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How about a Distribution Company?

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Benjaminjhs

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Hello, I'm new to the forum so I'll start this post by introducing myself!
My name is Benjamin, I am 22 years old and I live in Norway.
I have a two-year business degree in Retail Management, and my dream and ultimately what I am going to do is building my own business.

I have, like most of you, many business ideas. One day it's this, then there's that...
Obviously, that won't get me anywhere.

So now that we got that out of the way - let's cut to the chase.

So what I've been thinking about lately is a Distribution Company. Why? Because nowadays I see 'everyone' chasing the e-commerce, wanting to build big businesses.
To me, this seems like it is a growing market for the Distribution Companies that can provide value.

Ultimately the question is whether this opens a market for new Distribution Companies to arise or not, your thoughts on this matter.
Furthermore, does Alibaba/Aliexpress stand in the way for this or not?

Feel free to discuss, and be sure to bring honest replies if you think I am on the wrong track somehow.
 

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Late Bloomer

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Hi Benjamin,

The big question I have is, if Amazon decides to do more distribution business in your country, how will you compete against them?
 

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Ultimately the question is whether this opens a market for new Distribution Companies to arise or not, your thoughts on this matter.
Of course there's room for distribution companies. Any product you own was delivered to you through some sort of value delivery chain (distribution).

Are you saying that you want to start an e-commerce company? Or distribute your own products?

Why would Alibaba stand in the way for you?

Basically the process is simple.

1. Find products that the market wants.
2. Buy those products at a cheap enough prices to make good margins.
3. Stock those products locally.
4. Distribute those products as sales come in.
5. Reinvest profits into growing your catalog of products.
6. Repeat.

Someone like Alibaba/Aliexpress isn't competition. If you have the product locally at factory prices, then there's no way some random guy selling the same product in China is going to be able to compete. Their turnaround time is too long. Their prices are likely not competitive. That leaves you with a lot of opportunity.
 
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Benjaminjhs

Benjaminjhs

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Hi Benjamin,

The big question I have is, if Amazon decides to do more distribution business in your country, how will you compete against them?
That's a great one which I haven't given any thought. Amazon hasn't really entered Norway in any impactful way yet, but it will happen. Thanks, I will take this into consideration.
 
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Benjaminjhs

Benjaminjhs

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Are you saying that you want to start an e-commerce company? Or distribute your own products?

Why would Alibaba stand in the way for you?
Thanks for the thoughtful reply!
What I want to do is distributing my own products. I am thinking the entry would be targeting e-commerce companies, especially those that haven't been around for too long.

Alibaba: What I was thinking was that it has become a big supplier for e-commerce companies to get products from and that it, therefore, could be standing in the way of a distribution company wanting to enter the market.

But also, I don't necessarily want to distribute 'the same products' as some random guy in China. I want to make it better in some way to add more value to the end customer or to create a brand.
Example: If I were to start to distribute Phone Cases, what I feel would work the best would be to make a brand out of it so to speak, and/or make some improvements to the product, to differentiate these products from what the retailers already can get from Alibaba (without going through the process of improving a products or creating a brand themselves).
Now, I am guessing that won't be the case for every product (thinking Hot products etc) But in many cases at least. What are your thoughts on this?
 

MidwestLandlord

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Thanks for the thoughtful reply!
What I want to do is distributing my own products. I am thinking the entry would be targeting e-commerce companies, especially those that haven't been around for too long.

Alibaba: What I was thinking was that it has become a big supplier for e-commerce companies to get products from and that it, therefore, could be standing in the way of a distribution company wanting to enter the market.

But also, I don't necessarily want to distribute 'the same products' as some random guy in China. I want to make it better in some way to add more value to the end customer or to create a brand.
Example: If I were to start to distribute Phone Cases, what I feel would work the best would be to make a brand out of it so to speak, and/or make some improvements to the product, to differentiate these products from what the retailers already can get from Alibaba (without going through the process of improving a products or creating a brand themselves).
Now, I am guessing that won't be the case for every product (thinking Hot products etc) But in many cases at least. What are your thoughts on this?
I think there is some confusion here.

If I understand correctly, what you describe is producing your own branded products and selling them wholesale to retailers.

That's not really being a "distributor"

A distributor takes other people's products, including branded products, and sells them to retailers.

The value a distributor gives is by allowing brand owners (or manufacturers) to leverage someone else's infrastructure to fulfill large orders, drum up new retail customers, and provide customer service. It allows them to grow while reducing overhead expenses (compared to self-distribution)

The downsides: 1) Distributors run on very thin margins, usually around 20%-30%. 2) Allow any one brand to be a large percentage of your sales and you lack control.

The upsides: 1) You skip the product development phase and related risk. 2) You can piggyback off of the brand's advertising spend. 3) retailers are easier to deal with than consumers

Source: I own a distribution company.
 
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Benjaminjhs

Benjaminjhs

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I think there is some confusion here.

If I understand correctly, what you describe is producing your own branded products and selling them wholesale to retailers.

That's not really being a "distributor"

A distributor takes other people's products, including branded products, and sells them to retailers.

The value a distributor gives is by allowing brand owners (or manufacturers) to leverage someone else's infrastructure to fulfill large orders, drum up new retail customers, and provide customer service. It allows them to grow while reducing overhead expenses (compared to self-distribution)

The downsides: 1) Distributors run on very thin margins, usually around 20%-30%. 2) Allow any one brand to be a large percentage of your sales and you lack control.

The upsides: 1) You skip the product development phase and related risk. 2) You can piggyback off of the brand's advertising spend. 3) retailers are easier to deal with than consumers

Source: I own a distribution company.
Yes! You really hit the nail on the head with that answer.
Thanks for clarifying what I needed to know, and for the other great information as well.

Now that then screws a bit with my plan, which was creating my own products and selling to the newly established retail companies as an entry to the business of distribution.

If you wish to help me with these few questions; How is the entry then? Cold-emailing/Calling brands to get to distribute their products? And obviously one needs products to get customers, but which cards do you play in order to get products without customers -- obviously I can figure this one out by myself, but if you have any advice that'd be great.
 
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MidwestLandlord

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I currently sell 3 brands.

1 of the brands (my largest) I ONLY do DSD distribution (direct store delivery). This is a grocery product.

The other 2 are sold direct to service centers that I made contact with via phone or email. I ship those orders.

I also sell those 2 brands on eBay.

How is the entry then?
There are numerous barriers to entry. Large MOQ's for example. Freight fee's eat into margins big time, and a lower cost per item shipped is the name of the game. Negotiating their MOQ is possible, but the shipping on smaller orders is prohibitive.

The biggest barrier though is: What makes your distribution different? Why would a brand select you to partner up with?

It's not as simple as picking a product or brand and deciding to carry it. Anyone can do that.

It's about providing value to both the brand owner AND the retailer.

How do you provide value to both of them, that they are not already getting from other distributors?

My company hasn't been around long, but we are targeting a very specific niche to service. This is a niche that (judging by feedback from brand's and retailers both) is very under-served. So that's what we are targeting...that hole in the chain. That value that is needed but not provided.

Besides the actual product, we provide additional services that retailers struggle to do themselves. Some of those services actually border on consulting. I've helped out numerous retailers on pricing and placement issues for products that I don't even carry!

We are starting to build a strong retailer base. This last week I've gained 5 additional retailers that were referred to me from other retailers.

I've also had 2 brands contact me this week looking for distribution (I turned them down). Both of those brands were referred to me by one of my retailers.

I'm competing with the big boys here. One of my direct competitors for distributing is Amcon, and they are $1 billion + yearly company.

But you know what Amcon does? They take the retailer's order, throw the order in retailer's back room, and give virtually no service beyond that. Help setup? Consult on pricing? Give advice on category resets to accommodate new products? Give advice on which products to even carry? Nope, they do NONE of that.

I do.

As for providing value to the brands:

The brand I carry focuses on grocery stores and c-stores.

Great, that's easy. (actually c-stores are super hard, grocery stores are super easy)

But I also put it in:

Drug stores
Novelty stores
Health food stores
Tourist traps
Cafe's
Professional offices
A tour company

And I'm working on getting into restaurants.

So I've got their product in, or working on getting in, to 8 other categories of retailers they had never considered. That's value.

So it's not about "flipping" products. It's about helping brands. It's about helping retailers.

Cold-emailing/Calling brands to get to distribute their products?
Yep.

And obviously one needs products to get customers,
No.

All you need are samples.

but which cards do you play in order to get products without customers -- obviously I can figure this one out by myself, but if you have any advice that'd be great.
I played the "I was a self-employed retailer for years, I know the struggles" card in order to get the brand's attention.

But.

I had customers already.

I bought product off eBay and used it to sample. I contacted people I knew in the industry to see if there was interest. I got buyers for grocery chains on the phone and just flat asked them, "If I were to carry [product], is this something you would be interested in stocking?"

The response was an overwhelming yes, so I bought a truck-load and got to work.
 

dabelge

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I think there is some confusion here.

If I understand correctly, what you describe is producing your own branded products and selling them wholesale to retailers.

That's not really being a "distributor"

A distributor takes other people's products, including branded products, and sells them to retailers.

The value a distributor gives is by allowing brand owners (or manufacturers) to leverage someone else's infrastructure to fulfill large orders, drum up new retail customers, and provide customer service. It allows them to grow while reducing overhead expenses (compared to self-distribution)

The downsides: 1) Distributors run on very thin margins, usually around 20%-30%. 2) Allow any one brand to be a large percentage of your sales and you lack control.

The upsides: 1) You skip the product development phase and related risk. 2) You can piggyback off of the brand's advertising spend. 3) retailers are easier to deal with than consumers

Source: I own a distribution company.
I agree with all these points but I would add that there are distributors in let's say the Sporting Goods market that will sell their "house branded" hockey pucks and the name brands at the same time. Yes on the house branded product there is more risk and capital outlay to get started but also much better margins if they sell well. Many distributors will add house brands to offset the lack of control and margin that the name brands will retain.

for example- Name Brand Hockey pucks will get a sales report from all their distributors and then have their inside sale rep call the big accounts and offer cheaper direct pricing.
 

Argin Gerigorian

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We just started a distribution and logistics company.

It's a 3rd party logistics company and we're targeting Amazon sellers and small to medium sized eCommerce brands. Amazon charges way too much to store products at their warehouses plus they don't do multi channel fulfillment (well they do but it's in an Amazon box and again overpriced)

I would say look into it in Norway but I'm not sure how big the market is. It's insanely large here plus it's a constant flow, leveraging other peope's products. Retail is shifting from stores to distribution. I want to get into this now so that when 90% of sales are online and customers want 1 day or same day delivery I can get into that field and dominate.

Amazon is dominating but they are partnering with a ton of sellers and warehouses to take their products and concept s to everyone. I'll ride the wave with them :)
 

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Look for information from Joe Cossman and Ted Nicholas, both of them have excellent books and audio series about how to set up distribution. Also some of Gary Halbert's letters and Jay Abraham's case studies discuss the use of a marketing promotion, to launch demand for new products. But I think Cossman and Nicholas will help you get there faster. I haven't launched distribution myself, so I can't give you personal experience stories or advice. I can say those guys impressed me a lot with their advice from their own successes.
 

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