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HOT TOPIC Physical Products can be NECSTY

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G-Man

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So, it seems like many, if not most of the folks on the forum are in some kind of “online” work. I don’t see too many people that are selling a physical branded product into boring B&M stores, and none so far in food products. I love physical products, so I thought I’d share some thoughts about physical products (using food as an example) and CENTS for folks who are toying with the idea of going “offline”.

  • NEED – Most of human life takes place offline, believe it or not. We all have products in our lives that we believe could be better. You probably have some in yours. Or maybe you’ve heard a relative say “I really wish they made a ____________ version of this” Do some research, what pain points do people have in the products they use every day.
  • ENTRY – This is what I love most about physical products. When you work online, every idiot with a laptop tries to crowd your market. I’m not saying they can do what you can, or their value add is as big as yours, but they add a ton of noise to the market. You don’t find the idiot crowd too often in the supermarket. It’s too much work, and most people have the mistaken idea that you need a factory to get your product out there.
  • CONTROL – This one, honestly, is tough. You are at the mercy of merchandisers at first. The way to overcome this is to aim big and shoot for a product so ubiquitous they can’t not carry it. Think Coke or Lay’s.
  • SCALE – Everyone that walks into a grocery store/Walmart/convenience store. Everybody. It doesn’t get as much press as tech companies, because it’s not as sexy, but it’s not uncommon for food companies that get to 10+million in sales to sell at 15+ EBITDA multiples to the big boys. This is because the potential scale is everyone with a mouth.
  • TIME – It’s extremely time intensive upfront, but the return on time grows geometrically as distribution grows. It’s just as much work to get a 100 store chain as it is a 1,000 store chain. You get to the point where you’re only taking time for the bigger calls, then all your little soldiers are on the shelf, calling out to the consumer, and turning back to the bank account.

This is by no means extensive, and there are definitely down sides, but I feel like a lot of people don’t even consider mass market physical products, and might be missing out on a huge fast lane :clench:
 

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G-Man

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Grocery stores USA gross revenue 2015: $649.087 billion

And the way that's categorized by IRI, it doesn't include stores that are mass merchandisers but also sell groceries, so you can stack walmart, sams, costco, target, meijer, etc all on top of that.

The market is yuge.
 
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MidwestLandlord

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And the way that's categorized by IRI, it doesn't include stores that are mass merchandisers but also sell groceries, so you can stack walmart, sams, costco, target, meijer, etc all on top of that.

The market is yuge.

Exactly.

What is Wal-Mart even categorized as? I don't think it's in either the department store or grocery store categories.

Anyway, your post makes me wonder if some of the ecom guys here shouldn't also be selling in B&M locations that have appropriate departments for their products.
 

G-Man

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Exactly.

What is Wal-Mart even categorized as? I don't think it's in either the department store or grocery store categories.

Anyway, your post makes me wonder if some of the ecom guys here shouldn't also be selling in B&M locations that have appropriate departments for their products.

It's either its own thing or rolled up into Mass Merchandisers. Here's the exact verbiage from our last pull on Walmart/Target
*IRI data for [redacted] for 52 weeks ending in 8/7/16 includes: Food/Grocery, Drug, Mass Merchandisers, Walmart, Club Stores (BJs and Sam’s), Dollar Stores, Military. Excludes convenience stores and Costco.
 

amp0193

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  • ENTRY – This is what I love most about physical products. When you work online, every idiot with a laptop tries to crowd your market. I’m not saying they can do what you can, or their value add is as big as yours, but they add a ton of noise to the market. You don’t find the idiot crowd too often in the supermarket. It’s too much work, and most people have the mistaken idea that you need a factory to get your product out there.
This is a really good point. I sell 90% online, and 10% wholesale to supermarkets/boutiques.

Online, there are tons of copy cats and people trying to enter the space all the time. Retail? I can count the competitors nationwide on two hands, and often the retailers aren't even carrying a similar product yet, and I'm the first to contact them.

Profits are about the same selling wholesale to retail vs. selling online at full price. Online, you either have to pay ppc costs or maketplace fees. Offline, there are no fees, just a 50% markdown for wholesale.


There are people here on the forum selling to retail, but I wish there were more. Here's a great thread by @JonnyC from last year.

https://www.thefastlaneforum.com/co...or-what-it-took-to-close-two-big-deals.67626/
 

MidwestLandlord

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CONTROL – This one, honestly, is tough. You are at the mercy of merchandisers at first. The way to overcome this is to aim big and shoot for a product so ubiquitous they can’t not carry it. Think Coke or Lay’s.

Would you go directly to the merchandiser for sales, or do you go to a distributor? Both?

C-stores for instance, would you go directly to the chain of c-stores or to Amcon, McClane, Farner-Bocken, etc?
 

G-Man

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Retail? I can count the competitors nationwide on two hands

Damn straight. In our space there's only about 4 real competitors, and they're sleepy and ineffectual.
 

amp0193

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Damn straight. In our space there's only about 4 real competitors, and they're sleepy and ineffectual.

I should have said that too. Of the ones I can count on my two hands, only 2 or 3 of them are serious. And even then, not that serious.
 

G-Man

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Would you go directly to the merchandiser for sales, or do you go to a distributor? Both?

C-stores for instance, would you go directly to the chain of c-stores or to Amcon, McClane, Farner-Bocken, etc?

Both. It's easier to use a distributor like Kehe and C&S at first, because you wouldn't be able to get a meeting with a buyer if you paid for it. Problem is they stick it in you on the back end, and they're impossible to deal with. We've now gotten to the tipping point where buyers from major chains are seeing our product on the shelves at their competitors' and calling us directly.

We don't do C-stores, and have decided we won't start until we can get a chain with at least a few hundred stores to start out with. We're a small company, and don't have the time and money to come up with a new pack size if we're not getting volume right out of the gate. Really really want to be there, but have birds in the hand we need to kill and eat first.
 

G-Man

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Got some great pm questions from @amp0193 and thought I'd do my best to answer them on the thread.
  • Your lessons learned from doing trade shows. I've only got one under my belt so far. Were these worth your time from an ROI standpoint?
    • That depends largely on your time horizon. In the beginning you usually only pick up small accounts at trade shows. It depends on time horizon for the following reason: We paid 10k to go to a trade show, and got a customer with about 40 stores. We make about $1.50/unit. We will never sell enough to get our money back BUT, a buyer for a larger company walks the aisles of that small chain, and ordered our product for a major chain because of seeing it at the smaller stores. This has happened at least twice in the last 18 mos.
  • Approaching and securing distributors. How the process of getting set up with that worked for you.
    • Horse trading with brokers mostly. The only way to streamline it that I’ve found is when a buyer at a large chain is breathing down the distributors neck because she wants the product.
  • What did you do to generate leads for stores that you wanted to contact directly?
    • See above. Our big chain leads have come almost exclusively from seeing our product at smaller stores. You’ll find that there are chains that are merchandising trend-setters for the bigger chains. Do some research to find out who they are, walk lots of aisles to see who’s ahead of the curve, then try to target those guys. Buyers at big chains typically don’t stick their neck out till you’ve shown you can move units at smaller stores.
  • Do you have any "big" or even medium-sized chains where you had to deal with corporate first? Any tips for nailing these guys down? The only multi-location store I'm in, is a franchise model, so I just deal with each store individually.
    • For us it’s liquor stores. They’re great for snack products, and the buyers are actually accessible. The key is giving them some sort of risk cover or other incentive for taking a chance on you. Offer a spiff or a buyback program, possibly. Devil can be in the details on that stuff, though.
  • Stock forecasting. Stores re-order at such widely varying intervals. How do you plan for inventory on hand?
    • I’m a controller by trade, so I created a spreadsheet that tracks each component and feeds into a master for finished goods. The underlying logic is very simple. Know your lead time on each component, and keep a rolling usage for that on the last 6 mos (or whatever time period). For example, I have a 6 week lead time at our packer, and 6 months of rolling sales, so the sheet I created turns the cell for a sku red when I’ve got less than 6 weeks of inventory in stock. Obviously, this becomes more art than science with new customers, so there are times you have to make ad-hoc best guess.
 

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amp0193

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We will never sell enough to get our money back BUT, a buyer for a larger company walks the aisles of that small chain, and ordered our product for a major chain because of seeing it at the smaller stores. This has happened at least twice in the last 18 mos.

This is a very eye-opening and interesting response. I hadn't even thought of it in terms of the long-term benefits.

The one show I did had a higher ROI than I would think a normal trade show would have, as it was an invite-only vendor show at the annual franchise-owner convention for a large chain of stores. I was already pre-vetted by corporate, so there was some added confidence in the store-owners' mind.

A big benefit I walked away with from doing it though, is knowing what questions store owners ask, and making sure I had answers to them for future stores that I talked to.
 

G-Man

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This is a very eye-opening and interesting response. I hadn't even thought of it in terms of the long-term benefits.

The one show I did had a higher ROI than I would think a normal trade show would have, as it was an invite-only vendor show at the annual franchise-owner convention for a large chain of stores. I was already pre-vetted by corporate, so there was some added confidence in the store-owners' mind.

A big benefit I walked away with from doing it though, is knowing what questions store owners ask, and making sure I had answers to them for future stores that I talked to.

Yeah, you definitely have to think of it as an iterative intelligence gathering process as well. Any chance you have to interact with merchandisers has the potential to be worth it, if only in learning.
 

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As someone in specialty food as well, there are some other benefits - recurring purchases and high barriers to entry (especially in perishable food.)

In addition, I have managed to generate a couple million in sales all direct to consumer via sites, rather than through wholesalers. This keeps the control and the margins are huge (compared to wholesale). Ultimately though, retailers will be required to maintain growth.
 

G-Man

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In addition, I have managed to generate a couple million in sales all direct to consumer via sites, rather than through wholesalers. This keeps the control and the margins are huge (compared to wholesale). Ultimately though, retailers will be required to maintain growth.

This is very interesting to me, as it's not something we've been able to do successfully. We had a seasonal program that was successful sales-wise, but at our current margins, and with our current (awful) fulfillment process, we basically managed to scale a loss.

Direct to consumer is awesome if you know what you're doing. There are a couple major national brands that go started that way.
 

G-Man

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So, inspired by a conversation with @amp0193 I thought I might add a small suggestion for how to get started in small scale B&M if one were so inclined. We've added about 12 outlets using this strategy in the last 6 weeks, and amp has added significantly more in the time he's been doing it.
  • Purchase moment - Are there moments in the day/week/month/year where people would be open to buying your product on an impulse. Would they be willing to pay a higher price?
  • Location - where is your customer when they're having this moment? For us, it's while they're having a drink, but it's more specific than that based on who our customer is, and a few other factors.
  • Search - Find locations that match where your customer might be when they have their purchase moment. A minimum wage person and google are your friend here. My assistant found 5,000 + outlets that approximate the criteria, and, while reaching out to them, has been using knowledge gained to winnow down the list.
  • Call - email, write, call, smoke signal, turn up at their place. It's a pain in the a$$, but the types of people that own/manage these outlets are actually contactable, unlike, say, a merchandiser in Bentonville.
  • Sell/Listen - Don't just sell. The owners of small venues often have a finger directly on the pulse of your customer, and are more than willing to engage in dialogue about what they/their customer are looking for. The lesson we learned from this: These guys are happy to pay $20, extra for a corrugate display that costs $7. Lesson learned: If you don't disrupt their existing shelf/counter space they're willing to give almost anything a shot to see if it sells.
  • What's the point? - The goal isn't necessarily a network of 5,000 small stores that we have to pack and ship UPS boxes to every month, although if that were to happen, who cares, we make 30% on each sale and get prepaid with a credit card. The goal is to get your product in front of customers, without giving it away. You're also creating B&M proof of concept that you can talk about when you finally get that meeting with a buyer at a major retailer.
Good luck.
 

amp0193

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Lesson learned: hat If you don't disrupt their existing shelf/counter space they're willing to give almost anything a shot to see if it sells.

So you're saying, if you come up with an end cap display that a store can just throw out there, they are more willing to do the deal, and even pay more?

I guess it makes sense now that I think about it, but I was thinking backwards in that these corrugated displays would be premium real-estate, and not something for trying out new products.

  • You're also creating B&M proof of concept that you can talk about when you finally get that meeting with a buyer at a major retailer.
I think this is the biggest reason to pursue small B&Ms. You get the kinks worked out, find out what they want, have a history of B&M success to make bigger stores more comfortable taking you on, and so you don't F up your first (and maybe only) go at the big guys.

What I like most about wholesale is that you get reoccurring sales. It turns your non-consumable product, into a consumable one that needs to be consistently replenished.


@G-Man What percentage of your B&M accounts did one order and never re-ordered?
 

G-Man

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So you're saying, if you come up with an end cap display that a store can just throw out there, they are more willing to do the deal, and even pay more?

It depends on who we're talking about:
  • Major chains - more willing to do shipper displays than give you regular shelf placement. This is because they reset the POG only so often, and that regular shelf space is occupied by skus that have paid slotting. They're willing to give you a shot at a single big purchase for a big occasion (like say the superbowl) where they can put your product at the end of an aisle, or in some other seasonally stage area. Downside is they usually expect to sell at a discount, which they then pass on to you.
  • Mom & Pop - more willing, and no discount. I think they look at it, and you've removed the "Where the hell am I gonna put that?" reaction they have when they see new products. Also, if your display is nice, it actually adds to the overall atmosphere of their store.

@G-Man What percentage of your B&M accounts did one order and never re-ordered?

Mom and Pop, maybe 20%, but that's now that we started giving them displays. Before, it was well over half. Mass market: We only had one last year, but they bought 200k for a seasonal promotion with the promise they would put us on the shelf every day in 2017. Every day placement never happened, and asking around, we found out this chain does that to a ton of specialty vendors, so we basically moved all that through the balance sheet to make like 10k or something pathetic after we ate all the coupons, scans and off invoice promos. It was a clusterf***
 
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amp0193

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It depends on who we're talking about:
Mom and Pop, maybe 20%, but that's now that we started giving them displays. Before, it was well over half.

Wow, what an eye-opening quote. My re-order rate is about 50%. 20% would be a game changer. Time to think about getting a good display.
 

G-Man

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Wow, what an eye-opening quote. My re-order rate is about 50%. 20% would be a game changer. Time to think about getting a good display.

Honestly, we have a semi-national brand and were getting that. If you're getting 50% re-order in your niche, I think you're freakin killing it. I don't know if the display dynamics are the same as they are for CPG, but if they're even close, you might strike oil.
 

MidwestLandlord

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Mom & Pop - more willing, and no discount. I think they look at it, and you've removed the "Where the hell am I gonna put that?" reaction they have when they see new products. Also, if your display is nice, it actually adds to the overall atmosphere of their store.

I run "Mom & Pop" B&M's....

This is so true for me.

I don't get nearly the support that my larger competitors get when it comes to P.O.P (point of presentation) materials. So someone comes in with a nice display, a product that has a chance of selling, a decent margin for me, AND does not insist that I bump a known best seller off my main racks or front counter? Why wouldn't I try it?
 

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G-Man

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I don't get nearly the support that my larger competitors get when it comes to P.O.P (point of presentation) materials. So someone comes in with a nice display, a product that has a chance of selling, a decent margin for me, AND does not insist that I bump a known best seller off my main racks or front counter? Why wouldn't I try it?

And all delivered for less than $200. Get's you this on the phone.

Why wouldn't I try it?
 

G-Man

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Also, I should add, the shipper comes with the "shelf" portion already packed for display, so all the receiver has to do is cut open the overbox, plop it on the stand, and put the header on top. The customers love this. It's as close to plug and play as you can get low-tech, and it's the kind of detail you have to think about when selling to these people. If a busy shop owner has to spend 15 minutes trying to figure out how to build the damn thing, it decreases the odds of a re-order.
 

G-Man

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I think this is the biggest reason to pursue small B&Ms. You get the kinks worked out, find out what they want, have a history of B&M success to make bigger stores more comfortable taking you on, and so you don't F up your first (and maybe only) go at the big guys.

Gonna rant and rave here a little bit. I just spent the afternoon digging through 18 months of billbacks from an Albertson's region plagued by an incompetent broker.

Get as many sales to small B&M as possible. The cash cycle is way better, and they don't rape you with billbacks. I sometimes wonder if we shouldn't have spent an entire year doing nothing but selling shippers to small venues. I think if done right, you could easily create 30k/mo in prepaid, low-maintenance sales,... but the glory of being able to say "my product is in _______" is too tempting :frown:
 

Ultra Magnus

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Fantastic thread fellas!

I was just running a campaign on Facebook, thinking that the product I'm selling takes a bit too much decision making for an impulse purchase. The orders I've gotten so far were the result of more careful consideration on the part of the user.

Either way, my plan was to sell my stock online initially (it's an invention of mine in a hobby niche priced at around $200) and only then move to wholesalers, but Jay Abraham's Mastermind Marketing audio course got me thinking about pursuing more avenues/channels concurrently. I open the forum and BAM! G-Man removes the blinders from my eyes.

Now I'm thinking of finding retailers in the markets I couldn't target directly efficiently b/c of a language barrier and offering them this deal: I will send you one product which you'll be able to show your clients, and if they want it, you order it from me for a cut of the profit (mebbe 20%? Do you think that's good?). That way they don't have to keep stock (it's a bag that takes up some space and is expensive), don't pay a lot upfront and if they see it sells well we can move to a wholesale kind of deal (I manufacture the stuff) where they can sell it themselves.

Is there a way of making this idea more "irresistible" through more risk reversal or some other option? What do you guys think?
 

G-Man

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Fantastic thread fellas!

I was just running a campaign on Facebook, thinking that the product I'm selling takes a bit too much decision making for an impulse purchase. The orders I've gotten so far were the result of more careful consideration on the part of the user.

Either way, my plan was to sell my stock online initially (it's an invention of mine in a hobby niche priced at around $200) and only then move to wholesalers, but Jay Abraham's Mastermind Marketing audio course got me thinking about pursuing more avenues/channels concurrently. I open the forum and BAM! G-Man removes the blinders from my eyes.

Now I'm thinking of finding retailers in the markets I couldn't target directly efficiently b/c of a language barrier and offering them this deal: I will send you one product which you'll be able to show your clients, and if they want it, you order it from me for a cut of the profit (mebbe 20%? Do you think that's good?). That way they don't have to keep stock (it's a bag that takes up some space and is expensive), don't pay a lot upfront and if they see it sells well we can move to a wholesale kind of deal (I manufacture the stuff) where they can sell it themselves.

Is there a way of making this idea more "irresistible" through more risk reversal or some other option? What do you guys think?

This is essentially consignment, which I don't like very much, but if you're gonna do it, I would suggest that instead of profit splitting, you see if they'll let you offer a spiff to the employees.

It's tough. I'm honestly not sure how to go about getting first trial on a high tag item, but I'd try to get the employees in the stores selling for you. Spiffs make people happy, and owners of small stores are usually open to anything that makes their employees take any kind of sales initiative.
 

Ultra Magnus

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Thank you for the answer! Is there any spiff range that's kind of customary, or is it all situational?

My idea was to give potential buyers the ability to see and test the product in store (since it's unique in its category) before ordering one for themselves. After all, no one can judge the quality of what you're selling unless they see it in person. Also, I've got a stack of the stuff in the garage where it's only got spiders and other small insects for an audience.

I thought that a store might be happy to keep one on display to showcase it, if they get a cut for customers who place an order.
 

G-Man

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Thank you for the answer! Is there any spiff range that's kind of customary, or is it all situational?

My idea was to give potential buyers the ability to see and test the product in store (since it's unique in its category) before ordering one for themselves. After all, no one can judge the quality of what you're selling unless they see it in person. Also, I've got a stack of the stuff in the garage where it's only got spiders and other small insects for an audience.

I thought that a store might be happy to keep one on display to showcase it, if they get a cut for customers who place an order.

On Spiff amount, I don't know. We sell food products, so that's way out of my wheelhouse for a product like that.

Also, if you're gonna go through all the trouble of getting the product into stores, and into a customer's hands, I wouldn't want them to have to turn around and order. They need to leave with that shit in their hands.

If you're gonna make the sale, make the sale.
 

MidwestLandlord

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I thought that a store might be happy to keep one on display to showcase it, if they get a cut for customers who place an order.

Floor space isn't free. Besides the overhead costs of the floor space, there is opportunity costs.

In other words, if I have a product sitting there not selling...it is costing me sales on a product that would sell in its place.

(there are exceptions though)
 

Ultra Magnus

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Oct 9, 2015
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Floor space isn't free. Besides the overhead costs of the floor space, there is opportunity costs.

Yes, that's why I don't want to push for a wholesale approach - the product takes up more space than the standard merchandise available at these stores.

So maybe just ask them if they'd like to stock one unit and see how it goes? Since it's not going through a wholesaler I guess their cut would be decent.
 

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