Choosing a Retail Channel, ExplainedJump to content
Don’t wing it: We all know the importance of putting a strategy in place for business success, yet time and time again I see food, beverage, and taxable grocery founders just winging it when it comes to their sales strategy. The CPG (consumer packaged goods) industry is challenging enough; so don’t start off at a disadvantage by winging your sales strategy, throwing ideas against the wall, and seeing what sticks. You don’t have the time, patience, or cash flow for that!
Choose your channel: Why is it important to put in time and thoughts into identifying your channel strategy? As a young brand, you have limited time, money, resources, and need to prioritize getting on the path to profitability as quickly as possible – especially if you’re attempting to bootstrap your business. By identifying which channel – that is, WHERE you’ll sell your products – that your target audience is currently looking for products like yours – you’ll connect with your customers faster, and the sales will pick up.
Let’s identify a few of the main channels that you can consider for your brand.
Direct To Consumer (DTC) vs. Wholesale:
Direct to consumer is when you sell your products directly to the customer, without any sort of middleman or third-party retailer, broker, or distributor. This could be directly through your OWN website, at a Farmers Market, through your own social media or email list, at pop-up events, or if you have your own physical store or restaurant. With this channel, you are selling your products at the normal retail price, and keeping all of the margin after your operating and sales & marketing expenses.
On the other hand, Wholesale is when you sell your products to someone else – at your wholesale cost – and they put their own margin on top of your pricing and resell your product to the end customer at your retail price. These accounts can be anything from traditional grocery stores, mass retail stores like Target, gyms and coffee shops, restaurants, corporate cafeterias, or even entertainment venues. Simply put: if you have to convince someone else (a Wholesale Buyer) to stock your product on their shelves, list you on their menu, or add you to their assortment, that is considered wholesale.
Which is right for your brand? It depends on your own skill set, capacity, and business goals,, in addition to understanding consumer behavior for the category that you’re in.
While it’s true that you can often retain more of your profit margin when selling direct to consumer (because you can sell your products at the retail price without having to lose margin to the wholesale account, broker, or distributor who helps you get your product on those shelves), direct-to-consumer (DTC) is not always the best channel for brands. If you’re selling DTC, you need the digital and in-person marketing skills (or budget to hire this out), plus often a robust budget for paid digital advertising, to attract a large enough audience to your brand, week in and week out, to hit your revenue goals. To hear more about Shopify’s average website conversion rates and what it takes to succeed DTC, check out our Food Biz Wiz’s podcast episode #204, “Why is eComm so hard?”.
Selling in Wholesale, on the other hand, brings along the challenge of convincing a Wholesale Buyer to stock your products on their shelves, and having a sound strategy for selling off the shelf once you’re there – but can sell much higher volume than DTC, at a lower margin. Whether you choose to prioritize DTC or Wholesale accounts, you still need to put in the work to get in front of your consumers, convince them to take a chance on your product , and turn them into repeat purchasers.
Brick & Mortar vs. eCommerce:
Once you’ve established which channel you’ll prioritize based on your category, skill set, and velocity goals, you’ll prioritize Brick and Mortar accounts or eCommerce.
Brick and Mortar accounts are in-person, physical locations (which can be wholesale accounts, or your own, DTC retail locations), and eCommerce accounts are when your customers purchase your products online. eCommerce accounts can either be DTC (again, on your own website), websites of traditional brick & mortar wholesale accounts, like Target.com, or wholesale accounts that have only an online presence but no physical location. Don’t make the mistake of thinking that eCommerce isn’t necessarily wholesale; there are real people – wholesale buyers – on the other side of those digital shelves who make decisions on product assortment, pricing, and digital merchandising.
Again, as you debate Brick and Mortar or eCommerce accounts for your brand, you’ll want to go back to your category and your target audience. It’s really hard and expensive to change consumer behavior, so you’ll want to know who is buying your product line, and where they’re currently shopping for brands like yours. Prioritize those accounts early on so that you are closer to your end consumer and there is less friction around the sale. There is no single strategy that works for all brands; you’ve got to figure out where YOUR audience is, your profitability in each sales channel, and what works best for you, your skillset, and your goals.
Typically, as you’re just getting started with selling wholesale in your business, independently-owned stores and small chains are more welcoming to emerging brands and don’t require a marketing budget that bigger chain stores do. From free-fills, to scanbacks, to quarterly promotions,bigger chain stores often require bigger budgets to play on their shelves. The most successful brands that I see grow intentionally in one region at a time, figuring out what works to get your product OFF the shelf and into shoppers baskets – profitability – before expanding further afield or into larger accounts.
From there, there are countless other subchannels to consider: retail stores vs grocery, specialty vs. mass retail or drug stores, foodservice accounts, club and bulk stores, DTC subscription models, corporate gifting, and more – but most emerging brands dive deeper into those channels once you’ve already laid the groundwork above. Remember, as you have limited time, money, and resources, it’s best to find profitability in one or two channels before you complicate your sales and operations and build towards an omnichannel strategy.
What does it take to be retail-ready and scale once you’re there? A few resource: More on the definition of retail-ready is in episode #188 of the Food Biz Wiz podcast, “What does it mean to be Retail Ready®?” and download our checklist of seven competencies to master as you scale your business right here.
At the end of the day, you’ve got to do what is right for your brand, and what gets on on the path to profitability. Spending time to research these channels, assess your own strengths and weaknesses, learn your category behavior, and making a conscious, strategic decision (instead of just winging it!) will get you further, faster.
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