelf, it does you no good. That’s exactly what I went through with the folks with this rice, with this ready-to-eat rice, because it was such a hot commodity at the time.

The other thing is the timing for when you can get products to the shelf. They do one annual review, if you’re lucky. Some categories it’s every two years. Let’s go back to the barbeque sauce example. Publix is going to do theirs in January. Kroger’s is going to do theirs in March. Walmart is going to do theirs in September. If you don’t understand the timing of when the reviews are, so the review, let’s say, was January for Publix, then you’re going to struggle. You go in, do your review, you’re going to put your best foot forward and let them sample the product. Their decisions and when they do the resets are in August. Seven to eight months down the road. Walmart is the same way; Kroger is the same way. Nobody does a review and then sets your product the next day. You have a review cycle and a set cycle. People miss that all the time.

{audio:00:38:02} Are they different for every category?

{audio:00:38:08} Different. Every week there’s going to be a different category review for a different category. Then the same thing with the sets. Sets will never be at the same time. They’re always going to be different. They rotate throughout 52 weeks. It changes. It’s not set every year for January in Publix. Again, I go back to the rice example, the first year I was there it was January, the second year, it wasn’t until April. Then the sets weren’t until December. You have to have live samples. You can’t just go in with a piece of paper, you’ve got to have the samples.

So you’re making samples nine months ahead of when you actually would be going into a store, for example. You walk in there, and what you find out is people are like, “Well, my product won’t be ready until two months before” – so you don’t make the category review, so you have to wait until the next review a year later. People get really frustrated by that. ‘’Why can’t they just wait? I’m a small company. I can’t manufacture it ahead.’’ Well, you’re not manufacturing it ahead, you’re going to manufacture it and you’re going to wait a year. It’s so difficult to get people to understand those cycles.

{audio:00:39:39} What are the key attributes of brands that have successfully entered retail U.S.-wide?

{audio:00:39:54} I think it’s differentiation. Understanding how my product is different. Don’t look at me as a barbeque sauce. This is why mine is different. Number two is, “Here’s how I’m going to market my product.” I’m going to stand behind it, I’m going to market it, I’m going to trial it, I’m going to ensure that customers are getting a taste of my product. Then number three is how am I going to advertise it? Again, advertising doesn’t mean on TV or anything else, there are other ways to obviously get your product recognition out. If you’re going to talk to a retailer, you have to talk to them about how you’re going to support the brand. There are a lot of other things that you can talk to them about that go over their head. If you talk to them about how you’re going to support it, how you’re going to market it in-store, and then how are you going to differentiate it? Then that’s got their attention.

{audio:00:40:40} Are there any other key lessons you would give a start-up brand in gaining retail distribution?

{audio:00:40:50} I would tell any start-up, and this is whether it’s a start-up or whether it’s a person wanting to enter consumer products as an account manager or just coming out of school: data. Get all the data that you can possibly gather on the category that you’re going to be doing business in, both from a competitive standpoint and understand the retail landscape. All of those retailers out there, how do they perform and how does a category that you want to be in perform? You can only get that through an investment in data. People that walk into these accounts without any kind of fact-based data fail 100% of the time. They’re going to get asked those questions by a category manager. If you walk in there and you say, “I don’t know”, you’re completely lost. Whatever people do, you can’t not invest in data. That comes from a person who started out his career with no data.

It used to be relationships were the only thing that mattered in CPG. Now, it’s being taught that relationships don’t matter, only data matters. That is complete, 100% utter fallacy. Relationships still matter, it’s a different selling process than it used to be in relationships, because it used to be that relationships meant taking somebody to the Super Bowl or taking them to a soccer match. That was the way 30 years ago that’s how you sold. Today, relationships matter in the fact that if I bring you data and I have a relationship with you, you trust my data. If I bring you data and I don’t have a relationship, they’re not trusting your data one bit. I try to tell people, “Hey, I know what that professor is telling you, but that’s a fallacy.” Relationships do matter, but a relationship matters in the respect of earning trust and getting buyoff from that buyer because they trust you with your data.

{audio:00:42:53} Gene, I think that’s a good place to conclude the call here. This has been great. Thank you very much for your time.

{audio:00:42:59} Absolutely. You take care.

Former VP of Sales at PepsiCo and Snyder's-Lance 

CPG Sales and Distribution

Common mistakes and misconceptions about bringing a consumer product to retail

The importance of relationships in gaining retail sales and distribution

Why Walmart is actually an easier choice for consumer start-ups gaining distribution