Innovation only the first step in getting onto retailers’ shelves

One of the greatest desires for a retailer in evaluating new products is innovation. But it’s more than that—they also want to do business with vendors familiar with the terms and conditions necessary to get a new product on the shelf, vendors with the wherewithal to pull that product through the retailer—both in driving consumers to that shelf and in enticing them to buy that product off the shelf (along with one or two other products, if possible).

And, finally, vendors with the fortitude to guide that product introduction past its first year, especially given such new-to-market product requirements as pay-on-scan or slotting fees.

Vendors just want to get their products on as many shelves as possible. All the shelves if possible.

The broker, and other service companies that cater to small- to mid-tier vendors, helps bridge those desires.

“It’s really about retail readiness,” noted Fitz Elder, vice president of member relations and chief member relations officer at the National Association of Chain Drug Stores, which is hosting a Successful Selling meeting this month where brokers and new suppliers can congregate. “What we find is that there are a lot of folks out there who have some good ideas, but they really don’t understand how to bring it to [the mass channel] and make it work.”

“The biggest surprise of any new vendor coming into NACDS Marketplace is the cost of entry,” added Rich Swanson, chairman of the NACDS Outreach and Business Development work group and principle of the Swanson Group, a sales and marketing firm. “They’ve miscalculated the…terms required.”

But new vendors don’t necessarily need to tackle full distribution across food, drug and mass straight out of the gates, Swanson said. “There are different avenues of introducing products,” he said, such as direct-to-consumer (infomercials), or limiting distribution to a particular region or retail channel. Besides, once you’ve succeeded in that limited roll-out, you’ll have a story to tell prospective retail buyers.”

For the retailer, one value-added that is associated with a broker is the vetting of new-to-the-channel vendors. “First thing we look for is something unique. There has to be some point of difference in the product,” said Ron Otto, president of National Sales Solutions. “Then we [ask] the manufacturer their plans for support,” he said. “Those two are always at the top of the list. That usually gives us a pretty good indication as to their financial capabilities.”

“We have to do [pre-screening] because in this business…all we have is ourselves and our reputations,” noted Bruce Funk, principal of Elias Shaker & Co. “If you’re going to throw anything up against the wall, you’re not going to have much of a reputation.”

“For a retailer, a management company that brings a product in should have done their homework to say that this manufacturer is properly funded; that they’re capable of making the inventory that’s required; they know all the parameters of working with [the retailer], whether it’s a pay-on-scan or some other deal; and they have a marketing plan with reliable marketing companies,” said Patrick O’Leary, president of the Greenwood Group.

Buyers also like the brokers because most of them have experience—they’ve seen a lot of products succeed and more products fail. “They bring all of that category knowledge, account knowledge, into the appointment with them and the buyer doesn’t have to spend a lot of time [educating the vendor],” Otto said.

So what do brokers, or other service companies, look for in prospective clients, outside of innovation and possibly a portfolio fit?

Passion (not emotion). One of the pitfalls of introducing a new product to market occurs when the vendor is more or less married to that product, many of the broker and service company representatives reported. “If it’s an inexperienced [vendor], are they a flexible group of people who have skill sets that are still beneficial to the launch?” asked O’Leary. “People who have invented the product, or who have been with it from the beginning, begin to mistake emotion for passion. When emotions get into the decisions about what you’re willing to accept and not accept is when a lot of small companies get into a lot of trouble.”

Grounding (aka managed expectations). As Swanson alluded to, one of the biggest shocks to new vendors entering the mass retail market is the cost-of-entry hurdle. Accordingly, new manufacturers need to be grounded enough that they can take that news in stride. “A lot of times it’s the knowledge of what they [the new companies] are getting themselves into,” Otto said. “If they don’t understand what they’re up against, and they don’t have the right attitude about listening and getting help, then it makes it very difficult to take their product to market.”

“[Vendors] have to have an understanding that the bigger they go, the more risk and more costly it is, because it’s riskier and costlier for Walgreens to get into an item than a regional retailer,” O’Leary said. It’s simple math—it costs more to bleed product through a supply chain serving more than 6,000 outlets than it is to bleed it through a supply chain serving a few hundred stores. “You need to be pragmatic,” he said.

Capital. Perhaps the biggest hurdle to overcome in launching a product into the mass channel is the money to do it. “We help our clients understand what it’s going to cost to do business,” Otto said. Usually the formula starts with the costs of goods—what does it cost to manufacture and ship a finished product? Then that cost should be multiplied by a factor of up to five to account for the costs of selling the product into the retailer, whether through a direct sales force or through a broker force, as well as the costs of supporting that product through its initial launch. From there, factor in the appropriate retail gross margins, which can be as high as 50 percent, to establish a suggested retail price. “Then we look at that retail…how does it compare to the competition?” Otto asked.